Adelphi Accounting Scandal Case Study

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Cable provider Adelphia was one of the major accounting scandals of the early 2000s that led to the creation of the Sarbanes-Oxley Act. A key provision of the Act was to create a stronger ethical climate in the auditing profession, a consequence of the apparent role that auditors played in some of the scandals. SOX mandated that auditors cannot audit the same companies for which they provide consulting services, as this link was perceived to result in audit teams being pressured to perform lax audits in order to secure more consulting business from the clients. There were other provisions in SOX that increased the regulatory burden on the auditing profession in response to lax auditing practices in scandals like Adelphia (McConnell & Banks, 2003). This paper will address the Adelphia scandal as it relates to the auditors, and the deontological ethics of the situation.
Adelphia was once a privately-held firm of the Rigas family, but they took the firm public. When the firm went public, it became subject to a range of accounting regulations as it entered the jurisdiction of the Securities Exchange Commission. Adelphia was bound to adhere to generally accepted accounting principles (GAAP) in the preparation of its financial statements. As the scandal broke, it related primarily to the use of company funds for personal spending by the Rigas family. While such a practice might have been acceptable if the firm was family-run, it is not acceptable in a

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