Introduction:
Ethics refers to the system consisting of moral principles and a branch of philosophy which explains what is good for individuals . Ethical behavior is usually explained by an organization’s code of conduct. It illustrates how members of an organization are expected to behave and take decisions.
Ethical dilemmas are certain situations where there is a conflict between moral imperatives . Obeying one of them would lead to transgressing the other one. Everyone has responsibilities to behave ethically and fulfill their moral obligations. Almost everyone comes across situations where their moral and ethical obligations are challenged. It is very important to make sure that right course of action is taken to resolve such issues. If it is not done as expected, it may affect some parties adversely.
Ethical Issue:
I work in a financial institution where it is very important to consider and realize multiple set of ethical responsibilities as all are expected to act ethically and in the best interest of their profession and organization. Accountants have their ethical and moral responsibility to maintain an open and honest line of communication. The moral values are applied to the profession of accountancy. As there are many users to the financial statements published by a company, it is the role of accountants to ensure that they represent true and fair value of company’s financial position . Knowledge of ethics and professional training is essential to ensure that accountants are able to overcome ethical dilemmas and make the right choice to benefit all parties.
I was being suggested by the stock warehouse manager regarding high level of stock that was slow moving. The stock had been in the warehouse for more than 10 months. Normally the stock should have been written off months ago.
However the managing director emphasized on the fact that it is not necessary to write down the stock by the year end. According to the accounting principles there was no valid reason for not writing off the stock . This situation was very obvious and it was evident enough that the managing director who is also a majority shareholder in the company wants to overstate stock valuation in the financial statements. The reason behind this was a major deal with a multinational mega corporation which was dependent on the annual reports of the company. Managing director promised me to increase my pay and offer job security to all employees if the deal is successful.
Organizational culture and values:
A financial accountant has an ethical code of conduct to be followed to serve in the best interest of their profession. The code of conduct is regulated by accounting bodies such as International Federation of Accountants (IFAC) and the Association of Certified Chartered Accountants (ACCA) . All accountants must act in accordance with the five principles laid down by these bodies .
Five Principles of Ethics
Integrity: This requires accountants to be honest and straight forward when acting in their role of employment . They must not be involved in any misleading or fraudulent activity within the organization.
Objectivity: This principle is concerned with the conflict of interest which may arise at work. Accountants must keep their personal interest out of their work and must work in the best interest of their profession.
Professional Competence and Due Care: To ensure that accountants comply with this principle it is important to make sure that they have adequate professional knowledge and skill to cope up with the requirements of its employment. They must work hard and diligently and also ensure all subordinates receive enough training to complete their tasks.
Confidentiality: Under this principle accountant is expected to keep information about their organizations confidential and must not disclose to the third parties. This principle is valid even when an accountant leaves an organization
Professional Behaviour: Accountants must observe professional behavior and comply with the laws and regulations to avoid any action that puts reputation of their profession at risk .
Response to the dilemma:
Integrity: Under this situation, honesty was being challenged. An action required a dishonest behavior towards people within and outside the organization.
Objectivity: As monetary reward was involved, personal interest was conflicting with moral obligations.
Professional competence and due care: Valuation of stock and challenging the opinion of managing director required sufficient information on the net realizable value.
Professional Behavior: Action of not writing off would have challenged one of the accounting standards. Hence professional behavior required to act in accordance with the international accounting and reporting standards .
After identifying main facts, the next step in this situation was to identify affected parties. The managing director was one who would be affected. Managing director’s interest is towards the deal that will be signed. He is looking forward towards expansion and profitability so that he can enjoy higher salaries and status in the society. Other parties included employees. In case the deal is not signed, jobs of employees will be at risk. On the other hand if stock figures are inflated, this will present high value of stock convincing Multinational Corporation to sign the deal. This will lead to greater sense of job security for all employees and increased payment for me. So the affected parties included me, managing director and the employees of the organization.
Once situation was analyzed and affected parties were identified, I identified possible threats that could cause a violation of the five principles of accountancy profession. As the situation here was offering me a monetary reward in case the deal is signed, there was a risk that I may violate principle of integrity where I am expected to be honest. This is known as self-interest threat . Honesty meant that I should write off stock to make sure financial statements present true and fair value of the company’s financial position.
These steps helped me throughout to understand the situation well and to choose correct course of action. The principle of integrity requires an accountant to be honest and not to be involved in misleading activities. Inflating figures would involve misleading external party who was about to sign a deal with the business. Being an accountant it was my clear responsibility to follow the international accounting standards and present financial accounts honestly . Knowing the fact that stock must be written off, it was against my ethical code to inflate figures and transfer responsibility to auditors.
Since the situation was sensitive and there were affected parties involved, I had to make sure that I have sufficient information to act on such issue. Accountants are required to act professionally and with due care . Hence following this principle, I found it necessary to collect and investigate information regarding the issue. To make sure that writing off is necessary, I investigated company’s stock counting and valuation policies. I identified all factors which prove to be the basis of valuing stock. Professional behavior also required consultation with other experienced staff. Hence I found it useful to discuss the issue with the sales and marketing director. The discussion was over net realizable value of slow moving stock, I made sure that the discussion was recorded and followed by meetings. As managing director tried to persuade me to present misleading information, discussion with others without record could have brought me into a troubling situation. In case managing director is not sympathetic to me, I can raise the issue externally to auditors.
After collecting of facts and information, I was confident enough that stock must be written off at the year end. As I had all information and facts with me, I presented those in front of managing director who was insisting not to write off stock. I mentioned about the discussion with other members of the board and their agreement with my findings. This meeting engaged me in an argument with the managing director and he was not really happy with the way I dealt the matter. He expected that I would look forward for the pay rise and let the accounts be as they are. However being honest to my profession was my first duty and I didn’t let personal interest conflicting with moral obligations . Hence as the issue was raised between other members of the board, managing director could not insist on inflated stock valuation to be incorporated in the financial accounts of the business. The matter was resolved and stock was written off in the year-end financial statements.
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