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Accounting is a practice and body of knowledge concerned with business recording methodologies, keeping of financial records, auditing, analysis of financial information, and advising on tax matters (Clayton 45).
It applies as a systematic process that entails discovery, recording, measuring, arrangement, confirmation, elucidation, and statement of financial information. Accounting also entails preparation of financial statements used in decision-making by shareholders in a business, the government, employers and other stakeholders (Wells 9).
Statement of financial information applies through reports that indicate the financial resources controlled by an organization’s management. Accountants monitor financial records for accuracy, and timely delivery of information in a proper manner. The cardinal focus of accounting is revealing the performance of a business or an organization over a given period (Clayton 52).
Accounting also informs on the available resources, how the resources were financed, and the outcomes achieved by the resources. For an individual to work as an accountant, he/she must have specific academic qualifications, personal attributes, and be in a position to handle all duties and responsibilities in an honest manner.
Businesses and individual clients all over the world entrust accountants with the responsibility and trust of managing their finances (Clayton 61). However, some accountants are breeding a vicious culture in the profession by encouraging fraud, financial mismanagement, deception, and other pecuniary crimes.
Integrity among accountants is essential in maintaining the respect and important role of financial management in economic development that the discipline plays (Wells 13). Due to the increasing pressure that accountants work with, the challenge of integrity is slowly maturing into a global quandary (Gerety & Lehn 34).Dishonesty among accountants has serious implications on the destiny of companies and individual clients who entrust them with a responsibility to prepare financial reports for them.
Essential skills for accountants include mathematical reasoning, oral and written comprehension, deductive reasoning, inductive reasoning, problem sensitivity, information ordering, and finger dexterity among others.
Financial statements prepared by accountants include balance sheets, cash flow statements, statements of retained earnings, income statements, as well as management discussion and analysis (Gerety & Lehn 41). In addition to the educational qualifications of an individual, there are certain key competencies essential for a successful career in this realm.
These competences are attention to detail, planning and organization, strong communication skills, a team player, ability to work under highly stressful environment and emotional intelligence (Walters 100). This essay will identify and discuss forms of dishonest behavior among accountants, the effects of the unethical practices, and the best approaches for preventing dishonest behavior among accountants.
Dishonest Behavior in Accounting
Accountants are prone to engaging in dishonest activities in the course of their duties. Since the profession entails a process of discovering, appraising, and stating of economic information to allow knowledgeable verdict and determination by those who apply the information, it is important to be aware of the vices associated with it (Gerety & Lehn 39).
There are numerous vices associated with the discipline, but there are two universally acknowledged as accounting vices that apply in all workplaces. The first unethical accounting practice is inducement (Pasco 123). Inducement is a vice that stems from an organization’s top management, who pressure accountants when funds to secure the continuity of operations lack or are not accounted for. However, most people are ignorant of the fact that inducement mostly results from greed and thirst for power.
When an accountant accepts a bribe from a top manager in his/her organization to cover up a financial blunder, it shows high greed (Gerety & Lehn 43). On the other hand, a leader in an organization who plans to bribe their juniors for a cover up, manifests a lot of thirst to remain in power, and influence decisions within the organization. This is the power and influence that members of top management in an organization use to bribe accountants into directing finances to wrong commitments.
Inducement by accountants applies through overstatement of an organization’s values or understating liabilities within an organization for personal gain (Wells 19). Some of the personal gains can include in job promotion, pay hikes, reduced responsibilities, or award of scholarships for organizations that promote employee education.
An accountant behaves dishonestly if they follow through an inducement attempt (Gerety & Lehn 51). A good example is the once largest American energy company, Enron. Whenever this company is mentioned people often remember the scandal on huge debts that drove it into bankruptcy. What led the company into bankruptcy was nothing else but the unethical practices of accountants at the firm.
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Accountants under the influence of key individuals within the company made complex financial structures and transactions that facilitated deception (Wells 23). Major investors in the company were deceived off more than $1 billion due to false accounts. When the dishonest act of the accountants came into light, a serious financial crisis broke out within the company, and recovery attempts were unsuccessful.
The second accounting vice that happens in most workplaces is fraud (Wells 33). Fraud in accounting refers to deliberate falsification of pecuniary records with a purpose to make proceeds through puffed up stash values and dodging liability commitments.
This vice entails unethical activities of financial mismanagement within an organization that apply dodging such that they do not appear in financial statements and reports (Walters 112). Fraud aims at achieving illegal benefits through false accounts that apply in appropriating public funds. False accounts have the ability to earn one huge benefits, thus the motivation by accountants to hang their morality and integrity when engaging in the activity.
However, fraud management has continued to be a challenge despite numerous laws in countries like the United States of America. A good example is the Sarbanes-Oxley Act of 2002 that enhanced restoration of public trust in American markets (Walters 117). The act requires top management in all public and private companies to confirm the correctness of all financial information stated, as well as developing a culture of whistle blowing.
The act further increased the severity of fraud related activities by accountants, as well as the autonomy of individuals who review financial statements and reports. The Sarbanes-Oxley Act developed because of numerous accounting scandals reported by various corporations in America. The scandals created an urgent need to streamline the activities of accountants and auditors, as they have a responsibility towards their employers, as well as their professional code of ethics.
Effects of Dishonest Behaviors in Accounting
Information provided by accountants applies in crucial organizational processes such as decision-making, recruitment, diversification, as well as purchasing and supplies (McNair par. 6). Therefore, the accuracy of the information provided is very important as it determines the success of these processes.
In turn, these processes determine the destiny of an organization, thus the need to achieve their success. Success in this context entails acquisition and retention of the best talent in the market, financial viability, effective resource management, as well as ability for prolonged market competition. Numerous effects result from unethical behaviors by accountants and include bankruptcy (McNair par. 8).
The cases of Enron and WorldCom provide good examples of how dishonest activities of accountants can lead an organization into bankruptcy. Bankruptcy connects closely to another effect of unethical conduct by accountants, which is lack of investor confidence. In the case of Enron, investors in the company lost money in the tune of billions. The aftermath of these activities was investors who shied away from investing in the American market as they had lost faith in the guarantee of security for their investments.
The third effect is high levels of unemployment (McNair par. 8). When all the companies that fell prey to fraud activities by their accountants filed for bankruptcy, thousands of people loss their source of income as the companies had to close down. Since the companies could no longer finance any operations, the workers who carried out these activities lost their jobs.
Unethical accounting activities also lead to slow economic growth (Pasco 129). When investors lose their interest in a market, and unemployment rates increase then the gross domestic product in an economy will fall drastically.
Without investments, an economy cannot run smoothly, as it will struggle to meet the demands of everyone, support its crucial process, as well as offering a good environment for business (Pasco 133). In the end, this results in inflation as prices will go high amid little or no income for most people. Another effect is that professional development and growth of the discipline will reduce.
Through frauds and bribery activities, people will eventually lose trust and interest in the profession due to a dented image (McNair par. 11). Professional bodies affiliated to the profession will have a huge challenge of defending their integrity on the back of unethical activities that leave numerous questions about their integrity. As one of the oldest and most important professionals, there is an urgent need to provide a lasting solution on how prevention and management of dishonest behaviors among accountants ought to apply (Pasco 139).
How to Prevent Dishonest Behavior in Accounting
Several approaches can apply in managing the challenge of dishonest behavior in accounting. The biggest contributor to dishonest behavior among accountants is ignorance of their ethical duties of responsibility towards their actions and decisions.
They have a responsibility towards their employers, colleagues, and their professional body. Management of unethical behavior in this discipline entails understanding why accountants engage in these activities, identifying any existing laws addressing the challenge, their implementation, as well as alternative measures to the key motivators for accountants engaging in the activities (Pasco 101).
First, use of modern technology would effectively monitor and discuss behavior among accountants. Use of social media as a monitoring and discussion platform fits perfectly for this objective. Through social media, people will be able to discuss how accountants behave in various parts, compare notes, and analyze their conduct critically.
Accountants can also use social media to express their concerns and probably give an insight into their key motivators when engaging in activities such as fraud (Pasco 112). However, social media can be challenging because the virtual nature of social media attracts individuals who disguise themselves as honest people, yet they have ill intentions of manipulating peoples thinking towards a direction that will favor them.
Although the craze of integrating modern technology into workplaces is popular, it is important to remember that availability of access to internet can affect productivity. The second approach is involving supervisory bodies and organizations such as the Federal Bureau of Investigation (FBI) and American Institute of Certified Public Accountants (AICPA) (Singleton 89). The role of FBI is to carry out investigations into fraud scandals within the profession.
They engage all the necessary authorities to establish why, how, where, and with whom questions about the scandals. After conducting and finalizing investigation reports, the FBI should deliver them to AICPA the professional body that will punish the culprits (McNair par. 12). For AICPA to fulfill this mandate, the government ought to provide the necessary support through legislations that address the profession, as well as giving AICPA the authority and independence to handle the situation (Singleton 90).
A good example of government legislation enforced to handle fraud scandals and other forms of financial mismanagement is the Sarbanes-Oxley Act of 2002 (McNair par. 14). The act requires top management in all public and private companies to confirm the correctness of all financial information stated, as well as developing a culture of whistle blowing.
The act further increased the severity of fraud related activities by accountants, as well as the autonomy of individuals who review financial statements and reports (Singleton 103). Another approach is cooperation between organization’s employees and the relevant supervisory bodies. This approach is cost effective, uses primary data that has little alterations, and helps to provide an organization’s accounting history that is necessary in investigations.
Accounting also entails preparation of financial statements used in decision-making by shareholders in a business, the government, employers and other stakeholders. Statement of financial information applies through reports that indicate the financial resources controlled by an organization’s management.
For an individual to work as an accountant, he/she must have specific academic qualifications, personal attributes, and be in a position to handle all duties and responsibilities in an honest manner (Singleton 105). Due to the increasing pressure that accountants work with, the challenge of integrity is slowly maturing into a global quandary. Dishonesty among accountants has serious implications on the destiny of companies and individual clients whom they prepare financial reports.
Due to the seriousness of the challenge about accounting integrity, strategic approaches ought to be developed and implementation should be oriented towards cleaning the dented image of the profession. Economic development would be meaningless without accounting services, as businesses and organizations would not be in position to establish their financial performance and progress (McNair par. 13).
The main aim of managing and regulating accounting activities is to prevent the likely occurrence of fraud scandals in organizations like that at Enron. Fraud aims at achieving illegal benefits through false accounts that apply in appropriating public funds. False accounts have the ability to earn one huge benefits, thus the motivation by accountants to hang their morality and integrity when engaging in the activity.
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Gerety, Mason., & Lehn, Kenneth. The Causes And Consequences Of Accounting Fraud. New York: John Wiley & Sons, 1999. Print.
Pasco, Gregory. Criminal Financial Investigation: The Use of Forensic Accounting. New York: John Wiley & Sons, 2009. Print.
Singleton, Aaron. Fraud Auditing and Forensic Accounting. California: CENGAGE, 2010. Print.
Walters, Diane. Accounting and Business Ethics: An Introduction. New York: Cengage Learning, 2009. Print.
Wells, Joseph. Forensic Accounting and Fraud Examination. London: Oxford University Press, 2010. Print.