Ethics in accounting

BAC8034 ADVANCED ACCOUNTINGLecturer: PROF. WAN FADZILAH BINTI WAN

YUSOFF

Abdulla Saeed Alhamad  1111800065

Enron

ParmalatWaste

Management  WorldCom

Qwest Communications

– List and discuss characteristics of a “professional”

– Explain how those characteristics apply to the management profession

– Define “ethics”

– Discuss various models / schools of ethical decision making

– Explain and apply the professional ethical codes of various management professional organizations

– Explain how to resolve ethical dilemmas

– Give examples of recent ethical cases

Objectives

Characteristics of a professional

– Communicates effectively

– Thinks rationally, logically and coherently

– Appropriately uses technical knowledge

– Integrates knowledge from many disciplines

– Exhibits ethical professional behavior

– Recognizes the influence of political, social, economic, legal and regulatory forces

– Actively seeks additional knowledge

3-5

Ethics concepts• Definitions

– Ethics• Moral philosophy• Systematizing,

defending, and recommending concepts of right and wrong behavior

• Rules or standards governing the conduct of a person or the members of a profession

– Met ethics: where ethical principles come from

– Normative ethics: moral standards that regulate right and wrong behavior

– Applied ethics: specific controversial issues

– Utilitarianism: the end justifies the means.

– Rights and duties: individuals have certain rights; others should not interfere with them.

Schools of ethical thought

– Justice: people should get what they deserve

– Virtues: everyone should do what is right, moral and virtuous

Ethics codes in accounting

– Principles• Honesty and fairness• Objectivity and responsibility

– Standards• Competence and confidentiality• Integrity and credibility

Ethics codes in accounting

Association of Certified Fraud Examiners:– Commitment to

professionalism– Avoid illegal and

unethical conduct, conflicts of interest

– Exhibit the highest levels of integrity

– Comply with lawful court orders

– No expressed opinion on guilt or innocence

– Keep information confidential

– Reveal all matters which could influence outcome

– Strive to increase competence and effectiveness

Ethics codes in accounting

American Institute of CPAs– Principles of

Professional Conduct

– Rules: Applicability and Definitions

– Independence, Integrity and Objectivity

– General Standards Accounting Principles

– Responsibilities to Clients

– Responsibilities to Colleagues

– Other Responsibilities and Practices

Importance of Ethics in Accounting

Fraud Fraud is an intentional deception, misappropriation of a company’s assets, or manipulation of its financial data to

advantage of perpetrator.

Symptoms can include:•Key executives appearing to be living beyond their means.

•Key executives have close associations with suppliers.

•Company uses several different banks, none sees full financial picture.

•One or two individuals dominate the company.

Importance of Ethics in Accounting

Losses on the Way

• Losses due to Unethical Behavior:– Costs of legal action taken against

perpetrators.– Costs of reduced productivity.– Increased unemployment as companies

are forced to downsize or go out of business.

– Economic loss to organization, hence to society.

Solution???

Investigate

Motives for

Unethical Practice

Administer

Effective Ethical

and Internal Controls

Low

High

Ethical

Motives for Unethical Behavior

High Low

High

Low

Opportunities

Situational Pressures

Personal Characteristics (Integrity)

Unethical (Hall, 2004)

Effective Ethical Controls

• A code of conduct that applies to the practice of a profession.

Objectivity Independence Due CareIntegrity

Effective Internal Control System

Control Environment:

Influence Control Awareness of Management and Employees.

Risk Assessment:

Identify, Analyze, and Manage Risks Relevant to Financial Reporting.

Monitoring:

Entities’ Activities.

Information and Communication:

Quality of Info Impacts Reliability of Financial Statements.

Control Activities:

Transaction Authorization – Segregation of Duties – Supervision – Accounting Records – Access Control – Independent Verification

Safeguard Assets of the FirmEnsure Accuracy & Reliability of ACCTRecords & Info Promote Efficiency in the Firm’s

Operations

Fulfill Main

Objectives

(Dina,2008)

Conclusion

??????

!!!!!!!!

References

Hall, James A (2004). Accounting Information Systems. Thomson. South Western.

Alexander, Jeffrey Craig, (2002). "Ethics in Accounting?" University of Tennessee Honors Thesis Projects.

Catherine Gowthorpe.(2005). Creative Accounting: Some Ethical Issues of Macro- and Micro-Manipulation. Journal of Business Ethics 57: 55-64, 2005. DOI 10.1007/S10551-004-3822-5.

Felix Pomeranz, (2004),"Ethics: toward globalization", Managerial Auditing Journal, Vol. 19 Iss: 1 pp. 8 – 14.