Effectiveness of Regulatory Reforms as Deterrent to Frauds and Unethical Actions

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Introduction After a decade since implementation of Sarbanes-Oxley Act, people begin to discuss its effectiveness as deterrent to unethical and fraudulent activities. This paper analyses the effectiveness of regulatory reforms, and whether it is better using regulation and legal reforms or through ethnical teaching to prevent recurrence of fraudulent cases. Analysis on Effectiveness of Regulatory Reforms as Deterrent to Frauds and Unethical Actions in Audit What is Fraud Auditing? Fraud auditing is an intentional misinterpretation to obtain benefit. (Mintz and Morris 2008, p.53) It includes financial reporting frauds and misappropriation of assets, which are best represented by misstatement of debts in Enron scandal and theft of assets in Tyco International Scandal respectively. What are Unethical Actions? Ethics in business environment is core values and standards to guide one’s decision-making. (Mintz and Morris, 2008) Maxwell (2003) introduces “Golden Rule” to decide what constitutes to be ethical by asking one “How would I like to be treated in a particular situation?” Hence, unethical behaviours include allegedly inflating earnings to meet stockholders expectation in Healthsouth Scandal in 2003. Enhancement after Reforms Changing Culture in Auditors The United States Congress enacted the Sarbanes-Oxley Act in 2002 after major scandals revealed loopholes in accounting policies. As Arthur Anderson LLP has double duties in Enron scandal, auditors are limited to types of auditing to maintain independence under SOX Sec.201. Sec. 10A of Securities Exchange Act of 1934 is amended by requiring audit partners to rotate after five years of service. Lynn Turner, former chief accountant at SEC, reports signi... ... middle of paper ... ...tection Act 1998. Ripley, A. (2002) Cynthia Cooper: The Night Detective. Time Magazine. [Online] Available from: http:// content.time.com/time/subscriber/article/0,33009,1003990-1,00.html [Accessed 13th March 2014] Soltani, B. (2007) Auditing: An International Approach. Pearson Education Limited. Sweeney, P. (2012) Sarbanes-Oxley – A Decade Later. Financial Executive. [Online] Available from: http://www.financialexecutives.org/ [Accessed on 12th March 2014] United States Congress. (1934) Securities Exchange Act of 1934. Usvyatsky, O. (2013) Restatements: Where They Come From. [Online] Audit Analytics. Available from: http://www.auditanalytics.com/blog/restatements-where-they-come-from/ [Accessed 15th March 2014] What is a whistleblower hotline? [Online]. Available from: http://www.wisegeek.com/what-is-a-whistleblower-hotline.htm [Accessed 13th March 2014]
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