Accounting is a profession that most people avoid due to the lack of interest in math.  This profession requires anywhere from an associate’s degree to a CPA license.  They follow the Code of Ethics for Professional Accountants.  This code was written by the International Federation of Accountants (IFAC) to give accountants a guideline on how they should conduct themselves.  One regulation that accountants follow is the Generally Accepted Accounting Principles (GAAP). These regulations are enforced by a group known as the Financial Accounting Standards Board (FASB).

Just like every other profession, there are ethical issues that find their way into accounting.  One particular dilemma is a company “cutting corners”.  There is a lot of pressure on accountants to get the reports done from the management level.  This type of pressure can push an accountant into the position of feeling like they have to manufacture information, just to keep management happy.  Some managers even force them to make up numbers because they are also getting pressured by their boss.

Corner Cutting

Corner cutting is best explained in an article from The Business Times Signapore newspaper.  “”corner-cutting” behaviour whereby audit procedures are truncated or omitted, sufficient evidence is not obtained and meaningfully reviewed, and audit opinions are issued without being fully supported by actual evidence.”  This is an issue that is faced in many professions today.  There are different things that pressure someone into this situation.

There is no room for corner cutting in any profession.  Important steps get skipped in the process, and then everything else gets done wrong.  Imagine trying to skip a step when multiplying two numbers.  10 times 10 for example, could end up becoming 10 if corners are cut to get the results faster.  With Nozick, the person cutting corners would be told that they do not have the entitlement to the money they make.  Following the entitlement theory, cutting corners would violate the entitlement to the holdings obtained through the act.

I would report the person cutting corners to the proper people in the company.  This is to protect them from getting hurt by the actions of the individuals responsible.  In a way it would be showing loyalty to the company, as well as the fellow employees because, it is protecting their jobs as well.  If the actions were not stopped, the company would go out of business which would cause the employees to lose their jobs.

The action of reporting the person could be viewed a couple different ways.  If viewed as an action protecting jobs, a Utilitarian would say it was the right choice.  It would be right because, people would be happy that their jobs were protected.  If viewed as getting someone in trouble, it would be viewed as the wrong choice.  This would be because someone is getting their fellow employees in trouble.

Spending Down Assets

     This ethical dilemma is one that is harder to see, unless knowing what to look for.  This action is explained in an article by Steven Dellaportas, “accounting practitioners providing financial planning advice to clients about spending down or consuming assets for the primary purpose of satisfying age-pension eligibility.”  Basically, this action allows a company to unfairly distribute benefits to the comparatively wealthy, as further explained in the article.  It is giving more money to those that already have it, while keeping it away from the not so wealthy.

I would try to convince the accountant that this is not the action that should be taken.  An accountant assisting their client in this way can be seen as an egoist.  This would be because doing this would allow the accountant to keep the client.  In turn this keeps them making money, and helping their own self-interest.  By leaving them alone to continue doing this avoids restricting their individual liberty, thus supporting a libertarian approach in this case.

This is a way for the company owners to make more money in a questionably dishonest way.  Therefore Nozick would say they are not entitled to those holdings.  Spending down assets is a method that should not be supported, unless it is for self-interest.  To a couple of theories say this is acceptable, where others say that it should not be done to protect the happiness of the majority of people.

Fraudulent Financial Reporting

     This is the act of misrepresenting information to hide financial discrepancies, and appear to be a profitable company.  This is defined in a paper written by professor Chinniah from Hawassa University, Ethiopia.  “It is the deliberate action of issuing misleading financial statements in an effort to avoid negative opinions about the financial stability of a particular business or other type of institution.”  The numbers are altered to appear as if things are operating within the standards.

I would report this information to the proper authorities, such as the FASB.  This kind of number manipulation could cause banks to issue loans that cannot be afforded.  It would take money that could be used by other companies and give it to the company that is falsely reporting their information.  This is also known as “cooking the books” and is illegal in accordance with the law, as well the rules of an accountant.

This would require a Utilitarian approach to the situation.  It would bring about the most happiness based on the fact that people would not be getting lied to, or cheated out of money.  It keeps the companies reporting things honestly.  An egoist would help cook the books if it meant it would help them in some way.  I would take Nozick’s view that this is not an honest living, and therefore they should not be allowed to earn a living this way.

Abusive Management of Earnings

     It is easy to abuse a system when tempted or coerced in a way that cannot be refused without a strong will to do the right thing.  Abusive management of earnings is explained in a paper written by Ingrid Shuli as, “the abusive management of the earnings is “a material and intentional misrepresentation of results”.”  It is similar to fraudulent reporting of finance, except this dilemma is done towards a specific piece of information that is reported.  Like fraudulent reporting, these numbers are also made up.

With this situation, I would go about finding a way to show the true numbers and keeping the reports from getting filed with false information on them.  I would ask what would be the best choice for the company.  Showing the real numbers would tell the managers that there are necessary changes needed.  It would in turn, improve the condition of the company, and help keep it around longer, which in turn would keep the jobs around for the employees.  This would be support by the Utilitarian view, as well as Nozick’s.  It would be helping with the overall happiness, and would show an honest earning of holdings.

The act of deceiving people for their self-benefit would show an egoist approach to the situation.  This would be frowned upon by a majority of the people.  It is another way to lie about the company’s financial status.  Investors could be drawn in to give money towards a company that would lose the investments in the long run.  A Utilitarian approach would convince the person managing the earnings account to tell the truth, and not falsify the information.

There are many ways to make ethical decision for the better, and for the worse.  Some decisions may seem harmless at the time they are made, without realizing it could potentially hurt those affected.  Being able to stand up to the pressures of the world is necessary to make it through life without ruining the reputation of the profession.  Simply following the rules and doing our best to do the right thing could make life so much easier for us.  Putting down false information and cheating others out of money could grow heavy on someone’s conscience.  We should always strive to be our better selves.

References

Chinniah, Anbalagan (2015) A Conceptual Study on an Effectiveness of Ethical Standards for Preparers of Financial Statements and Fraud Risk Management; EBSCOhost (P. 2:PP. 4) retrieved from: http://web.b.ebscohost.com.proxy.devry.edu:5050/ehost/pdfviewer/pdfviewer?sid=7a0e4782-9356-4ebf-931a-335022266626%40sessionmgr103&vid=5&hid=125

Dellaportas, Steven (Nov. 1998) Spending down assets to maximize the pension: Identifying and exploring the ethical issues; Australian Accounting Review; ProQuest database (NPG.) retrieved from: http://search.proquest.com.proxy.devry.edu:5050/docview/217584733/1AA2116E43ED41E7PQ/3?accountid=44759

Kan, Francis (Jul. 3, 2014) Making the hard decisions; The Business Times Singapore; LexisNexis Academic (NPG.) retrieved from: http://www.lexisnexis.com.proxy.devry.edu:5050/hottopics/lnacademic/

Shuli, Ingrid (2011) Earnings management and the quality of the financial reporting; Perspectives of Innovations, Economics and Business, Vol. 8, Issue 2; Academic Publishing Platforms (p.45-48;PP.5) retrieved from: http://academicpublishingplatforms.com/article.php?journal=PIEB&number=8&article=437