Major changes in rules and regulations Since the Enron collapsed an array of new laws and regulations has been adopted to tighten corporate oversight. US offices were the first one to come out and implement the policies. Almost all of the firms had their headquarters in the US and they replicated their headquarters policies to a good extend in other offices around the world. Also other governments and regulatory bodies around the world came out with their country specific rules and regulations which are quite similar to the rules in the US. So these two factors ensured that rules which are followed in US are followed at the other places also.
Policies might differ in their length and breadth at different places due to cultural, country specific factors and the size of member firms but conceptually they are pretty much the same. The main change being the Sarbanes-Oxley Act, which did two things. First, it created the Public Company Accounting Oversight Board (PCAOB), which is in charge of registering and inspecting public accounting firms, and for adopting and modifying audit standards. Second, the PCAOB has the power to bring enforcement actions, which, is concurrent with the SEC’s [Securities and Exchange Commission] enforcement powers.
Second, the Act does what critics would call a micromanaging of corporate governance by establishing some very specific requirements of corporations. SOX require the CEO and CFO to sign all the financial statements, to have an understanding of the workings of the companies that they head and to affirm the fact that they don’t know of any fraud being committed by the company. The GAO (Government Accounting Office) implemented laws revolving around four major areas corporate governance, independent audit of financial statements, oversight of the accounting profession, and accounting and financial reporting issues.
The Term Paper on Accounting and Corporate Governance
... to the deficiencies of accounting rules, however, integrity or accounting professionals as well as ... irregularities, and discuss the corresponding accounting and corporate governance issues. In addition, the ... misleading periodic reports, which risked the company with potential liabilities; and they ... audit of Lehman when the firm collapsed into bankruptcy. Lehman remained ... best policy in the long run.
The AICPA requires auditors to document all decisions or judgments that are of a significant degree. SAS outlines what fraud is, reaffirms the auditor’s responsibility to look for fraud, and reaffirms the necessity to gather all information for an audit. These events have also allowed the world of academia to make many influential changes to curriculums, without adding or dropping classes. These changes include a new emphasis on accounting ethics and on special purpose entities. Impact on big four accounting firms – Deloitte, KPMG, PWC and E&Y The emaining big four accounting firms (Deloitte, KPMG, PWC and E&Y) decided to break all ties with Andersen. The biggest impact was the splitting of the consulting business for the entire major accounting firms. And they have to contract their business and sell of their consulting business because by that time the consulting business The big chunk of that business was turning out to be ERP type of technology which was then prohibited under the guidelines of SOX. Deloitte was an exception as the ownership structure in place within Deloitte made it quite complicated to extract the consulting business out.
IBM purchased PWC consulting business for $3. 5bn which is about 0. 65 or 0. 7 of overall revenue. The interesting part is it that only 18 months earlier HP has made bid to PWC consulting business for $13. 5 bn. At that time the whole Enron thing coincided with the whole dotcom bust. So because of dotcom bust lot of major industries were collapsing lot of major consolidation were happening especially e. g. in the telecom sector. In the dotcom era a lot of new companies were growing and they buying consulting services esp in the telecom side because they want to build out all the instruments and infrastructure.
The Dissertation on Business and Virtue Ethics
Abstract For the purposes of this assignment we will analyze the Mattel case and discuss the actions of the company regarding the behavior and actions in conjunction with the Global Manufacturing Process that was implemented. Breaches of the two business ethics elements of integrity and egoism will be assessed. Within the discussion I have identified the virtues prudence, justice, fidelity, and ...
In other developed countries like Canada something very similar to PCAOB was implemented. Because of this auditing firms are no longer self regulated. In Canada for example, previously they were self regulated by the charter or the institute of charter accountants and now they become regulated by the government in terms of our work and how they document their work and who does the work. So it’s been a significant cultural change within the accounting firms or auditing firms. They have gone from being pretty much self regulated to regulated by the government.
The challenge with regard to employees is more because of the requirement. Because of law requiring companies to sign certificates on their internal controls there is a real shortage of resources of chartered accountants. So there is a challenge in terms of being able to sufficiently staff the business. Major organizational changes in Deloitte, KPMG, PWC and E&Y Many accounting firms and independent CPAs reacted to these events and implemented changes in procedure voluntarily. Ethics and compliance matters were always a part of franchise of public accounting firms and it was implicit in what accounting firms used to do.
Post Enron era requires not only to have ethics implicit in everything that firms do but they need to make it explicit. They need to be able to demonstrate that not only on paper do they say these are the values but they practice those values and the outsider should be able to see that. Big four accounting firms renewed the way they work and make the new policies top of the mind for all. Barring minor difference these are the four major steps which the big four accounting firms have taken 1. Code of Ethics and Professional Conduct You can find a copy of it online on the site of these firms.
All employees are required to be familiar with and understand the Code. It basically spells out the expectations with regard to integrity and proper behavior. In the post Enron environment the firms wanted to make sure that their employees were very familiar with the expectations that they face not only from the partners internally but what are the public expectations and what are the regulators expectations on how they will behave with clients, how they obtain new business, how they discharge their responsibility in the public trust.
The Research paper on Ethical Principles and Codes of Practice
Ethical principles and codes of practice can provide guidance in day-to-day practice. Analyse Peter’s situation in the case study and come to a conclusion about what would be an appropriate response. This essay will analyse the ethical principles and code of practice in relation to the case study of Peter, a man suffering from Alzheimer’s disease and will suggest a course of action for Peter’s ...
Of course there could be situations where there are no clear cut answers but the presence of Code of Conduct made it easier for people to choose among the right and wrong. 2. Ethics in Action — Ethics and Compliance Training The goal is to make people familiar with the Code and comfortable with recognizing and handling common ethical dilemmas. 3. Integrity Helpline The independent Web-based and telephone service provides for confidential assistance and anonymous reporting of potential ethics and compliance violations.
PWC, E&Y and KPMG has used independent service provider “Ethics Point” while Deloitte has its own in-house service. 4. Chief Ethics and Compliance Officer Firms either created the position of Chief Ethics Officer (in Deloitte and E&Y) or created a new department known as risk and quality management (in KPMG, PWC) or both. The ultimate aim of the organizations was to create an ethical culture that could sustain itself throughout the life of the organization. The ethics function must provide welcoming mechanisms for employees to ask questions, freedom to do its job etc.
Creation of additional titles and positions has made the organization more complex as now you have more people to check with and you need to jump more groups now. Now it’s a more centralized structure and you need more approvals but it has helped the managers to help risk much better. Now there are people who are dedicated to looking at what employees are doing to maintain the quality. Previously also there was some sort of mechanism for compliance like independence training etc. Deloitte has Risk Management Organization but the rules were not implemented that stringently.
There was a formal code but it was almost a carbon copy of the code of conduct from the American Institute of Certified Public Account. It really dealt with the kind of rules and rules that you have in order to discharge your responsibilities as a CPA or as an accountant. But it really didn’t go into the day to day ethical issues that people would find them in e. g. in United States each state has a board of accountancy and has a different Code of Conduct. Their Code deals with rules and regulations in order to keep CPA license and to maintain independence.
The Essay on Ethics & people
The question of ethics is particularly important for a person who is both part of society and works with a group. The development of community and collective self is impossible without the struggle of opposing ideas and positions, and the collision of different points of views and opinions through which it is possible to overcome contradictions and disagreements. The relationship within a team ...
Recruitment & Promotion; Training & development Firms considered their people as the important asset to implement and sustain these sorts of policies and hence they put more emphasis on selecting/promoting the right people and provided them with training to develop the ethical practices and behavior. Hiring by the big firms has increased substantially to meet the new legislature and regulatory requirements. The messages around ethics became integrated into the recruiting process.
In Deloitte during the yearly appraisal round persons ethical conduct was discussed and if was found that a person has not behaved in an ethical manner than he can be denied promotion. It could also affect his compensation and other things. For the new hires some questions were presented to them during the interviews or as a part of the hiring process. During the interviews managers were asked to look for instances of ethical dilemma during the person professional life and know how he handled them. Also firms have increased the background checks for the employees.
Ethics and compliance in general comes into play when the person is not acting in a moral and ethical way. As the firms expect their employees to act with higher level of integrity they don’t award people for ethical behavior but if people really go beyond what they are expected to do then they can be nominated for some recognition. Ethics training is made mandatory for all and it was renewed continuously. The purpose of the ethics function is to train employees to enable them to make ethical decisions at the point of performance and often times in stressful situations.
Two reason why it was renewed , One Human Beings change over time, people focus change over time so they must be constantly reminded about their basic values otherwise they will tend to stray a bit number two public accounting firms constantly brings in new sizeable numbers at all levels of organization. These people have worked at other places for 5-10-25 years. So they come with a different set of values that may not exactly match with that of an organization. So they need to be trained. They should be made aware of what ethical values are and what the expectations from them are.
In some cases like in KPMG everyone in the organization has to pass the training module on ethics and compliance to maintain their contract with the organization. Previously ethics used to be a very small part of the entire training session. Now a considerable amount of time and money is spent on ethics. There was Independence training and everything else much before. But the notion of Independence was different from whole 2001-2002 issue. Also for chartered accountants, their credibility is all based on reputation. So the ethics and compliance was always a part of evaluation process only thing is some of the criteria changed overtime.
The Term Paper on Ethics And Accounting An Emerging Profession
Due to innumerable instances of ethical lapses reported in the media recently, the accounting profession has come under close scrutiny. This study investigates if there are linkages between background characteristics and ethics among individuals who are on the verge of joining the accounting profession. An instrument is developed to measure ethical attitudes and administered to a sample population ...
As far as the professional examination for accountants goes (CPA etc) there were slight changes in the curriculum to address new legislations such as SOX. For those who have already cleared the examinations additional knowledge is disseminated through continuing professional education requirements and seminars. Implementation, Critical Success Factors and Hindrances faced People as well as support from the leadership (tone at the top) are the two most important critical factors for successful implementation of any ethics program. People should be made aware of what ethical values are and what is expected from them.
The type of policy should have a consistent message from the upper management. Instead of changing it from time to time the firm try and make message more interesting so now it’s different view of the same issue. A successful program is the one that really get paid from the compliance like matter, that gets into the social fabric and just day to day decision making that goes on. So these kinds of considerations can be embedded in you day to day decisions and that really dictates whether your program is successful or not. In an organization like E&Y which have top down culture leadership is critical.
In this sort of culture having leadership on board having support of leadership is critical. If you don’t have it you will not succeed. But if you are in an organization where the culture of the organization tend to follow up from the bottom then it going to be more people oriented. Training and measurement are the two critical factors in any risk management program be its ethics or professional accounting standards. You have to train people in and then you need to measure it regularly. What’s get measured gets done. There should be a system for accounting.
The Term Paper on Accounting Ethics 3
Accounting Ethics When examining the effect of open marketing on the profession of accounting it is important to view it from three perspectives: the client's, the profession's, and society's. Additionally, two key areas that are affected by marketing must be addressed, these are concerning competition, and ethical implications. Marketing in public accounting is here to stay therefore making an ...
Also for most of the companies basic problem was that they did not understand in the beginning how to begin ethics. They thought ethics meant something morality and things like that. So the employees need to be explained how best they can work within the company under the given constraints. Also the top management need to shown how the vision statement, the mission statement, the code of conduct and the business practices all come together within one framework. So one aspect like the vision statement, mission statement and code of conduct should be interrelated and how they impact upon the business process in the organization.
Managers need to understand that they are not separate discrete entities but these interrelated phenomena. Hindrance – Ethical policies are equally hard to implement at all the places and across all the functions. Culture, different laws, rules and regulations in each region or country are the biggest hindrance. Because of cultural differences the things are viewed and perceived quite differently in US and in India. An organization in itself has a culture and its possible that culture within the walls of any member firm in India could be the same as the culture within the walls of another member firm in New York.
For example New York you wouldn’t scream and yell at a person because that disrespectful then in India within the walls of the firm you would not do that either. So an organization can strive and create one culture globally. Now obviously technical rules the rules in India are different than the rules in New York as a result of practice. You can’t have a same policy because the rules are different. But when we talk about it is possible to create personal policies HR policies that can be consistent globally. Global vs. regional policies- Policies across geographies and unctions in big four firms On a global basis now there is a commonality that was established that previously didn’t exist in any of the global accounting firms. Previously ethics and compliance was handled very differently in various geographies or in different functions that were spread throughout within the firm. There was very little uniformity to that risk management process dealing with people behavior. So they tried to create a fabric that join all their member firms and had certain basic minimum that each of those firms would acknowledge that they would carry out with regard to ethics and compliance matters.
For example Deloitte mandated that every member firm should have the Chief Ethics and Compliance Officer. Each member firm need to have a renewed code of conduct, code of ethics, that basically spells out the expectations that of the firm with their people with regard to integrity and proper behavior i. e. how people interact with each other as well as with their clients and people outside -the government, regulators etc. Also these rules and regulations are followed much more stringently in US then in any other country. There are various reasons for this. They are US policies implemented by US govt.
US tends to be more precipitous, there were more allegations and hence more rules and regulations. US has a compliance culture and it is easier to implement these policies there. In India for example it is not legislation driven, even the idea of a whistle blower is something which is not mandatory but voluntary. The only thing that is legislation driven is the thing about the director’s responsibilities but then again who is the outside director, what are his responsibilities, how will the actual meeting be held, these things are very unclear for which reason thay can remain a paper exercise.
Each office has a different culture and therefore it’s impractical to have a same policy for all. So a standard procedure is followed but in the local context. As people from different cultures head different offices they tend to put different priorities on the procedure. So the rules are worked out differently in different cultures. Every market is different and tend to make their own judgment. So firms are trying to create policies which are consistent across the globe thou they are still not there. There are few internal global policies and firms are trying to have more of them.
Policies across big four accounting firms For the most part big four firms, have similar approaches related to ethics. They all focused on increased communication and training, all have some form of a hotline or helpline and all have support from the leadership. They are all driven by legislation, rules , public opinion and media and most standard of behavior are set by wider society expectations. Infact the big four are working on collaboration projects, the SEC is asking the accounting firms to collaborate around understanding the entire restricted entity list.
What happens is it gets complicated because, suppose a multinational which has a joint venture in one country, who has a subsidiary in third country, and if there is a accounting firm doing business in third country, even if its not the auditor they might be a restricted entity. So, there is a cost in maintaining that. Result of this is having essentially, all of the accounting firms to come together to share that data. Differences are mostly around how our ethics function is organized and where the function reports in the organization.
Profit vs. Cost, Small firms vs. Big firms There were news that because Arthur Anderson one among the big five accounting firms was involved in the fraud it had harmed the reputation of the other big accounting firms. Increased cost of training and implementation has raised their cost. The Big Four accounting firms are finding themselves resource-constrained because of requirement of manpower who are familiar with all the rules and cleared the relevant examination. All of this has lead to increase in the fees that the bigger firms tend to charge.
The client-acceptance standards have been raised and the bigger firms have to leave some clients which otherwise they would have accepted. Some of the companies deemed a bit riskier have begun to travel downstream, away from the global firms and toward regional or local players that handle public companies. As a result of all this small firms seems to gain over bigger over bigger firms. But bigger firms don’t totally agree with this. Thou there was more investment in ethics and related training but overall the cost of training hasn’t increased significantly because now the allocation is done differently due to the changed priorities.
Also apart from creating new programs, messaging around ethics was integrated into the existing programs to reinforce the message. Bigger companies use bigger accounting firms for their business as they have a global reach. The move to outsourcing has increased the fees for the bigger firms as they are able to provide different services (some of them introduced due to new regulations), have dominance in market and have a global reach which the smaller firms’ lack. The supply of bigger accounting firms has not increased and hence a global organization has to use one of them.
The companies which these big four firms target doesn’t have issue in paying extra for the risk and risk management. Also with time the clients these big four firms have became bigger clients so even if the number of clients which the big four can accept has reduced the bigger clients has grown and more than compensated for that. A typical company spends 1-1. 5 % of their revenues on professional firms. So the overall pie is pretty big and there is enough room to roan around.
Ethics is considered as a business advantage in long run as people always want to do business with the firms that are distinctly responsible and respectable. There might be cost with ethics in the short run but it’s like choosing whether you want to pay upfront in training and developing your people or you pay in when you get into trouble. And it costs more in the latter case. But there are ways in which firms have changed their approach to cope with the increased cost. Sometimes firms do pass on the increased cost to the clients. Other times they don’t.
For the audit firms ironically as the result of the Enron and SOX and everything that came into play proved to be a gold mine for the accounting firms. Because, what happened with Enron and WorldCom and others, companies have realized that if anybody is having fraud in their reporting then the CEO or the CFO will have to go to jail. So therefore then they have to hire the audit firms still, there were few audit firms left and therefore the audit fees went up. Because the CEO and CFO will make sure the auditing is done at a much more detail level the audit firms made more money.
For the consulting side of the business of the accounting firms, the biggest issue was that the market was dying and that gave the advantage to the smaller consultancy firms to enter the market. The cost of compliance has increased the cost for everyone not just for bigger firms. Whether it’s a big accounting firm or small the public has scrutinized the accounting profession as a whole. These changes have been good for the organization and for the profession as a whole. Post-Enron the entire profession needed to focus on ethics and increasing the public trust.
Present and prospective clients made request to understand what firms do around ethics, so focused approach towards ethics has helped with client relationships. Present Status – Modifications in rules Following a wave of corporate scandals, the Sarbanes-Oxley legislation was implemented which lays down tough accounting standards. Now as the dust seems to settle down the there are voices to relax some of the rules. European companies that are listed in the US are affected even if they comply with their own domestic requirements.
The New York Stock Exchange said it was losing new listings in part due to the increased regulation. So although the rules were well intended they add on undesirable effects that really doesn’t fulfill what they were intended to do. In US for example PCAOB is trying to figure out to do their job in the most effective manner and is constantly morphing into what they feel is better for business. Once the rules pass from legislature to administrators they recognize that the rules need to be streamlined to be practical.
The cost of maintaining all of that for the companies is getting expensive. The US companies because of all the additional cost and regulations etc. related to abiding by Sarbanes-Oxley, were left less competitive, but not the accounting firms. For accounting firms the effect is indirect rather than direct as they are affected because their clients are being affected. Major collapses has continued Post-Enron or post SOX and this has shown that organizational culture is an important factor in preventing them.
The legislation has been changed in America for Code of Conduct to include the recognition that CEO is responsible for culture. So they are moving to certain management of culture and nurturing that appropriate culture rather than just going down the compliance route. Also in a place like US if there is any bit of fraud in the company, the share holders’ law suits can be huge and those law suits can kill the company. But if the law suits were happening in India, the award that would be given by judge will be much-much smaller and less likely to kill the company.
So it’s the very legal or litigious environment in the US which can act as deterrence for the companies. Some of the changes which were implemented are to follow SOX related work using a much more risk based approach instead of coverage based approach. Previously you need to cover some specific % of your operation, was very high and then they came out with a new audit standard which allowed companies to document control based on risk (where are the risky areas and where should they be focusing their efforts).