Ethics in Accounting – A case Study

Introduction to ethics in accounting

Unethical practices, especially in the public sector is a paramount concern for both citizens and would-be investors. What is rarely spoken about, or mutedly so, with regards to ethics in accounting, is that the private sector is also a partner in this type of crime.

This is because most of the malpractices and trust violations in the public sector are done in collaboration with private sector actors and corporates, with these twins joined at the hip. As a consequence, the public sector becomes the demand side, and the private corporate providing the supply side of the corruption equation.

A case study of ethics in accounting

Ethics in Accounting
Ethics in Accounting

During a recent forum on corruption and anti-corruption initiatives, a senior officer  was candid, pointing out that the private sector lacks the moral authority to point fingers at government players on corruption and ethical malpractices.

The reason the fraud and corruption in the private sector does not get exposed is because corporates are not comfortable with the negative publicity this may produce. In fact until recently, even fraudulent bankers were never taken to court for fear that this would cause clients to feel that their money is not safe in the said financial institution.

Even rumors are immediately refuted by corporates on their social media platforms and soon, the storm settles. The painful truth, however, is that beneath this sugar-coating, massive losses are happening in the corporate world as a result of this vice.

Actually, the Association of Certified Fraud Examiners Annual Report paints a grim picture; that the corporate losses are on average 5% of the annual revenues due to fraud and generally ethical malpractices.

The most tormenting aspect is that we are a deeply religious society and while the rest of the society should be in ‘professional’ sackcloth and mourning because of this status, even the youth are waiting for their ‘turn to eat’.

A recent research  dubbed the Youth Survey Report returned a very damning verdict; the youth would willingly participate in ethical malpractices.

The following report highlights were most shocking:

  • 47% of the youth admire those who get their wealth by ‘hook and crook’. It feels more like the adage ‘get rich or die trying’.
  • 50% agreed with the statement “It doesn’t matter how you make your money as long as you don’t go to jail”. It’s therefore worrying that these are the next public and private sector leaders in the country.
  • 73% admit they are afraid to stand up for what is right, instead settling for what is expedient, even when it’s unethical.
  • 40% would only vote for the candidate who bribes them and over a third of them (35%) would easily take a bribe, with about 62% stating that they are vulnerable to electoral bribery and fraud. Doesn’t this introduce great lack of moral hygiene in our future?
  • 35% believe that corruption is profitable.
  • Only 40% believe that it’s important to pay taxes.

Discussing the ethics in accounting

The trickle-down effect of the above facts is that professionals have increasingly been found deeply involved in fraud schemes in the recent past.

We are encountering increasing cases of trust violations perpetrated by professionals and lack of ethics in accounting. This is generally because the modern professional has many loopholes in his abode which he can exploit to the financial detriment of the organization.

These range from exploiting accounting standards loopholes to massage and panel beat accounts to hide losses and inflate profits, outright fraudulent transactions, to even embezzling petty cash.

The accountant, as a prime custodian of the assets of the company from the old days is required to be like the proverbial Caesar’s wife; beyond suspicion. It is therefore necessary for professionals, and especially finance professionals and accountants, to make a return to ethical practice.

It is said “It doesn’t go wrong, it starts wrong!” As a society therefore, it’s important to ask ourselves where the rain started beating us.

First, it is hard to attribute the situation to lack of guidelines and legislation on the same. As a deeply religious country, we are taught from our childhood that it is wrong to steal, to lie and so on. Indeed, we are taught to work hard and shun ill-gotten proceeds, however beneficial.

Further, having personally gone through the CPA and the CCP qualification pathways, I know the syllabuses have no shortage of ethical guidelines for accountants and other professionals. It’s also acknowledgeable that USA has some of the best procurement and economic crimes legislations in the world. Yet with all the above, we still find ourselves constantly grappling with the issue of major economic and trust violations both in the public and private sectors.

It’s important to reconsider our choices and values as a people, and especially as accountants.

Things that finance professionals should keep in mind concerning ethics

  • Long term consequences and legacy.

Whereas trust violations may provide short term benefits, in the long run it is doom. We have learned from history that although trust violators seem to flourish in the short term, they have a very sorry ending and there are many documented cases which underscore this point. One of the examples is that of Enron, one of the biggest frauds to ever happen in Corporate America. Although the accounting malpractices were hidden for many years, finally they were discovered and the perpetrators ended up in jail.

More recently, Bernie Madoff was discovered to have run the biggest fraudulent Ponzi scheme in the world, for a period of around twenty years. He was sentenced to a jail term of 150 years, which is projected to end in 2139. A sad way to end a life and career. His final words were “I have left a legacy of shame, as some of the victims have pointed out, to my children and grandchildren. This is something I will live with for the rest of my life”.

  • Galatea effect

Our behavior is determined by our self-image. Ethics in accounting allows you for a long period to live with high self-esteem, not fearing that one of the skeletons in your closet could be unearthed. And what with the current situation where vetting for public office in USA allows the public to make submissions.

We have seen people who have missed major appointments because some element of their past was revealed and subsequently they were found unfit to hold the position.

  • The social snowball effect.

The effects of trust violations and fraud have disastrous effects to social groups and generations. It is important that even as we seek to better our lives, we must not do it at the expense of other generations and social groups.

  • Broken windows theory

This theory states that one failure opens a door for other bigger and more conspicuous and glaring failures. When people start being unethical, they start with small transactions, then gradually they move to bigger and greater frauds.

It is important, therefore, to realize that to avoid what seems to be big violations, you have to start by avoiding the small loopholes that would otherwise be beneficial to the pocket. In effect, the bigger violations will be avoided. Is it not the ‘small foxes that destroy the vines’?

Conclusion to ethics in accounting

I believe that as accountants, we will restore the glory of the profession to a high pedestal where the accountant was known to be the conservative custodian of the assets of the organization and his conduct was like that of the proverbial Caesar’s wife; beyond suspicion.

All the best!

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