Accounting is a process in which records concerning the financial operations of an individual or an organization are updated. Ethics, on the other hand, is a set of principles that govern the general conduct of a particular society. When ethics and accounting are brought together under a single concept, the resulting proposition is that all financial recordings made on the transactions of a company or organization need to be taken into account in line with the principles that the society where such activities take place. In accounting, what is demanded is integrity in all recordings made on transactions.
Case Study
Olympus Corporation appointed Michael Woodford on April 1, 2011, but fired him after serving for six months on October 14, 2011 (Morgan) . The reason for the termination of his working contract was based on his questioning of the fraud accusations labeled against Olympus Corporation. The Chairman of the Board of Directors stated that Mr. Woodford was not able to cope up with the culture of the company and that of Japan in general (Morgan) . There was a claim that he was also unable to reflect upon the kind of culture that had been built by the company in its 92 years of operations as a corporation in Japan.
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Olympus had been accused of engaging in practices of accounting fraud. Financial statement fraud is a scheme where an employee records a misstatement or omission of very vital information in the financial reports of an organization intentionally (Morgan) . Woodford questioned whether there was such a thing as financial statements fraud in the records of Olympus but was given a cold treatment and was eventually sacked (Morgan) . The sack followed because of his involvement in whistleblowing of the whole scheme of fraud in the company’s structure.
A corporate culture which is based on secrets, centralization of control, and has no transparency in its dealings, provides ground for concealment of fraud in an organization (Morgan) . Instances which provide an opportunity for fraud include situations where the board of directors is not independent of the activities of the organization, committee audits which have no effectiveness and giving too much power to the organizational structure (Morgan) . An emphasis on financial performance and the price set for the stock is a move that can make employees and employers rationalize any instances where there are fraud cases. Great companies such as Enron and WorldCom have collapsed because of financial fraud (Morgan) .
Role of Ethics in Accounting
Accounting plays the role of ensuring that fraud is not transferred to financial statements. Fraud includes manipulation of what is in documents, misusing company assets, failure to observe the rules that are set up for taxation and finance and registering transactions by using invalid documents (Khani) . Ethics exists to ensure that internal controls of misuse are observed. Ethics ensures that accounting procedures that are applied are valid. It also helps in making sure that information concerning employees is preserved from competitors.
Ethics applies such principles as integrity, objectivity, professional competence, confidentiality and professional behavior (Kaveh, Khalili and Ghorbani) . Integrity involves the ability of a person to be straightforward while dealing with other people. Objectivity eliminates instances where an individual is biased. Professional competence demands that an individual should have the necessary expertise required to carry out a certain task (Kaveh, Khalili and Ghorbani) . Confidentiality is all about not disclosing information to other people when the information is not meant to be revealed (Khani) .
Conclusion
Ethics in accounting requires that transactions be recorded with transparency and integrity. Ethics ensures that professionalism is retained in light of observing the required ethical standards in that profession. Fraud is a reason as to why ethics in accounting is needed. Fraud includes activities such as making wrong records and inserting figures where they should not be.
References
Kaveh, Mehran, et al. "Professional Ethics in Accounting and Editing." World Essays Journal (2014): 85-93.
Khani, Hadi. "The Role of Professional Ethics in Accounting and Audit." Indian Journal of Fundamental and Applied Life Sciences (20014): 208-215.
Morgan, Anita R. "Olympus Corporation Financial Statement Fraud Case Study: The Role That National Culture Plays On Detecting And Deterring Fraud." Journal of Business Case Studies (2014): 175-184.
