The accounting profession is not governed by a set of laws, but rather by a set of generally accepted

accounting principles (GAAP) created by the accounting industry (SEC, AICPA, FASB). Even though GAAP
is considered standard practice within the industry, it can be interpreted differently, and in some cases,
abused (pg. 62 Ghillyer). Based on this system, GAAP cannot enforce ethical behavior.
Companies can hide debt and other problems by complicating the appearance of their financial
statements. Companies that focus on maximizing the bottom line, facing the challenges of
competition and stressing short-term results put a lot of pressure and conflict on the companys
accountants. They may question if their way of presenting the companys finances is right or wrong,
good or bad or what to do under their particular circumstance. These questions cannot always be
answered by following GAAP guidelines. When dealing with ethical decision making, technical
competence is not always enough (pg. 21 Kieso, Weygandt, Warfield).
When large companies didnt follow ethical accounting practices, the federal government had to get
involved. The Sarbanes-Oxley Act was the result of companies such as Enron, Cendant, Sunbeam, Ride-
Aid, Xerox, and WorldCom not properly reporting their finances. The Act was signed into law into 2002
to ensure companies report accurate and reliable financial statements (pg. 17-18 Kieso, Weygandt,
Warfield).
Since GAAP principles are only guidelines, determining which decisions are right or wrong can be
difficult and not always obvious. Ethical or not their decisions may still fall within GAAP guidelines.
There is too much room for interpretation. If accountants ethically do the right thing, then GAAP wont
need to enforce the industry.
Kieso, Donald E., Weygandt, Jerry J., Warfield, Terry D. (2013). Intermediate Accounting; 15
th
Edition.
Ghillyer, Andrew. (2011). Business Ethics Now; 3
rd
Edition.