Question

What ethical issues might Accounting professionals face in dealing with confidential information? What do you think should happen if an accountant breaches confidentiality?

Answer 1

Following are the ethical issues that accouting professional faces:

Pressure to Manipulate the Figures

Running a business puts you under a great deal of pressure, especially when things are not going well, or at least not as well as you need them to go. When that happens, the temptation to lean on your accountant to fudge the numbers can be hard to resist. It's a real problem for accountants, whether they're employees or an outside firm you've hired.

They have a clear ethical – and legal – obligation to report your financial situation accurately, and failing to do that can open them to civil or criminal liability, bringing their careers to a sudden stop. On the other hand, they also have to make a living and may fear losing their jobs, or clients, if they don't play along.

Sins of Omission

An accountant might also feel pressure to simply leave things out of financial reports if they'd cast a shadow over the company. This is the flip side of actively misrepresenting numbers, and psychologically it might feel easier. It's the equivalent of a child choosing between outright lying to Mom or simply leaving room for her to stay happily unaware of some bad behavior. At the end of the day, though, both are equally wrong.

An investor who buys into your company without knowing about a potential problem isn't in a position to assess the risks accurately. Such was the recent case with Theranos founder Elizabeth Holmes who misrepresented the effectiveness of her medical devices by demonstrating the technology of other companies when pursing high-level investors. In much the same way, an accountant who's telling you what you want to hear can leave gaps in the management information you need to run your company effectively. That can come back to haunt you if you make a major business decision based on incomplete information.

Access to Information and Confidentiality Issues

Like doctors and lawyers, accountants naturally spend much of their time dealing with confidential information. Using that information inappropriately, or failing to protect confidential information properly, are both ethical issues for an accountant. Insider trading – use of confidential information to take advantage of an upcoming growth or drop in the company's value – is one of the most obvious issues. The high profile cases involving Martha Stewart and more recently Rep. Chris Collins are examples of insider trading.

Sharing knowledge of your company with a competitor, or making it possible for outsiders to steal your information through negligence, are two others. Ironically, taking a principled stand on an ethical issue can also be a breach of confidentiality. If your accounting team leave abruptly at a sensitive moment for your company, and everyone remains tight-lipped about the reasons, outsiders might infer that you've been up to something.

Conflicts of Interest

Conflicts of interest can be an especially difficult ethical issue to recognize. If your senior accounting staff receives bonuses based on the stock price, for example, they have a motivation – consciously or unconsciously – to make decisions that favor higher stock prices, even if they're not good for the company or its investors in the longer term. For similar reasons, accountants doing audits of your company's financials might follow the folk wisdom that says, "don't ask questions you don't want answers to." Thinking clearly about the biases you've built into your company's culture isn't easy, but it can help keep those problems from coming up over time.

Blowing the Whistle

One final ethical dilemma accountants may face is the thorny question of when to blow the whistle on a company or a division that's unethically manipulating or misstating its numbers. If the accountant's information is damaging enough, it could cause a company to fail or lose much of its stock value overnight. That can hurt thousands of investors, or put the accountant's own friends and co-workers out of work and into financial jeopardy. There's a very real risk of backlash and intimidation, and a reputation as a troublemaker can be a career-breaker.