Accounting Scandal: The problems, Causes and Solutions

Author: Ryon Miller

In 2003 Sam DiPiazza said, "It has become dramatically clear that the foundation of corporate integrity is personal integrity." Interestingly enough, this statement has forecasted what has become an enormous issue.

Accountants used to be held in the highest of regards, even frequently trusted more so than doctors. What has happened in the recent decades that have changed the public's opinion of us as professionals so greatly? Perhaps one of the most prominent issues has been the large number of scandals in our recent past as a profession. Enron, WorldCom and AIG, all the responsibility of our fellow accounting professionals. Some may attribute this to the ever-growing pressure of the business world, however a more susceptive answer would lie in our own ethics as accountants and the freedom that we are allotted in our profession. To understand accounting fraud better we can look into why it occurs.

There are many reasons why accounting fraud can occur. In Fraud Examination, Steve Albrecht, Conan Albrecht and Chad Albrecht break down, into three parts, aspects that are found in nearly all fraud cases. First, is rationalization: those who commit fraud concoct a way that makes their behavior appear reasonable in their mind. They may feel as if it will better the firm or perhaps even their own interests in some more severe cases. Secondly, is perceived pressure, coming from a plethora of sources including but not limited to, financial stress, client well being and performance or even expectations above par from higher ups. Finally is perceived opportunities: those who commit fraud possibly seem a positive outcome directly related to their actions. For example, one may think, "if I make this client happy, by providing them with above average financial statements, the executives in my firm may notice and reward me!" This may even motivate some, which were previously on edge, to commit fraud.

As I stated above, some may attribute the amount of fraud committed in the accounting atmosphere to this issue. However, how can we assign blame to pressures of the business world, when this is the career that we chose? The answer to that dilemma resides in an ever-growing trend in the business world: the issue of ethical practice.

Companies have been placing a stronger importance on ethics in the workplace, a very positive step in the right direction for accounting as a whole. However, there have issues turning written standards of control into actual action. In a 2012 article from CGMA Magazine shared some shocking statistics about the trouble of turning written culture into practice. In a survey of 2,000 professionals on almost eighty countries, results revealed the following. "About ten to fifteen percent more organizations are providing statements of ethical values", however later, the article states, "there was a decline in the number of corporate leaders who held formal responsibility for ethics." The drop, sixty-seven percent to just sixty for corporate boards and fifty-five percent to forty-nine for chief executives, seems to imply that, although companies embrace codes of ethics, they fail to enforce and track the performance under these codes.

You might ask what is being done about this problem? Evidence shows that ethics is becoming more prominent in the learning and preparation process when readying graduates for the professional world.
In July 2004, PricewaterhouseCoopers conducted a training program for over 300 accounting professors that included over 200 different colleges. There has been a change since the introduction of the Sarbanes-Oxley Act, with a greater emphasis on ethics and internal control. Brent Inman, partner in charge of U.S. recruiting stated, "The two are intertwined (referring to accounting and ethics)." There has been a challenge in the past combining the two subjects and teaching them in an effective manner. Mary Stone has been quoted saying, "it is critical that ethics discussions be infused across the board in accounting classes." She has suggested that along with accounting students be required to enroll in general ethics studies, followed by a mixture of different ‘case-studies' that relate to different spheres of the accounting profession, ending in a course related to "ethics and professionalism".

There has been a push in the right direction in creating a more ethical, professional and trusted accounting community and with programs that include ethics and professionalism recent graduates have a greater knowledge how to conduct themselves. I believe it is important to continue with this educational plan in order to create a more desired accounting atmosphere. With steps in the right directions, we as accounting professionals are becoming closer to the coveted trust level that we once held. Peter Drucker said, "Management is doing things right; leadership is doing the right things." In our future I hope we as professionals, can strive to lead instead of manage in order to create a more positive service experience for those that we serve.

Hagel, Jack. "Bridging the Ethical Divide: Survey Finds Firms Lagging." Editorial. CGMA Magazine July 2012: 22-23. Http://web.ebscohost.com. Business Source Premier. Web. 12 Nov. 2012.
Schott Karr, Susan. "Accounting School Gets An Ethics Makeover." Accounting School Gets An Ethics Makeover. N.p., 2004. Web. 12 Nov. 2012. .

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