Question

In: Accounting

Evaluate, ponder and weigh the following terms and concepts in relation each other and to the...

Evaluate, ponder and weigh the following terms and concepts in relation each other and to the Sarbanes-Oxley Act:

1. philotimo(also spelled Filotimo) (Greek: φιλότιμο)

2. Ethical Corporate Behavior

3. Unethical Corporate Behavior

4. Market Transparency and How it affects Financial Reporting

5. Human Character Flaws and their affect in  the Work Environment

At least a couple sentences describing each and how they relate to SOX

Solutions

Expert Solution

1)

Philotimo is basically concerned with doing the right thing and demonstrating correct behavior. In the context of SOX, it can be related to the conduct of managers in carrying out their responsibilities. Managers are supposed to act in the best interests of the various stakeholders and shouldn't indulge in unfair practices for their own benefits. In other words, they should strive for the right thing in terms of fair and transparent business actions and financial reporting.

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2)

Ethical corporate behavior simply means acting in accordance with established business procedures, rules and policies. SOX requires managers to act ethically and follow the code of conduct while performing their duties. It is the responsibility of managers to ensure that the employees have understood the policies and are abiding by them in the day to day conduct of their activities. Managers should also ensure that any non-compliance/violation of policies is acted upon in a timely manner and appropriate action is taken to prevent any such issue in future.

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3)

Unethical corporate behavior indicates non-compliance with established business procedures, rules and policies. Managers who act for their own personal interests are likely to engage in activities that are outside the scope of their authority or the code of conduct established by the company. For Instance, misrepresentation of information provided in the financial statements. SOX requires management to establish proper internal controls to keep a proper check on the way the activities are getting carried out in the organization.

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4)

Market Transparency is highly essential for any organization to survive in the long run. It is extremely important for the management to ensure that the financial statements are correct and free from any kind of material mispresentation. Investors prefer organizations which are transparent and have established a reputation of correct financial reporting over the years. Lack of transparency can affect the market reputation and goodwill of the company which in turn can severly affect its business operations. SOX makes it mandatory for management to authenticate the financial statements (along with the auditors) before they are made public. Auditors are also required to report any issues that they have identified at the time of performing the company's audit.

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5)

Human beings are mostly affected by their own personal interests and too much focus on satisfying personal needs and desires can adversely affect their performance. They may collude with other employees or outside parties and engage in fraudulent activities to meet their monetary needs. Even non-performance of day to day activities can affect the overall work environment and create an atmosphere of distrust among the team members. Similar is the case with the members of the management. To ensure that the financial figures are in line with expectations and that profits are sufficient enough to meet their compensation goals (in the form of bonus), they may resort to unfair business practices and incorrect financial reporting. All of the major scandals (such as Enron and Worldcomm) which formed the basis for SOX were the result of human character flaws which included the inability to accept failures and overcome personal interests.


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