Ethical Behaviour
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Introduction: Through the course of time, various financial controversies have been raised in countries like Australia and the USA regarding the ethical behavior of corporate accountants and auditors such as in the cases of collapse of companies such as that of OneTel and HIH Insurance in Australia (Oladinrin and Ho, 2016). Owing to the fierce competition within the market combined with trends of globalization, liberalization and diversification, much attention has been attracted towards the accounting profession and the ethical issues connected therewith. Various scholars are now questioning whether the ethics of the accounting profession are necessarily built in order to withstand the financial pressures that may lead to the compromise of professional discernment (Jennings, 2014).
This paper primarily aims to understand how the absence of ethical standards of accountants and auditors may negatively impact the organization and lead to reporting failures.
Question 1: Explain how the lack of ethical behaviour of accountants and auditors considered a key weakness leading to reporting failure.
Answer: Ethical Issues in Good Corporate Governance: In order to ensure good corporate performance, accountants and auditors are assigned with certain responsibilities such as ascertaining the level of compliance of the company to the required ethical and legal practices, revalidating the findings of outside auditors, keeping a check over the efficiency of the company's accounting activities, making necessary recommendations to the board for changes and so on. An effective audit committee can ensure that there is a balance between the activities of the main board and the shareholders. On the other hand, accountants make advantageous choices about how to initiate and expand investment projects to lead the company to short term and long term improvements, publish accurate financial statements in order to attract investors' purchase in company shares, enable the company to efficiently handle their assets, prioritize their business operations according to profits and make lucrative decisions, etc.
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In various organizations such as that of WorldCom in USA, there has been a lack of importance allocated to the professional values of integrity, commitment, honestly, perseverance, objectivity and the ability to act in the interest of the public (Parker, 2005). This has led to the collapse of large institutions which in turn had serious implications on the company's employees, shareholders and the public as well (Elias, 2004). In most of these cases, the failure of the company to enforce proper laws regarding the requirement of accountants and auditors to act objectively in the interest of the company has been one of the major factors. The most highly rated ethical issue in companies has been denoted as familiarity threats which refer to an accountant acting sympathetically towards an acquainted employee/ client (Francis, 2000). There is also a newly transpiring importance being given to earnings management which occurs when genuine financial records are concealed by accountants to show a false outcome instead. This may include other wrongful activities such as smoothing of account information, portraying positive forecasts, manipulation of data, wrong statement of accruals, etc (Elias, 2002). Some other instances of ethical issues in this sphere include false reporting of missing data, failure to be inclusive of eligible participants, reporting of ball park numbers rather than genuine data, showing wrong graph levels, allowing the influence of sponsors over account data, etc. The reasons for the occurrence of ethically wrong practices are usually attributed to the tendency of accountants to act in their self interests and the failure to maintain objectivity and standardization in their records. The apparent importance of organizational atmosphere along with colleague support is also considered to be a potential cause for ethical failure as it can be found according to research conducted by Wimbush and Shephard (1997). They also expressed how ethical behavior of accountants and auditors may be strongly influenced by the professional relationships between employees and their management heads or supervisors. All of the above mentioned factors contribute towards ethical issues in accounting and audit committees which in turn affects appropriate and correct reporting of data and negatively impacts overall performance of a company.
Conclusion: Considerable research shows that the main ethical risks include self interest, failure to maintain an objective stance, bad leadership, absence of ethical courage to differentiate between the right and the wrong, unsatisfactory professional judgment and poor organizational structure. However, authenticity and integrity are two crucial elements which are an absolute necessity to maintain good corporate governance. All professional bodies should unanimously agree upon the fact that commitment towards ethics development is imperative and should be include within accounting curriculum just like any other technical skill which is important to practicing business. Accountants and auditors should be encouraged to think and reason critically before taking important decisions. There is a need to develop new techniques which transcend the boundaries of conventional textbook approaches to dealing with ethical issues (Jennings, 2004).
Although internal mechanisms have been developed and enforced in order to deal with ethical issues from time to time, the rights of shareholders over valuable financial data still remains inadequate, the transparency of board members still remains an issue everywhere, disclosure of information regarding funds and accounts is insufficient and accountants are still able to escape stringent regulations regarding the violation of ethical stands of behavior. Hence, one of the crucial steps to be undertaken is to improve business standards by the construction of a legitimate legal infrastructure in every company because the challenge is not the absence of laws but rather the proper interpretation and implementation of the same (Arjoon, 2005). There should be a uniform code of conduct and enforcement system to ensure parity in case of ethical issues. Improvements within this sector should be initiated both by the concerned government as well as private security commissions and entrepreneurial delegations. More active involvement of compliance policies and business ethics should be encouraged in order to preserve the integrity of long term endeavors as it is the managing board's primary duty to exercise control over company assets and look after the broader financial, socio-political, environmental and ethical contexts of business management practices.
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