Unstoppable Fraud, Scandals and Manipulation – An Urgent Call for an Islamic-based Code of Ethics Ahmad Saiful Azlin Puteh Salin 1+ , Norlela Kamaluddin 2 and Siti Khadijah Abdul Manan 2 1 Accounting Research Institute (ARI) and Universiti Teknologi MARA (UiTM) Perak 2 ARI and Centre of Islamic Thought and Understanding (CITU) , UiTM Shah Alam Abstract. The purpose of this paper is three-fold. First, it is to highlight corporate scandals that have happened in Malaysia. Second, it is to discuss some major causes of these corporate scandals; and third, it is to recommend the possible actions and preventive measures to curb these scandals from the Islamic point of view. On the whole, the paper has given motivation to the researcher to embark and initiate a research in Islamic Ethics and Governance. Keywords: fraud, code of ethics, Islamic 1. Introduction In the recent years, the public and business community have been surprised with the exposure of many corporate scandals and accounting fraud by the managers of the company. It disappoints many stakeholders as after the financial crisis in 1997, many efforts have been initiated and implemented to strengthen the business control and foundation of the company. One of the important lessons learned from the financial crisis in 1997 is the weaknesses in the governance of the company such as too much power is given to a single person in managing the company, weak internal control and poor work of the directors that leads to the failure of the company. Due to this, a total regulatory and governance were embarked all over the world. Just to name a few, in the US, the Sarbanese Oxley Act was established, while in the UK the Code of Corporate Governance was extensively revised to stop all these corporate diseases from spreading and becoming a cancer for the global business community. However, all this effort has seemed fruitless as after the heavy debate and discussion and huge struggle by the regulator and market administrator, these corporate scandals are still returning but with more scaring facts. This paper, therefore, is designed to address some major causes of the problems and suggest possible action to solve these problems. 2. Corporate Scandals – Malaysian Scenarios Malaysia, like other developed and developing countries, is unable to run away from a number of corporate scandals that have been highlighted by the media. After all the recommendations and efforts by the various parties to eradicate these various scandals, it is still occurring and there is no sign that it will stop or even reduce in the near future. The KPMG Malaysia Fraud Survey Report 2009 [1] for example revealed that a total of 61% of the respondents believed that fraud would rise in the next two years by which more than three quarters of the respondents believed that financial statement fraud will continue. A similar survey also revealed that management did not take appropriate action of the fraud red flag. The major factors that contributed to the fraud included poor internal control, collusion with external parties and unethical practices. + Corresponding author. Tel.: + 6053742544; fax: +6053742635 E-mail address: ahmad577@perak.uitm.edu.my 474 2011 International Conference on Sociality and Economics Development IPEDR vol.10 (2011) © (2011) IACSIT Press, Singapore