Question

Identify and describe at least one ethical consideration that organizations face today as it relates to accounting.

Explain how an organization can avoid being placed in this situation.

Answer 1

When you run a business it's easy to think of your accounting staff as glorified mechanics, people with specialized skills needed to keep your company's financial machinery running properly. That's true to a point, but accountants also play a role as the watchdogs of the business world. They're responsible for making sure that businesses report their finances clearly and according to recognized standards, and that often puts them in situations that can be ethically or even legally dubious.

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. 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.

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. Taking knowledge of your company to 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. It's one thing to raise questions inside the company, but bringing in regulators or criminal investigators raises the ante in a big way. 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.

How an Organisation can avoid these situations

1. Manipulation of Figures

These should be avoided at the management level to fudge the figures just to show a position which does not actually exist. Should be truthful and should not be tempted to show such a position.

2. Sins of Omission

Communication is the key to success to avoid any omission and hence organization should make a communication related policy to avoid any omissions

3. Cofidentiality Issues

Organization should set a policy in place to put in place fines or punishment to breach the confidentiality clause. This should be incorporated and signed by all the stakeholders involved in aand around the organization.

4. Confilct of interest

Organization should set a policy in place to put in place fines or punishment to breach the conflict of interest clause. This should be incorporated and signed by all the stakeholders involved in aand around the organization.

5. Blowing the whistle

Organization should out in place the whistle blower policy and communicate it on a timely basis to all the stakeholders involved such that anyone who comes across any issue where a whistle meeds to be blown and management needs to be informed about particular incident, noone should be frighteneed to do so