Effects Of Unethical Practices In Accounting Profession
Ethics is the basic concepts and fundamental principles of the conduct of human which involves knowing the difference between good and bad, rights and wrongs. It is synonymous with morality, honesty and integrity. Accounting ethics are standards of right and wrong conducts that apply to the accounting profession.
Ethics has become an essential area of concern in the accounting profession at present due to numerous corporate scandals that has happened in the accounting world which will question the credibility of the Profession. One important example is the case of Author Anderson in ENRON whose practicing license was withdrawn and his reputation rubbed in the mud. If accounting ethics are maintained, the financial statements of companies would be accurate, truthful and reliable.
There are rules and regulations in accounting in order to ensure that financial statements are useful to their end users in their financial decision-making. Financial statements will not be useful unless the information presented therein are accurate, faithful to the financial circumstances and produced in time to help the decision-making process. Poor ethics in accounting result not only in increased incidences of criminal activities, but also hurt the business through harming its reputation (Goodwill) and rendering their financial statements untrustworthy and thus useless.
Some of the effect of unethical behavior in accounting are:
Poor ethics amongst the accountants of a business means that the persons involved are more willing to break the rules of the profession in order to benefit either themselves or their business illegally. For instance, an unethical accountant who is granted too much control of the finance of the business and too little oversight from superiors can defraud the business and clean up every trace of his act. An unethical accountant who is in charge of the behest of the business can manipulate the financial data to commit a number of crimes like fraud and tax evasion.
Once an unethical accountant is caught and tried, he or she will be punished. Although it depends on the specific circumstances surrounding the case, this can result to being sentenced to prison, fines, withdrawal of license and other legal punishments to the accountants found guilty. This will not only be devastating for said accountant, it will also be devastating on both friends and family, especially the family.
Poor ethics by accountants can also cause damages on the reputation of the business and trustworthiness of its stakeholders e.g customers and business partners. When there is no trust, the business finds it difficult to conduct business with other business. This is a devastating damage to a business' reputation particularly to accounting firms who rely heavily on that reputation and goodwill to remain in business. I can remember vividly that Arthur Andersen LLP perished as a business due to its poor conduct in the Enron scandal.
USEFULNESS OF FINANCIAL STATEMENTS
Financial statements become less useful when an accountant deliberately breaks the rules and regulations in order to manipulate the information presented on the financial statements to illegal advantage. The truth is that since financial statements must remain accurate and truthful to help end users in making financial decisions, any manipulated financial statements deter the decision-making process. Figures with errors will cast all other figures into doubt even if they are correct and end users will become unable to trust the information presented.
LOSS OF HUMAN CAPITAL
A vast majority of employees do not want to work for a company where unethical behavior are practised. It is one of the requirements of Accounting professional standards that accounting should be performed ethically and with integrity. If you pressure your accountants to behave unethically, they can't uphold the standards of their profession, and this may lead to loss of their license or credentials by the authority in charge of accounting profession. Your company might not be able to employ reputable accountants because they will not work for an employer who expects unethical behavior.
In conclusion, Unethical conduct is very bad for a business, both a growing business and an established business. It has alot of disadvantages and no advantage to your business unless you want to ruin the hard earned reputation that your business has built over the years. In order not to lose your clients, partners and staffs, please avoid unethical conducts in the accounting profession.