Ethical Accounting will Enhance the Effectiveness of Accounting - Research Proposal Example

The of the proposal is: More ethical accounting will enhance the efficiency and effectiveness of accounting. Background: Robert H. Montgomery ( 1952) explains the significance of ethics in Accounting with the following words: The profession of accountancy exists as a means of public service. The distinction that separates a profession from a mere means of livelihood is that the profession is accountable to the standards of public interest. This accountability of the profession to the public interests is beyond the compensation and the honorarium paid by the clients. The focus of this study is on ethics in Accounting. Accounting ethics applies ethics to the principles and standards of accountancy. The professional code that bounds the members of the Accounting profession are based on the ethics applied in accounting. The significance of ethics in accounting is highlighted time and again by recurring corporate frauds and fiascos like the one at Enron or the more recent one at Indian software giant Satyam. Without ethics Accounting as a profession will cease to exist. Ethics can be said to be the raison d’être of accounting. The significance of accounting ethics has been further enhanced by the realization that stakeholder value maximization should be the most important objective for any corporation or enterprise. The various stakeholders of a corporation are shareholders & investors, employees, customers, suppliers, community, state et al. The financial statements of the company are not only used by shareholders & investors but they also affect the other stakeholders of the corporation. Shareholders & investors rely on the financial statements of the company for making informed investment decisions. Suppliers rely on the financial performance shown in the financial statement to make decisions regarding credit terms for the corporation. The customers too form a perception of the corporation that is influenced by the financial performance given in the financial statements of the company. The taxation of the state is calculated on the basis of net income given in the financial statements of the company. The accountants who prepare the financial statements of the corporation and the auditors who verify those statements are therefore accountable to all these stakeholders of the corporation. Accountants and auditors during the course of their functioning are often faced with genuine ethical dilemmas. More ethics in accounting will enable them to overcome these ethical dilemmas so that they can carry out their professional responsibility efficiently and effectively. Efficiency is doing things rightly. Effectiveness is doing the right things. Efficiency in accounting can be enhanced by having more stringent professional ethical codes. Effectiveness can be enhanced by making members of the profession realize the significance of accounting in carrying out their functions. This can be ensured by giving more focus to the subject of business ethics as an academic discipline. Accounting ethics is directly linked to business ethics( Chryssides, G. and Kaler, J. ,1996 ). Business ethics as a discipline was inducted in the courses of Universities around the word from the decade of 80s. According to Stephen E. Loeb ( 1988 ), the seven goals of accounting ethics education should be: i) Relating accounting issues to ethical and moral issues. ii) Identification of those issues in accounting that have ethical implications. iii) Development of a sense of moral and ethical responsibility among the members of the accounting profession. iv) Development of abilities that are needed for the resolution of ethical conflicts and dilemmas plaguing the members of the accounting profession. v) Learning to deal with the vagaries of accounting as a profession. vi) Setting the framework for a change in the ethical behavior of the accountants. vii) Understanding of all aspects of the history of accounting ethics and their relationship to the general field of ethics. Some of the major accounting scandals of the recent past happened because of the failure of ethics in accounting. Take the case of Enron, the mother of all accounting scandals. For many years, before the scandal was uncovered, Enron was reporting falsely in its audited financial statements. The accounting firm of Enron was Arthur Anderson which was one of the big five accounting firms. Arthur Anderson verified the false and misleading financial statements of Enron. When the scandal was uncovered, both Enron and Arthur Anderson went out of business. The biggest losers were the shareholders of Enron who lost more than $ 25 billion. A very recent example of accounting scandal is that of Satyam Computer Services ( Now Mahindra Satyam). Satyam Computer services was an IT and software giant, based in Hyderabad, India. It was listed in NASDAQ and had annual revenues of over $ 1 billion. Satyam Computer Services was headed by its founder-chairman, B Ramalinga Raju. For the past some years, Raju was inflating the profits of Satyam using creative accounting. He was also siphoning off the funds belonging to the shareholders of Satyam into the accounts of his family members. Raju was able to do so with the connivance of three chartered accountants belonging to the accounting firm of Satyam, Pricewatehousecoopers. Now both Raju and the three chartered accountants are languishing in Indian jails. A clear and more ethical professional code will increase the effectiveness of accounting in preventing such frauds. For establishing these ethical codes, it is important to understand the cause behind the ethical failures in accounting. According to a 2007 article of Managerial Accounting Journal, the top factors behind the ethical failures of the members of the accounting profession are: i) Self-interest of the accountants. ii) Inability to maintain objectivity and independence while carrying out their functions. iii) Inappropriate judgments of professional nature. iv) Lack of ethical sensitivity among the members of the accounting profession. v) Improper leadership and ill-culture in the leading chartered accountancy firms. vi) Failure to withstand advocacy threats. vii) Incompetence of the members of the accounting profession. viii) Inadequate support of the organization and the peers. ix) Inadequate support of the professional body. Without ethics, neither business nor accounting, as a profession, can sustain (Crane, A. & Matten, D.,2000 ). One of the objectives of various accounting standards is to reduce the probability of unethical behavior among the accountants. More ethical professional standards will increase the efficiency of Accounting in presenting true and fair picture of the business to the various stakeholders of the business. It will increase the effectiveness of accounting in preventing accounting scandals. 3. Objectives of the Research work The main hypothesis of this research is that more ethics in accounting will increase the efficiency and effectiveness of accounting. The objectives of the research are: 1) To understand in detail the current role of ethics in accounting. 2) To investigate how more ethics will increase the efficiency and effectiveness of accounting. 3) To make recommendations so that the ethical sensitivity and the role of ethics in accounting is enhanced. 4. Research Methodology: The research methodology will include both primary research and secondary research. The primary research will involve the interview of some members of the accounting profession. The secondary research will be much more extensive and comprehensive. The secondary research will delve into existing sources like books, journals, internet, accounting body reports etc. The information collected from primary and secondary sources will be analyzed. The analysis will be qualitative because of the nature of the research. While conducting analyses, objectivity will be maintained. The conclusions and recommendations will be based on objective analysis. Validity: A research is said to be valid if it measures what it intended to measure. In qualitative terms this means that the research was able to achieve its objectives. The validity in this research will be achieved through a clear set of objectives, rigorous research and clarity in understanding. Reliability: A research is said to be reliable if it gives the same results when repeated under similar conditions ( Saunders, M.N.K., Lewis, P., Thornhill, A. (2009)). In qualitative terms reliability can be ensured only through objectivity in research. This research will be an objective one, free from the subjective biases of the researcher. Ethical considerations: The research will strive for maintaining high ethical standards. Plagiarism is an anathema for this research. Plagiarism will be avoided by referencing the works of other authors and scholars wherever they are used in the research. The works of other scholars and researchers will be used only in the literature of the research. This research work will be an original one, free from any kind of plagiarism. 5. Timetable. Activity Number of weeks. Preparation and 2 Approval of the Research proposal Primary Research 3 Secondary Research 3 Analysis of the findings 1 Conclusions & Recommendations 1 Editing and finishing 2 Total Number of weeks 12 6. Conclusion: The above research proposal will succeed in achieving its objectives. Accounting needs more ethics. Only ethical accounting and ethical accountants can enhance the efficiency and effectiveness of the accounting function and profession. The various stakeholders now look at accountants with suspicion. Because of the many accounting scandals, accountants have lost a great degree of their credibility. This can only be restored by higher ethical standards. Accounting ethics should lead business ethics instead of lagging behind. The two are intricately linked. The research will make for an interesting study in this important area. References: Saunders, M.N.K., Lewis, P., Thornhill, A. (2009), 5th Edition, Research Methods for Business Students, Harlow: Financial Times/Prentice Hall.  Mullins, L.J. (2010), 9th Edition, Management and Organisational Behaviour, Financial Times Prentice Hall.  Crane, A. & Matten, D.,2000, Business Ethics: Managing Corporate Citizenship and Sustainability, Oxford University Press.  Beets, S.D. and Souther, C.C. (1999), Corporate environmental reports: The need for standards and an environmental assurance service, Accounting Horizons (June): 129-145.  Chryssides, G. and Kaler, J. (1996), Essentials of Business Ethics, McGraw Hill.  Janowicz, A.D. (1995), 2nd Edition, Business Research Projects, International Thomson Business Press.  Sammer, J. (1998),What it means to be green, Controller Magazine, 4 (1) January: 45-47.  Trevino, L.K. and Nelson, K.A. (1999), 2nd Edition, Managing Business Ethics, Wiley. Loeb, Stephen E. (1988). "Teaching Students Accounting Ethics: Some Crucial Issues . Issues in Accounting Education 3: 316–329. Read More