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The financial statements are important documents for a company, both the internal operations and the shareholders. The financial statements provide the necessary information that the interested parties can use in the assessment of managers’ performances and making vital economic decisions. Stakeholders always assume that the information provided in the statements are reliable and can serve the purpose. The regulation of accounting tries to ensure the data given are consistent and adhere to the set rules for the benefit of the users (West, 2018). In the world of business, however, sometimes, communication between the shareholders and entities get distorted by the individuals in charge of the financial statements. The accounting staff always met with challenges that sometimes lead to unethical behaviors within the accounting field. The paper aims at highlighting several ethical concerns and motives that lead to accountants engage in such practices.
One typical unethical behavior is the manipulation of figures. The running of a business is one of the greatest pressure managers have, especially when activities are not running as planned or to the expectation of the company’s shareholders. Such instances may tempt the managers to ask the accountants to manipulate figures to save the reputation of the company or that of the management (Duska, Duska, & Kury, 2018). Manipulation of financial statements has been a problem in corporate America despite the efforts of the Securities and Exchange Commission to mitigate the malpractice. The financial statements get manipulated in two ways. First is exaggerating the earnings by inflating or deflating the gains and revenues. The second method is by minimizing the current profits making the condition of the company to be worse than the actual position. Accountants have an ethical and legal duty to present the exact financial situation, whether they are working for the company or hired. Giving wrong figures always puts an accountant on a civil or criminal liability, which may significantly influence their careers.
The second ethical issue is an omission. At times the accountants may feel that particular reports would cast a negative shadow on a company, thus omitting them from the final statements. An investor buying into the company unknowingly might not be aware of the risks as parts of the real position of the company is not revealed. The problem of omission that it later haunts the management when discovered, especially when things turn out in a way not expected. When independent auditors get hired to access the finances of the company, such errors are likely to get detected, and it turns to be embarrassing to the management and the accountants (West, 2018). The accountants are therefore called to act ethically to the set standards and tell the truth about the given company they work for the sanity of business lying to investors who have invested their time and resources in a business is not right and should not be encouraged.
The third concern in the field of accounting is confidentiality and access to information. Like other professionals like medics and lawyers, accountants are the custodian of very sensitive and confidential information. The inappropriate use of the information or inability to keep the information confident get considered ethical issues. As an accountant, one is not expected to use the company’s sensitive information for insider trading (Duska, Duska, & Kury, 2018). There are Accountants guilty of taking advantage of predicted growth or drop in the value of a company’s shares a vice prevalent in business today. The sharing of information to competing companies or negligence that allows an outsider to acquire information about a company is also considered to be an ethical concern. The relationship a client and accountant has is important, and at all times, the accountant is obliged to work for the benefit of the client. The consent of the client is very crucial before an accountant engages with a third party. Clients view their accountants as advisers and trust them with vital information; therefore, accountants should see that appropriate controls get implemented, preserving the trust as stipulated in the professional codes of conduct.
The fourth ethical concern is the conflict of interest. In the accounting profession, like other professions, there are times conflicts of interest arise. The conflicting interest may occur before or during an engagement. While most companies have set policies and procedures of dealing with conflicts of interest, some appear times that may not be expected to put the employees in an awkward position. In accounting, conflict of interest arises when a company offers several services to one client (Duska, Duska, & Kury, 2018). The common form of conflicts in accounting include when the accountant has a personal interest with a particular company they are dealing with probably as a shareholder, another conflict arises when the company has a conflict with other company tied to the company they work together. A good example is when a litigation process requests an auditing company to invest in a company that is or has been their client. It is wrong for accountants to expect favors in return for particular services. Receiving additional bonuses because of stock prices may be signs of conflicts as the accountant is likely to make decisions favoring a rise in the stock prices.
Finally, the ethical concern for accountants is whistleblowing. Accountants are called to be loyal to their clients; however, there are instances when the clients act in a way that goes contrary to the set standards of conducting business. Whistleblowing is an ethical dilemma faced by accountants all the time. The information provided by a whistleblower may have a significant impact on the performance of the company as stock prices my fall overnight, hurting investors and the accountant’s co-workers all who could lose their jobs (West, 2018). Accountants are, however, always asked to raise the alarm on the wrongdoings by the corporate companies to help end financial fraud. The problem with whistleblowing is one is marked as disloyal hence impacting their career negatively in the future. For the accountants ready to take the moral path, the Security and Exchange Commission provides a program protecting whistleblowers prepared to come forward. The programs provide financial rewards and confidentiality for the individuals providing information that could pin financial fraud conducted by a company.
To conclude, ethics in financial accounting is an issue of great concern as the impact of how businesses get transacted is excellent. To build an economy, companies are called upon to work ethically. Accounting is integral in the function of business, and the professionals in the field are called upon to act most appropriately. The public loses confidence if they realize a company had involved in financial fraud. The government, through the Security and Exchange Commission, are concerned about the ethics of accounting since unethical practices rob the government of taxes through malicious business persons. Accountants have to access where conflicts of interests come in and, when possible, alert the appropriate legal entities of wrongdoings.
Duska, R. F., Duska, B. S., & Kury, K. W. (2018). Accounting ethics. Wiley-Blackwell.
West, A. (2018). After virtue and accounting ethics. Journal of Business Ethics, 148(1), 21-36.