Abstract
Ethics is one of the most important aspects in accounting yet most often it is misunderstood and misinterpreted in different organizations in an effort to suite their disclosure grounds. Many researchers have blamed various aspects to this trend. For example, some researchers have turned to the learning institutions as a blame for producing half-baked students who fail to meet fundamental entry to the employment industry. For this reason, the employers are forced to enroll these candidates into other classes in an effort to equip them for the workplace environment. However, since the organizations do not have all the time to take these candidates through comprehensive syllabus as would be required, they end up giving them clash-programs that fail to address ethical issues that later becomes evident of these occurrences. Some researchers on the other hand turn on accounting standards gaps for which unscrupulous personnel in the accounting departments utilize for personal as well as corporate gain and thus bury potential risks under the David-Jones locker. This essay is a preview of accounting anomalies as far as ethics is concerned and the profound effects that these anomalies have on accounting and other sectors in the organization.
Ethics in Accounting
In the field of accounting, there have been two parallel issues that have continued to bug the industry for which some have taken the existing gaps to capitalize on it for increased profitability. The issues in questions are the professional code of conduct for accountants in various parts of the world and the ethical consideration in accounting. In either case, there have been immeasurable amounts of questions that have emanated from these topics especially those that regard to the legal aspects of the codes and ethics. In actual sense, the accounting sector has been more of a battle field with organizations striving to increase their profits by all means necessary and in return turning their backs on issues that would bar the organizations from attaining profitability.
In respect to this, large multinational accounting corporations have over the years blatantly violated ethics codes with impunity knowing that they have enough money to hire top legal representatives in the event of law suits cropping up. Additionally, due to the stupendous amount of money at their disposal to cover-up such cases and burying any legal firm that tries to take up cases against them, with enough paperwork to last several years, many people are afraid to take on such giants.
The only solutions have been in looming crisis or even collapse of such corporation, are the extent of their misnomer fathomed. The one-million-dollar question that needs to be asked is; are the ethical issues and professional code issues as serious as they may be perceived or are these just hypes by malicious researchers? If these issues are serious, what remedy and concoction best treat this ailment in the accounting field? These will be to questions, among others, that are intended to be addressed in this essay.
i) Professional Challenge
According to Chaker and Abdullah (2011), there have been enormous amounts of questions that have been raised and keep being raised as far as the education sector and accounting performance is concerned (p. 193). For example, there has been an ongoing debate as to the extent to which accounting students are equipped for the workplace market (Chaker & Abdullah, 2011, p. 193). The researchers continue to note that universities have continued to ignore the most fundamental issues as far as equipping the students with ethical skills is concerned (Chaker & Abdullah, 2011, p. 193).
According to a number of research work as reported in Chaker & Abdullah (2011, p. 194), it is evident that the American employers are not amused by the students that are coming from the universities since they are ill-equipped to the current environment. According to research in UK on the level of students coming from the university to the job market, it is noted that these students lack what the market value most, which include management accounting, pressure management skills, oral and written skills in addition to the ability to integrate in teamwork, that are essential ingredients for professional code of conducts (Chaker & Abdullah, 2011, p. 194).
Cowton (2009) on professional challenge noted that, while it is widely agreeable that there is an increase in skill specialization, it was also noted that most of these skills are theoretical in place of practical (p. 178). Cowton (2009) continues to note that, as far as accounting is and ethics is concerned, it is a necessity that deployment of what is learnt is done through judgment and discretional analysis in addition to following rules and regulations (p. 178). For requisite skills and knowledge, it is ordinarily required that students undergo intense training that happens over a long period to ensure that the students have grasped the concepts therein (Cowton, 2009, p. 178). This formal education in most cases comprises of an examination or a set of examinations and certification upon successful completion of their courses (Cowton, 2009, p. 178).
The one thing that the universities and other learning institutions have in common is the underlying ability to enjoy independence coupled with self-regulation that makes them have control over the vast knowledge base (Cowton, 2009, p. 178). However, the membership criteria as well as entry standards are also controlled by these individual institutions that also take pride in disciplining their members (Cowton, 2009, p. 178). For this reason, these institutions ensure personal as well as financial rewards to those that ensure that the institutions elope the noose of ethics as far as they can remain profitable (Cowton, 2009, p. 178). The main problem identified in this case is the fact that there exist contradictions as far as law interpretation (Cowton, 2009, p. 178).
Cowton (2009) obdurately portray that there is no way that accounting ethics are going to be perfect (p. 188). Cowton (2009, p. 188) notes that while ethics is one of the most serious businesses, it is important to note that accountants too are serious in their work and thus when wicked accountants are under an organization, they are able to swiftly maneuver their way through these standards (Cowton, 2009, p. 188).
ii) Skill Requirements for Accountants
According to Chaker and Abdullah (2011), the term skill is defined as capabilities within an individual that comprise of knowledge, ethics, professional values as well as attitudes while performing accounting and other tasks as assigned in the accounting sector within an organization (p. 194). There are five crucial categories under which the required skills for accounting professionals fall into and they include: intellectual skills which by definition are the ability of an accountant to analyze, perform evaluations, synthesize available information as well as think critically on matters and challenges provided to them (Chaker and Abdullah, 2011, p. 194). It is noted that the aforementioned skills are necessary ingredients for palpable decision-making and problem solving in addition to the potential of exercising good governance (Chaker and Abdullah, 2011, p. 194).
Secondly, Accountants are expected to have functional as well as technical skills (Chaker and Abdullah, 2011, p. 194). These are skills that are specific to the accounting profession in addition to general skills that include numeracy, measurement, and knowledge in regulatory and legislative requirement, risk analysis and decision making as well as reporting (Chaker and Abdullah, 2011, p. 194).
Thirdly, it is expected that accountants ought to possess personal skills that are required for interpersonal communication and teamwork and they also include personal abilities in addition to personal capabilities and attitude towards specific tasks assigned to them (Chaker and Abdullah, 2011, p. 194). These skills are essential and crucial as far as personality development is concerned as well s a crucial aid in individual learning as noted by Chaker and Abdullah (2011, p. 194).
Fourthly, it is the expectation of the employer organization that the accountant should possess interpersonal skills that are capabilities that are aimed at helping the accountant work well in conjunction with the others for the welfare and progress of the organization (Chaker and Abdullah, 2011, p. 194). The main reasons that this is important is the fact that accountants are expected to be in a position to influence, resolve conflicts, motivate the team as well as task delegation to various team members in an effort to achieve organization goal (Chaker and Abdullah, 2011, p. 194). All the aforementioned skills demand that the accountant should have outstanding communication skills.
As far as communication skills are concerned, it is good to note that they are skills that make it easier for an accountant to convey, listen, discuss as well as defend their views and both oral as well as written forms in formal and/ or informal setting (Chaker and Abdullah, 2011, p. 194).
Last but definitely not least is the business and organization management skills that encompasses short- and long-term planning, managing resources and people alike, leadership, project management, decision-making as well as professional judgment (Chaker and Abdullah, 2011, p. 194).
iii) Examples of Scandals
It is noted in the works of Chaker and Abdullah (2011) among other researchers that there have been recorded increases in the number of fraudulent accounting practices (p. 198). For this course, there have been increasing concerns as well as measures to try to curb this worrying trend (Chaker and Abdullah, 2011, p. 194). There have been noted major anomalies as far as hiring is concerned especially with regard to the hiring practices by big accounting firms and multinational corporations (Chaker and Abdullah, 2011, p. 194). Glitches in accounting profession have been found to have tremendous and ravaging effects on the industry that has been affected (Chaker and Abdullah, 2011, p. 194).
A good example is noted in the works of Kalbers (2009). It is noted that the past two decades has seen turbulent times as well as an increase in scandals that have led to reforms in the financial reporting, ethics in corporations and corporate governance particularly in U. S. A. (Kalbers, 2009, p. 187).
It is noted that as of 19th October 1987, the Dow Jones Industrial Average (DJIA) experienced its worst fall in history dropping a whopping 22.6 % to a staggering 1738.74 (Kalbers, 2009, p. 187). To make matters worse, the drop happened in one day. Although there is no enough literature that incriminate malicious activities in the stock market, there are gargantuan amount of literature that point to the fact that there were too many anomalies in the financial reporting standards and systems of the member organizations (Kalbers, 2009, p. 187). It is also noted that the effects of this market/ stocks crash led to subsequent crash of stock markets in other regions of the world leaving behind devastating effects especially for that had invested in these markets (Kalbers, 2009, p. 188).
About a decade after that incidence, there was the incident of the Middle East financial crisis following the bust of the economic acceleration bubble. As if this is not enough, there was a recent financial crisis, another decade after the Middle East crisis whose effects reverberated throughout the world’s stock market, two decades after the 1987 one in U.S.A. (Kalbers, 2009, p. 188).
While the 1987 market crash was taking place, there had been a 2 year investigation that was being concluded on fraudulent financial reporting which was published that same month of the stocks crash (Kalbers, 2009, p. 190, 191).
Another mind-blowing example that has raised stakes over the years is the collapse of the Enron Company in 2000 (Onyebuchi, 2011a, p. 275). But most recently, the largest yet reported scandal on Wall Street Journal is the story of Lehman Brothers Holdings Inc. that has continued to elicit enormous amount of debate as to the comprehensiveness of financial reporting standards (Chang, Duke & Hsieh, 2011, p. 33).
According to the report, Lehman Brothers had been deceiving their shareholders of increase in sales by bending the Repo 105 provision under which they were able to murky the shareholders of $ 50 billion worth of liabilities over the past ten years (Chang, Duke & Hsieh, 2011, p. 33). The corporation saw loopholes in the financial reporting standards and capitalized on these loopholes to increase profitability as well as place the company in a position to lend more money due to the liquidity opportunity so created (Chang, Duke & Hsieh, 2011, p. 33). These among many other cases not represented here have had devastating effect on consumer confidence (Onyebuchi, 2011b, p. 77) for fears of economic meltdown, falsification, failures in audit, inaccurate financial reports and records (Onyebuchi, 2011b, p. 77).
iv) Role of Ethics
In their classification of financial institution, there were institutions that were rated as high quality while others were rated fraudulent depending on their financial disclosure and other accounting factors (Kalbers, 2009, p. 195). In other organizations, their financial reporting/ accounting behaviors are not necessarily fraudulent/ illegal but they are unethical (Kalbers, 2009, p. 195). There is an excuse that many organizations like to use that accounting is not in any way an exact science and hence different organizations and institutions interpret different standards in diverse ways that suite their needs for liquidity gains or for cover-up.
In most cases, there has been emphasis on corporate code of ethics as a more powerful guideline that can help diminish these cases of fraudulent accounting (Kalbers, 2009, p. 195). It is additionally noted that corporate rules and regulations are not enough but cultivating a transparency culture is the key to fraudulent-free accounting.
a) Payoff Challenge
There are several questions that arise from applying ethics in financial accounting and reporting. For example, in the works of Cowton (2009) it is noted that there are increased concerns as to the payoff that applying ethics to the organization have (p. 180). For institutions whose main aim is to acquire as much market share as they can gluttonously acquire is the ultimate goal regardless of the path so taken. In many cases, questions to the effect of whether one can actually excel while doing good have flooded many research works and thus leading to questions like, how many ethical organizations are there, if at all there exists such organizations in the first place?, (Cowton, 2009, p. 180).
b) Practical Challenge
It is noted that while some organizations might be striving to ensure ethics in their operations, it is noted that there exists a great deal of variation both in content as well as intent of incorporating ethics in accounting (Cowton, 2009, p. 183). A challenge for policy makers as well as corporate come in the implementation of rules and balancing these rules with the principles of the organization that causes friction in practice and thus lapse in application by many organizations (Cowton, 2009, p. 183).
Cowton (2009) continues to note that it is inevitable that there will always be ambiguity there is no way rules are going to cover all the necessary aspects of ethics (p. 183). Due to this gap, it is therefore important that organization principles are emphasized so as to try to bridge the gap left by these rules and regulations (Cowton, 2009, p. 183).
v) Accounting Standards and Gaps
Referring back to the case of Lehman discussed earlier, it was noted that the company accountants found a way to manipulate the rules and regulations laid down for financial reporting and disclosure such that the accrued liabilities through Repo (repurchase agreement) was deliberately increased so that the required threshold for reporting that as sales in place of liability was reached (Chang, Duke & Hsieh, 2011, p. 34 +). In so doing, the company was able to stand a chance for increasing its liquidity while deliberately keeping the real risk from its stakeholders and thus resulting to investors investing without knowing all the stakes in play. This is an issue of ethics over professional conduct. Professionally, they had met the requirements to classify their Repo liabilities under sales. Ethically, they had exposed their stakeholders to very high risks without letting the stakeholders know about these happenings.
vi) The way forward
Since the challenges are there, it would be incorrect to assume that since rules cannot cover comprehensively ethical and regulatory grounds, they can be done away with. Evidence has shown that accountants cannot be relied upon in transparency matters. This means that there is need for regulations from different bodies like the International Federation of Accountants (IFAC) for regulatory purposes (Clements, Neill & Stovall, 2009, p. 383, 385).
The passage of regulatory laws like the Sarbanes-Oxley Act of 2002 to protect consumers and investors is quite crucial in paving the way forward (Onyebuchi, 2011a, p. 275). Additionally the rules are meant to safeguard corporate assets by avoiding falsification and unnecessary law suits.
Additionally, there is need to create proactive monitoring institutions that work independently so as to ensure that ethics in corporations is followed. For orchestrators and perpetrators of crime, more stringent measures should be taken such that those having such notions would think again before executing their malicious plans.
Conclusion
In conclusion, it is evident that ethical issues are on the rise in the accounting sector. To make matters worse, large multinational corporations are blatantly breaching ethics with impunity knowing too well that there are few firms that would take legal actions knowing well that such corporations have teams of legal representatives under their noose. In this essay, the learner took a closer look at ethical issues in accounting sector as deliberated in past research works by credible researchers. Based on their findings, it is clear that setting rules and regulations to govern corporations would not address fundamental ethical issues and thus the need to emphasize on corporate principles as an empowering for better ethics considerations to avert a repeat of similar occurrences like that of Enron and Lehman Brothers Holdings Inc. that brought great shame to the country. Additionally, it is important to note that accountants are faced with many temptations to get rich quick and this habit can be averted by having proactive monitors in the system to ensure that whatever activity that goes on in the organizations is closely monitored to protect the public as well as the corporate image and assets.
References
Chaker, M. N., Abdullah, T. A. T. (2011). What accountancy skills are acquired at college? International Journal of Business and Social Science, 2(18), 193-199. Retrieved from http://search.proquest.com/docview/904529688?accountid=45049
Chang, C., Duke, J., & Hsieh, S. (2011). A loophole in financial accounting: A detailed analysis of repo 105. Journal of Applied Business Research, 27(5), 33-39. Retrieved from http://search.proquest.com/docview/889140206?accountid=45049
Clements, C. E., Neill, J. D., & Stovall, O. S. (2009). The impact of cultural differences on the convergence of international accounting codes of ethics. Journal of Business Ethics, 90(01674544), 383-391. doi: 10.1007/s10551-010-0417-1
Cowton, C. J. (2009). Accounting and the ethics challenge: Re-membering the professional body. Accounting and Business Research, 39(3), 177-189. Retrieved from http://search.proquest.com/docview/198200323?accountid=45049
Kalbers, L. P. (2009). Fraudulent financial reporting, corporate governance and ethics: 1987-2007. Review of Accounting & Finance, 8(2), 187-209. doi: 10.1108/14757700910959510
Onyebuchi, V. N. (2011a). Ethics in accounting. International Journal of Business and Social Science, 2(10), 275-276. Retrieved from http://search.proquest.com/docview/904512723?accountid=45049
Onyebuchi, V. N. (2011b). Perceptions of male and female accounting majors and non-accounting majors on ethics in accounting. International Journal of Business and Social Science, 2(17), 74-78. Retrieved from http://search.proquest.com/docview/904523056?accountid=45049
