ETHICAL ISSUES IN ACCOUNTING

Dyann Barras

Section 1Objective 4

Dyann Barras

ETHICAL ISSUES in Accounting• Ethics in accounting are

concerned with how to make good and moral choices in regard to the

• preparation, • presentation &• disclosure of financial information.

ETHICAL ISSUES in Accounting• An accountant frequently

encounters ethical issues • The accountant must remain

continually vigilant to reduce occurances which could lead to both ethical and criminal violations.

– Some of the issuesare as follows:

Fraudulent Financial Reporting:– is the misstatement of the financial

statements by company management– recording transactions in a manner

that is not in accordance with generally accepted accounting principles is considered fraudulent financial reporting

– this is carried out with the intent of misleading investors.

Misappropriation of Assets– is the use of company assets for any

other purpose than company interests. – This is also known as stealing or

embezzlement– misappropriation of assets can occur

at nearly any level of the company and to nearly any degree.

– disclosure violations are errors of ethical omission.

– the failure to disclose information to investors that could change their decisions about investing in the company could be considered fraudulent financial reporting

Disclosure

Penalties• This legislation allows

for harsh penalties for:– manipulating financial

records– destroying information– interfering with an

investigation and provides legal protection for whistle-blowers.

– In addition, chief executives can be held criminally liable for the misreporting of their company.

• The burden for public companies to succeed at high levels may place undue stress and pressure on accountants creating balance sheets and financial statements.

• The ethical issue for these accountants becomes maintaining true reporting of company assets, liabilities and profits without giving in to the pressure placed on them by management

• Unethical accountants could easily alter company financial records and maneuver numbers to paint false pictures of company successes.

Pressure from

Management

• An accountant may face the ethical dilemma of reporting discovered accounting violations to the Financial Accounting Standards Board

• it is an ethical accountant's duty to report such violations

• the dilemma arises however in the consequences of the reporting.

Accountant as Whistleblower

• Government intervention and negative publicity by an accounting scandal could cause the company's rapid decline

• This may lead to the layoff of thousands of employees.

• Criminal charges can placed on management leading to heavy fines and possibly prison time.

Accountant as Whistleblower

The Effects of Greed• Greed in the business and finance

world leads to crossing ethical boundaries due to the desire for making more money

• An accountant should never let the desire to earn a better living and acquire more possessions get in the way of ensuring that ethical guidelines are followed

Omission of Financial Records

• An accountant may be asked to omit or leave out certain financial figures from a balance sheet that may paint the business in a bad light to the public and investors.

• Omission may not seem like a significant breach of accounting ethics to an accountant because it does not involve direct manipulation of numbers or records. However it remains a violation of ethical standards

Issues in accounting

Misappropriation of funds

Omission of financial records

Pressure

Penalties

Disclosure

Effects of greed

The whistleblower

Fraudulent financial reporting

Have you ever heard of Allen Stanford?

• Have a look at the following video and– identify some of the ethical

principles that have been breached in this case.

– Have any of the financial issues discussed above been spoken of in this situation?

– What were some of the additional issues discussed?

References• Allen Stanford and Five Others Indicted on Fraud Charges -

Bloomberg. (n.d.). Retrieved from https://www.youtube.com/watch?v=iDCulWDKzmk

• Ethical Issues Facing the Accounting Profession | Chron.com. (n.d.). Retrieved from http://smallbusiness.chron.com/ethical-issues-facing-accounting-profession-18307.html

• Inside Look - Allen Stanford Indicted - Bloomberg. (n.d.). Retrieved from https://www.youtube.com/watch?v=zDUxXDVJCNs

• What Is an "Ethical Issue" in Financial Accounting? | Chron.com. (n.d.). Retrieved from http://smallbusiness.chron.com/ethical-issue-financial-accounting-57889.html