Journal of Business Ethics

, Volume 57, Issue 1, pp 5–15 | Cite as

Ethics Failures in Corporate Financial Reporting

  • George J. Staubus


Fraudulent financial reporting, financial statements with errors so material as to require restatement, and biased reporting marred by defects such as managed earnings have plagued financial reporting in many countries in recent years. All of those failures are ethics failures that represent breaches of fiduciary duties by individuals who accepted responsibilities but did not fulfill them. The financial reporting system practiced in America is viewed by the parties involved in it as generally satisfactory. However, according to another view, the interests of those primarily and secondarily responsible for those reports conflict with the interests of the intended beneficiaries, or users, of the corporate financial statements. A more realistic view of the actual operation of that reporting system shows that it is fundamentally flawed. Primary responsibility for failures rests with top management and financial management of the reporting corporation who are so strongly motivated to render favorable reports on their stewardship that they neglect their fiduciary responsibilities to investors. Secondary responsibility falls on ‘independent’ auditors who are so heavily influenced by enterprise management that they, too, fail in carrying out their responsibilities to users of the audited financial statements. Ethics compromises are also found in the performances of academic accountants and members of accounting standards-setting bodies. The conflict between management’s interest in reporting its performance in a favorable light and investors’ interest in decision-useful financial information will always exist and require regulation. However, changes in those regulations and in the basic governance arrangements involving shareholders, management, and auditors could reduce the opportunities and temptations for failures in carrying out fiduciary responsibilities. Most importantly, the close relationships between auditors and management must be loosened in favor of closer relationships between auditors and investors.


Conflicts of interests decision-useful information  fiduciary duties independent auditors 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Ball, R., Brown, P. 1968‘An Empirical Evaluation of Accounting Income Numbers’Journal of Accounting ResearchAutumn159178Google Scholar
  2. Berenson, A. 2003The NumberRandom HouseNew YorkGoogle Scholar
  3. Economist: 2003, ‘Unresolved conflicts’, Economist 369(8346), Oct 18, 14.Google Scholar
  4. Levitt, A. 2003Take on the StreetPantheon BooksNew YorkGoogle Scholar
  5. Toffler, B. 2003Final AccountingBroadway BooksNew YorkGoogle Scholar
  6. West, B. 2003Professionalism and Accounting RulesRoutledgeLondon and New YorkGoogle Scholar

Copyright information

© Springer 2005

Authors and Affiliations

  1. 1.Haas School of BusinessUniversity of CaliforniaBerkeleyU.S.A

Personalised recommendations