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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
Companies, San Miguel Corporation and Ayala Corporation.

Every society has a strong interest in the ethical standards of its

citizens especially in the business field. A society without ethics would
be dangerous and chaotic place to live. For this reason, governments
pass laws keeping out or requiring certain types of behavior. Organized
religions attempt to define ethics through sermons and religious
teachings. Educators attempt to distinguish ethics using criteria
acceptable to the greater society because as we all know people
without ethics would see nothing wrong in cheating and stealing.

Corollary to this, it is imperative that a definition for both

professional and personal ethics is established and then the question
of whether they should differ can be addressed more comprehensively.

Personal Ethics or in general ethics, derived from the Greek word

ethos which means the customary or habitual way of acting or doing
things. It is the moral principle that an individual uses in governing his
or her behavior. It is also a code of values which guide our choices and
actions and determine the purpose and course of our lives. To sum up,
it is the personal criteria by which an individual distinguishes “right”
from “wrong” (Business Ethics: A Management Approach, 1991).
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On the other hand, Professional ethics is defined as giving of

one’s best to ensure that clients’ interests are properly cared for, but in
doing so, the wider public interest is also recognized and respected.
Specifically, accountants, too, have unique ethical responsibilities.
Certified Public Accountants (CPA) auditing financial statements have
an ethical obligation to be independent of the company issuing the
statements. An accountant preparing an Income Tax Returns (ITR) has
an ethical obligation to prepare the returns honestly, even though the
taxpayer paying the accountant’s fee may want the return prepared in
a manner that understates taxable income. An accountant employed
by a private company has the conflicting ethical obligations of
respecting the confidentiality of information gained on the job, and
also making appropriate disclosures to people outside the organization.

Nevertheless, capital is essential in starting a business and

protecting that capital is vital especially with the practice of many
clients today of paying three to six months after service is rendered to
them (Entrepreneur Philippines, 2009).

All recognized professions have developed codes of professional

ethics which provides them guidelines for conducting themselves in a
manner consistent with the responsibility of the profession. Several
professional associations of accountants developed codes of ethics
relating to the practice of accounting.

Most CPAs are members of the Philippine Institutes of Certified

Public Accountants (PICPA). The membership of this association has
voted to adopt a code of professional conduct to provide members with
guidelines in fulfilling their professional responsibilities.

However, unethical practices by firms are giving accountants a

bad name. They are being labeled as unethical criminals, even though
their primary objective is to please their boss, so they can protect their
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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.

Statement of the Problem

The purpose of this study is to provide the ethical practices in

accounting among top five leading business firms in the Philippines.
Specifically, this study seeks to answer the following questions:
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1. What are the goals of accounting ethics?

2. What cause accounting scandals?

3. What are the ethical practices in accounting among top five

leading business firms in the Philippines?

4. What are the ethical issues facing the accounting profession?

5. What is the importance of accounting ethics in business

industry?

Significance of the Study

This study is intended to provide information that will benefit the

different areas of society. The study will help the several people to be
informed of the ethical practices in accounting of the top five business
firms in the Philippines.

To the employees, this will help them know if they are receiving
accurate compensation, if there is a possibility of high remuneration,
retirement benefits and unemployment opportunities.

To the administrator of the firm, this study will let them be aware
on the financial aspect of the company, how the accountants allocate
resources to sustain the company’s operation in the long run.

To the Government, this study will help them to be familiar with

how a firm comes up with their financial report through disclosure of
information in the Notes to the Financial Position of Financial
Statement. This will also help them know the taxation policies of the
firm.

To the Private Sectors such as Investors, Debtors, Creditors and

Lenders, this will provide them knowledge if the company has the
ability to return their extended financial assistance. On the part of
investors, this will help them know if the company has the ability in
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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 study is conducted primarily for library research in

fulfillment with the requirement for the subject Technical writing in
Business for the school year 2012-2013 at Polytechnic University of
the Philippines San Pedro Campus. Thus, it will be limited only to the
information that will be cited and reviewed. The collection of data
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through direct, indirect, registration, observation and experiment

method will be excluded in this study.

Definition of Terms

Accounting Fraud It is any act or attempt to falsify an accounting

statement for financial gain. A clear example of accounting fraud
is the act of deliberately overpricing a company's assets in order
to drive up its share price. Another example is filing bankruptcy
to avoid debt, rather than because of financial hardship (financial
dictionary, 2012)

American Institute of Certified Public Accountants (AICPA) A

professional organization of Certified Public Accountants (CPAs)
that has long been influential in the development of accounting
principles (Financial Accounting, 1976).

Annual report A comprehensive report on a company's activities

throughout the preceding year (Wikipedia, 2012).

Bribery It is the act of taking or receiving something with the

intention of influencing the recipient in some way favorable to
the party providing the bribe (Business Dictionary, 2013).

Certified Public Accountant (CPA) A person who holds a valid

Certificate of Registration and a valid Professional Identification
Card issued by the Professional Regulation Commission of the
Philippines upon recommendation by the Professional
Regulatory Board of Accountancy of the Philippines to those who
have satisfactorily complied with all the legal and procedural
requirements for such issuance, including in appropriate cases,
having passed the CPA licensure examination (Wikipilinas,
2012).
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Credit An accounting entry that either decreases assets or increases

liabilities 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 This is the statutory or good faith revelation of a

material fact (or an item of information that is not generally
known) on a financial statement or in the accompanying notes
(Business Dictionary, 2013).

Ethics This means a customary or habitual way of acting or doing

things.

Financial Statements This refers to the records that outline

the financial activities of a business, an individual or any other
entity. Financial statements are meant to present the financial
information of the entity in question as clearly and concisely as
possible for both the entity and for readers. Financial statements
for businesses usually include: income statements, balance
sheet, statements of retained earnings and cash flows, as well as
other possible statements (Investopedia, 2013).

Fire Sale It is the sale of goods at extremely discounted prices,

typically when the seller faces bankruptcy or other impending
distress. The term originated in reference to the sale of goods at
a heavy discount due to fire damage. A fire sale may or may not
be a closeout, the final sale of goods to zero inventory. Fire sales
are thought to occur in the financial markets when bidders who
value assets highly are prevented from bidding on them,
depressing the average selling price below what it otherwise
would be (Wikipedia, 2013).
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Generally Accepted Accounting Principles (GAAP) The “ground

rules” for the financial reporting. This concept includes
principles, concepts, and methods that have received
authoritative support or which have become “generally
accepted” through widespread use (Financial Accounting, 1976).

Philippine Institute of Certified Public Accountants (PICPA)

The integrated national professional organization of Certified
Public Accountants in the Philippines accredited by the
Professional Regulatory Board of Accountancy and Professional
Regulation Commission of the Philippines (Wikipilinas, 2008).

Professional Conduct This refers to the field of regulation of

members of professional bodies, either acting under a statutory
or contractual power (Wikipedia, 2012).

Professional Ethics As used in this study, this refers to giving of

one’s best to ensure that clients’ interests are properly cared for.

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.
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Ethics are important to the different profession such as

accounting. It should be taught to accountants who are entering to this
field. Education would help to reinforce students' ethical values and
inspire them to prevent others from making unethical decisions.
Students should know and understand the ethics of the profession and
they must be able to make value-based judgments.

Specifically, seven goals of teaching ethics in the

accounting curr i c u l u m h a v e b e e n i d e n t i f i e d . T h e y i n clude:

1. Relate accounting education to moral issues

Students must understand that everyone lives in a web of

moral relationships where moral choices are inevitable and often
difficult. The initial stages of accounting education place a
premium on learning of key concepts, principles, and
procedures. In this way, students are introduced to the
conceptual framework of the accounting process. Future
improvement and elaboration of accounting skills will build on
the knowledge base that is provided by the discipline of
memory work. Accounting knowledge is further developed as
you use the rules and your own judgment to prepare
financial statements.

2. Recognize issues in accounting that have ethical implications

Students should be challenged to make conscious rational

attempts to identify issues needing judgment. To resolve these
ethical dilemmas you should be sensitive to and aware of the
effects on ones' actions on the individuals involved in the
decision process.

3. Develop a sense of moral obligation or responsibility

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It encourages the ethical thinking needed for one to act in

a way that is perceived as right and good.

4. Develop the abilities needed to deal with ethical conflicts or

dilemmas

Skills are needed to understand that moral choices will

have consequences and students need the skills to deal with
ethical dilemmas.

5. Learn to deal with the uncertainties of the accounting

profession

A professional responsibility course should develop

understanding of the ethical problems that face particular
professions so that students can learn to deal with uncertainties
within the discipline.

6. Set the stage for a change in ethical behavior

It is not only important that a course help a student to

recognize an ethical issue, but it should help provide an
understanding of the importance of changing one’s behavior
after a moral judgment and analysis has been completed

7. Appreciate and understand the history and composition of all

aspects of accounting ethics and their relationship to the general
field of ethics.

Developing an understanding of the cultural, political, and

social aspects of a profession should be a goal in most types of
ethics courses.

Problem 2: What cause accounting scandals?

Accounting scandals or corporate accounting scandals

are political and business scandals which arise with the discovery of
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misdeeds by trusted executives of large public corporations. Such

misdeeds usually involve complex methods for misusing or
misdirecting funds, overstating revenues, understating expenses,
overstating the value of corporate assets or underreporting the
existence of liabilities, sometimes with the cooperation of officials in
other corporations or affiliates.

In public companies, this type of creativity in accounting can

amount to fraud and investigations.

Estafa is the legal term used to describe certain forms of

swindling. Thus, a person can be considered a swindler for committing
a form of estafa. However, a person can also be a swindler by
committing other acts that are necessarily estafa. There are three
kinds of it. First is the estafa through unfaithfulness or abuse of
confidence. Second is the estafa through false pretenses. Third is the
estafa through fraud. Here, someone is encourage to sign a document
through deceitful means; cheating in a gambling game; removing,
concealing 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.
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A reduced share price makes a 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 non-

profit organization undergoes privatization. Top executives often reap
tremendous monetary benefits when a government owned or non-
profit 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 triggered by three elements. These are

rationalization, perceived pressure and perceived opportunities.
Whether the fraud benefits the perpetrator directly or indirectly, such
as benefiting the perpetrator’s company, the three elements are
always present (Steve Albrecht, 2009).
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Generally, in rationalization, the people who are responsible of

the fraud find some sort of excuses that make their unethical behavior
seem acceptable. While in perceived pressure, the people behind the
fraud are faced with some kind of pressure, whether it is a financial
pressure or executives’ pressure.

Furthermore, accounting fraud leads to many serious problems.

It cannot only cause problem to the person or people responsible to
this, but also everyone around them. Accounting fraud causes problem
in the market place and the economy. As a result in most cases,
investors loose large sum of money due to misinterpretation of
statement of financial position or balance sheet of the company. Also,
because of this, there is a lack of trust in the market, accounting
system, and in the company in which accounting fraud was committed
from the investors. Employees in that company probably lose their job
because of the scandal.

Similarly, there is also bribery, but it is not only an unethical

practice in business. A bribe is a payment made with the intent of
influencing directly or indirectly the conduct of an individual. For
example, bribery may be in the form of an account given for a
particular arrangement that favors an individual through a facilitation
that is not consonance with the established procedures or policies of
the organization. Its effects on the management of the organization
seem contradictory. Because of this situation, there are conflicting
interpretations of the organizations’ policies (Baysa-Tolentino, et. al,
2010)

All accounting scandals are not caused by top executives.

Oftentimes managers and employees are pressured or willingly alter
financial statements for the personal benefit of the individuals over the
company. Managerial opportunism plays a large role in these scandals.
For example managers who would be compensated more for short
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term results would report inaccurate information since short term

benefits outweigh the long-term ones such as pension.

Problem 3: What are the ethical practices in accounting among

top five leading business firms in the Philippines?

Most businesses have a Mission Statement, but few have

considered ethical standards. A statement of ethical standards is the
first step in implementing an inclusive ethical program throughout the
entire business.

Ethical accounting is relevant. A business that hires an ethical

accounting firm knows that they are scrupulously honest and can be
confident that employees, customers and clients are in good hands.

Being ethical and moral in the business world should be the rule,
not the exception. Of course, there are no laws broken or ethical lines
crossed by a company being optimistic about its future. It is, however,
the accountant’s ethical duty to project honest and accurate
information to shareholders and other interested parties.

Among the most complicated things companies have to deal with

are tax issues. Tax regulations, often very complex and very technical,
usually boggle the mind of non-accountants. Books of accounts are not
for tax filing purposes alone. They also serve as guides for
management decisions and as data sources required by regulatory
agencies, the company’s stakeholders, and other parties in business
(Entrepreneur Philippines, 2009).

Inaccurate entries or those without supporting documents could

cause the books not to tally with the company’s other financial
statements, and could cause problems later (Entrepreneur Philippines,
2009).
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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
portfolio includes some of the biggest prescription and consumer
healthcare brands in the country.

Established in 1945, Unilab today is the realization of the

grand vision of its founders—to be a firmly established industry
leader distinguished by its corporate culture that places people
at the center of everything. It is a culture whose work ethic
revolves around family and community, cooperation and sharing.

Furthermore, the ongoing success of Unilab products owes

much to a philosophy of market-driven, customer-focused
operations. Advanced market research capabilities applied to
brand management & an intimate, unmatched knowledge of local
markets combine to form a focused & forceful operating group

In Unilab, "Bayanihan" has taken on a unique corporate

character. The traditional notion of working together and sharing
the fruits of labor has evolved into a value discipline of working
together and giving one's best effort. In this way, there is a
shared commitment and pride in providing quality products and
services and delivering high levels of performance. Bayanihan
finds even greater expression than it did more than a half
century ago in sharpening the vision of promoting better health
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and well-being now that Unilab is serving a far greater number

of people in Asia.

Similarly, Unilab employees enjoy one of the broadest

benefit programs in the Philippine industry. The company's
extensive welfare policy ensures its employee's economic and
physical well-being. Many of the benefits include the welfare of
the employee's family. These benefits come in many forms:
material compensation, hospitalization and health care, training
and educational benefits, economic benefits and other
miscellaneous assistance. Unilab recognizes that an employee
working with a high morale and a vision is better prepared to
meet greater challenges in his job.

Human asset as the greatest asset is a foundational value.

The company constantly strives to have their human resources
strategy always tightly aligned with overall business strategy.
They believe that this guarantees long-term business
performance growth (http://www.unilab.com/corporate/getting -
to -know -our -company).

2. Jollibee Foods Corporation

According to Howard Stevenson, “Jollibee is a success

story based on solid foundations, not a meteor that will burn
itself out.” Unlike many corporate leaders who trace their lineage
to wealthy Chinese clans, Tan had comparably very humble
beginnings, with his family exactly mirroring the stark
circumstances in which the early Chinese immigrants found
themselves in Manila. His father had been an immigrant cook in
Binondo’s Seng Guan Buddhist Temple on Narra Street
before he opened a small Chinese restaurant in Davao City,
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where Tan and his siblings helped clean tables and get water
to customers (Entrepreneur Philippines, 2004).

Jollibee Foods Corporation owned by the Tan family began

in 1975 as a basic ice cream parlor and subsequently expanded
its menu offering in the form of sandwiches and hamburgers as a
result of the increased cost of oil and the President Tony Tan
Caktiong (TTC) anticipated ice cream prices to soar. The
company culture was developed on the Five F’s: Flavor, Fun,
Flexibility, Family atmosphere and Friendliness. The years to
follow, Jollibee Foods began to expand domestically opening five
stores 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 lion’s share
of the local market that is more than all the other
multinational brands combined. The company has also
embarked on an aggressive international expansion plan in the
USA, Vietnam, Hong Kong, Saudi Arabia, Qatar and Brunei,
firmly establishing itself as a growing international QSR
player.

Moreover, Jollibee dedicated its continuous success to

the Filipinos who have been there from the very start. Jollibee is
so well-loved every time a new store opens, especially overseas;
Filipinos always form long lines to the store. It is more than
home for them. It is a strong hold of heritage and monument of
Filipino victory.
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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
Individual, Teamwork, Spirit of Family and Fun, Humility to
Listen and Learn, Honesty and Integrity and Frugality. Their
mission is to serve great tasting food and bringing the joy of
eating to everyone. Last but not the least is their vision of to
lead in product taste all the time, provide excellence in every
counter, give happiness in every moment and let the Filipino be
admired worldwide. (http://www.jollibee.com.ph/about-us).

3. SM Group of Companies

SM Group of Companies is the Philippines largest retailer

run by Henry Sy. SM Group is a retail giant with 38,600
employees and annual revenues of $1.7 billion. SM is
the Philippines' leader in the retail industry. SM Investments
Corporation is the holding company of the SM Group. For
more than 40 years, it has been committed in providing
quality products and services at reasonable prices.

SM Group of Companies is also one of the leaders in

Banking & Financing Industry and Property & Real Estate
Investment today. The company does not forget their role in
the community or their civic responsibilities, that's why SM
also focuses on four major programs and areas of advocacy,
namely, education; religious; outreach; and health.

The company has a Code of Ethics that serves as a guiding

principle for directors, officers and employees in their business
transactions with investors, creditors, customers, contractors,
suppliers, regulators and the public. The Code provides that the
company must strive to render adequate, reliable and efficient
 19

customer service at reasonable cost. It protects shareholders'

and investors' interests, including their rights to a fair return of
investment and accurate and timely information. It also protects
the employees' individual and collective rights and encourages
free and honest communication within the organization. The
Company further aims to provide its employees with adequate
benefits as well as a safe workplace and environment.
 The Code requires a fair and transparent process for the
evaluation and selection of suppliers of goods and services,
as well as an effective monitoring and control system to
prevent fraud and other malpractices. It prohibits the
solicitation or acceptance of gifts by any director, officer or
employee of the company from any business partner,
except only for gifts of nominal value or those given for the
company's charitable projects. It likewise prohibits conflict
of interest, insider trading, corruption and other illegal
acts.
 The Code lays down the company's policy to select,
develop and compensate the best people to manage the
company. The Code further expresses the company's
advocacy to support health, educational, livelihood and
other 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.
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One of the country’s premier business conglomerates, San

Miguel’s extensive product portfolio includes over 400 products
ranging from beer, hard liquor, juices, basic and processed
meats, poultry, dairy products, condiments, coffee, flour, animal
feeds and various packaging products.

For generations, the Company has generated strong

consumer loyalty through brands that are among the most
formidable in the Philippine food and beverage industry – San
Miguel Pale Pilsen, Ginebra, Monterey, Magnolia, and
Purefoods. Flagship product, San Miguel Beer, holds an over 95%
share of the Philippine beer market.

In addition to its leadership in the Philippine food and

beverage industry, San Miguel has established a significant
presence overseas. The Company’s operations extend beyond its
home base of the Philippines to China (including Hong Kong),
Vietnam, Indonesia, Malaysia, Thailand and Australia.

Through strategic partnerships it has forged with major

international companies, San Miguel has gained access to
managerial expertise, international practices and advanced
technology, thereby enhancing its performance and establishing
itself as a world-class company.

San Miguel’s partners are world leaders in their respective

businesses. Kirin Brewery Co., Ltd. is a major shareholder of San
Miguel Brewery. The Company also has successful joint venture
relationships with US-based Hormel Foods Corporation, Nihon
Yamamura Glass and QTel, a telecommunications company in
Qatar.

In the Philippines, San Miguel’s corporate strategy is at

aimed capitalizing on new growth markets through acquisitions
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and further enhancing its competitive position by improving

synergies across existing operational lines.

The company has significantly expanded its participation in

both its core businesses of food, beverage and packaging, as
well as heavy industries including power and other utilities,
mining, energy, toll ways and airports.

San Miguel has had a long-standing commitment to good

corporate governance practices and taking a leadership role in
instituting and maintaining practices that represent strong
business ethics. These practices provide an important framework
within which the Board of Directors and management can pursue
the strategic objectives of the Company and ensure its long-term
vitality 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
 22

technology, water infrastructure development and management,

and 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

individual; thus, we strive to maintain an exceptional standard
of conduct among our employees.

This Code of Conduct applies to all Ayala employees,

including senior executives and members of the Executive and
Management Committees. It provides an outline of the general
expectations and sets standards by which employees are
expected to conduct themselves. As it does not cover every
conceivable subject, it is recommended that employees refer to
its general principles to guide them in their activities.

Ayala expects its employees to conduct business in

accordance with Philippine laws and regulations. Employees are
encouraged to consult with Corporate Governance and Legal
Affairs whenever there is any doubt concerning the legality of
any matter.
 23

Any suspected criminal violations will be reported to the

appropriate authorities. Non-criminal violations will be
investigated and addressed as 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
 24

pressure on accountants creating balance sheets and financial

statements. The ethical issue for these accountants becomes
maintaining true reporting of company assets, liabilities and profits
without giving in to the pressure placed on them by management or
corporate officers. Unethical accountants could easily alter company
financial records and maneuver numbers to paint false pictures of
company successes. This may lead to short-term prosperity, but
altered financial records will ultimately spell the downfall of companies
when the Securities and Exchange Commission discovers the fraud.

Next in line is the accountant as Whistleblower. An accountant

may face the ethical dilemma of reporting discovered accounting
violations to the Financial Accounting Standards Board. While it is an
ethical accountant's duty to report such violations, the dilemma arises
in the ramifications of the reporting. Government review of company
financial records and the bad press caused by an accounting scandal
could cause the company's rapid decline and may lead to the layoff of
thousands of employees. Executives and other corporate officers could
also face criminal prosecution, leading to heavy fines and prison time.

Effects of greed are also an issue when it comes to accounting

issues. Greed in the business and finance world leads to shaving
ethical boundaries and stepping around safeguards in the name of
making more money. An accountant can never let the desire to earn a
better living and acquire more possessions get in the way of ensuring
that 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.
 25

Similarly there is also the omission of financial records a

corporate officer or other executive may ask an accountant to omit or
leave out certain financial figures from a balance sheet that may paint
the business in a bad light to the public and investors. Omission may
not seem like a significant breach of accounting ethics to an
accountant because it does not involve direct manipulation of numbers
or records. This is precisely why an accountant must remain ethically
vigilant to avoid falling into such a trap
(http://smallbusiness.chron.com/purpose-ethical-practices-
business).

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/Fraudulent-
Accounting-Practice/Page1.html)

Most businesses have a mission statement, but few have

considered ethical standards. A statement of ethical standards is the
 26

first step in implementing an inclusive ethical program throughout the

entire business.

Accordingly, ethical accounting is relevant. A business that hires

an ethical accounting firm knows that they are scrupulously honest
and can be confident that employees, customers and clients are in
good hands.

Nevertheless, accounting in business is one of the most

important departments. Ethical and professional accounting forms a
clear financial image of a business, and allows managers to make
informed decisions, keeps investors abreast of developments in the
business, and keeps the business profitable.

It is extremely important for accounting professionals to be

ethical in their practices due to the very nature of their profession. The
nature of accountants’ work puts them in a special position of trust in
relation to their clients, employers and general public, who rely on
their professional judgment and guidance in making decisions. These
decisions in turn affect the resource allocation process of an economy.

Ensuring highest ethical standards is important to a public

accountant, which is the one who renders professional services such as
assurance and taxation service to clients for a fee, as well as to a
business accountant in which on the other hand is employed in a
private or public sector organization for a salary. Both public
accountants and business accountants are in a fiduciary relationship,
former with the client and latter with the employer. In such a
relationship, they have the responsibility to ensure that their duties are
performed in conformity with the ethical values of honesty, integrity,
objectivity, due care, confidentiality, and the commitment to the public
interest before one’s own.
 27

Thus, accountants, as professionals, are expected to maintain a

level of ethical conduct that goes beyond society’s laws. This has made
the professional accounting bodies to develop a code of professional
conduct, which sets rules or standards that define right from wrong to
ensure that behavior of members complies with perceived public
expectations of ethical standards. These rules have been developed
based on the principles of professional conduct, which form the basis
for professional ethics.

However, the involvement of accountants with large corporate

scandals in recent times reflects that they have not complied with the
expected ethical standards. It is often argued that accountants focus
too much on technical issues and lack ethical sensitivity to recognize
ethical dilemmas involved with their work, which would ultimately lead
to making wrong decisions. Thus, accountants should be trained to be
sensitive to identify the moral dimension of seemingly technical issues.
This emphasizes the need to include ethics education as a core
component of professional accounting education to prepare the
accounting professionals to face various ethical dilemmas that they
face in carrying out their duties.

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

Based on the analysis and interpretation of data gathered, the

findings are:

Problem 1: What are the goals of accounting ethics

education?

1. Relate accounting education to moral issues

2. Recognize issues in accounting that have ethical

implications

3. Develop a sense of moral obligation or responsibility.

4. Develop the abilities needed to deal with ethical conflicts

or dilemmas.

5. Learn to deal with the uncertainties of the accounting

profession.

6. Set the stage for a change in ethical behavior.

7. Appreciate and understand the history and composition

of all aspects of accounting ethics and their
relationship to the general field of ethics

Problem 2: What cause accounting scandals?

Based on the data gathered creative

accounting, misleading financial analysis, bribery and frauds
cause accounting scandals. All accounting scandals are not
caused by top executives. Managers and employees are often
pressured or willingly alter financial statements for the personal
benefit of the individuals over the company.
 29

Problem 3: What are the ethical practices in accounting

among top five leading business firms in the Philippines?

The accountant’s ethical duty is to project honest and

accurate information to shareholders of the company and other
interested parties. The top five leading business firms in the
Philippines have their own mission statement that considered
ethical standards. A statement of ethical standards is the first
step in implementing an inclusive ethical program throughout
the entire business. Having an ethical accounting practice is
relevant. A business that hires an ethical accounting firm knows
that they are thoroughly honest and can be confident that
employees, customers and clients are in good hands.

Problem 4: What are the Ethical Issues facing the

Accounting profession?

Stress and pressure on accountants in creating balance

sheets and financial statements, reporting discovered accounting
violations to the Financial Accounting Standards Board, shaving
ethical boundaries and stepping around safeguards in the name
of making more money, and Omission of financial records are
the ethical issues facing the accounting profession.

Problem 5: What is the importance of accounting ethics in

business industry?

Ensuring highest ethical standards is important to a public

accountant, which is the one who renders professional services
such as assurance and taxation service to clients for a fee, as
well as to a business accountant in which on the other hand is
employed in a private or public sector organization for a salary.

Conclusions
 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 caused by top executives.

3. The top five leading business firms in the Philippines have

their own unique mission statement that considered ethical
standards in business and accounting.

4. Pressure from management, reporting discovered accounting

violations, greediness and omission of financial records are the
issues facing the accounting profession.

5. Business will not exist without accounting because it is its

language.

Recommendations

Based on the conclusions, the researchers recommend some

matters related to accounting practices.

1. Ethics education should always be implemented to

different universities so that future professionals like accountants
will be aware of the right practices they should perform in the
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.
 31

4. Business firms should have their guidelines and policies inside

the company so that the whole management can perform their
respective jobs ethically.

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