Ethical Issues on Accounting Essay

Society is composed of many institutions that have various purpose and position. These institutions may sometime have contradicting goals. Money is something people work hard for making it such a sensitive issue. Disputes regarding money are often entangled in heavy disputes and are hard to settle. The accounting is the field that specializes in the job of taking care of other people’s money issues. Ironically, the accounting business has been bombarded by controversies regarding how they do their job and how they settle disputes if there are any. Practicing accountants consequently developed an image of being either strictly professional or, at worst, dishonest. Unfortunately for the accounting field, it is considered by many that moral standards of this field are deteriorating. This is where ethics come into play. It is very problematic to weigh issues without a set of conventions to guide them in the decision making. Ethics came form the Latin â€Å"ethos†, that means character and customs. Ethics basically deals with how people interact with each other. Ethics also sets what is good or bad, right or wrong but definitely much broader than the common notions of the rightness or wrongness of things (Cornwell University Law School). On the academic terms, ethics pertains to not just personal feelings, religion, laws. Feelings most of the time leads us to do unethical acts. Being religious too doesn’t necessarily mean that one is being ethical. Of course, religion sets very high ethical standards. But not all people are religious, non-religious people also have their own ethical standards. Also, being ethical doesn’t necessarily mean abiding by the law. Most people view the law as having the same grounds as ethics. Laws are formulated to meet ethical standards. But like feelings, the law can have certain biases, therefore can be sometimes can be viewed as unethical. Since ethics is basically right or wrong, it proves to be a very important tool such problematic fields such as accounting. Codes of professional conduct Many fields of profession formulate a highly developed detailed set of codes to guide them in their practice. They have allotted a considerable amount of their time and resources just to come up with these codes. These set of codes are more commonly regarded as â€Å"professional codes. † In the case of accounting, The American Institute of Certified Public Accountants or AICPA has Codes of Professional Conduct which serves as ethical reference. Much of these codes were later merged with the public law. The merging of the codes to the law gave it much more enforceability. Setting aside the technical education, accounting undergraduates were also given ethics courses before they conduct practice in the field. They may have discussed basic ethical. They might have been supplied a lecture of the codes of professional conduct. The generally accepted set of codes for accounting is supplied by the AICPA. One of the primary functions of the AICPA is the major role in the self-regulation of practicing accountants. Majority of the AICPA’s resources is devoted to developing the â€Å"professional codes† for CPA practitioners. Aside from the codes of professional conduct, there is also GAAP or the Generally Accepted Accounting Principles. Just like the codes of professional conduct, the GAAP serves as a reminder that accounting practitioners should keep in mind that they have to follow certain moral guidelines. It also includes rules and the agreed sanctions if these rules were violated. The Codes of Professional Conduct and GAAP both remind accounting practitioners that they must do their function responsibly. Basically, both these sets of moral codes states that accountants should not commit frauds even if the temptation of personal gain is prevalent. The codes and principles also remind them not to violate the set rules for it could mean heavy sanctions like renouncing of licenses. The use of professional codes is one way to resolve ethical deterioration in the accounting profession. On the other hand, it can be viewed as selfish on the part of accountants as it only heeds to their individualistic goals. Also, having a set of ethical codes grants accountants an image of trustworthiness and competence. Accounting is a field that has a very high demand by the public. The public, with all their money, is in need of accountancy services so that they could spend their precious time earning more money rather than the grueling task of sorting it. Accounting, as many perceives, is a very technical field, so accountants dedicate themselves to the complex technical aspects of the field leaving out on moral values. Accountant themselves see themselves as professionals that doesn’t require moral codes to conduct practice. Accountants develop an attitude which can be broadly described as lack of incorporating moral judgment on their work. Experts coin this as â€Å"ethical dissonance. † Ethical dissonance in accounting pertains to the attitude of accountants to treat their chosen field as completely morally neutral. As the word suggests, ethical dissonance is very prone to conflicts. Accountants suffering ethical dissonance have a different set of moral codes, or at worst devoid of any, so conflicts with other institutions will be very hard to resolve. The root of this problem is traceable to various issues like â€Å"self-regulation† practiced by the accounting field. Self-regulation Self-regulation of the accounting field basically means that the accounting field itself makes their own set of codes rather than extracting it from the society. Self-regulation can be something good as it can give the field of accountancy more focus on their field. Self-regulation gained popularity as it is regarded as â€Å"effective control† and the most efficient tool for minimizing errors. Accountants acquire some privileges that other members of the society don’t have. This includes the exclusive right to determine who can do the accounting work and how it should be done. These special privileges are granted to them by the state. But their acquired â€Å"autonomy† doesn’t come free. As an act of courtesy, the accounting profession now burdens having special public interests responsibilities that they should keep high competence and high ethical standards (Gaa, 1994). Once the regulations are agreed upon, it is formalized by law or by organizations of the same field. The organizations monitor and penalize its members if they abide or violate the agreed regulations. If violations are reported, investigations are done by the government or the organization, where the violator is a member. Also self-regulation allows accountants have more focus as they wouldn’t spend time and effort developing professional codes. Self-regulation can incite conflicts because in the end it will have to adjust to what the public wants. For many accountancy experts, self regulation in accounting cannot work accordingly. If extracted a tautological meaning, they are merely regulating themselves of what they should do and those that they cannot violate. The public and the accountancy field is both divided in this issue. Some people tend to go with the decision to leave their financial affairs to their accountants (Gowthorpe & Blake, 1998, pp. 1-3). They wouldn’t question however the accountants will do the job. In this respect, they recognize it that the accountants are the specialists in this field. And so they don’t bother in meddling (or arguing) with their accountants. The gray area of this point is that it is very prone to malpractice, intended or unintended, that can lead to ethical conflicts between the public and the accounting field. Since the moral code is self-regulated, what may be right or wrong for the accountants may be contradicting to those of the public. However, if the state gave the accounting industry autonomy, it means they are given more weight than other institutions. In this sense it is quite unethical for the state have certain biases. Moreover if the accounting industry is given this autonomy, in return they should provide the public quality and honest service with high regards to ethical standards and competence. Ethical lapses in accounting I have acquired examples of ethics in action in the accounting field. I will have to not name the particular agencies involved as it is unethical. Perhaps one of the biggest acknowledgements of ethical misconduct in accounting was done by an insurance company by swapping insurance assets to artificially increase their growth. This is an example of an â€Å"end justify the means. † The insurance company had only thought of its own good not minding how their action affects others. With their artificially fattened network gross, investors are lured to risk their money on a company that has not performed as the unknowingly deceived analysts say. (Flanagan, 2007, pp 38-46) Another ethical lapse in accounting is discrimination. Some insurance companies have gender, racial, and age related biases before they sell their service. This act of discrimination is highly unethical because it contradicts the responsibility of accountants to the public. Researches found out that gender seems to have a great effect on negotiations (Flanagan, 2007, pp. 60-64). (a) Women seem to be greater in number in terms of financial disputes. During negotiations, women prefer being perceived as reasonable. Men are treated to have more economic orientation so they can maximize economic income. Women are treated to have lots of self-doubt about their financial capabilities so they would have to settle with smaller financial settlements. Some companies perceive this as risk to their economic gain so they unethically reject smaller settlements. Women are allegedly to have lesser successes in negotiations in comparison to men. As gender awareness is increasing popularity these days, this ethical lapse would mean many disputes for the accounting industry. (b) There is also aversion for elderly people during negotiations. Many companies see clients with old age (65 up) as great investment risk. Elderly people seem to have more difficulty getting auto insurances. They also find it difficult to cash in their insurance as it could just be interpreted as a scam. Insurance companies group their clients in to two whereas one group is of the adult (23-60) and the other is either very young or very old. The latter group which has both extremities of the age group is treated much differently as opposed to the prior group. The latter group is perceived as to have a higher frequency of accidents that would lead to higher insurance claims. Also, younger defendants are assed more fault than relatively older defendants while all other are treated equally. Again the lapse here is that economic consequences were given more priority than being ethically agreeable. (c) Accounting services seem to have biases in terms of race. Loan default rates are higher for black applicants than white applicants. The lender cannot use race as a qualifier in whether to give out loans or not. There are also variations in insurance terms when race is being considered. Discrimination, the word itself is not obviously ethical. Ladd, 1998, pp. 63-90) Although these acts of discrimination are considered illegal, many practitioners still commit this unethical practice. If there are variations to insurance terms, the act could meet up with the legal definition of discrimination that could cause the agency legal prohibition. Although if there was a denial in loans due to gender, age, and race, even with the legal laws, it would be difficult to resolve because of the self-regulated ethical codes that the industry of accounting is equipped. Economic consequences of ethical issues Probably, one reason why it takes lot of time and discussions before ethical solutions are implemented is because corrections of errors will cause a lot of money for the accounting agencies. Profit maximizing is the priority concern of most businesses, even if they admit it or not. Moreover, maintaining and formulating proper ethical codes would cost companies much money that they would want to put into investment instead. Ruland had identified three philosophical perspectives that addresses the questions of whether accounting regulators should be guided by economic consequence issues. (Ruland 1984) The question of whether ends justify means for the accountants. It is often asked if the desired economic outcome of practicing accountancy justify what ever ethical approach they are taking. We can view this thinking as both negative and positive. On one side, we can view it as the actions should be judged weighed on its moral values. There is also the notion of â€Å"positive and negative responsibilities. † Positive responsibilities hold individuals accountable their own actions. On the other hand, negative responsibilities hold individuals accountable for actions they fail or allow to properly address. In simpler terms, positive responsibilities hold accountants responsible for their own actions, and contrastingly, negative responsibilities hold accountants responsible for the action of other people. Arguably, positive responsibilities can provide a fair presentation of accounts because the accountant’s reputation is on the line, as opposed to negative responsibilities whereas the accountants can’t be blamed for errors of other people. Many still argue that positive responsibilities should not be replaced by negative responsibilities just to avoid financial consequences. There is also the concept of â€Å"the distinction of duty to refrain and a duty to act. † Many accounting firms believe that the pursuit of the best accounting practice is the most important duty of accountants. They are tasked with a duty to refrain by any distractions. They are to focus only on their service, and nothing else, even if it may cause some ethical disputes. An important word here is â€Å"priority† as the duty to act gives more priority to addressing issue rather than refraining. Those who argue that economic consequences issues should be the main focus of regulations are favoring the duty to act.