Accounting Ethics

Corporate Governance is system of rules, practices and process by which a company is directed and controlled. It is significant for a company to have a good corporate governance in order to manage and operate successfully. After corporate scandals involving large public companies in early 2000s. Sarbanes-Oxley Act was created to regain public’s confidence in the market. I think after the SOX was enacted, it did good job to tighten the loopholes for public companies to misconduct and deceive the public. SOX effects on corporate governance is to have the audit committee in public companies, requires absolute independence of auditors and many other requirements in auditing procedures. However, there are some study researching questioning about the corporate governance in Accounting professions still has loopholes and not function effectively.

In article “Audit Committee Financial Experts: A Closer Examination Using Firm Designations” by Joseph Carcello, Carl Hollingsworth, and Terry Neal, they examined the effective of SOX requirement where public companies have to disclosure whether their audit committee includes at least one member who is financial expert (ACFEs).  Ironically, they found that most ACFEs do not have a background in accounting or finance. I think this would be the issue because the transparency of the disclosure regarding of ACFE’s background is limited. The reason to ACFEs is to help SEX process and review public companies more efficiently. But the fact that there are ACFEs do not have knowledge in accounting or finance, I think it is obviously do not bring the results that SEC expected. Another issue was addressed regard of corporate governance in accounting profession is that internal auditors need to report to external stakeholders to enhance governance transparency. I think it is necessary to have internal auditors report directly to external stakeholders because stakeholders do not have access to relevant information that is available to insiders such as management, audit committee, and external auditors. If they can obtain such information, they will be able to make a better decisions and reduce the risks of being deceived. On the other hand, I personally think that this practice can be good but also can be bad. Because internal auditors might give false information for their own goods because they might lack of independence. Therefore, I personally think in order to put this practice in to effect and eliminate any loopholes, public companies need to ensure the independence of their internal auditors. In addition, they need to have a detailed guideline on the report content which effectively delivery the most relevant information to external stakeholders.

In conclusion, despite the fact that SOX has enacted numerous requirements to public companies and accounting profession after financial scandals in early 2000s, there are still concerns about the effective of these requirements and other issues that addressed to enhance the corporate governance. The concern is about the effective of having financial experts on audit committee. Plus, the necessary of having internal auditors directly report to external stakeholders.

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