Legal and Ethical Concerns Paper

This paper will examine legal, ethical, and technological concerns of the accounting and

financial reporting of businesses. Due to all of the recent changes in the size and scope of

financial markets, finance and accounting departments of businesses have been put under a lot of

pressure. Businesses are responsible to communicate their financial status to people outside the

company through avenues such as annual reports, financial statements, forecasts, etc. "Financial

statements are the main source of information conveyed to external parties." (Love, 2011)

Unreliable and deceptive accounting reports have threatened the trust of those that rely on

financial reporting. An example in which financial reporting might be jeopardized is a situation

in which a manager who is responsible for producing financial reports is compensated based on

the numbers produced in those reports. The purpose of financial reporting is to provide accurate

information that can be used in decision making in the areas of credit, investments and other

areas of business that hinge on a business's financials.

Legal

Financial reporting and accounting related scandals are not new to the U.S. From

ENRON to Halliburton to Tyco, corporate accounting scandals have rocked the U.S. markets

for decades. As a result of scandals such as these, organizations have been created to provide a

governmental enforcement of honesty in corporate financial reporting and accounting practices.

The U.S. Securities and Exchange Commission (SEC), Financial Accounting Standards

Board (FASB) and the Public Company Accounting Oversight Board (PCAOB) are such

organizations. Each of these organizations was established with the intent to help protect the

public from private companies that might misrepresent themselves in their financial reporting.

The mission of the SEC is to "protect investors, maintain fair, orderly, and efficient markets, and

facilitate capital formation." (www.sec.gov, 2011). The FASB was structured independently

Module 8 Assignment

of all other businesses and professional organizations "to establish and improve standards of

financial accounting and reporting that foster financial reporting by nongovernmental entities

that provides decision-useful information to investors and other users of financial reports."

(www.fasb.org, 2011) The PCAOB is a regulatory organization that "aims to improve audit

quality, reduce the risks of auditing failures in the U.S. public securities market and promote

public trust in both the financial reporting process and auditing profession." (http://pcaobus.org,

Ethical

Now more than ever, professionals in financial and accounting roles need to abide by

strict sets of standards when it comes to business values and ethics. Accounting specialists have

an obligation to the public, their profession, and organizations for which they work and to

themselves to maintain ethical behavior. Ethics plays such a huge part in financial or accounting

positions within businesses because it is in those positions that the most damage can be done in