Ethical breaches in the financial sector can be defined as failures of organizations to observe the set guidelines that have been set by authorities and accounting bodies such as the International Accounting Standards (Riahi-Belkaoui, 2004). In the recent past, there have been financial breaches that led increased scrutiny in the financial sector. Some of the breaches that occurred include the General Motors Company in 2009, Wal-Mart in 2008 and the WorldCom in 2002 that led to bankruptcy in the mentioned organizations.
Importance.
The cases of ethical breaches being reported in the financial sector are vital to the stakeholder and the public due to a number reasons. For instance, such cases expose the organizations as either they are proactive or not. The organization that is managed well take all the necessary steps in ensuring that there are no breaches that compromise their financial standards. Organizations that are reactive attempts to fix ethical breached by presenting misleading information.
The stakeholders and the general public can take some useful lessons from unethical breaches of in financial information. Often, the unscrupulous organizations that engage in financial misinformation do so to lure unsuspecting investors.
Sarbanes-Oxley Act.
According to Act, S. O. (2002), the Sarbanes-Oxley Act is an act that was passed by United States Congress that aims to protect investors from fraudulent financial reporting by organizations. The Act that was passed in light of accounting misinformation by organizations such as Enron Corp, WorldCom, and Tyco International has mandated stringent restructurings regarding financial reporting by organizations to prevent friend in accounting (Cohen et al. 2008).
Elements of the Act.
Four elements protect the integrity of financial statements that are prepared and disseminated by the publicly traded companies.
There is auditor independence, whereby the law requires an external auditor to audit the organization's financial statements to eliminate and limit conflict of independence.
The Public Company Accounting Oversight Board (PCAOB). The Act created the PCAOB to oversight the public accounting firms that provide auditing services.
The corporate responsibility of being accountable and the mandate of senior executives of organizations to take individual responsibility in ensuring totality of financial report of their organizations
Management of the internal controls and criminal penalties in cases of document alteration or interferences.
SEC:
SEC is the Securities and Exchange Commission (SEC) is an independent federal agency of the United States government that was created by the Congress in the year 1934.
Roles:
The primary role of the Securities and Exchange Commission is to protect investors and to maintain order and fairness in the securities market (Delaney & Whittington, 2010).
Some of the other roles include:
Enforcing the federal securities law and securities Acts such as the Securities Act of 1933, Securities Exchange Act of 1934, and Trust Indenture Act of 1939 (Oag 01-003. n.d).
Proposing the securities rules and regulating the securities industry by overseeing the organizations and individuals in the securities market.
References
Act, S. O. of 2002, Pub. L.
Cohen, D. A., Dey, A., & Lys, T. Z. (2008). Real and accrual-based earnings management in the pre-and post-Sarbanes-Oxley periods. The accounting review, 83(3), 757-787.
Delaney, P. R., & Whittington, O. R. (2010). Wiley CPA Exam Review 2011, Financial Accounting and Reporting. John Wiley & Sons.
Oag 01-003. (n.d.). Retrieved from http://ag.ky.gov/civil/civil-enviro/opinions/2001/OAG0103.docRiahi-Belkaoui, A. (2004). Accounting theory. Cengage Learning EMEA.
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