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The improvement of organizational ethics coincides with the improvement of employee ethics. However, specific levels of ethical development in employees must be determined prior to improving the standards. In this process, the help of the internal auditor can be invaluable. To understand how individual ethical development influences organizational ethics, the different stages of moral development are presented. These stages cover the preconventional, conventional and postconventional levels.

Accounting theory favors last-in, first-out (LIFO) usage in the income statement, but first-in-, first-out (FIFO) in the balance sheet. FIFO simulates the physical flow of goods but LIFO is better for current costing. Changes in tax laws since 1979 have caused rethinking on the use of these systems, examples of which are provided.

There are several advantages to combining the first-in, first-out (FIFO) valuation of inventory when last-in, first-out (LIFO) is used in the income statement. FIFO improves the balance sheet by providing a better estimate of the replacement costs of ending inventories, while LIFO provides a better estimate of the replacement value of goods sold. Substantial tax benefits can also be realized by using LIFO inventory flow during periods of increasing prices. To obtain the best features of both methods, the LIFO inventory valuation should be applied to goods sold, net income, and retained earnings. FIFO is used for inventory valuation in the balance sheet and for a valuation account that reflect's the owner's equity in the resulting gross amount.

Having a detailed, continuously updated business plan can mean the difference between obtaining financing and insolvency for a small business. The business plan should include a description of the business, and the following kinds of plans: product line, sales and marketing, product development, operations, organization, and financial. All loan applications made by a small business should include a summary of the amount requested, purpose of the loan, security offered, and proposed repayment terms.

The lawsuit brought by Alexander Grant and Co., an accounting firm now known as Grant Thornton, against its former audit client Tiffany Industries was the first case of an accounting firm successfully suing for damages under the RICO (Racketeer Influenced and Corrupt Organizations) Act, due to misrepresentation by an audit client as to its earnings and net worth. Details of the case and the RICO Act are discussed. Grant was successful in suing for reparation of stolen services, investigation expenses, and damage to its business reputation, created when Tiffany executives allegedly conspired to represent an operating loss as an operating gain. The RICO Act applied in this case, due to the alleged mail fraud and wire fraud committed by Tiffany executives when attempting to alter the company's financial data.