ETHICAL AND LEGAL ISSUES IN BUSINESS
Several accounting fraud cases have been reported recently, some involving big companies such as Worldcom and Enron. One thing that these cases have brought out is that there are many ethical and legal issues involved in financial and accounting reporting. It is a probable case that such accounting malpractices such as the ones recorded by Worldcom and Enron date as far back as when financial transactions started being recorded. Technology has become an integral part of many business operations, including financial and accounting monitoring. The integration of technology into this business operation has brought out such issues as security threats due to hacking, system crashes, improved speeds, and training employees on how to use the technology.
Ethics is an important aspect of accounting and financial monitoring as the information provided by this business operation is relied on by various stakeholders such as investors while making important decisions. It is therefore necessary that high ethical standards are maintained in this operation. Ethical knowledge is hence important as it helps accountants and financial managers make correct decisions when in ethical dilemmas. An example of the importance of ethics in accounting is the case of Enron which for many years had been giving false financial statements. The company’s auditor, Arthur Andersen, ignored the inaccuracies in the statements and accepted them as valid. What followed is a sad case of shareholders losing up to $25 billion after Enron was declared bankrupt; the auditing company was also closed resulting in the sacking of about 85,000 employees (Rosenwald, 2007, para 2). This incident shows that there is an increasing need to train accounting officers on the importance of ethical behavior and to closely monitor them to ensure that this happens.
After the Enron incident in 2002, President Bush accented to the Sarbanes-Oxley Act which was a congressional move to avoid the repeat of such an incidence. This Act established the Oversight Board for Accounting in Public Companies (PCAOB), which has five members and is in-charge of overseeing all auditing in public companies and also ensuring that ethical procedures are followed in doing the same (Elliot B. & Elliot J., 2009, p. 109). This incident helped highlight a major ethical issue in financial and accounting monitoring, though ethical procedures were emphasized, a third party was necessary to authoritatively ensure that these procedures were actually being used.
The integration of technology in financial and accounting monitoring has brought about several issues; the need to train employees on using financial and accounting reporting soft wares such as an ERP, the susceptibility of financial and accounting reports to malicious alterations by hackers, digital data is easy to manipulate, and the need to constantly update financial and accounting reporting technologies within an organization with innovation in that sector.
Training of employees on using current technology in financial and accounting reporting is important for any organization that seeks to maintain a competitive edge in the market. This is because failure to do so may lead to slow and inaccurate reporting which would consequently affect the accuracy in decision making. Another technological issue is the high risk that financial and accounting reports are exposed to due to the fact that they can easily be hacked all altered. This therefore calls for companies to invest more on online security measures to ensure that their financial reports are secure from malicious hacks. Another technological issue in financial and accounting reporting is the fact that digital data is easy to manipulate and hence the need for auditors and other regulators to ask for hard data to ensure the validity of financial reports.
All the above issues show the complexity of financial and accounting reporting that managers face in their day to day operations. It is hence necessary that each issue is addressed comprehensively to ensure the smooth flow of these operations, to increase company efficiency, and to avoid incurring losses due to fraudulent practices or government sanctions.
REFERENCES
Elliot, B. & Elliot, J. (2009). Financial Accounting & Reporting. New York: Prentice Hall
Rosenwald, M. (2007). Extreme (Executive Makeover). Washington Post. Retrieved from
http://www.washingtonpost.com/wp-
dyn/content/article/2007/09/09/AR2007090901619.html
