Unethical Business Practice

For week five the area that I felt most comfortable with is unethical accounting practices. One clear example that stood out in my mind in which I could relate was the Enron Scandal. I learned that situations may lead to unethical accounting practices vary from position to position. Individual freedoms and lack of controls are two situations that would lead to unethical accounting practices. Individual freedoms would include not being monitored and an individual performing all of the related activities, without other employees being involved; such as someone physically in control of petty cash and issuing the petty cash slips, or shipping merchandise out and controlling the billing and receiving of the bills and shipments. Policies and procedures that are obscure would also enable unethical accounting practices to occur.

·        The effect of unethical behaviors and the Sarbanes-Oxley Act have a large impact on the financial statements of a corporation. Unethical behaviors tend to exaggerate the financial statements and make assets look better while eliminating some expenses. The Sarbanes-Oxley Act tries to eliminate these issues and protect the financial statements. The Act requires that each transaction is documented and the documentation is made a part of the financial records. The Act requires businesses to incur additional expenses to ensure that their financial statements are as accurate as possible. Audits are a large part of the process while preparing the financial statements. Audits will examine each part of the financial statement and attempt to cross reference the documentation with the transaction.

The area in which I struggled the most is Ratio, vertical, and horizontal analyses. I clearly understand that there are three different techniques used to analyze the relationship among characteristics in financial statements; but to explain the entire process is something I...