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Chapter 6 Legal, Regulatory, and Professional Obligations of Auditors

Questions to Consider

PwC audits of failed investment company MF Global

EY audits of Repo 105 of Lehman Brothers Holdings

What is the link between professional ethics and legal liability?

What are the standards of practice that underlie potential legal liability?

When can legal liability exist in global operations?

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Legal Liability of Auditors: An Overview

Zoe-Vonna Palmrose identifies the 4 general stages in audit-related dispute:

Events that result in losses for users of the financial statements

Investigation by plaintiff attorneys to link the user losses with allegations of material omissions or misstatements of financial statements

Filing of the lawsuit

Final resolution of the dispute

Auditors can be sued by clients, investors, creditors, and the government

Auditors can be held liable under common and statutory law

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Common and Statutory Law (1 of 2)

Common law

Evolves from legal opinions issued by judges in deciding a case

Breach of contract is a claim that accounting or auditing services were not performed in a manner proscribed in the contract (brought by clients)

Tort actions cover other civil complaints (brought by clients and users of financial statements)

Fraud

Deceit

Injury

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Common and Statutory Law (2 of 2)

Statutory law

Legislation passed at state or federal level that establishes certain courses of conduct that must be adhered to by parties

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Common Law Liability

Auditor must perform professional services with due care

Evidenced by having exercised same degree of skill and judgment possessed by others in the profession

Adherence to generally accepted auditing standards can provide evidence of having exercised due care in the audit

Due care includes exercising the degree of professional skepticism expected in the audit of financial statements

Audit failures – all possible causes – breach of contract, tort, deceit, and fraud

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Liability To Clients – Privity (1 of 2)

A contractual obligation to the client that creates a privity relationship

A client can bring a lawsuit against an accountant for failing to live up to terms of the contract; plaintiff must demonstrate:

Economic loss

Auditors breached contract

Auditors failed to exercise appropriate level of professional care

Auditors breach or failure of care caused the loss

Link of ethical responsibilities of auditors through the due care ethics rule and the universality perspective (Kantian Rights)

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Liability To Clients – Privity (2 of 2)

Fraud includes gross negligence or constructive fraud that represents an extreme or reckless departure from professional standards of care

Ultramares v. Touche, 1933

Third party not in contractual privity cannot sue based on negligence

Left open possibility for gross negligence and fraud

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Liability to Third Parties Near-Privity Relationship (1 of 2)

Near privity relationship established in Credit Alliance v. Arthur Andersen & Co

Case establishes tests for holding auditors liable for negligence to third parties

Knowledge that financial statements to be used for a particular purpose

Intention of third party to rely on financial statements

Action linking the accountant and the third party

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Liability to Third Parties Near-Privity Relationship (2 of 2)

Security Pacific Business Credit, Inc. v. Peat Marwick Main & Co.

Sharpened last criteria of near privity test:

The auditor must directly convey the audited report to the third party, OR

The auditor acts to induce reliance on the audit report

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Actually Foreseen Third Parties (1 of 2)

“Middle ground” approach followed by most states expands class of third parties that can successfully sue auditor for negligence beyond near-privity to limited group whose reliance is (actually) foreseen, but not necessarily known to the auditor

Rusch Factors, Inc. v. Levin, 1968

Rhode Island federal court held an accountant liable for negligence to a third party not in privity of contract

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Actually Foreseen Third Parties (2 of 2)

Restatement (Second) of Torts

Expands an accountants’ legal liability for negligence to any third parties (foreseen third party) identified as intended recipients of the work…should be foreseen as a relying on financial information

Blue Bell, Inc. v. Peat, Marwick, Mitchell & Co., 1986

Texas Court of Appeals held that if an accountant preparing audited statements knows or should know…the accountant may be held liable for negligent misrepresentation

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Reasonably Foreseeable Third Parties (1 of 2)

H. Rosenblum v. Adler, 1983

New Jersey Supreme Court ruled that auditors should be liable to all reasonably foreseeable third parties who rely on the financial statements

“Independent auditors have a duty of care to all persons whom the auditor should reasonably foresee as recipients of the statements from the company for proper business purposes, provided the recipients rely on those … statements.”

Citizens State Bank v. Timm, Schmidt & Company

Wisconsin Court ruled the cost of credit to lenders would be prohibitive if foreseeable third parties could not sue auditors

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Reasonably Foreseeable Third Parties (2 of 2)

Bily v. Arthur Young, 1992

California Supreme Court case that rejected Rosenblum foreseeability approach

The foreseeability rule exposes auditors to potential liability in excess of their proportionate share

Murphy v. BDO Seidman, LLP

California Court of Appeals ruled “Grapevine plaintiffs” – indirect reliance based on what others told them – had legal claims for ordinary negligence against auditors

Seems to stretch auditors legal liability beyond reasonable bounds

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Liability for Fraud

Gross negligence may be interpreted as fraud

Gross negligence, or constructive fraud, occurs when the auditor acts so carelessly in the application of professional standards that it implies a reckless disregard for the standards of due care

Fraudulent intent or scienter

Scienter is the intent to deceive, manipulate, or defraud

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1136 Tenants Case (1 of 2)

1136 Tenants Corp. v. Max Rothenberg & Co., 1967

Accounting firm was sued for negligent failure to discover an embezzlement by the managing agent who had hired the firm to write up (compile, no auditing procedures performed) the books

Court found an engagement to audit and entered a judgment of $237,000 for a $600 compilation engagement

Affected auditing standards:

Engagement letter was developed to formalize the responsibilities of accountants and auditors in performing professional services

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1136 Tenants Case (2 of 2)

Accounting and Review Services Committee (AICPA) formed to formulate standards for review and compilation services and define assurance level

A review provides limited assurance that the financial statements are free of material misstatements

A compilation provides no assurance and services are of a bookkeeping nature

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Plaintiff Claims for Action

Common-law liability for fraud is available to third parties in any jurisdiction. The plaintiff must prove:

A false representation by the accountant

Knowledge or belief by the accountant that the representation was false

The accountant had fraudulent intent or scienter (established by proof that accountant acted with knowledge of the false representation)

The third party relied on the false representation

The third party suffered damages

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Plaintiff Claims Court Cases (1 of 2)

State Street Trust Co. v. Ernst

Auditors informed client that receivables were overstated in the audited statements but did not inform State Street Trust, when the auditors knew that State Street Trust was making a loan based on the audited financials

New York court ruled the auditor’s actions appeared to be grossly negligent and that “reckless disregard of consequences may take the place of deliberate intention”

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Plaintiff Claims Court Cases (2 of 2)

Phar-Mor v. Coopers & Lybrand

The auditors were found guilty of fraud under both common and statutory law, even though the auditors had no intent to deceive

Plaintiffs successfully argued reckless disregard for the truth (gross negligence or constructive fraud) gives rise to an inference of fraud

Plaintiffs who lack privity or are not foreseen third parties can sue the auditor for fraud, and need only prove gross negligence by the auditors

Houbigant, Inc. v. Deloitte & Touche LLP and Reisman v. KPMG Peat Marwick LLP

For an auditor to be guilty of fraud, the plaintiffs must prove that the auditor was aware that its misrepresentations might reasonably be relied upon by the plaintiff

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Auditor Defenses for Fraud Claims

Auditor must prove

Auditor didn’t have duty to the third party

The third party was negligent

Auditor’s work was performed in accordance with professional standards

The third party did not suffer loss

Any loss to the third party was caused by other events

The claim is invalid because the statute of limitations has expired

Strengthened defense available to auditors

Grant Thornton LLP v. Prospect High Income Fund, et al

Ruling set new limitations on “holder” claims, wherein investors contend that they were put at a disadvantage because they held securities based on an auditor’s report that they otherwise would have sold

Texas Supreme Court ruled that the law does not impose on auditors an obligation to provide an accurate accounting to anyone who reads and relies on an audit report

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Statutory Liability Willful Violation

Statutory liabilities may lead to convictions for crimes, provided their conduct was “willful”

U.S. v. Peltz

1970 court case held that the prosecution had to establish “a realization on the defendant’s part that he was doing a wrongful act”

U.S. v. Schwartz

1972 court case held willfully violating a provision of the Exchange Act would be sustained upon “satisfactory proof… that the defendant intended to commit the act prohibited”

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Securities Act of 1933

Regulates the initial offering of securities through the mails or interstate commerce

Companies must file registration statements, (S-1, S-2, and S-3 forms) and prospectuses which contain financial statements that have been audited by an independent CPA

Accountants who assist in the preparation of the registration statement are civilly liable if the registration statement

Contains untrue statements of material facts

Omits material facts required by statute or regulation

Omits information that if not given makes the facts stated misleading

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Section 11 of the 1933 Securities Act (1 of 2)

Imposes a liability on issuer companies and others, including auditors, for losses suffered by 3rd parties when false or misleading information included in a registration statement

Any purchaser may sue and must prove

The specific security was offered through the registration statement

Damages were incurred

Material misstatement or omission in statement

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Section 11 of the 1933 Securities Act (2 of 2)

Plaintiff need not prove reliance on the statements unless purchase took place after one year of the offering

If 2 and 3 above are proven, it is prima facie (sufficient to win unless rebutted) and shifts the burden of proof to the accountant

Auditor can use

Materiality defense

Due diligence defense

Knowledge of falsehood defense

Lack of causation defense

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Key Court Decisions 1933 Securities Act

Escott v. Bar Chris Construction Corp., 1968

Auditors’ failure to perform a reasonable investigation of subsequent events did not satisfy section 11(b)

Bernstein v. Crazy Eddie, Inc.

Auditor was unable to prove that they had exercised appropriate due professional care

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Securities Exchange Act of 1934 (1 of 2)

Regulates subsequent trading and ongoing reporting of securities sold on national stock exchanges

Entities having total assets of $10 million or more and 500 or more stockholders are required to register under the Securities Exchange Act

Requires ongoing filing

Reviewed quarterly filing (10-Q)

Audited annual reports (10-K)

Form 8-K whenever a significant event takes place affecting the entity

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Securities Exchange Act of 1934 (2 of 2)

Authoritative literature for information filed with the SEC

Financial Reporting Releases (FRRs)

Staff Accounting Bulletins (SABs)

Interpretations of Regulations S-X and S-K

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Section 18 of the Securities Exchange Act of 1934

Imposes liability on any person who makes a material false or misleading statement in documents filed with the SEC

The auditor’s liability can be limited if the auditor can show that she “acted in good faith and had no knowledge that such statement was false or misleading”

Number of court cases have limited the auditor’s good-faith defense when the auditor’s action has been judged to be grossly negligent

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Section 10 and Rule 10b-5 Securities Exchange Act of 1934 (1 of 2)

Unlawful for a CPA to:

Employ any device, scheme, or artifice to defraud

Make an untrue statement of material fact or omit a material fact

Engage in any act, practice, or course of business to commit fraud or deceit in connection with the trading of the stock

Rule 10b-5 of the Securities Exchange Act of 1934

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Section 10 and Rule 10b-5 Securities Exchange Act of 1934 (2 of 2)

Plaintiff must prove:

A material, factual misrepresentation or omission

Reliance by plaintiff on the financial statement

Maxwell v. KPMG LLP: Maxwell’s harm wasn’t caused by KPMG’s audit

Damages suffered as a result of reliance on the financial statements

Intent to deceive, manipulate or defraud (scienter)

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Ernst & Ernst v. Hochfelder, 1976

Hochfelder was enticed to invest in accounts that were represented to yield a high rate of return

The investment was fraudulent and the brokerage firm went bankrupt

Hochfelder’s cause of action was Ernst failed to utilize appropriate auditing procedures in its audit

U.S. Supreme Court ruled that Section 10 was intended to prohibit a type of conduct quite different from negligence

The term manipulative connotes intentional or willful conduct designed to deceive or defraud investors

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Court Decisions and Auditing Procedures (1 of 2)

U.S. v. McKesson & Robbins, 1939

1st case auditing practices were subject to significant public scrutiny

Coster(CEO) and brothers had elaborate scheme to steal $2.9 M in cash over 12 years

PwC failed to detect $19 M in phony inventory and accounts receivable

Physical observation of inventory and direct confirmation of accounts receivable became GAAS audit procedures

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Court Decisions and Auditing Procedures (2 of 2)

Equity Funding

Inflated its earnings by recording fictitious commissions

Borrowed funds recorded as payments on the loan receivable

Abused information technology to falsify accounting data and hide the fraud

Created over $2B fictitious insurance policies and death claims on them

Created policy files – the forgery party

Opened auditor’s briefcase: took and read audit plan in order to anticipate next steps

Sent confirmations to employees to fill out for the fictitious policyholders

Auditors at Equity Funding compromised independence through salaries, given shares, and received loans from Equity Funding

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Private Securities Litigation Reform Act (PSLRA) (1 of 2)

Amends the Securities Exchange Act of 1934 by adding Section 10A, “Audit Requirements”

Auditor must include “Procedures designed to provide reasonable assurance of detecting illegal acts that would have a direct and material effect on the determination of financial statement amounts”

Auditor’s responsibility to detect fraud and requires auditors to promptly notify the audit committee and board of directors of illegal acts

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Private Securities Litigation Reform Act (PSLRA) (2 of 2)

Particularity Standard

Goal to harmonize holdings of courts that led to varying standards of auditor legal liability

Allows scienter to be pled through “particularized” allegations establishing either

Strong circumstantial evidence of conscious misbehavior or recklessness, or

Facts showing that the defendant had both the motive and opportunity to commit securities fraud

Defined the concept of “motive”

Allege facts demonstrating a “concrete and personal benefit” that would be realized from the fraud

Keeping the stock prices high or other motives possessed by most corporate insiders are insufficient evidence

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Proportionate Liability -PSLRA

Attempts to reform auditor liability because tort liability was out of control

Drops legal standards of joint-and-several liability and adopts proportionate liability for all non-knowing securities violations under the Exchange Acts

A party is liable only for that proportion of damages for which she is responsible

Only those who committed "knowing" securities fraud will suffer joint and several liability

Telltabs, Inc. v. Makor Issues and Rights, plaintiffs did not meet the “strong inference” standard, and were too vague to establish a “strong inference” of scienter

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SOX and Auditor Legal Liabilities Section 404. Internal Control over Financial Reporting (1 of 2)

SOX passed to increase the transparency of financial reporting by enhancing corporate disclosure and to foster an ethical climate

SOX increases auditor liability to third parties by specifying or expanding the scope of third parties to whom an auditor owes a duty of care

SOX requires accounting firms to review and assess management’s report on internal controls and issue its own report

Monroe v. Hughes, 1994 – the auditor found internal control irregularities, consulted with management, expanded scope but did not disclose, but the court did not agree

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SOX and Auditor Legal Liabilities Section 404. Internal Control over Financial Reporting (2 of 2)

PCAOB Auditing Standard No. 5 – imposes duties on auditors to disclose and explain in their reports material control weaknesses and their effect on the overall audit process. (e.g., auditors must plan their audit to detect all material weaknesses in the client’s control structure and operational effectiveness)

Failing to disclose detected material weaknesses exposes auditors to Section 11 liability

PCAOB inspections to date have shown that auditors’ opinions on internal controls are inadequate in many cases

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SOX and Auditor Legal Liabilities Section 302. Corporate Responsibility over Financial Reporting (1 of 2)

Section 302 requires the certification of periodic reports filed with the SEC by the CEO and CFO that the report does not contain any untrue statement of a material fact or omit a material fact necessary to make the statements not misleading

Higginbotham v. Baxter Int’l, the court ruled that claims of scienter require more than just an assertion; specific proof of such knowledge must exist

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SOX and Auditor Legal Liabilities Section 302. Corporate Responsibility over Financial Reporting (2 of 2)

In re Lattice Semiconductor Corp, the court ruled that 302 certifications did give rise to inference of scienter due to either knowing about improper journal entries and misstating financial statements or knowing that controls were inadequate

In re WatchGuard Secs Litig., the court held that the individual defendants’ 302 certifications were, by themselves, inadequate to support a strong inference of scienter

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Perspective on Accomplishments of SOX

SOX sometimes faulted for financial crisis and great recession of 2007-08

Defenders say it wasn’t designed to do more than insure that accounting rules were followed

SOX did mitigate the force of the financial crisis

It may be that the government will not be successful in controlling fraud, because you cannot legislate ethics

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FCPA (1 of 2)

Establishes standards of acceptability of payments (facilitating/bribes) made by U. S. multinational entities to foreign government officials

Lockheed and Japanese Premier Tanaka

Applies to

All U. S. firms, public or private

Foreign companies filing with SEC

Department of Justice oversees criminal and civil enforcement

SEC oversees civil enforcement with respect to registrants

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FCPA (2 of 2)

Corporation may be fined up to $1M and cannot indemnify officers

Officers may be

Fined up to $10,000, imprisoned up to 5 years or both

FCPA does not prohibit “facilitating” grease payments

SEC Charges Pfizer with FCPA Violations

Difference between Facilitating Payments and Bribe

Under the Foreign Corrupt Practices Act (FCPA)

a bribe is money or a gift given to someone to change their behavior and perform an act or service that is not part of their legal or authorized activities

a facilitation fee is a payment made to speed up (or queue jump) the process of a task that is within a person’s normal range of authorized activities

These payments may still be illegal for the person to receive even though they may be an acceptable part of the culture in the country

The facilitating payments are like tipping a maître d to get a better table at a restaurant

Internal Accounting Control Requirements (1 of 2)

FCPA makes all SEC registrants maintain adequate books and to have controls to ensure all transactions are approved by management and recorded properly

SEC’s case against Oracle Corporation (2012) is most significant case for books, records, and internal control violations

Oracle secretly “parked” a portion of the proceeds of sales to the Indian government between 2005 and 2007

Oracle failed to maintain a system of effective internal controls to prevent improper side funds

Internal Accounting Control Requirements (2 of 2)

Summary of DOJ and SEC enforcement actions under FCPA average 25 per year

FCPA violations are troubling since if bribery occurs in a company we can only wonder what other ethical transgressions exist

Violations reflect a failure of the corporate governance system and unethical tone at the top

How can auditors miss FCPA violations?

Regulatory and Professional Issues: An International Perspective

Major financial statement frauds in the early 2000s that led to legal liabilities for the auditors; the blame for these frauds is due to a lack of internal controls, ineffective internal audits, inattentive boards of directors, and external audit failures

IFAC’s research report identifies several key weaknesses in corporate governance with recommendation for more effective corporate ethics codes as well as the provision of training and support for individuals in the organizations to better prepare them to deal with ethical dilemmas

IFAC considers the “public interest” to represent the common benefits derived by stakeholders (i.e., investors and creditors) of the accounting profession through sound financial reporting

The Influence of Culture on International Financial Reporting

Research reveals that two accounting values directly influenced by national culture are conservatism and secrecy, which affect the measurement and disclosure of financial information in financial reports and have the greatest potential to affect cross-border financial statement comparability

The widely recognized accounting values that can be used to define a company’s cultural foundation with respect to financial reporting:

Professionalism versus statutory control

Uniformity versus flexibility

Conservatism versus optimism

Secrecy versus transparency

International Financial Reporting Standards (IFRS) (1 of 2)

More than 120 countries currently use IFRS in one form or another

In 2005 the European Union adopted IFRS for all companies doing business the European Zone

The U.S. has been reluctant to adopt IRFS; current approach is “condorsement,” which would address differences between IFRS and U.S. GAAP to determine acceptability of IFRS as part of GAAP

International Financial Reporting Standards (IFRS) (2 of 2)

The principles-based approach of IFRS has increasingly influenced standards in the U.S., although the rules-based system is still the basic framework for financial reporting

The effectiveness of IFRS adoption may be hampered by differences, across countries, which highlights the need for a common set of ethical standards to deal with differences

International enforcement remain problematic given legal differences and cultural considerations

Principles versus Rules-Based Standards

Principles-only standards may present enforcement difficulties because they provide little guidance or structure for exercising professional judgment by preparers and auditors

SEC study recommends that those involved in the standard-setting process more consistently develop standards on a principles-based or objectives-based basis

Rules-based standards can provide a basis for avoidance of the accounting objectives inherent in the standards

Internal inconsistencies, exceptions, and bright-line tests reward those willing to engineer their way around the intent of standards

This can result in financial reporting that is not representationally faithful to the underlying economic substance of transactions and events

Judgment and “True and Fair View” standard

A principles-only approach typically provides insufficient guidance to make the standards reliably operationally

This requires preparers and auditors to exercise significant judgment in applying overly broad standards to more specific transactions and events, and does not provide a sufficient structure to frame the judgment

The result can be significant loss of comparability among reporting entities

The audit report in most countries that have adopted IFRS use the “true and fair view” in lieu of the U.S. “present fairly”

A true and fair view relies on the notion of placing the economic substance of a transaction ahead of its legal form and mirrors a principles-based approach to decision-making

Compliance and Ethical Issues

Trevino et al. study on legal compliance programs

Found that legal compliance programs are helped by consistency between policies and actions with the ethical climate such as ethical leadership, fair treatment of employees, and open discussion of ethics

Found that legal compliance programs are hurt by an ethical culture that emphasizes self-interest, unquestioning obedience to authority, and perception that legal compliance program exists only to protect top management

Collins found that companies that transformed from good solid businesses into great companies had “Level 5” leadership who were people of integrity and conscience who put the interest of the stockholder and employees ahead of own self-interest

Compliance and Ethical Issues: Part 2

Kirk Hanson of Markkula Center for Applied Ethics at Santa Clara University finds

Compliance mentality is focused on meeting the minimum standards and exact wording of a code of ethics rather than the true meaning and purpose of the code

Thus, codes can result in a formal “compliance but not real change in decisions that the company makes”

Companies have adopted one of two general strategies compliance or management by values

Compliance approach: company pledges and works to meet standards of local law for each nation and region and has encountered significant difficulties

Management by values approach: can lead to a more successful program but is harder to implement

The problem of a compliance approach to global standards can lead to ethical legalism

Global Ethics (1 of 2)

International Ethics Standards Board for Accountants (IESBA) develops and issues high-quality ethical standards for professional accountants around the world

Issued a global code of ethics (IFAC Code)

A member body or firm from a member country may not apply less stringent standards than those stated in the IFAC Code

If national law or regulation prohibits or is in conflict with the IFAC Code, them member body or firm should be governed by their country’s requirements but comply with all other parts of the IFAC Code

Global Ethics (2 of 2)

IFAC Code contains provisions virtually identical to those embodied in the AICPA Code of Professional Conduct

Act in accordance with the public interest

Identify threats to independence and develop safeguards to mitigate such threats

Be independent in fact

Maintain the appearance of independence

Adhere to standards related to integrity, objectivity, professional competence and due care, confidentiality, and professional behavior

Global Fraud (1 of 2)

Seventh annual Global Fraud Survey prepared by Kroll found

Fraud is on the rise (after a decrease in 2012) and so are costs involved in managing fraud

Awareness of fraud is up

Cybercrime

Information theft

Outsourcing or expansion into new or riskier markets

Measures to guard against fraud are constrained by budgets and corporate policy

Fraud is an inside job: with 32% experiencing fraud by senior or middle management, 42% by junior employee, and 23% by an agent or intermediary

Global Fraud (2 of 2)

UK Bribery Act bans facilitating payments

Act includes a new corporate criminal offense of failure to prevent bribery

Global Fraud Survey findings were compared with Transparency International’s Corruption Perceptions Index (CPI) – fraud and corruption frequently go hand in hand

Global Bribery (1 of 2)

Corruption is part of some country’s culture so that fraud, bribery, and kickbacks are a way of doing business

Facilitation payments

“Grease payments” (U.S.)

“Baksheesh” (Middle East)

“Mordida” (Latin America)

“Ghoos” (India)

Above facilitation payments are not intended to influence outcome, only the timing

One of the few exceptions from anti-bribery prohibitions of the U.S. FCPA

Global Bribery (2 of 2)

Over ½ of all corruption incidents identified from “tips” when whistle-blowing hotline is available

Preventing corruption is fundamentally a matter of corporate culture

Assess the way things really happen in the company

PCAOB Inspections of Chinese Companies (1 of 2)

Cultural factors impede the ability of PCAOB or the SEC to gain access to sensitive audit information related to the examination of Chinese companies listed on U.S. stock exchanges

The lack of transparency serves as a proxy for international enforcement

Chinese authorities seem less than fully committed to getting to the bottom of fraud and scandals if the victims are American, Canadian, or other foreign investors

PCAOB Inspections of Chinese Companies (2 of 2)

The Chinese government will share audit work papers only if those papers are not used in an enforcement proceeding without Chinese permission

Chinese government is the major stockholder in many public Chinese companies

From ethical perspective, it is an issue of trust and representational faithfulness in the financial reporting

Concluding Thoughts

The history of litigation against auditors show that due care and the exercise of professional skepticism are the underpinnings of an audit performed in accordance with prescribed standards

The ethical standards, professionalism, and practices embedded in the culture of auditors and audit firm will protect them in difficult situations and conflicts with management over accounting and financial reporting issues

Ethical standards require that global companies must go beyond simple compliance with laws as laws can never address all situations

Companies without good ethics are far more likely to fail because they fail to nurture an environment of honesty, trustworthiness, responsibility, accountability, and integrity