Unethical practices and behavior in accounting - Essay Example

? Unethical practices and behavior in accounting March 19, Unethical practices and behavior in accounting Introduction Diversified forces, from professions’ external environments, regulate professional practices. Legal environment defined by a set of rules that are formulated to govern behavior and practices and are legally enforceable, and moral environment that is defined by ethical expectations from the society and professional bodies are example. Ethics define moral rules that regulate behavior of an individual or a society and are based on constructs that acts are either moral rights or moral wrongs. Outlined codes of ethics and professional regulations guides accounting practices and defines unethical acts. I, in this paper, analyze Beth’s article, ‘Eight years after fact is SOX working? A look at the Brook corporation’, with the aim of identifying situations that may lead to unethical practices and behavior and review effects of Sarbanes-Oxley Act on financial statements. Situations that might lead to unethical practices and behavior in accounting People’s practices and behavior are largely influenced by their environments that can either encourage good practices and behavior or can allow for, and even promote immoral acts among accountants. Opportunities are one of the set of situations that might lead to unethical practices and behavior. Ethics are moral rules and therefore restrain people into conformance to expected practices. It relies on both the level at which such people can be influenced or coerced to acculturate such standards and the effectiveness in preventing possibilities of unethical practices. Availability of opportunities for unethical practice however challenges these factors because of the involved social aspects of ethics. An individual, based on the possible gain from a practice, may for example choose to utilize an opportunity into unethical practice or behavior for such gains. Opportunities also offer temptation into unethical practices and behavior and may influence an individual to behave unethically against an individual’s intentions (Beth, 2010). Bad ethical examples set by others forms another situation that is likely to lead to unethical practice or behavior in the accounting profession and is majorly influenced by the role and impacts of leadership concepts. Environment plays a significant role in influencing a person’s behavior and an environment where unethical practices exist will influence a person into such practices. This influence is particularly effective when senior people in an organization do the undesirable behaviors and practices. While junior employees may not have the authority to stop the practices, frustrations that their seniors are benefiting at their expense are likely to influence them into unethical practices. Bad example set by senior people in an organization also spread to lower levels of the organization’s structure because such leaders lose their moral power and the conscience to condemn unethical practices. Persistent misrepresentation of financial information by an organization’s chief accountant for example sets a bad example to junior accounts officers who may emulate their senior’s behavior (Beth, 2010). Lack of incentives is another situation that may lead to unethical practices and behavior in accounting. This applies from two perspectives, lack of incentives to facilitate ethical practice, and lack of general employee incentives towards utility and commitment to a workplace. There are avenues to acculturating ethics among people such as training them on the need for ethical practice, creating awareness on possible consequences of unethical practice, and establishing a culture that values ethics. Lack of these factors in an organization may facilitate unethical acts because people will lack knowledge on significance of ethics. General work incentives such as rewards and remunerations, trainings and other offers that promote employee utility at the workplace are also significant to employees’ commitment to an organization and its goals. Absence of such incentives to accountants, like other employees, therefore leads to low utility levels, low commitment to the organization and leaves accounts’ personnel vulnerable to temptations of opportunities for unethical practices (Beth, 2010). An organization’s strategy to achieving ethics among its accountants is another factor that identifies a situation towards unethical practices and behavior. A culture that ensures compliance to ethical environment instead of acculturating integrity in accounts departments is a particular situation that fails to eliminate employees’ interest in unethical practices but only suppress such interest. Accounts personnel in such situations will behave morally but lose their control when an opportunity arises for unethical behavior or practice. This situation is dangerous because it might lead to extreme damage when opportunities arise (Beth, 2010). Effects of Sarbanes-Oxley Act 2002 on financial statements Sarbanes-Oxley Act of 2002 was established to eliminate fraudulent misrepresentation of organizations’ financial positions. Its provisions that regulate preparation and presentation of financial statements have extensive effects on the statements. The general scope of the act that requires honesty and ethical consideration in handling financial statements identify some of the effects. Provision for honesty ensures accuracy in the statements’ contents to reflect organizations’ actual financial positions. It therefore ensures that losses are not understated nor profits overstated for a positive but virtual corporate image. The act also ensures that balance sheet elements express the actual value of resources owned by an organization and their sources. The act has also incorporated social responsibility in the financial statements’ scope and diversified interests have to be considered and met with necessary disclosure that will safeguard interest of all stakeholders to a subject organization. This extends the need for honesty to disclosure of non-financial activities to facilitate comprehensive insights into organization’s financial statements (Beth, 2010). The acts’ requirement for periodic disclosure of information has also influenced the frequency with which statements should be prepared and has facilitated accuracy and consistency because of the ability to identify and correct errors in financial statements, during reconciliations. Strict rules for annual reporting have facilitated the statements’ compliance to professional and legal standards. The act has also exposed financial statements to strict scrutiny, through internal controls, and therefore reduces chances of errors in statements (Beth, 2010). Conclusion The case identifies diversified situations that might lead to unethical practices and behavior in accounting. Such situations include opportunities for unethical practices, bad examples set by senior accounts officers, lack of incentives for promoting ethical practices and those for deterring unethical practices, and poor approach to enforcing ethics. The Sarbanes-Oxley Act of 2002 that was enacted to control accounting fraud has ensured accurate and timely preparation and communication of financial statements. It has also incorporated social responsibility in the statements. Its strict provisions have also improved organizations’ internal control systems for credible financial statements. Reference Beth, H. (2010). Eight years after the fact is SOX working? A look at the Brooke Corporation. Journal of Business Case Studies (6.6): 19- 29. Read More