Ethics in Accounting, Financial Decision-Making, and the Sarbanes-Oxley Act

 

Ethics are important accounting and financial decision-making for several reasons, but the most important reason for valuing ethics in the finances and accounting is the success of a company. If a company does not value ethics it will lose profitability because other companies and customers will not want to deal with and support it. This article will discuss the importance of ethics in accounting and financial decision-making; it also reflects on the Sarbanes-Oxley Act and its impact on accounting and financial decision making.

Several key concepts of ethics in accounting and financial decision-making are trust, confidentiality, collaboration, and a code of ethics (Shanker). Trust and confidentiality go hand-in-hand in business accounting because trust is essential if a company wants loyal customers; confidentiality is also an integral aspect of financial dealings because privacy is often a concern for many companies and customers. Collaboration is another area of financial decision-making that is relevant because ethical practices promote collaboration (Shanker). A code of ethics is necessary in accounting and financial decision-making because it provides guidelines and standards for employees on all levels.

The Sarbanes-Oxley Act of 2002 "was passed in response to the financial scandals such as Enron and WorldCom," and it inevitably had a strong impact on accounting and financial decision-making (The Act Itself, pp. 1). This law required publicly traded companies to be much more accountable for their finances. The Sarbanes-Oxley Act set new regulations and penalties for public companies to provide investors with security. This act also caused the creation of "the Public Company Accounting Oversight Board, or PCAOB, which is in charge of overseeing, regulating, inspecting, and disciplining accounting firms in their roles as auditors of public companies" (The Act Itself, pp.3). This new law impacted accounting and financial decision making because it required companies to be responsible for their financial decisions; it also regulated the way board members and auditors interact, as well as, recognizing and regulating the problem of auditors working for companies that they have personal interest in.

Ethics plays an important role in accounting and financial decision-making because money is an area where greed and deception easily come into play. Many companies can easily lose their success because of unethical practices, and laws such as the Sarbanes-Oxley Act help to regulate financial practices of companies and create an ethical code of conduct to follow.

Reference

Shanker, S. (n.d.). Importance of Ethics in Accounting & Financial Decision Making | eHow.com.eHow | How to Videos, Articles & More - Trusted Advice for the Curious Life | eHow.com. Retrieved June 23, 2011, from http://www.ehow.com/about_6463277_importance-accounting-financial-decision-making.html

The Act Itself. (n.d.).SOX-Online: The Vendor-Neutral Sarbanes-Oxley Site. Retrieved June 23, 2011, from http://www.sox-online.com/act.html