week 1 discussion 2

Week 1

Graded Discussions: This class will generate many interesting discussions. Participate as much as you can, but at least on three separate days per week. Feel free to share personal experiences. Post recent articles and tell us about them. Let’s have fun with the discussions!

I wanted to make sure you are aware of Keller’s policy on Academic Integrity violations. For the student’s first offense, the penalty for an Academic Integrity violation in a graduate course is a zero for the course (not just for the assignment, quiz or exam). 
Some tips to help you when completing Case Study, and discussions: 
“Over cite” is best rather than not citing at all!
Follow the 80/20 Rule when writing – 80% your contribution/20% from outside sources. 

Instruction

WEEK 1: THE LAST DECADE OF ACCOUNTING SCANDALS

1. Read the article “Ethics Evolution in the Era of Sarbanes-Oxley.” This article is part of the readings for the week and can be found through the DeVry online library. The last sentence of the article says “Maintaining a culture that emphasizes ethics and compliance is challenging.” Do you agree or disagree with this statement? 
2. Locate an article on an accounting scandal from the past 20 years. Summarize the article for the class and either add the article to your post or include a link to the article. What did you find most interesting or surprising about the scandal?

Ethics Evolution in the Era of Sarbanes-
Oxley
Winter 2012

By Ibolya Balog, CPA

The approaching 10th anniversary of the Sarbanes-Oxley Act of 2002 is an opportune time to
review the changes in corporate governance over the past decade. The enactment of this
legislation, following several highly publicized fraud scandals, had been the most significant
legislation affecting public companies since the securities acts of the 1930s.1

Corporate governance covers an array of distinct concepts, according to the definition adopted by
the Organization of Economic Cooperation and Development (OECD). It says, “Corporate
governance is the system by which business corporations are directed and controlled. The
corporate governance structure specifies the distribution of rights and responsibilities among
different participants in the corporation, such as the board, managers, shareholders, and other
stakeholders, and spells out the rules and procedures for making decisions in corporate affairs.”
Sarbanes-Oxley defined new rules pertaining to various aspects of governance reflected in this
definition, as well as created the Public Company Accounting Oversight Board and specified
auditor independence requirements.

Sarbanes-Oxley Section 406 – and the Securities and Exchange Commission’s (SEC) final rule
on the implementation of this section – requires SEC registrants to report whether they have
adopted a written code of ethics covering principal executive officers, financial officers,
accounting officers, and controllers, or individuals performing such functions. Amendments to
the code of ethics covering the responsible individuals and waivers, if any, must be promptly
disclosed. The purpose of a written code of ethics is twofold: to deter wrongdoing and to
promote ethical conduct. The code of ethics has to provide a means of dealing with actual or
apparent conflicts of interest; ensuring compliance with applicable laws, rules, and regulations;
prompting internal reporting of violations of the code; filing timely and accurate disclosures with
the SEC; and addressing accountability for adherence to the code. The New York Stock
Exchange and NASDAQ listing standards have similar, but broader, requirements, with
expanded coverage to employees beyond those involved in financial reporting responsibilities.

Oversight and management of ethics and compliance programs are responsibilities of executives
and boards of directors. Frequently it is the audit committee that is involved in overseeing ethics
and compliance on behalf of the board, and it works with management to ensure that the adopted
code of ethics meets the requirements. Adopting a code of ethics, however, is not the end of the
process. Creating an ethical culture within the corporation requires clear communications and
recurrent training. A good policy may also require that all board members comply with the
organization’s code of ethics. Oversight will involve ongoing monitoring and assessing of the
effectiveness of the ethics program.

Sarbanes-Oxley Section 301 set up a requirement that audit committees of listed companies must
implement processes for receiving, retaining, and addressing complaints pertaining to
accounting, internal control, or auditing matters. Also included would be violations of the code
of ethics or conduct from internal or external sources. Providing a telephone hotline for
communicating concerns or tips has become the predominant way to address Section 301
requirements.

The existence of a well-defined and effective internal investigation and complaint resolution
system is even more important in view of the enactment of the Dodd-Frank Wall Street Reform
and Consumer Protection Act in 2010. Dodd-Frank Section 922 gave the SEC enhanced
authority to extend whistleblower rewards to any securities law violations. On May 25, 2011, the
SEC approved final rules for implementing the whistleblower provisions. The SEC rules provide
for rewards of 10 to 30 percent of monetary sanctions for whistleblowers who voluntarily report
to the SEC original information leading to securities law enforcement actions that recover more
than $1 million.

Companies and boards of directors will be well-advised to take a proactive approach to
maintaining awareness of the internal reporting process and whistleblower protections and to
encouraging the use of established procedures. Exploring the enhancement of internal
whistleblowing systems presents an opportunity for improving governance and oversight
functions.

The lingering effects of the financial crisis of 2008-2009 have affected corporate revenues, and
difficult economic conditions exert additional pressures on performance expectations.
Maintaining a culture that emphasizes ethics and compliance is challenging, but it is the means to
fulfilling sustainable long-term enhancement of shareholder value.

1 John Bostelman et al., Public Company Deskbook (2009)

Ibolya Balog, CPA, is an assistant professor in the department of business, management, and
economics at Cedar Crest College in Allentown, and a member of the Pennsylvania CPA Journal
Editorial Board. She can be reached at ibalog@verizon.net.

 

mailto:ibalog@verizon.net

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