Ethical competence and moral grasp of the right business practice - Essay Example

? I. Introduction: Given the recent scandals that rocked the corporate and financial world, it now becomes an imperative that each individual entering into the corporate and financial industry must have a sound ethical foundation to avoid similar occurrences in the future. And it should begin right in the academe where future players in the industry are being trained and prepared. It is now important because the neglect and disregard for considering ethical practice in business has contributed to the recent financial and mortgage breakdown that stemmed from greed and lack of ethical practice. During the past decade there have been numerous accounting scandals that have caused corporate collapses which have shaken the financial arena and created huge losses for investors, the present financial crisis of the latter part of 2008 revealed the greatest challenges yet. The majority of these collapses were caused directly by the unethical behavior of CEO’s, directors, officers and employees who misrepresented the financial condition of the corporation by providing misleading financial information (Ashe & Nealy, 2010, pg. 1). Public accounting firms as being a “part of the contemporary ‘enterprise culture’ that persuades many to believe that ‘bending the rules’ for personal gain is a sign of business acumen.” This stands in stark contrast to the differentiating public interest perspective of a profession, and we suggest that cultural change in the profession is necessary for real and lasting change to occur (Stuebs & Wilkinson, 2010, pg. 30). Such, this paper is prepared by the undersigned to show ethical competence and moral grasp of the right business practice as he prepares himself to enter the corporate world and before taking the CPA board exam as a certification of competence on the field of Accountancy. II. Subject of Ethical Issue and Dilemma for Discussion The ethical consideration that the undersigned would like to discuss would be the common misdemeanor that accountants make. As the accountant is usually in-charge of the books of the company, they are usually responsible for preparing the company’s financial statements. With such nature of responsibility, comes the temptation for accountants to “cook the book” or “window dress” to make the financial statements of the company look good to serve selfish interest. There are several reasons why an accountant does this. First, it may have been under the prodding and order of a superior to “skew or massage the numbers” to the company’s favor. Second, to make the company look good as it reports to the public with regard to its performance or to potential investors who would like to put their money in the business. Or, to pad the expenses so that the net earnings would appear to be low compared to actual earning and thus, requiring the company to pay only minimal taxes. The ethical dilemma comes in especially when the Accountant is being asked by a superior whether explicitly or implicitly to be “creative” with the books to serve the end of the company. This can be quite difficult for an accountant as he/she may be admonished for insubordination which may result from losing one’s job especially in today’s difficult times. Also the Accountant may become sympathetic to the company. It being the source of his/her employment, the Accountant may be tempted to “window dress” the company’s financial statements to preserve it and his/her job to the detriment of the interest of the general and investing public. III. The American Institute of Certified Public Accountant Code of Conduct Instituting ethical practice among Financial Professionals is critical not only for the sake of being ethical in the practice of a profession but also to prevent the dire consequences if such unethical behavior becomes pervasive. For this malpractice has singlehandedly caused the recent financial disaster that “no other single issue is of greater concern to accountants in industry and public accounting than ethics. If the public cannot place confidence in accountants and business people in general, then survival of the U.S. economic system and the world economy may be placed in jeopardy (Ernst & Young, 2008; Ethics Resource Center, 2009; Grant & Visconti, 2006; Heminway, 2007; Holder-Webb & Cohen, 2007; Scandal Scorecard, 2003; Smith & Bain, 1990; Xifra, 2009). Such that, it becomes imperative that each accountant should refer to an AICPA ruling when confronted with such dilemma to ground his professional practice according to proper ethical standard. In the case stated in this paper where an Accountant might be tempted to “cook the book” or “window dress” the financial statement to make the company look good in its reporting to its investors or padding the expense to reduce net earnings in the book with the end of paying lower taxes, AICPA provided clear guidance stating ruling that; 02 102-1—Knowing misrepresentations in the preparation of financial statements or records. A member shall be considered to have knowingly misrepresented facts in violation of rule 102 [ ET section 102.01] when he or she knowingly (www.aicpa.org)— a. Makes, or permits or directs another to make, materially false and misleading entries in an entity’s financial statements or records; or b. Fails to correct an entity’s financial statements or records that are materially false and misleading when he or she has the authority to record an entry; or c. Signs, or permits or directs another to sign, a document containing materially false and misleading information. This is furtherly supported by another ruling in AICPA in ET Section 57 - Article VI - Scope and Nature of Services  Part of 01. . Integrity requires that service and the public trust not be subordinated to personal gain and advantage… This is furtherly validated with another ruling that; 04 102-3—Obligations of a member to his or her employer's external accountant. Under rule 102 [ ET section 102.01], a member must maintain objectivity and integrity in the performance of a professional service. Clearly, AICPA promotes the highest ethical standard among Financial Professionals. It promotes integrity among its member as one of its pillars. It also admonishes its members not to misrepresent or falsify accounting records and requires objectivity to serve public trust. This is being reinforced by penalizing erring members. Its disciplinary action ranges from admonishment, suspension to termination that it even publishes those who are under disciplinary action for others to be made aware of. Further, it clarified and elaborated integrity, to be the fundamental value and hallmark of the Accounting Profession. It stated; 01. Integrity is an element of character fundamental to professional recognition. It is the quality from which the public trust derives and the benchmark against which a member must ultimately test all decisions. 02. Integrity requires a member to be, among other things, honest and candid within the constraints of client confidentiality. Service and the public trust should not be subordinated to personal gain and advantage. Integrity can accommodate the inadvertent error and the honest difference of opinion; it cannot accommodate deceit or subordination of principle. 0.3 Integrity is measured in terms of what is right and just. In the absence of specific rules, standards, or guidance, or in the face of conflicting opinions, a member should test decisions and deeds by asking: "Am I doing what a person of integrity would do? Have I retained my integrity?" Integrity requires a member to observe both the form and the spirit of technical and ethical standards; circumvention of those standards constitutes subordination of judgment. 04. Integrity also requires a member to observe the principles of objectivity and independence and of due care. IV. But Why Does Malpractice Still Happen? Perhaps the most prevalent reason that can be deduced why malpractice still happens in the accounting profession is due to private greed and the subordination of public interest to personal good. Also, the tendency of prevailing values that puts premium on the accumulation of wealth and career advancement without regard of the ethical framework. People are just too preoccupied in the “rat race” that they overlooked the social dimension and the responsibility of their profession to the public at large. As the primacy on professional advancement and accumulation of wealth are overly emphasized, consideration on ethical particularism is being relegated as a liability and contingent on the consideration of serving a particular mundane end. This however becomes dangerous, especially when it becomes the norm as it can wreck havoc on the economy and will erode public trust. As Young had pointed out, that this lack of ethical consideration is the single culprit that caused the recent corporate scandals that rocked the corporate world. Moral or ethical particularism, in the practice of Accountancy should not be contingent of a particular suitable need but should be unbending and uncompromising for it to serve the investor and public good. This should not be the case however, in the ideal practice of the accounting profession, Dancy elaborates, . . .moral thought and judgment does not depend upon the provision of a suitable supply of moral principles (Dancy, 2004:7, pg. 116) . . . if they are to function in moral judgment at all, should: determine "the moral status of every action", explain the moral status of every particular action; and must "be capable of functioning as a guide" to action in new cases. So principles are not simply guides to action in particular cases. . . every particular prescribed (or proscribed) action can be identified as such because of some principle. Principles also perform the task of explaining why a judgment is appropriate in each particular case (Smith, Dubbink , 2010, pg. 212). In short, principles ethics are not just suggestions and only considered when deemed expedient and subservient to an organization or personal goals. It should be the beacon that lights the way and the compass that should guide all the acts of an Accounting Professional especially today where public trust is very volatile due to the scandals that rocked the corporate world which reverberated to the economy and significantly contributed to the recent economic recession in the United States and elsewhere in the world. Professional responsibilities of technical competence and service-oriented character build trust (Covey 1989; Covey et al, 1994). Fundamentally, what is needed for real character development is a renewed commitment to, communication of, and training in professionalism (Sikka and Hampton, 2005, pg. 329) V. Conclusion How to Avoid It Accounting Malpractice AICPA rules on padding expenses, window dressing and cooking the book is clear; that the Accounting Professional should dispense his function with the utmost integrity and objectivity not to subordinate the public’s interest over its own. Such, any misrepresentation or falsification of any accounting records is not only discouraged, but is strictly prohibited as it is the primary culprit of the corporate scandals that affected the whole economy and the world as of late. Its pervasiveness is not only disastrous, but also erodes the volatile public trust. Per AICPA ruling, every CPA should practice the profession of Accountancy with utmost integrity whose practice should be beyond reproach. In the pursuit of career advancement, there will be instances that the Accountant may be tempted or be induced to window dress company’s records. There may be attractive incentives if one chose to yield, either material or for career advancement. The reward for being honest with the profession may seem absent, but lest the Accountant should forget that his job is not just a profession. It is also a social responsibility; whose acts affect public trust and the profession itself. That if it is not practiced ethically, can lead to disastrous result in the economy and public trust. Ethics in this profession is very important for “ethical values provide the foundation on which civilized society exists. Ethics should be the foundation of all accounting functions within a company. Thus the power of good ethics running through the veins of companies should mitigate unfair practices from occurring. This rings true in so many reports that are presented on a daily basis in the media (Business Roundtable-Institute for corporate Ethics, 2009; Cagle & Baucus, 2006; Ethics Resource Center, 2009; Hemingway, 2007; Smith & Smith, 2003; Verschoor, 2006; Xifra, 2009). Such, If one is bound by sound business ethics, then the probability of being persuaded to reflect maximum profit and value for stockholders or to serve and please greedy agendas, could be lessened (Ashe & Nealy, pg. 8). A company’s ultimate goal may be to increase shareholder value but it should and to the expense of compromising its mission statement or code of conduct. The Accountant does not even have to look far to look for guidance. The guidelines on how to properly practice the profession is clearly spelled out in the AICPA’s conduct especially on the primacy of integrity. That even when in doubt, AICPA can become a support system as the member can consult AICPA’s luminaries who has been an institution in the accounting profession should any member has any ethical dilemma to resolve in the practice. This is important as the cost of ignoring the public interest role is a loss of professional freedom and increasing government regulation of the profession (Stuebs & Wilkinson, 2010 pg. 33) The practice of an Accounting Profession may sometimes become difficult especially when one is subjected to an ethical dilemma and pressure from above the organization’s echelon. Take the example Kim Emigh, the budget and Financial Analyst of United States second largest telecom company who was fired after he pointed some accounting malpractice in the company. It was difficult because he got unemployed for 14 months for doing what was right. The result seemed to be initially punitive that he even has to cash in with his daughter’s college fund. That is a very difficult thing for any father to do for it compromises the future of his children. But still he fought Worldcom, and was eventually proven right and vindicated himself when Worldcom admitted to have committed a $4 Billion fraud (CNN, 2002). In conclusion, I believe that to ethically practice the Accounting Profession, every accountant should be mindful of the ethical consideration of the job, not to misrepresent, nor to commit fraud. When in doubt, AICPA guideline is always available for reference and a member can always consult when met with an ethical crossroad of his/her profession. And when in the practice of profession that a malpractice is discovered, it would be better to be forthright as what Kim Emigh did with Worldcom "when the first e-mail came out I just called him and said, 'Frank, this is fraud, it is pure and simple, it is going to result in tax fraud. There will be SEC violations and you need to make everybody aware of it' and he said 'I will make them aware' (CNN, 2002). Indeed, a recommitment to professionalism is one cultural change the accounting profession must make to foster professional development (Stuebs & Wilkinson, 2010, pg. 30) REFERENCES: AICPA. Retrieved from: http://www.aicpa.org/InterestAreas/PersonalFinancialPlanning/Resources/PFPPracticeManagement/ProfessionalStandardsandEthics/DownloadableDocuments/SOR.pdf Ashe, Carolyn and Chynette. Nealy. "Ethical Standards and Accounting Practices: Still an Area for Concern." Journal of International Business Disciplines Vol. 5.Issue 1 (2010): 12. Business Roudtable-Institute for Corporate Ethics. (2009). The dynamics of public trust trust in business—Emerging opportunities for leaders. Retrieved from www.corporate-ethics.org Covey, S. R. 1989. The 7 Habits of Highly Effective People. New York, NY: Simon & Schuster.——–, A. R. Merrill, and R. R. Merrill. 1994. First Things First. New York, NY: Simon & Schuster. CNN. 2002. Retrieved from http://money.cnn.com/2002/07/03/news/worldcom_whistleblower/index.htm Dancy, Jonathan. Moral Perception. Aristotelian Society Supplementary Volume, 2010, Vol. 84 Issue 1, p99-117, 19p; DOI: 10.1111/j.1467-8349.2010.00188.x Dermer, J. D., and R. G. Lucas. 1986. The illusion of management control. Accounting, Organizations and Society 11(6): 471–482. Sikka, P., and M. P. Hampton. 2005. The role of accountancy firms in tax avoidance: Some evidence and issues. Accounting Forum 29 (3): 325–343. Smith, Jeffrey; Dubbink, Wim. Understanding the Role of Moral Principles in Business Ethics: A Kantian Perspective.. Business Ethics Quarterly, Apr2011, Vol. 21 Issue 2, p205-231, 27p Stuebs, Martin; Wilkinson, Brett. Ethics and the Tax Profession: Restoring the Public Interest Focus.. Accounting & the Public Interest, 2010, Vol. 10, p13-35, 23p, 4 Diagrams, 2 Charts; DOI: 10.2308/api.2010.10.1.13 Read More