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Ethical issues in Accounting & Finance

Introduction

The word ethics comes from the Greek word ethos meaning conduct, customs or character. Ethics addresses the implementation of concepts such as responsibility, right and wrong and the application of moral ideals to practical human activities. Ethics can be defined as: the science of character of a person expressed as right or wrong conduct of action.

Ethical issues in Accounting Provides fair and accurate reporting of the financial position of a business Ethical issues Reporting income, falsifying documents, allowing or taking questionable deductions, illegally evading income taxes, engaging in frauds etc

Why Managers Behave Ethically


1. To avoid some punishment

Most of Us
2. To receive some reward 3. To be responsive to family, friends,

Many of Us
4. To be a good citizen

Very Few Of Us

5. To do what is right, pursue some ideal

Reasons for failure of Ethics in Organizations

Personal Gains

Individual Values widely differs with organizational Goals


Managers Values & Attitudes

Competitive Pressures
Cross Cultural Contradictions

Fraud in financial statement can be committed in 5 ways: Fictitious revenue-revenues not actually earned Fraudulent Timing differences Concealed liabilities and expenses Fraudulent disclosures or Omissions Fraudulent asset valuation-false statement of the inventory available

Types of Accounts Financial Accounts >company uses to report to their shareholders Internal Management Accounts >shows the internal operations of the business and its financial activities

Role of Accountants To provide information to the new investors 2 types of accountants


Accountants

employed by the orgn >takes care of the internal management accounts of various depts

2 types >Management accountant formulating policies planning and controlling the activities of the employees decision making disclosure to shareholders etc >Financial accountant Economic information to the investors, employers, suppliers, outside people involved in the business etc

Accountants

in professional practice provides 2 types of accounting service 1. The auditor - Appointed by shareholders to to audit a particular company - Duties include: to give an accurate statement about the state of affairs to meet the objectives of the Companies Act to be reasonably skillful and careful in identifying the true nature of accounts

2. Accountants in related services - Offer services in different fields like: Tax services Management consultancies Insolvency services Environmental audits

The Ethical Audit Main purpose- check the actions of a firm Objectives Assess the bus. structure and procedures, systems and policies Whether busi. Activities comply with the standards To identify the way in which it does business Evaluate whether mgmt has relevent infor. in running the busi.

To help busi. undergo major alterations like restructuring To identify the training necessary for the employees Establishing ethical conduct of business to attract valuable investments Establish code of conduct Helps the shareholders to evaluate the performance of the directors and vice versa

Ethical issues in Finance Importance of Financial Statement Steps to be taken by the management for true, fair and reliable mgmt accounts: Determining the key elements of the business like the objectives and see how they are defined and measured Making sure that the funds are allocated to different activities on the basis of their importance Frame rules that have a positive effect on business activities