Question

Discuss the importance of ethics in financial accounting.

What issues may arise if ethics is compromised? How would this impact the company internally, how would it impact the external users such as investors, creditors, government?

Answer 1

Ethics simply refers to the moral values to be followed by any person to anyone,society etc. Business ethics means the ethics followed in business.The management should be ethical in their operation. If they are not ready to follow ethics, then it will negatively affect their reputation. Ethics in finance is related to the goods things to be followed in financial matters.While dealing with financial affairs , there should be consider the ethical code. The main issue comes under ethics in financing is that management is not capable of managing the personal and professional goal of interested parties. ie every individual have their own goal in an organisation, along with that they have comply with organisational goal. If the organisation is not following ethics in financing, they cannot manage the goal personal and professional goal. Next there is a chance of misleading the investors. That is if an investor wants to invest money in any project and they want to earn some profits, he has to choose high yielding projects. Sometimes the agents may mislead to invest money in a low yielding projects. Any persons engaged in finance related activities, so he should follow all those rules and regulations association with finance.

By making fraudulent activities, the person can earn high.But its not fair.In the long run it will harm to the image of the company and there is a chance of insider trading also.which means trading of corporations stock or other securities by individual with access to non public information about the company. It may affect the confidence of investors. By internally and externally it will affect the company if they are not ready to follow ethics in business. The stakeholders attitude towards the company will be rude if the company is engaged in unfair trade practices and also the company should satisfy the interest of them, if they fails, definitely it will affect the company. It is very hard to maintain a reputation for a long time. If external people are thinking that that the company is in a wrong way , it will affect the share price then profitability and reputation also.