Wk 6 Ethics in Accounting Paper

Due week 7

Problem statement and how the topic fits with the course, the degree, and your focus area.

Include a reason for the audience to read the paper. Include an overview of what you are going to cover in your paper and the importance of the material.

Preview the main ideas and the order in which they will be covered.

Establish a tone of the document.

Accounting is the process by which financial transactions are monitored, tracked and examined. It aims to provide a means of determining the expenditure levels of an institution and it provides a means of maintaining transparency and honesty in the recording of business transactions. While most accounting is completed using technology, software is easily manipulated by people. Thus, individuals are the least reliable part of the process, as they are susceptible to influence from outside sources and defiant personal decisions. Therefore, the major problem facing accounting is the ethics and morals of the individual accountants. This paper will determine the importance of specific aspects, such as autonomy, confidentiality, professional conduct and integrity and establish the overall ethical characteristic necessary to ensure proper accounting and inhibit fraud.

Autonomy

According to Kant's moral philosophy, autonomy is the capacity of an individual to act based on objective morality rather than personal desires or other influences. In accounting, managers make decisions on their own without the input or approval of higher authorities. In some cases, this self-rule or individuality may affect decisions made due to pressures of the moment rather than the right decisions for the company. In other words, singular decisions made with the aim of bias in the outcome in favour of either a party involved in the process or the decision maker rather than for the greater good is in itself corrupt. Therefore, to ensure decisions are made with the best intentions of the organization, rather than other influences, an individual’s integrity becomes the main defense against unethical actions (Metzger, 2011).

Confidentiality

Confidentiality is the state of maintaining secrecy or privacy on specific issues. In accounting, confidentiality entails the details of the client being protected from the public. The privacy of the details of the client is the foundation that allows the clients to open all their accounts to scrutiny in the audit process. The accountant, being in a position that provides access to information, requires discretion when storing information, as the information they maintain is not protected by law (Snyder, 2011). Ethical problems arise when accounts leverage confidential information for personal benefit, such as sharing or selling client information. Furthermore, ethical dilemmas may surface when fraud is discovered since reporting fraudulent activities takes priority over maintaining confidence. Currently, undefined professional expectations with regard to what must be held in confidence and what should be reported has led to an increase of unintentional and intentional unethical conduct. Once more, focusing on moral values, such as integrity and responsible professional conduct, ethics will be promoted.

Professional conduct

The lack of motivation in fully observing professional conduct may be the cause for discord that has been noted to result in financial crises (Melé, Rosanas, & Fontrodona, 2016). Professional conduct is the regulation of a profession by a regulatory body that guides the members of the body. Professional conduct provisions are standards created for members of a professional body to ensure the quality of services delivered and sets a threshold that is required to meet. The professional conduct of accountants may at times conflict, such as when integrity and confidentiality collide. Instances of fraud may result in the accountant having to debate between maintaining confidentiality as required by the professional conduct or reporting fraud, which may affect conduct. The need to apply ethics in decision-making regarding professional conduct points to an individual being more susceptible to disregarding professional conduct when they deem the infringement to be low level (Bobek, Hageman, & Radtke, 2015). Therefore, it is crucial to highlight the magnitude of moral strength of finance students in professional conduct and decision-making (Shawver & Miller, 2015).

Integrity

Integrity is the binding ingredient that holds the accounting profession together. It is the attribute of being morally upright through the strict observance of moral principles and generally being an honest person. Integrity is the binding moral value that all accounting ethics and professional standards are built upon. It is the essential quality that emboldens accountants to faithfully perform their duties and focus on the good of their client without seeking personal gain. An accountant is required to be candid, honest and direct regarding the financial situation of a client. The breakdown of integrity in accounting can be the result of two factors, lack of ethical standards within an organization or the moral decay of an individual (Metzger, 2011). The existence of organizational and professional standards aids in establishing the levels of integrity expected of an individual.

The Effects of Professional Role, Decision Context, and Gender on the Ethical

Decision Making of Public Accounting Professionals

In the article, The Effects of Professional Role, Decision Context, and Gender on the Ethical Decision Making of Public Accounting Professionals, the authors, Bobek, Hageman and Radtke investigate the scale to which professional roles, decision perspectives, and gender affect ethical decision making of governmental accountants. Considering they are in the same profession as other financiers and accountants; the outcomes of the study can still be implemented in the paper. Nevertheless, the study consisted of over 130 public accountants and concluded that the accountants had a lower probability of conceding with clients in an antagonistic situation. Moreover, they were also less likely to recommend yielding when they were auditing as compared to calculating taxes. It was also identified that, in the context of auditing, public accountants were less likely to yield to clients. When the data was broken down to their basic gender-based analysis, women seemed to demonstrate better decision-making abilities. Overall, the study was designed to estimate the likelihood of public accountants compromising their ethics and conducting activities that can be deemed illegal. By understanding the dynamics that result in unethical behaviors, policies could be developed to curb the probability of unethical professional conduct taking place.

When evaluating the ethical framework or the ethical training needs in the accounting department, managers should break down the entire process in terms of; the professional role of the accountants, the different contexts in which the accountant’s practice and type of gender involved in the accounting situations. Secondly, the management should consider whether the accountant is either an auditor or a tax professional, male or female and whether they operate in the audit or tax environment.

Business Ethics From the Top Down Can Prevent Fraud

Business Ethics from the Top Down Can Prevent Fraud by Burcham, J. provides information on why some individuals turn to fraud. It will provide insight on how certain situations push other employees to fraudulent activities. This reference revolves around the idea of “Tone at the Top”. Burcham’s article suggests that fraud can be caused by the actions of the higher executives in a company. The way executives portray ethical behavior manifests how the rest of the employees behave. Understandably, most people would agree on the importance of a job and career. Individuals work hard to keep their position once they are hired in position, they feel is suitable. When the executives are doing unethical tasks, it ends up trickling down to the rest of the employees as they are afraid to do something about it, for fear of losing their jobs. Everyone fears the thought of standing up to the CFO or even trying to tell someone about what is happening. The article goes on to list what steps should be taken in a workplace to create an ethical environment.

Climate for Scandal: Corporate Environments that Contribute to Accounting Fraud

In the article, Climate for Scandal: Corporate Environments that Contribute to Accounting Fraud, the authors, Crutchley, Jensen and Marshall, examine multiple factors in 97 firms that were under investigation for corporate accounting scandals, to determine the characteristics of the corporate environment that is most likely to support accounting fraud. The firms selected for this research had active investigations ongoing for accounting scandals. The authors found that in most cases, the corporate environment that supports fraud is characterized by speedy growth where extreme earnings appear to be smoothing. In addition, the firms are likely to have very few outsiders on the audit committee while there is some degree of over-commitment by outside directors.

The findings of this study suggest that firms that have a good ethical rating on their accounting practices have a definable corporate environment. This means that by monitoring the environment, managers can predict the likelihood of whether their accountants will engage in corporate fraud. These characteristics can be used as indicators of fraud and could therefore be useful in ensuring that accounting ethics are observed.

Why Good People Do Bad Things: How Fraud Can Happen to Any of Us

In the article, Why Good People Do Bad Things: How Fraud Can Happen to Any of Us, Leslie Kirsch does an excellent job of explaining everything accountants and business leaders need to know about fraud. This article includes statistics of fraud and it goes into detail of why people commit fraud. The topic of fraud prevention is covered as well. Leslie Kirsch makes you understand that there is not one perfect way to prevent fraud. On the other hand, it is crucial to prevent fraud and take the proper steps in the direction of fraud prevention. Leslie Kirsch’s article provides insight geared to answering how ethical standards and other preventative measures reduce fraud. Kirsch’s article will lead us to an answer or several resolutions to the statement we have at hand.

Ethics in Finance and Accounting: Editorial Introduction

The authors of Ethics in Finance and Accounting: Editorial Introduction, Melé and Fontrodona, evaluate the recent financial crisis the nation, as well as the globe experienced in 2007-2008 and states that it is vital for the relationship between finance and accounting to be reflected upon as well as their ethics and efficiencies. Moreover, in order to apply proper ethics and efficiencies, they have to both motivate and empower practitioners in the financial industry. As a result, the practitioners will commit their activities to adhere to the law, fairness, and enhancement of understanding and improvement of personal veracity. The author of the article further introduces works that can be used by various financial and accounting companies to control and measure ethical behaviors and misconduct in the financial sector and overall professional. This is without excluding ethical investments and coverage. This article performs an analysis on the essentials of ethics and partisanship in the financial sector and demonstrates, through examples, how those factors can affect the domestic fiscal environment as well as external economies. Ethics is a necessity when it comes to professional conduct, such as the handling of monetary assets. By understanding how professional conduct and other dependent systems relate, the article identifies the importance of ethics in accounting and finance.

In order to enhance ethics in the contemporary accounting environment, the technical aspects of accounting and finance should be integrated into the actual business activity. This implies that ethics should not only be limited to the accounting rules but also extend to an interdependent system of values that ought to be observed. The accounting and finance departments must promote the ethical values that define the practice of accounting to discourage fraud.

The Keys to Integrity and a Sense of Well-being for Accounting Professionals

In the article, Keys to Integrity and a Sense of Well-being for Accounting Professionals, the author, Lawrence Metzger, defines integrity and discusses briefly the barriers and stumbling blocks that place an accountant’s independence, objectivity and integrity in danger. More importantly, the author defines integrity and observes that a person who chooses to act with integrity, in situations which demands a choice, will create a “sense” of well-being. This sense of well-being is instrumental to an accountant’s professional conduct and overall sense of satisfaction in oneself and one’s profession. The key ingredient, of course, is integrity and the key areas of professional wellness are: sense of agency, sense of the appropriate, sense of wholeness, sense of positive influence, sense of creativity, sense of purpose, sense of character, sense of trust, sense of self and sense of happiness. The intent of this reference is to examine how a deeper understanding of personal and professional integrity will influence and guide the accounting professional through critical ethical decisions they may encounter. Furthermore, the author reiterates that integrity is doing what it is right, even if it results in “negative consequences” and acts of omission are just as unethical as acts of commission. This is important when discerning whether to investigate or report suspected fraud or whether to willfully participate or ignore fraud. More importantly, personal and professional integrity contributes to the sustainability of the elite reputation the accounting profession has strived to foster.

Moral Intensity Revisited: Measuring the Benefit of Accounting Ethics Interventions

In the article, Moral Intensity Revisited: Measuring the Benefit of Accounting Ethics Interventions, the authors of this study, Shawyer and Miller, were determined to understand whether accounting students’ acuity of moral strength could be improved with the aid of ethical interventions in one of their advanced classes. This article plays a critical role in the overall understanding of ethics in accounting as it determines if students from school can perceive ethics and its importance. Nonetheless, from the study, it was identified that ethical decision-making is influenced heavily by the moral strength problem. The controlled experiment measured the change in perception of moral intensity utilizing pre and post-testing instruments. The authors also appreciated the results of other studies stating that they identified moral intensity determined ethics, but the class experiment noted additional data. Depending on the ethical content being presented to the students, it affected their acuity of moral intensity. This information is important as it could be utilized to create a trace to the source of unethical conduct. In general, the study was set to determine if unethical behaviors can be limited through school education thereby having the overall effect of limited unethical behaviors in the financial sector. The data from the study provided the students with a learning opportunity to understand how education can impact ethical professional conduct.

The article suggests that an educational process that follows an advanced accounting course can be used to enhance moral intensity or ethical awareness. In contemporary organizations, professional training can be modeled using such a course. Accountants can be subjected to seminars and workshops where the knowledge gained from the courses is used to solve accounting case studies. This will improve decision making in the context of accounting ethics.

Client Confidentiality and Fraud

“Client Confidentiality and Fraud” written by Herbert Snyder is an article about confidentiality and the potential conflict posed when fraud is detected. The article explored whether the public interest take precedence over confidentiality and looked at instances of other professions which require confidentiality such as lawyers, and doctors. According to AICPA Code of Ethics 1.700.001, Confidential Client Information Rule prohibits the disclosure of any client information without the expressed consent of the client (Accountants, 2016). The exceptions which allow disclosure of the client’s information are for peer review, summons, subpoena and inquiry by AICPA or State Board of Accountancy.

During an audit engagement we should provide great care to protect the client confidential information from being exposed or easily accessed. According to Scott Hillson an audit engagement is independent. The Auditor relationship with the client to render an opinion on the financial statement is not privileged. However, if fraud is discovered the client may want to take steps to protect certain information from being divulge during court proceeding. “A fraud examiner should consider ways in which attorney-client privilege can be protected” (Snyder, 2011).

· Not allowing attendance of a third person to a meeting.

· Not recording information which can destroy confidentiality.

· Limit copies of documents and mark do not duplicate

· Label documents – Privilege and Confidential

According to Snyder a conflict between following a professional obligation to not divulge information or report the fraud when discovered due to ethical values. Just as there is a conflict between professional obligation and ethical values there is also a delicate balance between client confidentiality and the public’s trust. The balance should be on the side of the public’s trust. The nature of accountant-client relationships and the grievous harm when financial misconduct is allowed to occurred makes it difficult to support the professional claim of confidentiality in the face of fraud” (Snyder, 2011).

Embracing Ethics and Morality: An Analytic Essay for the Accounting Profession

In the article, Embracing Ethics and Morality; An Analytic Essay for the Accounting Profession, the authors, Stephens, Vance and Pettegrew, look beyond the standards, principles and laws that were undoubtedly disregarded in accounting scandals of yesterday; such as Enron, WorldCom, AOL and Lehman Brothers and evaluates the failed morality of the accounting profession and society as a whole. In particular, it delves into the ethical behavior and ethical readiness of the present and next generation of accounting professionals. The author searches for reasons that explain why moral values have declined and asserts the purpose of ethical training should be about conduct and decision-making that seeks the good of others and doing what is right because it is right. He contrasts the decision for right behavior based on values and virtue against morals that imposed by rules and behavior modification based on fear of punishment of breaking said rules. Accordingly, the article explores high-school students’ tendency toward cheating, lying, and stealing, which paints a bleak picture for the future of accounting professionals. More specifically, it suggests that students believe there are not absolute standards for moral and ethics, and have a disregard for personal responsibility and accountability. It further gives negative outlook on the effects of ethical education and standards, as “most ethicists agree that an individual’s value system is fully developed by the time he reaches college and that further education can do little to change that” (Stephens, Vance & Pettegrew, 2012). As such, the author analyzes the six stages of moral reasoning and explains that most people fail to reach the last two stages. Thus, the article exposes the desperate need for a professional class of accountants that will exhibit a higher level of integrity and higher moral reasoning, that moves beyond being ethical because it’s the rule, regulation or law. The intent of this reference is to further our underlying theory that integrity and the careful development of said virtue is the cornerstone of ethical accounting. Honesty, trustworthiness and decision to do what is right are the super powers to win the battle against fraud.

Accounting Ethics in Unfriendly Environments: The Educational Challenge

In the article, Accounting Ethics in Unfriendly Environments, the authors Tormo-Carbó, Seguí-Mas and Oltra engaged 551 students at a Spanish University to investigate the significance of accounting ethics. They investigated how the students viewed the goals of accounting ethics education in unfriendly environments. They also investigated the role of gender, previous business ethics courses and age in determining the students’ views and perceptions about ethics’ courses. The authors found that Students who had undertook previous business ethics courses were more interested in introducing accounting ethics to the curriculum. Additionally, female students and older ones were found to be more inclined towards ethical courses.

Based on the results of this study, organizations may desire to screen for previous enrollment in ethics courses when introducing advanced accounting course. Accountants with previous experience should be identified as advocates for the new course. Similarly, female and older accountants may be preferred to lead teams that are involved in ethics related training.

The effects of fraudulent activities in an economy are far reaching. Unethical behaviors harm individuals, firms and the economy at large. Accountants play a vital role in ensuring the reliability and trustworthiness of accounting data and influence the moral culture of business and society. In order to achieve this, accountants are advised to observe the American Institute of Certified Public Accountants (AICPA), Professional Code of Conduct. This ethical professional code requires accountants to have a high level of integrity, to maintain confidentiality and behave according to a high degree of professional standards. Undoubtedly, private and public organizations employ professional accountants who are required to provide financial information regarding its business transactions. In the course of business, accountants may encounter situations where they feel compelled or pressured to provide false financial information and/or alter financial results. These events create a threat to the moral and ethical character of an accountant and are known as ethical dilemmas. Ethical dilemmas test the moral system or ethical code of an individual, an organization and a profession. In these cases, individuals must choose whether to remain steadfast in their moral values or act contrary to what they personally believe or what has been established by ethical code.

In the event an individual chooses the later, fraud is inevitable. Accounting fraud involves the intentional manipulation of financial information, which misleads shareholders, creditors, investors and the general public. These actions are premeditated attempts to deceive and attract investors by intentionally altering financial statements. Often, this is accomplished by overstating revenue and assets and under reporting expenses and liabilities. Perpetrators of accounting fraud are employees, managers, accountants and top executives. In an effort to reduce business fraud, ethical codes have been instituted within corporations, industries and state and national accounting boards. For certified public accountants, the AICPA Code of Professional Conduct has been adopted to tackle the ethics of accounting.

Professional Conduct Diminishes Fraud

An accountant’s professional conduct is a key quality used to minimize fraud. As mentioned, state accountancy boards and the AICPA are authorized to formulate and enforce professional standards for all accounting members. The AICPA Code of Professional Conduct was recodified in June 2014, and became fully effective in December 2015. This code of conduct requires all accountants to act with integrity, due care, objectivity, competency and ensure confidentiality for their client. In addition to this, accountants are required to disclose any conflict of interest in their work and to ensure that their clients are aware of any referral fees and commissions. Moreover, the obligation to guard public interest is required to be met by accountants. Steven Mintz writes, “the public relies on the ethics and professionalism of CPAs to protect their interests. Professionalism is demonstrated by behavior that is consistent with the ethical obligation to serve the public interest…” (Mintz, 2018). Reasonably, aligning the conduct of accountants though an obligation to conduct their activities to serve the public good, and not their employers, investors or themselves, will reduce the temptation to commit fraud. In this manner, strengthening the accountants’ determination to conduct and execute their duties faithfully and confidently thereby diminishing the opportunity for fraud.

Integrity Withers Fraud

Without a doubt, integrity is the fundamental ingredient necessary for all professionals. It is the essential character trait that dictates the professional and ethical actions of an accountant. Accountants who have strong moral values and who are honest in conduct will help to eliminate accounting fraud. As mentioned, the AICPA has been entrusted with the responsibility of ensuring and developing professional ethical values in accounting. The key attribute and cornerstone to the entire code of ethics is integrity. “Having integrity means acting out of moral principle and doing what is right, even if there are negative consequences” (Metzger, 2011). In basic terms, integrity is choosing to do the right thing because it is the right thing to do. It requires accountants to be honest in their work, to be candid and forthright with the financial information of a client. An accountant with high integrity restricts themselves from any personal gain or advantage in the cause of their work through the utilization of important information. Moreover, integrity restricts accountants from manipulating financial information intentionally or for any other reason other than to correct accounting errors. Instilling and insisting that accounting professionals maintain high levels of integrity has a significant impact on reducing fraud. Accountants with high integrity will not alter or allow any unnecessary manipulation of financial information for personal gain or gain of a third party. In fact, accountants with high integrity will forego their work when pressured by employers to manipulate financial information. Undeniably, this ethical fortitude and commitment to professional integrity will uphold the accounting industry and shrink fraud.

Accounting fraud is estimated to cost an organization approximately 5% of revenue per year. In 2016, the Association of Certified Fraud Examiners (ACFE) found that $6.3 billion in total losses occurred due to fraud, with an average of $2.7 million per company. These are extraordinary losses and every possible measure should be deployed to ensure the reduction of fraud cases. In addition to accountants and accounting regulatory bodies essential role of adhering to and implementing ethical rules, other measures to reduce fraud should be engaged. According to the ACFE, the greatest detection method of fraud is whistleblower tips. Organizations should consider instituting hotlines or other systems of anonymous reporting to encourage employees to report ethical violations (ACFE, 2016). Of course, other detection methods should also be engaged. Businesses should also consider installing technology, such as surveillance and monitoring systems to detect and minimize fraud. Unfortunately, these fraud barriers alone will not eliminate fraudulent activities. With that said, it important to encourage current professionals and future accountants to grow in their moral reasoning. William Stephens explains in his article, Embracing Ethics and Morality, that most young adults have not reached the highest levels of moral reasoning described by Kohlberg’s cognitive framework of ethical behavior. He further explains that most people have stopped at stage four, which says ethical behavior is dictated by punishment and reward. Thus, it is recommended that colleges, universities and accounting authorities develop studies that cultivate moral teachings that will move accountants to higher stages of reasoning, stage five and six, which say that ethical actions are based on the welfare of others and because principally moral actions are the right thing to do (Stephens 2012). More importantly, today, accountants can recommitment to truthfulness in financial transactions along with the continued professional investment and development of ethical values. Ultimately, it is human virtue and the high righteousness of actions and deeds that will positively affect the financial integrity of business and our society, thereby extinguishing fraudulent activity and our overall moral decline.

Summarize your work and your findings. The conclusion should include a recommendation. Summarizing is similar to paraphrasing but presents the gist of the material in fewer words than the original. Identify the main ideas and major support points from the body of your report. Minor details are left out. Summarize the benefits of the ideas and how they affect the profession, company, or public.

Accountants, A.I. (2016). AICPA Code of Professional Conduct. AICPA.

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