Professor Dr. Jacob Angima
Financial Accounting ACC 557
October 30, 2012
A Breach of Professional Accounting Ethics Based on the corporate ethical breaches in recent times I believe that the current businesses and regulatory environment is more conducive to ethical behavior due to the workplace. In the workplace ethics develops an atmosphere of respect and tolerance for everyone, by striving to conduct business in a manner that is beneficial to owners, employees and customers. It is very important to have trust and honesty between management, the employees, its co-workers, and between the business and its customers. When ethical lapses of trust becomes rampant, employee productivity declines, loyalty follows, and soon major breaches such as employee theft begin to appear (Calle, 2009). It is said that “Ethical integrity involves reporting others acting in dangerous or illegal way. The term whistleblowers are people who choose to expose wrongdoings, usually at the expense of their careers (Capozzi, 2008).” Ronald Jeurissen, author of “Ethics and Business,” says that whistle-blowing has moral considerations. For instance, the person should be sure the negative consequences to the company of such exposure do not outweigh the benefit to the public.
When professional accounting ethics are breached accountants may expect to lose their job, or may even end up spending time in jail depending on the crime. As part of the largest financial fraud in U.S. history, in March 2009 David Friehling an American accountant was arrested and charged for his role in the Madoff investment scandal. For many years, Bernard L. Madoff Investment Securities LLC books were audited by Friehling & Horowitz, a little-known accounting firm in New City, New York (Wikipedia, 2009). The firm consisted of two principles-Friehling and Jerome Horowitz-and a secretary. Horowitz met Madoff in 1963, when the Madoff organization was a penny stock trader. He audited Madoff's books before retiring to Palm Beach Gardens, Florida in 1991 and handing the account to his son-in-law David Friehling, later on Horowitz died on March 2009 after a long battle with cancer (Wikipedia, 2009). Friehling worked for Madoff from 1991 to 2008, he was purported to audit financial statements and disclosures of Madoff’s firm. Securities of Exchange Commission’s (SEC) said Friehling “essentially sold his license to Madoff for more than 17 years while the Madoff Ponzi scheme went undetected, for all those years he deceived investors and regulators by declaring that Madoff enterprise had a clean audit record (Journal of Accountancy, 2009). Mr. Friehling was convicted of charges, including aiding and abetting investment adviser fraud, securities fraud and four counts of filing false audit reports to the United States Securities and Exchange Commission (Talk, 2010). It was also found by the United States Securities and Exchange Commission that the relationship between the accountant and Madoff was so cozy that Friehling and his family pulled $5.5 million from accounts with Madoff since 2000 and had a balance of more than $14 million invested in the Madoff’s firm which violates auditing rules and standards (Talk, 2010). The Madoff’s investment scandal was noticed by Friehling not registering with the Public Company Accounting Oversight Board (PCAOB), nor was the firm peer reviewed, in which auditors check one another for quality control. According to the American Institute of Certified Public Accountants (AICPA), Friehling was enrolled in their peer review program, but was not required to participate because he supposedly didn’t conduct audits. That's because the firm has been informing the AICPA every year, in writing for 15 years that it doesn't perform audits. It later emerged that Madoff’s banker, JP Morgan Chase, had known that Friehling wasn’t registered with the PCAOB or subject to peer review as early as