Year

2016

Degree Name

Doctor of Philosophy

Department

School of Accounting, Economics and Finance

Abstract

The Watergate scandal and resulting resignation of President Richard Nixon in the early 1970s, is arguably the most egregious instance of corruption at the highest levels of government in the history of the United States (U.S). The scandal revealed a disturbing pattern of misuse of corporate funds for improper or illegal purposes by U.S companies, domestically and internationally. A series of hearings in response to these issues, made it apparent that legislation was required to address corrupt activities. The hearings also shed light on discoveries of cases of financial misstatements that were not discovered or reported by auditors and boards of directors. The role of accounting, auditors and accountability in disguising the corrupt and bribery payments were not the main concern of the hearings and inquiries. Even through, bribes and questionable payments had become the norm of business practices. It was apparent that the accountability system, that is designed to assure the proper accounting of the use of corporate funds, was frustrated.

The United States became the global leader in the fight against corruption in international business with the passage of the Foreign Corrupt Practices Act (FCPA) in 1977 as the first legislation in the world to recognise and seek to curb the contribution of domestically based corporations to foreign corruption. The act included accounting provisions relating to record keeping requirements and establishment of a system of controls for the perceived assurance of corporate accountability. However, the FCPA did little to address the accounting and auditing failures that were initially raised by the Congress or the Securities and Exchange Commission (SEC). The act would have been significant if it had the ability to affect the governance and accountability mechanisms of corporations, the work of independent auditors and the role of the Securities and Exchange Commission.

However, the enactment of the FCPA became largely a symbolic exercise and was “referred to by some commentators as a legal sleeping dog” (Giudice 2011, p.351). From its inception, the proposed bills by Senators and Congressman reflected “a cautious approach to this immense problem” (United States 1977d, p.28), which led to “a more loose, flexible framework for disclosure… than lay[ing] down detailed, mandatory guidelines” (United States 1977d, p.29). The FCPA was not enforced vigorously by the two bodies in charge, namely the SEC and the Department of Justice. The number of cases that went to trial under the act were low and mainly resulted in minimal penalties. The enforcement was indirectly affected by the U.S. President of the time and their political agenda, which affected the amount of funding and resources available to the bodies in charge. Due to ineffectiveness of the FCPA in changing corporations’ governance system and accountability to their stakeholders, and lack of enforcement, during 2002 the Sarbanes-Oxley (SOX) act was enacted to address these post-Watergate accounting and auditing issues.

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