Business Law and the Accounting Profession - Research Paper Example

?Business Law and the Accounting Profession Introduction Business is used as an instrument to accomplish one's vision. Its huge impact on the societymay bring a positive or negative effect depending on how the individual practices it. Law is generally described as the rule that every individual is obliged to follow regardless of their rank in the society. It governs all transactions in the land including business. Law is often associated with ethics. Ethics is the field of study that aims to encourage all people to act in accordance with the law. It focuses more on one's morality, the ability to decide in a rightful manner taking into consideration any possible consequences of the decision. It is crucial for law and ethics to unite, but unfortunately at times it is not the case. Sometimes an individual must consider doing an unlawful act to do something that is ethical, it sounds complicated, but it happens in reality especially in handling business transactions (Beatty and Samuelson 16). The day to day dilemmas in business led to the formulation of business laws that seek to promote the value of law and ethics in the globally progressing business environment. Sources of Business Law In spite of the existence of business laws there are still some professionals who opt to perform their duties through unethical means. Perhaps this wrongful act has contributed to the growing disbelief of people towards the information that is being shown in financial statements. The violation could either be intentional, that is when the accountant voluntarily made the violation or unintentional, if there is no willingness to do the wrongful act (e.g., when the employer threatens an employee to do something unethical for the sake of the company). Accounting regulations were established to govern professional accountants into practicing ethical behavior. The Securities and Exchange Commission (SEC) is the government agency tasked to promulgate regulations that are set to be followed by organizations particularly the accountants who are most of the time susceptible to trouble. The Securities Exchange Act of 1934 made possible the creation of SEC to formulate and impose securities law. In 2002 former U.S. President George W. Bush passed the Sarbanes-Oxley Act or the Public Accounting Reform and Investor Protection Act. The law was established to ensure the credibility of financial statements. Due to the increasing number of fraud related issues in companies, the government finally realized the need to reform the laws that govern organizations and protect the right of investors (Peck 11). Issues in the Accounting Profession There have been recent scandals that involved accounting professionals. This type of profession is never easy to handle and sometimes it places an accountant's reputation at stake. In most cases, the cause of complications in the accounting profession is in the making of financial statements. Financial statement misrepresentation is strictly prohibited. Although that rule is clearly emphasized, many seem to disregard it. The violation is avoidable if companies will consciously make an effort to adhere to the said policy. If unluckily an accountant is caught doing this wrongful act, then there is no possible way to get out of this mess. Whatever the case may be, an accountant will still be held liable because an offense has been committed and the harm has already been done. As in the case of a criminal act a suspect is convicted if the commission of a crime is proven beyond reasonable doubt, so a suspect is not yet considered a criminal unless there is enough evidence. Say for example a company that is struggling financially. The only way to solve the problem is to manipulate the figures in the financial report so that investors will remain faithful to the company. The accountant is left with no other choice, but to do what the employer says. There are two possible consequences to this act. The first consequence is that if the manipulation will push through there are chances of reviving the company and so employees will no longer have to worry about losing their jobs, but if the investors will notice that the figures were manipulated then, the company will lose everything and the accountant’s reputation will be ruined. The second consequence goes like this, the accountant did not manipulate the data so the company’s financial problem remains, the good thing here is that the company did not commit something against the rule of law that is the manipulation of data in their financial statement. Now they will no longer have to worry about being caught, all they have to do is to strive harder so that they may regain the confidence of investors towards their company. According to Mr. John Kyle Henry, a certified public accountant, (CPA) who has been working in a small auditing firm in the U.S. for nine years now, accounting will always be a tough job. Aside from the pressure of meeting deadlines, an accountant has to be very much patient and keen to details that deal with the financial activities of companies who are asking for their services. He admitted that there are some accountants who continue to violate accounting ethics believing that what they are doing is good for the company. When asked about the importance of business laws to his profession, he referred to the policies that were written in the Code of Ethics for Professional Accountants established by the International Federation of Accountants (IFAC) Ethics committee. He also added that if no violation is committed the negative notion of people to financial statements will lessen and eventually vanish (Henry interview). These policies are essential because if followed, it will allow them to meet the ethical requirements of their profession therefore preventing them from violating any business law. Accounting Ethics Accountants had to form an institutional framework to cope up with the demands of the changing times. There was a need to shift from the traditional rational belief to a more practical means of determining societal demands. Pragmatism led to the discovery of new methods to connect government and accounting, as the two continue to progress. After all, judgment is still the primary basis of decisions in accounting and not the economy nor the models of finance. It provides the path to which accountants are able to identify what method is appropriate to be used in the making of financial statements (Green 663-664). The issue on the contrasting beliefs of man affects the implementation of law. Because of these differences, the imposition of law in the society becomes a difficult task. In the case of organizations especially in the issuance of financial statements, laws are sometimes ignored. It is always wrong to consider doing something that is unlawful even if the intention is good because the law has been violated. The proper thing to do here is to always follow the rules, nothing more and nothing less. Learnings and Realizations The interview serves as an eye opener to some accounting professionals who continue to violate accounting ethics. A company's worsening financial condition is never an excuse to let some accountants violate the rules of law. No matter how one puts it, the situation is still and will always be unjustifiable. The purpose of a law is to guide the people into practicing the right thing, so if the society will consider financial statement misrepresentation as an ethical act, that is equivalent to becoming an irresponsible citizen. On the side of the accounting professionals, if they will not put an end to this wrongful practice, for sure in the near future they will suffer its consequences. For them to succeed in their chosen career path they should always obey the law, give value to the society, and most especially to themselves. Conclusion It would be unjust to conclude that the unethical practice of accounting is the cause of the present financial crisis or the bankruptcy of many companies, it can be considered a violation to the rights of some professional accountants who are doing their job in a rightful manner (Green 603). Law is associated with ethics. The absence of one may negatively impact on the proper implementation of law. Sometimes it happens that law and ethics clash and do not agree with each other (Beatty and Samuelson 16). These are brought by the complexities of globalization coupled with the differences in the moral beliefs of people. A violation of the law is committed in the execution of an unlawful act. If one is left with no other choice but to do something that is unlawful, then the final decision will depend on the person's conscience and moral beliefs. Works Cited Beatty, Jeffrey, and Susan Samuelson. Introduction to Business Law. Mason, OH: South-Western Cengage Learning, 2010. Print. Green, Daniel Austin. “Accounting’s Nadir: Failures of Forms or Substance?” University of Pennsylvania Journal of Business Law 12.3 (2010): 603, 663-664. Web. 4 July 2011. Henry, John Kyle. Personal interview. 1 July 2011. Peck, Sarah. Investment Ethics. US: John Wiley and Sons Inc., 2011. Print. Read More