Accounting Ethics, 3rd Edition

Chapter TwoEthical Behavior in Accounting: What is Ethics?

As we noted in Chapter One, ethical scandals in the accounting profession abound. Besides those mentioned, there were others. In March 2009, David Friehling, Bernard Madoff’s auditor, was arrested by federal prosecutors on charges of fraud, allegedly for signing off on fraudulent financial statements:

Lev Dassin, acting U.S. attorney for the Southern District of New York, said … Mr. Friehling conducted sham audits that allowed Mr. Madoff to perpetuate the fraud. Mr. Dassin said that, by falsely certifying that he audited financial statements for Bernard L. Madoff Investment Securities LLC, Mr. Friehling “helped foster the illusion that Mr. Madoff legitimately invested his clients’ money.”¹

If we go back to the beginning of the millennia we see still more. In January 2000, the New York Times reported that the SEC found that partners and employees at PricewaterhouseCoopers routinely violated rules forbidding their ownership of stock in companies they were auditing. The investigation identified 8,064 violations at the firm, which dismissed five partners.²

SEC scrutiny of auditing practices came “after a series of high‐profile corporate accounting frauds that auditors missed at companies, including Cendant, Sunbeam, and Livent. Public shareholders lost hundreds of millions of dollars in these cases, and confidence in accountants was shaken.”³

And, of course, there is this well‐known Enron/Andersen scandal. In October ...