Everyone will agree that ethics is a critical aspect of a good accountant. These accounting rules and regulations exist to make sure that the end users are objective in their decision-making process by using accurate financial statements. Poor ethics in accounting usually result in various adverse consequences – personally and business-wise. Source: commons.wikimedia.orgA survey by CareersinAudit.com involving 1,700 accountants worldwide found out that 48 percent of the respondents experienced pressure from the senior management to alter their company accounts. In the same study, 40 percent of them were aware that their senior staff members are involved in unethical accounting practices. Unethical accounting practices are usually motivated by management pressure, bonus incentives, greed, and more. However, these actions typically result in short-term gains, but long-term negative consequences.
Personal Consequences Once accountants have been proven to commit unethical accounting practices, they usually receive punishment. This punishment can result in substantial financial costs, long prison time, or other legal penalties depending on the gravity of the crime. Not only will it affect the personal life of the accountant, but it will also be devastating for all his family and friends. Source: pxhere.comThe inability of accountants to uphold accounting standards may also risk the loss of their credentials, and eventually the revokement of their license. It will be a significant toll on their professional career. Criminal Activities As mentioned above, poor ethics are considered a crime. Involving oneself in this illegal activity proves that they are more than willing to bend and break the rules for their personal benefits or the sake of the success of their business. For example, an accountant has the power and control to help embezzle money from businesses. They also know the ins and outs to conceal evidence. In addition, an unethical accountant is also in the position to manipulate financial data to be able to commit various crimes such as tax evasion and fraud. Committing these criminal activities can lead to a long period of jail time.
Loss Of Reputation There are two outcomes once unethical behaviors are exposed – the loss of reputation of either the accountant or the business, or even both. If you are a dishonest accountant, there is a substantial possibility that companies would not hire you anymore in the future. This instance may negatively affect your professional career. Source: pixabay.comIf your business operates unethically, word will surely get out. This is especially possible for companies located in tight-knit communities. Once your customers find out how your operations are done, they might not patronize you anymore. In general, consumers would instead buy from companies that operate ethically, support their communities, and take care of their employees. If they see that your company do not comply with any of the following guidelines, this can affect your customer’s willingness to buy. Suppliers might also avoid transacting business with you. Over time, this loss of confidence in your company may destroy your business.
Human Capital Loss Many employees prefer working for an ethical company. If company accountants are forced to behave unethically, they might squeal the business mishaps happening on the inside. If reputable accountants get the word out to other company employees, there is a significant possibility that they lose their trust and confidence in the company. It might lead to a substantial human capital loss, and eventually the business’ downfall. Source: picpedia.orgUnethical accounting practices lead to various consequences. Hence, it is essential that every accountant uphold their principles and focus more on their ethical sensitivity. In this way, it would be easier for them to recognize ethical dilemmas in their work which will maintain the stakeholders’ confidence in them.
This article gives an overview of ethics and provides a platform for further study on this vitally important aspect of the work of the professional accountant. The BT/FBT syllabus states that, on completion, the student should ‘recognise that all aspects of business and finance should be conducted in a manner which complies with and is in the spirit of accepted professional ethics and professional values’. The Study Guide sets out four sets of learning outcomes (Sections F1–4):
These are considered in turn in this article. It must be stressed that this is intended to be an introduction, and further detailed study will be necessary to acquire the required level of knowledge and understanding. Fundamental principles of ethical behaviourWhat is ethics? Ethics lacks the certainty usually provided by the law, as individuals may consider some things that are legal to be unethical. In turn, views on morality differ, so even when ethical principles are codified by professional bodies or commercial organisations, they may be regarded differently according to the moral principles of each individual. All professions rely on their practitioners adopting not only legal but ethical standards. If accountants behave unethically, their clients will lose confidence in their services, and society in general will no longer trust them or feel that they act in the public interest. The potential effects of this would be devastating, not only to accountants themselves, but the profession and its stakeholders, including individuals, organisations and others affected directly or indirectly by their work. Approaches to ethics Relativists (or pragmatists) accept that duties are important but are prepared to admit exceptions. For example, they may argue that it is right to kill if the cause is just, or to tell a lie if the purpose is noble. So if a frail and terminally ill loved one asks ‘Am I dying?’, it may sometimes be right to lie. Codes of conduct issued by professional bodies, and corporate codes issued by business organisations, define responsibilities in terms of duties, and may provide guidance on the more common exceptions that apply. As it is impossible to define the appropriate response to every single human interaction, these codes can only serve as sets of minimum standards and have to rely on the inherent willingness of practitioners to deduce what is right or wrong. Ethical behaviour may also be defined in terms of consequences. This is sometimes referred to as the teleological approach (from the Greek word ‘telos’, meaning ‘the end’). Here, the right course of action is that which will result in the most acceptable outcome. Most acceptable to whom? This is dependent on the ethical stance of those who determine what is an acceptable outcome. Utilitarians regard the right course of action as that which will benefit the majority, or serve the ‘greater good’. In doing so, the ethical decision may disregard any impact on the minority, believing that they should defer to the greater needs and influence of the majority. On the other hand, pluralists pursue consensus in order to accommodate the needs of both the majority and the minority. Finally, egoists favour courses of action that are right for them. This last, seemingly selfish approach to right and wrong was supported by Adam Smith, the 18th century UK economist, who suggested that pursuit of self-interest is often a catalyst for the creation of prosperity through entrepreneurial innovation and risk taking. A practical application of these concepts may be considered in relation to the conflicting views on the use of mobile telephones on commuter trains. Should railway users be denied the right to use their mobile telephones while travelling on trains? If one assumes that the majority will tolerate constantly ringing telephones and loud conversations during a railway journey:
Using the duty-based and consequentialist-based approaches to ethical decisions may result in different potential outcomes. Consider the case of a highly successful and dynamic chief executive officer who has been caught up in a scandal relating to his personal life, reported widely in the national newspapers and on television, with resultant embarrassment to his organisation. Should he resign? The duty-based approach may suggest that, as a senior executive, he should adopt high moral standards in and out of work, and because he has failed to meet those standards, he should resign. The consequentialist may agree, stating that by not resigning it will result in damage to the reputation of the organisation as long as he remains in office. However, the consequentialist may also disagree, arguing that by resigning the chief executive officer deprives the organisation of his knowledge, skill and experience, which will result in a lack of leadership and direction, at least in the short term. This argument may be reinforced by the view that, in future, other organisations may choose to accept resignations on the same basis, even though the individual’s personal life should have nothing to do with his work. Ethical principles Led by international bodies such as the International Federation of Accountants (IFAC) and its many member associations and institutes, several principles have been identified as being of crucial importance to the profession: |