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The Foreign Corrupt Practices Act (FCPA) has been controversial since its inception in December 1977. Despite the various attempts to repeal or modify the Act, this piece of legislation remained as originally enacted until the 1988 Trade and Competitive Act revision. Although the debates on parts of the original Act seem to have reached an impasse, nonetheless the US Government finds itself in a catch‐22 situation – pioneering international ethical business standards and seemingly losing the competitive edge in foreign trade.

Examines the role of professional associations, governmental agencies, and international accounting and auditing bodies in promulgating standards to foster auditor independence domestically and abroad. Focuses specifically on the role played by the American Institute of Certified Public Accountants, the Institute of Internal Auditors (IIA), the Securities and Exchange Commission and the US Government Accounting Office. Also looks at other professional associations in banking, industry, and manufacturing sectors dealing with sensitive issues of auditors′ involvement in such matters as management advisory services, operating responsibilities, outsourcing, opinion shopping, auditor rotation, and other conflicts of interest which may impair auditor independence.

The Foreign Corrupt Practices Act (FCPA) of 1977 and its amendment – the Trade and Competitive Act of 1988 – are unique not only in the history of the accounting and auditing profession, but also in international law. The Acts raised awareness of the need for efficient and adequate internal control systems to prevent illegal acts such as the bribery of foreign officials, political parties and governments to secure or maintain contracts overseas. Its uniqueness is also due to the fact that the USA is the first country to pioneer such a legislation that impacted foreign trade, international law and codes of ethics. The research traces the history of the FCPA before and after its enactment, the role played by the various branches of the United States Government – Congress, Department of Justice, Securities Exchange commission (SEC), Central Intelligence Agency (CIA) and the Internal Revenue Service (IRS); the contributions made by professional associations such as the American Institute of Certified Public Accountants (AICFA), the Institute of Internal Auditors (IIA), the American Bar Association (ABA); and, finally, the role played by various international organizations such as the United Nations (UN), the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO) and the International Federation of Accountants (IFAC). A cultural, ethical and legalistic background will give a better understanding of the FCPA as wll as the rationale for its controversy.

Professional accounting associations in various countries and governmental and other quasi‐official bodies have played an important role not only in the evolution of internal control reporting on a global scale, but also in educating management, investors, financial institutions, accountants, auditors, and other interested parties highlighting the pervasiveness of the effects of a sound internal control structure in corporate reporting as well as other aspects of an organization′s success. These associations include the Institute of Internal Auditors (IIA), the American Institute of Certified Public Accountants (AICPA), the General Accounting Office (GAO), the Securities and Exchange Commission (SEC), the Cadbury Committee, the Institute of Chartered Accountants of England and Wales (ICAEW), the Scottish Institute of Chartered Accountants (SICA), the Canadian Institute of Chartered Accountants (CICA), and others. Business failures, management fraud, corporate misconduct, international bribery, and notorious business scandals in all sectors of business have prompted the US government to take drastic action on internal control reporting to safeguard public interest. Several professional and government committees were formed to study this precarious situation: the Treadway Commission, the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, the Packard Commission, the Cohen Commission, the Adams Commission in Canada, the Cadbury Committee in the UK, and others. The principal motivation for the changing dynamics has been growing public pressure for greater corporate accountability. The government′s pressure on the accounting profession and management of public corporations has been pivotal in spearheading internal control reporting. Examines the role of professional associations, governmental agencies, and others in promulgating standards for internal control reporting, and the impact of legislation on this aspect of internal auditing in the USA and worldwide.

This paper examines the role of professional associations, governmental agencies, and international accounting and auditing bodies in promulgating standards to deter and detect fraud, domestically and abroad. Specifically, it focuses on the role played by the US Securities and Exchange Commission (SEC), the American Institute of Certified Public Accountants (AICPA), the Institute of Internal Auditors (IIA), the Institute of Management Accountants (IMA), the Association of Certified Fraud Examiners (ACFE), the US Government Accounting Office (GAO), and other national and foreign professional associations, in promulgating auditing standards and procedures to prevent fraud in financial statements and other white‐collar crimes. It also examines several fraud cases and the impact of management and employee fraud on the various business sectors such as insurance, banking, health care, and manufacturing, as well as the role of management, the boards of directors, the audit committees, auditors, and fraud examiners and their liability in the fraud prevention and investigation.

Auditors gather evidence to formulate their judgment on financial statements and in assessing the risk factors concerning the company under audit. Examines the role played by the American Institute of Certified Public Accountants (AICPA) and the Securities and Exchange Commission (SEC) in developing auditing standards concerning audit evidence. Significant court and SEC cases relating to audit evidence are described and issues discussed.

Examines the role of professional associations and governments in developing and promulgating standards to foster auditor independence. Presents a survey of countries which showed that many had taken steps to enhance auditor independence. Governments of several countries had implemented professional audit standards sanctioned by their professional accounting associations dealing with auditor independence. In many countries independent auditors may be censured and even expelled from their respective professional associations for violations of their codes of ethics. The survey also showed that cultural differences limit the effectiveness of international reliance on auditor independence.

Highlights similarities among the codes of ethics promulgated by professional societies in the United States such as The Institute of Internal Auditors (IIA), the American Institute of Certified Public Accountants (AICPA), the Institute of Management Accountants (IMA), and the EDP Auditors Association (EDPAA). Takes the Code of Ethics of the Institute of Internal Auditors, an international professional association, as an example to demonstrate that most of the articles of professional codes do not reflect the cultural dimensions of Asian, European, and other countries. Since one single universal code of ethics may not meet the needs of an international group, international professional societies may wish to consider alternatives to incorporate in their codes of ethics, especially the cultural dimensions of other countries. Cultural differences often limit the effectiveness of a uniform international code of ethics because they create a lack of consensus within a profession as to what constitutes acceptable behaviour.

Highlights the role played by the Securities and Exchange Commission (SEC), the New York Stock Exchange (NYSE), the American Institute of Certified Public Accountants (AICPA), The Institute of Internal Auditors (IIA), the Treadway Commission, and other professional organizations in furthering the establishment of audit committees in the USA. In the international arena, the UK Cadbury Committee, the Australian Borsch Committee, and the Canadian Macdonald Commission have influenced the widespread use of corporate audit committees in their respective countries. The guidelines on audit committees set by the IIA, AICPA, SEC, and the Treadway Commission have had a tremendous impact worldwide. Cultural differences may, however, limit the formation and effectiveness of audit committees globally even though auditing is a relatively homogeneous profession. The Institute of Internal Auditors, as an international professional association, may wish to consider the cultural dimensions of corporate governance in formulating professional internal auditing standards dealing with the structure and functions of audit committees internationally.