Ethical issues encountered by accountants

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The King Report on Governance for South Africa recommends that the boards of companies should ensure that the company’s ethics is managed effectively.

But how does it impact on accountants if ethical guidelines are not adhered to?

No one will disagree that ethical behavior is necessary in the accounting profession, as the consequences of unethical behaviour by accountants can be disastrous for the companies concerned, as well as for the accountants themselves.

Often though, accountants are pressured into unethical behaviour by management, even if it simply is to make the company’s performance look better by moving revenue entries from one year to another.

In an article in the Houston Chronicle, author Jonathan Lister describes ethical issues frequently encountered by accountants:

Pressure From Management
The burden for public companies to succeed at high levels may place undue stress and pressure on accountants creating balance sheets and financial statements. The ethical issue for these accountants becomes maintaining true reporting of company assets, liabilities and profits without giving in to the pressure placed on them by management or corporate officers. Unethical accountants could easily alter company financial records and maneuver numbers to paint false pictures of company successes. This may lead to short-term prosperity, but altered financial records will ultimately spell the downfall of companies when the Securities and Exchange Commission discovers the fraud.

Accountant as Whistleblower
An accountant may face the ethical dilemma of reporting discovered accounting violations to the Financial Accounting Standards Board. While it is an ethical accountant’s duty to report such violations, the dilemma arises in the ramifications of the reporting. Government review of company financial records and the bad press caused by an accounting scandal could cause the company’s rapid decline and may lead to the layoff of thousands of employees. Executives and other corporate officers could also face criminal prosecution, leading to heavy fines and prison time.

The Effects of Greed
Greed in the business and finance world leads to shaving ethical boundaries and stepping around safeguards in the name of making more money. An accountant can never let the desire to earn a better living and acquire more possessions get in the way of ensuring that she follows ethical guidelines for financial reporting. An accountant who keeps her eyes on her own bank account more than on her company’s balance sheet becomes a liability to the company and may cause real accounting violations, resulting in sanctions from the SEC.

Omission of Financial Records
A corporate officer or other executive may ask an accountant to omit or leave out certain financial figures from a balance sheet that may paint the business in a bad light to the public and investors. Omission may not seem like a significant breach of accounting ethics to an accountant because it does not involve direct manipulation of numbers or records. This is precisely why an accountant must remain ethically vigilant to avoid falling into such a trap.