Financial Accounting the Question Is Missing a Essay

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Financial Accounting

The question is missing a clause. "…is more conducive to ethical behavior" than what? The word "more" invites comparison but there is nothing to compare the current environment to. Well, the current environment is not much different than any past environment. The regulatory environment does not dictate ethics, as ethics exist distinct from laws. Ethical behavior rests on how society itself defines ethics, and is only loosely related to the regulatory environment. So while there is definitely a tighter regulatory environment at least with the introduction of Sarbanes-Oxley and the PCAOB, these laws do not dictate ethics, just behavior (Lennox & Pittman, 2010). Indeed, an increasingly complex regulatory environment only serves to complicate the issue of individual ethics, and creates confusion among business practitioners between legal/illegal and right/wrong, the two operating entirely different conceptual spheres (Jennings, 2004).

The "business" environment is quite vague -- there are many facets to the business environment. Which facet are we working with here? There is nothing that indicates to me that there is any strong social control embedded in our society that would regulate business ethics. There is no defined set of ethics, and this leaves each company to determine its own ethical guidelines. Some are more specific and more strict than others, but society as whole does not contribute that much to these guidelines, and there is no real enforcement mechanism because most people do not make purchasing decisions based on a firm's perceived ethical behavior.

2. One of the cases of "ethical breach" that stands out is actually the Martha Stewart Omnimedia one. Stewart's breach was insider trading. She was convinced of charges relating to that incident, and it reflected negatively on her company's stock.

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The reason this is more interesting than a garden-variety criminal fraud case -- breaking the law is hardly a major ethical dilemma worthy of study -- is that it reflects the role of leadership. The Martha Stewart case involved her own personal activities, not those of her company. However, the market perceived that the CEO of Omnimedia was perhaps lacking in good ethics, and felt that there was the risk that such lack of ethics had been transmitted via Stewart to the culture of Omnimedia. Thus, the market punished the stock because of the risk of ethical violations. The issues we saw with the Tycos, Enrons and other fraud artists all involved the CEOs of those firms -- any CEO thought to lack an ethical compass could be in charge of an organization committing similar fraud. It turns out that was not the case -- there was no accounting fraud at Omnimedia -- but the perception that the company was vulnerable to accounting fraud alone did damage to the stock from which the company had to work hard to recover.

3.

In this case, the issue was uncovered via SEC investigation, as often happens. In a lot of cases, it takes a whistleblower, like Sherron Watkins at Enron, to trigger an SEC investigation. At Omnimedia, there was nothing to detect, but the link between leadership and ethics is the key to the case. The company had an ethical environment, but because of the leader's personal indiscretions it was felt that perhaps there was a lack of ethics at the company because normally that is how it works. In other cases, unethical managers worked with others in the….....

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