Accounting ethics are guidelines that are meant to govern the way a business carries out and records its financial transactions. They are seen as a set of rules supposed to be followed by all staff in the finance department of a business. These ethics determine the productivity of a business to a large extent since they dictate how crucial activities should be carried out (Duska & Duska, 2003). They are focused in preventing dishonesty in financial statements. Most businesses tend to report incorrect financial information with the aim of influencing decisions of users of financial statements. This act is deemed to be unethical since it is a misrepresentation of the performance of the business.
Versailles was well known for providing loans to companies, which were waiting their debtors to clear off their debts. It was founded in 1991, but was suspended in 1996 for improper accounting practices. The auditors who had previously checked the books of accounts of the firm were charged for providing the directors with incorrect audit reports.
Unethical behaviors in businesses are caused by a number of factors. A business may at times be required to maintain a certain number of employees to maintain low costs of production. When the limit is violated, the cost of production rises, thereby increasing the need to give incorrect information on the production costs.
A company with a weak Board of Directors is likely to breach the accounting ethics (Maurice, 1996). Businesses need to have competent directors who are keen in checking the records of the company, as well as the audit reports provided by the auditors. Moreover, the directors should have adequate information concerning the business cycles to enable them make sound decisions in different economic times.
Ethics play major roles in determining productivity and success of the business. They promote peaceful relationships among works since it strongly holds on the aspect of respect among workers. As such, ethics should be declared mandatory to all companies to ensure that all of them operate under standard conditions. This makes the authority to look over the companies in a country.
Ethics are seen to operate effectively in the current regulatory frameworks. Since most businesses understand the importance of ethics in their operations and insist that employees should be guided by such ethics.
Most governments are also seen to support the fact that businesses should be guided by ethics. Moreover, they believe that ethics make it easier for them to monitor operations of different companies in the country. They also believe that these ethics provide the limits under which the businesses should be run in a country. In so doing, they confirm that businesses operate under standard conditions that ensure healthy competition.
Additionally, the roles played by ethics in a business are supported by Sarbanes Oxley Act, which is seen to support ethical standards in finance. The Act holds on the fact that businesses should ensure that they report accurate information to portray a genuine image. The Act also emphasizes on the need of keeping proper records that incorporate the aspect of information technology (IT). This ensures effective and proper documentation, which enables forecasting. The Sarbanes Oxley Act guarantees honesty in businesses thereby protecting the users of financial statement.
Therefore, according to my opinion, the current regulatory frameworks provide a conducive environment under which ethics operate. Current regulations are seen to wholly support the role of ethics in a business. In fact, these regulations provide that ethics should be applied in businesses compulsorily. When coupled together with ethics, the regulations are seen to be very effective in governing how a business ought to be run.
Accounting ethical breach refers to illegal practices that hinder the smooth operations of ethics in a business (Ketz, 2006). These practices include misrepresentation of incomes and expenses in the financial statements. These misrepresentations are mainly aimed at influencing the decisions made by users of the financial statements. As such, these practices alter the investment decisions that ought to be made by the users of financial statements who include the general public.
Unethical practices in accounting have great impacts in the organization. Investors need to have confidence in an organization before investing in it. However, they may not have confidence in financial information of a company that has unethical behavior. Therefore, an organization that is well known for not upholding ethics in accounting might lack investors. Furthermore, the business is perceived to have a bad reputation and publicity, which may result in a bad image and name of the business.This was witnessed when Versailles was involved in unethical accounting practices. It became less popular since investors could not trust the financial information contained in the firm’s reports.
The productivity of the business is greatly affected by unethical accounting practices. Employees tend to develop mistrust among them in an organization that has unethical practices. As a result, the workers do not perform at their best and this causes low productivity and profits to the organization. As such, when Versailles was involved in breach of accounting ethics, its profits were seen to have a downward trend for several accounting periods.
Additionally, a company that has unethical behaviors tends to lack new employees who might bring in innovations. Since no person would like to work in an environment that does not have peace and friendly atmosphere. As a result of this, the organization is forced to incur training costs. Moreover, the organization might find it hard to fire the incompetent employees, because it is not guaranteed to employ new workers. This also affects the productivity of the organization, because even the incompetent workers will have to remain. This was clearly witnessed among the employees of Versailles who worked in the finance department.
There are signs that associated with unethical accounting practices. As such, these signs are used to detect unethical accounting practices in the businesses. These signs include the use of false documents in accounting (Mintz, 1997). When such trends are noted, the businesses need to be audited in order to check for any misrepresentations.
Versailles had made use of falsified documents in its books of accounts, and this called for an audit. For example, the documents that were meant to show the crucial sales transactions for the firm had been distorted. Additionally, there was overuse of the firm’s property for personal purposes. This was concluded by a quick audit that was carried out on noting the signs. These practices are against accounting ethics, but were not detected before the audit. Therefore, an independent audit is the best method that can be used to detect unethical accounting practices.
Most of the accounts did not portray the right figures due to these practices. Expenses were seen to be high than expected since business property was even used for personal motives. This affected the incomes of the business since the net profit was reflected as a lower value than it would be if property was used for business motives only. Therefore, using the firm’s property has the effect of increasing the figure of expenses. Consequently, the value of net profit is reduced since it is determined by the difference between incomes and expenses. Users of financial statements could not rely on them in decision making due to the falsified and distorted documents.
As a chief finance officer of a business, I would recommend that stern actions should be taken for members of staff who practice unethical accounting practices. This will have the effect of encouraging staff in the finance department to uphold ethical accounting practices. This results in productivity of the workers.
Additionally, I would propose frequent performance evaluation for workers. This involves tracking the actions of the workers. This also helps to determine whether ethical accounting practices have been upheld or not. Finally, there should be frequent checks on the books of account for the firm. This ensures that in case any corrections are required, they are made before their effects are experienced.
In conclusion, accounting ethics are a set of guidelines that govern the way business records and reports financial information. They are supported by current regulatory frameworks since they uphold good practices in business. They ensure that users of financial information get the correct information of the business. Unethical accounting practices are detected by frequent audits that are aimed at checking the books of account of the business. Unethical accounting practices have the effect of reducing the overall productivity of the business.