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Accounting Ethics: Case Study

A current business issue in accounting that has ethical/corporate governance implications is that of auditor independence as it relates to conflict of interest. As financial scandals continue to occur around the globe, it has become clear that one of the most elemental weaknesses in auditing systems is a lack of true auditor independence (Moore, Tetlock, Tanlu, & Bazerman 10). In the United States alone, the blitz of accounting scandals starting with Enron and followed by WorldCom, Adelphia, Halliburton, Xerox, Tyco, and numerous others has brought to public attention the critical need for ethical standards in accounting (Moore, Tetlock, Tanlu, & Bazerman 10). With the advent of technology in accounting practice, the opportunities for unethical behavior became more abundant, but opportunity alone cannot explain the rampant unethical behavior being observed in today's major corporations. This paper will examine the issue of auditor independence as a critical factor in ethical financial accounting and will draw upon Kohlberg's stage theory and moral seduction theory to explain the problem of unethical accounting practice.

Auditor independence is possibly one of the most significant issues in ethical accounting today. If an auditor is not independent from the company he is auditing, conflicts of interest are almost certain to occur. Culpan and Trussel (65) assert that "The primary source of monitoring the managers of a firm is an audit of the financial statements by an independent CPA firm," noting that "the monitor must be independent of the agent, meaning that the auditors must not have any conflicts of interest with the managers." Crockett (xix) identifies four areas of the financial service industry that are prone to conflicts of interest, and "auditing and consulting" is one of the four, along with investment banking underwriting and research, credit assessment/consulting, and universal banking. As Moore, Te...

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Accounting Ethics: Case Study. (1969, December 31). In LotsofEssays.com. Retrieved 23:13, March 18, 2024, from https://www.lotsofessays.com/viewpaper/2001226.html