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CHAPTER I
The Problem and Its Background
Introduction
Accounting is the language of business. Thus, business will not
exist without the presence of accounting. Every company has its own
ethical practices in accounting particularly the top five leading business
firms in the Philippines. These recognized firms are the following:
United
Laboratories,
Jollibee
Foods
Corporation,
SM
Group
of
job. Most of the filthy stories of corporate scandals are the involvement
of the senior management and high levels of management that
manipulated the books to make their companies appear more
profitable. They pressure their staff to achieve high earnings to attract
investor in buying company stock. If these goals are not met, drastic
measures are taken; some of these are adjustment of annual report
and the other one is the famous Debit + Credit =Kupit.
In these cases, the word ethics is being questioned. How come
these practices still emerge in spite of the presence of code of ethics of
every business firms? Is there a difference between professional
ethics, specifically in the field of accounting and personal ethics?
Different companies consider mental accounting because it
describes the inclination to treat money differently according to its
source, allocation or use. It happens when companies slap cost
controls on a vital core business while spending freely on a risky new
initiative. Through this, businesses that consider this lead a certain
area that made them to be on top (Entrepreneur Philippines, 2004).
Among those leading business firms in the Philippines, we, the
researchers are going to conduct some data and information with
regards to the ethical practices of these said companies in the field of
accounting.
returning their investments. On the part of debtors, this will let them
know if they will be able to pay their liabilities as they fall due. While
on the part of the creditors and lenders, this will let them know if the
loans they will grant will be paid when due.
To the students, this study will help them how to be an ethical
professional like an accountant through different practices.
To the future researchers, this study will serve as a stepping
stone and guide to them in conducting another further research study
for its development.
Scope and Limitation
This study will focus only on the ethical practices in accounting
among the top five leading business firms in the Philippines. It involves
the goals and importance of accounting ethics in the business industry.
It will also cover the practices and accounting issues in the accounting
profession.
Furthermore, since it focuses more on the accounting part of the
firm this will exclude the other operations of the company such as the
Human Resource Department, Advertising Department, Marketing
Department and other non- accounting related operation of the firms.
This study will not aim to compare the accounting policies of the said
company but only provide details of their ethical practices in the field
of accounting.
This
in
recommendation
by
the
Professional
or
equity
on
the
company's
balance
sheet
(Investopedia, 2013).
Debit An accounting entry that results in either an increase in assets
or a decrease in liabilities on a company's balance sheet or in
your bank account (Investopedia, 2013).
Disclosure
concepts,
and
methods
concept includes
that
have
received
generally
Accountants
in
the
Philippines
accredited
by
the
Conduct
This
refers
to
the
field
of regulation of
CHAPTER II
Presentation, Analysis and Interpretation of Data
The purpose of this study was to determine the Ethical Practices
in Accounting among the Top Five Leading Business Firms in the
Philippines. Specifically, it sought to answer the questions stated in
Chapter I. To accomplish this objective, the researchers used different
sources that can be reliably used in this library research.
Problem 1: What are the goals of accounting ethics education?
Accounting ethics education includes seven goals. To implement
these goals, accounting ethics should be taught throughout accounting
curriculum or in an individual class modified to the subject.
Ethics
are
important to
the
different
profession such as
seven
goals
of
teaching
ethics
in
the
on
learning
of
key
concepts,
principles,
and
10
professional
responsibility
course
should
develop
scandals
or
corporate
accounting
scandals
are political and business scandals which arise with the discovery of
11
usually
misdirecting
involve
funds,
complex
methods
overstating revenues,
for
misusing
understating
or
expenses,
court
records,
office
files,
documents
(Entrepreneur
Philippines, 2010).
Scandals are often only the small evident part of something
people largely hide. They represent the visible catastrophic failures.
For example, it is fairly easy for a top executive to reduce the
price of his company's stock. The executive can accelerate accounting
of expected expenses, delay accounting of expected revenue and
engage in an asset or debt or financing transactions to make the
company's profitability appear temporarily poorer, or simply promote
and report severely conservative estimates of future earnings. Such
seemingly unfavorable earnings news will be likely to reduce share
price. There are typically very few legal risks to being too conservative
in one's accounting and earnings estimates.
12
reduced
share
price
makes
company
an
easier takeover target. When the company gets bought out (or taken
private) at a dramatically lower price the takeover artist gains a
windfall from the former top executive's actions to surreptitiously
reduce share price. This can represent tens of billions of dollars
(questionably) transferred from previous shareholders to the takeover
artist. The former top executive is then rewarded with a golden
handshake for presiding over the firesale that can sometimes be in the
hundreds of millions of dollars for one or two years of work. (This is
nevertheless an excellent bargain for the takeover artist, who will tend
to benefit from developing a reputation of being very generous to
parting top executives) (Wikipedia, 2013).
Moreover, similar issues occur when a publicly held asset or nonprofit organization undergoes privatization. Top executives often reap
tremendous monetary benefits when a government owned or nonprofit entity is sold to private hands. Just as in the example above,
they can facilitate this process by making the entity appear to be in
financial crisis this reduces the sale price (to the profit of the
purchaser), and makes non-profits and governments more likely to
sell. It can also contribute to a public perception that private entities
are more efficiently run reinforcing the political will to sell off public
assets. Again, due to asymmetric information, policy makers and the
general public see a government owned firm that was a financial
'disaster' miraculously turned around by the private sector (and
typically resold) within a few years (Wikipedia, 2013).
Frauds are
rationalization,
triggered
perceived
by three
pressure
and
elements.
perceived
These
are
opportunities.
13
14
accountants
ethical
duty
to
project
honest
and
accurate
tax filing
purposes
alone.
as
guides
for
15
Each of the top five leading business firms in the Philippines has
also unique ethical practices that put them to their respective rank.
The ethical practices among these firms will be further discussed in
this section.
1. United Laboratories (UNILAB)
Unilab is the biggest pharmaceutical company in the
Philippines, with a market share of some 20 percent which it has
consistently maintained for more than three decades.
Its
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educational
benefits,
economic
benefits
and
other
believe
that
this
guarantees
long-term
business
with
his
family
exactly
very
mirroring
humble
the
stark
Narra
Street
17
get water
The
The years to
and
proceeded
to
incorporate
as
Jollibee
Foods
Corporation.
Jollibee is the largest fast food chain in the Philippines,
operating a nationwide network of over 750 stores. A dominant
market leader in the Philippines, Jollibee enjoys the lions share
of
the
local
market
multinational brands
that
is
combined.
more
The
than
all
company
the
has
other
also
18
Jollibee also has its own and unique values Mission and
Vision that are distinct from other corporation. These include the
values
for
Customer
Focus,
Excellence,
Respect
for
the
of $1.7 billion. SM is
their role in
also focuses on
and health.
19
It prohibits the
acts.
The Code lays down the company's policy to select,
develop and compensate the best people to manage the
company.
charitable
projects.
(http://www.sminvestment.com/smic).
4. San Miguel Corporation
San Miguel Corporation (San Miguel) was established in
1890 as a single-product brewery. It is the Philippines largest
beverage, food and packaging company. Today, the company
has over 100 facilities in the Philippines, Southeast Asia, and
China.
20
21
for
the
benefit
of
stockholders
(http://www.sanmiguel.com.ph/corporate/company).
5. Ayala Corporation
Ayala Corporation is the holding company of one of the
oldest and largest business groups in the Philippines. It
maintains a tradition of excellence, and integrity has run
continuously through seven generations, adhering to the
principles and ideals that had brought it to existence 178 years
ago.
One pioneering family started a business in 1834. That
business grew and engendered others. As it does today, Ayala
harnessed some of the best talents in the Philippines. Today,
Ayala is one of the biggest, most respected, and most widely
diversified conglomerates in the Philippines, with leadership
positions in real estate development, banking and financial
services,
telecommunications,
electronics
and
information
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new
investments
in
power, renewable
energy, and
infrastructure.
Ayala continues to contribute to Philippine economic and
social growth through its diverse business interests, maintaining
its tradition of excellence in every endeavor.
Ayala is gearing up to move further forward, drawing on its
heritage and experience to fulfill its brand promise of "Pioneering
the Future."
Integrity is one of Ayala's core values. Strictly abiding by
the principle of "doing the right thing" has earned for the
company its strong position of trust among its stakeholders.
Ayala
believes
that
integrity
starts
with
the
23
authorities.
investigated
and
Non-criminal
addressed
violations
as
will
be
appropriate
(http://www.ayala.com.ph/about_ayala_mission.php.).
Problem 4: What are the Ethical Issues facing the Accounting
profession?
The role of accountants is critical to society. Accountants serve
as financial reporters and intermediaries in the capital markets and
owe their primary obligation to the public interest. The information
they provide is crucial in aiding managers, investors and others in
making critical economic decisions. Accordingly, ethical improprieties
by accountants can be detrimental to society, resulting in distrust by
the public and disruption of efficient capital market operations.
From the 1980s to the present there have been multiple
accounting scandals that were widely reported on by the media and
resulted in fraud charges, bankruptcy protection requests, and the
closure of companies and accounting firms. The scandals were the
result of creative, misleading financial analysis, as well as bribery.
An accountant working in the public or private sector must
remain impartial and loyal to ethical guidelines when reviewing a
company or individual's financial records for reporting purposes. An
accountant frequently encounters ethical issues regardless of the
industry and must remain continually vigilant to reduce the chances of
outside forces manipulating financial records, which could lead to both
ethical and criminal violations.
Pressure from Management seems to be the common issue that
the causes accounting professional ethics fail. The burden for public
companies to succeed at high levels may place undue stress and
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pressure
on
statements.
accountants
The
ethical
creating
issue
balance
for
these
sheets
and
accountants
financial
becomes
she
follows
ethical
guidelines
for
financial
reporting.
An
accountant who keeps her eyes on her own bank account more than
on her company's balance sheet becomes a liability to the company
and may cause real accounting violations, resulting in sanctions from
the SEC.
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to
avoid
falling
into
such
trap
(http://smallbusiness.chron.com/purpose-ethical-practicesbusiness).
Problem 5: What is the importance of accounting ethics in
business industry?
The nature of the work carried out by accountants and auditors
requires a high level of ethics. Shareholders, potential shareholders,
and other users of the financial statements rely heavily on the yearly
financial statements of a company as they can use this information to
make an informed decision about investment. They rely on the opinion
of the accountants who prepared the statements, as well as the
auditors that verified it, to present a true and fair view of the
company. Knowledge of ethics can help accountants and auditors to
overcome ethical dilemmas, allowing for the right choice that, although
it may not benefit the company, will benefit the public who relies on
the
accountant/auditor's
reporting.
(http://businessworldng.com/web/articles/940/1/FraudulentAccounting-Practice/Page1.html)
Most businesses have a mission statement, but few have
considered ethical standards. A statement of ethical standards is the
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accounting in
business
is
one
of
the
most
27
CHAPTER III
Summary of Findings, Conclusions and Recommendations
The purpose of this study was to determine the ethical practices
in accounting among the top five leading business firms in the
Philippines. To realize this aim, the researchers gathered some data
from different sources that can be used to this study.
Summary of Findings
28
on
the
data
gathered
creative
29
30
Based
on
the
findings,
the
researcher
arrived
at
these
conclusions:
1. The goal of accounting ethics education can help future
accountants to be an ethical professional.
2. All accounting scandals are not
Recommendations
Based on the conclusions, the researchers recommend some
matters related to accounting practices.
1.
Ethics
education
should
always
be
implemented
to
future.
2. A business firm should consider ethical standards by
implementing an inclusive ethical program throughout the entire
business.
3. The management should not pressure and control their
accountants to avoid some ethical issues that can cause a bad
image to the company.
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