Situations Leading to Unethical Practices and Behavior in Accounting

The research by Weld et al. (2004) claimed that the analyst and the market pressure to meet revenue expectation, leads managers to engage in fraudulent recognition of revenue practices and cited SEC Chairman, Arthur Levitt concerns that the drive of meeting analyst expectation pressure corporate managers, analysts and auditors override ethical business practice (p.45). Nonetheless, the research by Vogel (2001) blamed Cendant’s compensation policy of stock-options tied to the company’s performance potentially caused fraud (p.409). Consistent with the research by Ball (2009) mentioned that some commentators blaming the stocked option employee compensation package and performance-based incentive compensation to offer additional motivation for accounting fraud (p.285).

Accountants are relied upon to be trustworthy and maintain high ethical standards. It is because of the nature of the profession that puts them in a position of trust with people who rely on their professional judgment and guidance in making decisions. These decisions are extremely important in accounting and more so that companies that have high ethical standard or main good ethical culture spend enormous time to train the staffs about the conduct that is expected of them.

Companies need good employees and good employees do not want to work for an unethical company. Employee turnover will be high, increasing training time and expense and decreasing the functionality of an organization. Employers will experience low morale, more sick days, and employees will not be motivated. Investors do not want to invest in an organization that lacks ethics.

Accounting principles are an important foundation to allow business owners, shareholders, the government and accountants to understand the financial position of a company. A failure to apply appropriate accounting principles can lead to inaccurate reports being used in business decision making. This may result in inappropriate investment and business decisions and lead to collapses as evidenced by the scandals surrounding One-Tel and Worldcom. Accountants employed by these business have been found to have acted unethically by manipulating the financial accounts.

It is best to review GAAP principles that could be relevant for resolving the ethical situation. Ethics and the importance of ethical decision making have taken on increasing significance because of the pressures placed on business managers by stockholders, creditors, and other parties affected by financial performance. Many large corporations have responded to the rising public concern about ethics, ethical decision-making, and standards of integrity by examining their own corporate cultures. These companies have made ethics and ethical behavior by its employees a key element of their corporate strategies. Companies that follow the practices recommended for effective ethics programs, develop formal written ethics standards, assign responsibility for the ethics program to an ethics director who reports to top management, communicate ethics standards, and set up procedures to detect violations. These steps help ensure achievement of the corporate ethics objectives and make clear to employees the importance of following proper ethical principles. Some companies create a hotline for employees to call in and report other employees being dishonest. This hotline helps employee stay honest and responsible for their actions. If they knew about dishonesty with other employees and don’t report them, they could be in line for the same situation of dishonesty. In the end employees of companies should be

Another effect that unethical behavior brings to the company according to the same article the authors Pettijohn, Keith & Burnett say that “stakeholder confidence falls, competent employees may be more difficult to attract, and investors become more skeptical”( Pettijohn, Keith & Burnett, 20110. Literally the chances that companies have to be bigger and succeed just reduce with those types of behavior. Even to other possible partner, investor it

If management and the board of directors take appropriate remedial action, should Barber be required to report the matter outside the company?Â

Abstract. The article reviewed was Ethics and the Auditing Culture: Rethinking the Foundation of Accounting and Auditing. The key of the abstract is to demonstrate how traditional ethical settings led to unethical behavior and financial scandals of Enron, WorldCom, and Arthur Anderson (p. 271). The authors emphasize the role of the AICPA Code of Conduct and ethical perspectives for accountants and auditors.

Ethics are a decision one makes in knowing the right thing to do and essentially doing the right thing. They are the rules of behavior based on one’s belief of what is morally good and bad. A person may hear the word ethics and immediately think of government or the law. Not only does ethics have a role in government, it also plays a major role in business, including accounting. Schroeder, Clark & Cathey (624) states that the “reason for a high level of ethical conduct is the need for public confidence in the quality of services provided by the profession.” Ethical conduct not only encourages a high standard of performance; it also encourages a high quality of professional service. Enron’s financial scandal put a huge damper on that confidence. The Enron scandal made the public aware and conscientious of what could happen when dealing with unethical individuals. Since then, the public has educated themselves and are continually becoming more informed. Ethics in the accounting profession is not going away, it will only continue to change as business transaction change and become more complex.

In the case of Pearson and Spector their practices involved creating fraudulent financial statements in order to hide errors and cover up mistakes which in terms of Ethical Egoism is right as it promoted their own personal self-interest to further gain revenue and maintain their reputation and so would be seen as ethically correct.

However, with the increasing number of incidents of fraud and other related unethical practices like bribery and funds embezzlement, ethics seems to be the most neglected. Many professional accountants give in to pressure from the management. Though this may bring a more favourable effect on the company and on them, the benefits obtained are only short-term and an accountant may be subject to punishment once the authority discovered the fraudulent transaction. They tend to be driven by their personal motives and greed in exchange for wealth, prestige

Unethical behaviors take several forms, and many are times employees as well as the top officials may not be able to see it as unethical behavior simply because it does not affect anyone of them. Examples of these unethical behaviors in business include theft by the employees, chief executive officers and managers as well.

moreover it is also concluded that companies that have smooth earning and profitability in previous years and less earning in current years can lead to accounting scandals, because to show the smoothness in company or business profitability or growth that business have more chances to use the fraud accounting practices and to show more according to the need of the organization. Moreover they concluded that corporate environment is very much important in business and corporate environment can lead to the accounting scandals and frauds. Therefore weak corporate governance and poor corporate environment also caused to the accounting scandals.

In these cases, the ethical issues relate to lying, money cheating, deception, law breaking, exploitation of employees, and profiteering.

Well-formed ethical principles provide benefits to an organization. but besides benefits ethical wrongdoings harms business management in many ways. Some of These ethical violations can be listed as theft, misreporting of working time, sexual harassment, misuse of power and authority, conveying incorrect information to customers or employees, etc. Therefore such unethical behavior can impact any business in many ways such as lost in sales, higher profits, loss of customer relationship ,etc. Hence ethical approach is fundamental for good business practice.