Business Ethics

Business Ethics

Introduction

A major goal of the Sarbanes-Oxley Act of 2002 was to improve corporate reporting in the United States so as to restore investor confidence and stabilize the credit markets following major business failures in the US. One of the requirements of this law was to make officers more accountable through the certification of the financial statements by the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO). Although the literature provided some discussion of this new requirement, there had been very little empirical evidence regarding the effectiveness of this new rule. This study attempts to fill that void and examines the effectiveness of this requirement by using a questionnaire to survey stakeholder groups (accounting educators, certified public accountants, internal auditors, bankers, and certified financial analysts) to determine how well each of these groups felt that this requirement would be in improving the quality of corporate reporting.

After a thorough examination of the current literature and Section 302 of the Sarbanes-Oxley Act, seven research questions were developed and were tested using Cameron's strategic constituencies' model in which we determined whether there were any differences among the perceptions of the constituent groups as to the effectiveness of this requirement. In conclusion, bankers differed with the other constituent groups in that they were more negative on most of their views, especially concerning the purpose of the requirement and specifically, that they have little confidence that the certification requirement will improve corporate reporting. In contrast, accounting educators were much more positive in their views, and in general believe that people and society can be changed through laws and regulation.

Description

As a result of one of the most notorious fraud schemes in recent memory, Enron Corporation filed for bankruptcy in early December 2001. Not surprisingly, the corporation's collapse was followed by several years of Congressional investigation and legal prosecution. During one such investigation, Jeffrey Skilling, a past Enron CEO, testified before the House Energy and Commerce Committee. During this testimony, Mr Skilling stated that 'he was unaware of any accounting practices designed to hide debt or make the company look more solvent than it really was'. Naturally, it is difficult to believe that the CEO of a major corporation could be that clueless about the operation of his own company; so unknowing, in fact, that 'others' could have perpetrated one of the largest contemporary fraud schemes right under his very nose while he remained completely unaware of it.

While it is not surprising that an individual accused of fraud or embezzlement would be less than forthcoming regarding their culpability in a fraud scheme, it is remarkable that so many of these individuals ultimately choose to blame the accountant while also claiming that they are unwitting victims themselves. Even though the 'I-am-not-an-accountant-so-I-am-not-responsible' defense may not be particularly credible, it has been specifically addressed in the reforms set forth in the Sarbanes-Oxley Act of 2002. The Act requires the CEO and CFO to certify that financial results are not false or ...