Ethics and Governance - Kickbacks - Essay Example

Ethics and Governance “Kickbacks” Executive summary For any organization, its commitment to the highest standards of ethics helps it in earning the continued confidence of many groups of people. A good standard of ethics creates confidence in customers, employees, investors, vendors and the surrounding communities. The organization’s Business Conduct and Ethics weaves that commitment into standards, principles and responsibilities that help them in guiding their behavior and decision making. This code of conduct highly prohibits unethical behavior such as kickbacks, conflicts of interest, fraud, bribery, improper accounting and improper use of company funds and assets. The code of conduct also requires protection of confidential information as well as intellectual property. It also requires the selection of suppliers depending on the business criteria and the adherence to all public reporting requirements. Corporate Compliance Programs for organizations help them in integrating their commitment to ethics and integrity into their day-to-day operations. The global teams of most organizations’ compliance areas ensure that their employees have procedures as well as training on the regulatory requirements that are related to their jobs. In so doing, it makes compliance an integral part of the organization’s everyday activities. The organization monitors and assesses compliance with regulatory requirements and it investigates each allegation related to noncompliance. In case any problems are detected, the management conducts root cause analysis of what has happened and it modifies internal controls to prevent any reoccurrences. They then track their report progress and compliance performance quarterly to their executive management team and the audit committee of their board of directors (Wulf, 2012, pg. 136). Answers to questions Code of ethics as rule based and principle based Almost all companies and organizations are supposed to prepare their financial statements depending on standards set by the Financial Accounting Standards Board (FASB). The standards set by FASB are generally principles-based. In the recent years, their have been debates on whether principle-based accounting is likely to be more efficient compared to the popular rule-based accounting. The debates have been in response to the popular accounting scandals such as the WorldCom and the Enron. The current way of accounting has faced a great deal of criticism and it therefore means that the stakeholders are supposed to do everything to ensure the situation is back to normal. Rules-based ethics in accounting basically has a list containing detailed rules that have to be followed in the process of preparing financial statements. Many accountants prefer the prospect of using these rules-based standards. The reason for them preferring rules-based standards is because in case these rules are not there, the accountants could be brought to court just in case of incorrect financial statements. When there are strict rules that have to be followed, there are possibilities of diminished lawsuits. For the principles-based accounting ethics such as the generally accepted accounting principles (GAAP) are used as the conceptual basis for accountants. There is always a set of main objectives are set out to ensure that there is good reporting. Some of the common examples are used in providing guidance and explaining the objectives. Even though some rules of the rules can not be avoided, the guidelines or rules are not supposed to be used for every situation that arises. In Australia, principles-based accounting ethics is the commonly used code of ethics used in accounting (Wulf, 2012, pg. 150). Fundamental principles of the code of ethics for professional accountants Australia uses the following fundamental professional ethics in accounting; Integrity According to this principle, a professional accountant needs to be a straightforward person. The accountant also needs to be honest in all professional as well as business relationships. Objectivity According to this principle, any professional accountant should not allow any form of conflict of interest, biasness or undue influence of others in overriding business or professional judgments. Confidentiality A professional accountant needs to respect confidentiality of any information that is acquired as a result of business and professional relationships. The accountant should not disclose information of that kind of information to third parties without following specific and proper authority unless there is a legal or professional duty or right to disclose the information. Confidential information that is acquired because of business and professional relationships should not be used for any form of personal advantage of the accountant or third parties (Sargeant, 2014, pg. 174). Professional competence and due care The principle requires that the professional accountant needs to have a continuity duty in order to maintain professional knowledge and skill. The professional knowledge is maintained at a level that requires that an employer or client receives professional services that are very competent and are based on the current developments in legislation, techniques and practice. A professional accountant needs to act diligently and should be in accordance with applicable technical as well as professional standards (Sargeant, 2014, pg. 176). Professional behaviour This principle requires that a professional accountant complies with the relevant laws and regulations. Also, the accountant should avoid any behaviour that is likely to discredit the profession. Threats to the fundamental principles of the Code of Ethics When accountants are practicing the mentioned codes of ethics, they are bound to face certain situations that will make it hard for them to fulfill the requirements of code of ethics. These obstructions are referred to as threats to fundamental principles. Even though the threats can make many different shapes, but they can broadly be classified in five categories. The first threat is the self-review threat. This threat arises when the accountant has been asked to assess on his or her own opinion, assessment, judgment or work. In the process, the accountant is basically self reviewing his or her own work. Doing so can be equated to asking a student to assess his or her own exam script. Being in such situations may push the accountant to give biased evaluation in order to save his or her reputation even in cases where the previous judgment was totally wrong (Fazal, 2013,pg. 72). The second threat is referred to as self-interest threat. This threat arises when the stake of the accountant, immediate or close family member of the accountant is involved in the entity. Therefore, such situations might cause the accountant to violate multiple ethical requirements. The third threat is referred to as the advocacy threat. This threat arises when the accountant supports the position or position or the client to the extent that the position or opinion is not supported with relevant evidence. In most cases the support is unintentional and the accountant supports the position of the client beyond the required degree of objectivity. The fourth threat is the familiarity threat. It arises when the accountant due to the nature of the relation of the client or the other party. As a result, the accountant becomes too sympathetic with the client therefore compromising the objective requirement of the code of ethics. The last threat is the intimidation threat. This threat arises when the accountant is physically or mentally, directly or indirect threatened to him or her from working objectively. For instance, an auditor may be threatened in case he or she reports objectively and the audit fee will not be paid. In addition, the auditor may be threatened that his or her subsequent audits will be cancelled. Effective application of the accounting Code of Ethics Australia uses the conceptual framework approach in dealing with threats facing the accounting ethics. The code of ethics has established a conceptual framework that requires the professional accountants to identify, evaluate, and address threats linked to the compliance with the fundamental principles. This approach helps the accounting professionals in complying with ethical requirements of the code of ethics and meeting their responsibility of acting in the public interest (Fazal, 2013, pg. 106). References Fazal, H. (2013). What is meant by threats to Fundamental ethical principles in auditing? Stamford: Cengage Publishing. Sargeant, N. (2014). What is the difference between principles-based accounting and rules-based accounting? Stamford: Cengage Publishing. Wulf, K. (2012). Ethics and Compliance Programs in Multinational Organizations. New York: Springer Science & Business Media. Read More