Ethical Dilemma in Accounting
Accounting activities involve dealing with money, which may include a range of sensitive data that may not only affect an organization, but also stakeholders including the customers, employees, investors, the government, and the economy at large. For that reason, accountants are given the responsibility to provide accurate financial reports that reflects the realistic position of their organization. The need for transparency is far more critical in the current information era, where information is used in crucial decision making. Ethical issues in accounting develop from areas including payroll confidentiality, the inflation of earnings, and indulgence in fraudulent activities. However, despite the existing professional, ethical standards, the 21st century has experienced a significant number of ethical misconducts in the field. An example of an ethical dilemma in accounting is the case of financial ethics that requires both confidentiality and honesty, as discussed below.
An example of an ethical dilemma is a situation that observes the operation of an organization as the chief auditor of a growing organization, the auditor realizes that the financial state of an ongoing project with a new client is not developing as expected. Upon further assessment by the accounting team, the auditor realizes a similar occurrence in the past. In that case, the previous accounting department did not make the issue public as directed by the management, and just as predicted, the organization managed to get back on their feet. Moreover, the senior auditor reports a personal relationship with the members of the family-owned business and realize that the failure of the project will taint their reputation and cause a loss of employment. Later, before concluding the response, an executive calls requiring information on the estimation of the organization’s success urgently as he wants to brief an ongoing meeting with the client, leaving the auditor unsure of an immediate response.
The above example of a moral dilemma falls under financial ethics, which is stated to be the most prevalent form of accounting misconduct. Financial ethics is a practice where the management and the accountants agree to alter the financial recordings or fail to comply with the standards of earning management ethics (Palácios et al. 2017). These provisions ban the manipulation of financial statements by including predetermined results. This practice often causes the misleading of involved parties such as investors from making data reliant decisions. Moreover, the practice goes against the ongoing concept that is the basis of completing financial documents. The current idea is the underlying belief that an organization will be in operation in the future.
Ethics in accounting emphasizes aspects such as moral values, human and business-related ethics, and their application in practice. Scholars explain that there are no holistic rules that state how each example of an ethical dilemma should be settled. Instead, there are general guidelines that professionals are required to heed. The Code of ethics of accountants that are provided by the Ethics Standards Board for Accountants (IESBA) offers a framework that should be applied in resolving ethical dilemmas by respecting the following principles (Duska et al. 2018). These principles include integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour” (Jaijaram, 2017). However, the framework acknowledges that there may be certain underlying aspects that may cause an individual to defer from making ethical decisions.
These aspects include self-interest due to financial benefits or other factors that mutually benefit the accountant. The second reason is referred to as self-review, where a professional may notice that they are not in a position to make sound judgments because he or she accomplished the work to be rated. Another threat to making an ethical decision is advocacy, which is a likelihood for the professional to promote one side in a manner that causes him or her to disregard the moral stance (Jaijairam, 2017). There is a threat that is caused by familiarity, where the accountant is conversant to the person or organization under scrutiny that they sympathize with them and forego the moral standing. The last aspect that influences decision making is intimidation, where a practitioner is unable to take an ethical stance influenced by pressure and threats.
The appropriate approach of the auditor in the explained case is first, to not make any hasty decisions before coming to a definite conclusion of the matter. Therefore, the person will hang the call with the communication that he will give the response shortly after the evaluation of the data. Secondly, there is a chance that the management, just like in the previous case, may know that the project’s going concern assumption is under threat (Jaijairam, 2017). Therefore, the vote of confidentiality will require the auditor to communicate to the management to understand their stance and describe the current observations. The last approach is to seek advice from the professional body before giving the previous response. The reliable answer is that the project has a slim chance to succeed that is not entirely reliable, which he should communicate to the owners to communicate with their staff.
Observantly, ethical dilemmas are prevalent in accounting, such as financial ethics, where accountants manipulate data to their desired outcome. In a dilemma, the owners who are the top management may be knowingly aiming at not giving the accurate figure as observed in previous cases. The auditor owes the employer confidentiality by communicating with them and protecting their stance. Similarly, they are required to reveal factual information to guide the staff and clients appropriately. The correct approach is to discuss the matter to the top management and ask them to communicate with the staff.
References
Duska, R. F., Duska, B. S., & Kury, K. W. (2018). Accounting ethics. John Wiley & Sons.
Jaijairam, P. (2017). Ethics in Accounting. Journal of finance and accountancy, (172705), 1-13.
Palácios, H., Fernandes, J. S. A., Gonçalves, C., Gonçalves, G., & Sousa, C. (2017). The influence of ethical dilemmas in the accounting. Tourism & Management Studies, 13(3), 49-57.