Ethics, Trust and Integrity

Introduction

Generally, the accounting principle demands that professional accountants maintain high ethical standards in order to maintain public confidence in the accounting profession. Professional accountants are required to comply with the Code of Ethics for Professional Accountants guided by the General Accepted Accounting Principles (GAAPs). Any practicing accountant, who violates these principles, is liable to investigation resulting in possible disciplinary actions if deemed fit. The accounting profession and practicing accountant are guided by fundamental ethical practices. Professional accountants are obliged to abide by the following five fundamental principles (Duska & Duska, 2002).

Any practicing accountant should uphold a high level of integrity. He or she must be straightforward and honest in all professional and business endeavors. Honesty instills trust in potential and current shareholders, who would be enticed to do business with firms that are audited with reliable audit firms. Mistrust by shareholders and potential investors would trigger drop in a company’s stock value leading to poor performance in the market.

Professional accountants should also uphold objectivity in the process of dispensing their duties. Public auditing accountants should be aware that they are fiducially responsible to give the correct testimony on the financial statements under their scrutiny for the due benefit of the public. A professional accountant should not allow bias, greed, conflict of interest or undue influence of others to override professional or business judgment. He or she should be aware that he is liable for any consequence that may occur due to his biased reporting in favor of his client.

Accountancy like any other profession has the potentiality of career growth, appraisal and ultimately good public image of the practitioner and the firm he represents. The accountant is mandated to maintain and practice the acquired professional knowledge and skills to the preferred threshold so that the employer or client receives competent professional service based on current legal developments in practice, legislation and techniques (Dowrick & Rogers, 2002).

It goes without saying that most business venture requires a certain level of privacy and confidentiality. Confidentiality of the accountancy should not be conducted in such a way information is being denied to the public, who duly require the information for their investment decisions. The accountant should accord respect to the confidentiality of the information acquired as a result of business and professional relationship and he is prohibited from disclosing such information to third parties without proper and specific authority. This confidentiality may be broken in the event of legal, professional right or duty to disclose.

The other fundamental principle that should be upheld regulates the behavior and conduct of the accountant. A professional accountant should comply with the relevant laws and regulations and avoid any action that discredits the profession.

Alison Lloyd was torn between her integrity as a seasoned accountant and the manager’s incentives for personal gains, which resulted into the auditor’s dilemma. The dilemma would have been avoided if she would have stuck on her fundamental principles of accounting and anything else should come second no matter how attractive the short term benefits may be.  Argumentatively, benefits that are gained through the malpractices of the laid down rules of accounting that instill mistrust in stakeholders should be subordinated to the fundamental guidelines and principles of accounting. There are also other considerations for bending some of the core fundamental principles but in the long run the shortcomings far outweigh the short term materialistic gains that are associated with such malpractices.

Argument for Auditor Dilemma

The incentive for the managers to violate the accounting principles for the material gain can be a very tempting driving force for any practicing accounting practitioner because there is no direct harm that can be linked to the vice in the short period. In case of Gem, Alison had the consideration of allowing invoices meant for many months to come to be overlooked to allow the managers to cash in bonuses that were acquired when managers met their quota before pretax. Failing to meet quotas had dear consequences for those, who had career growth in Gem since this was used as a yardstick for promotion. Every unit manager in the sale, production, distribution and supplies used whatever means to make it happen before June 30 of any fiscal year in order to attract the attractive bonuses that came with reaching or even exceeding your quota at the stipulated time. The bonuses were almost half of the annual salary and constituted one third of the manager’s total compensation.

The managers were also put on pressure to meet there quota before the end of the fiscal year in June 30 because failure was regarded as poor performance. The quota was heavily weighted during the process of evaluation and anyone aspiring to have a successful career with Gem would not risk putting his career in jeopardy. Basing on the importance of meeting the quota before the end of the fiscal year and consequences that one faced for failures to meet the target, Alison would be  forced by circumstances to overlook the laid down accounting principles to allow the managers to have invoices from the future so long as nobody is not “hurt.”

The other reason for Alison to allow the vice to continue is that nothing is done when the quotas are exceeded and as it has been evidenced that the corporate staff was aware of the practice.

Argument against Dilemma

Alison having attended a Certified Public Accountancy school and being informed of the fundamental principles of accounting had no choice but to stick to the moral ethics of not condoning any activity that broke the code of conduct. Basing on the GAAPs, Alison had no ground to have the idea that the managers were engaging in such business because the end result was good for both the company and them.

In my argument, I am strongly opposed to the notion of Alison falling prey to the tough condition of meeting the quotas because there are other ethical ways of getting over the huddle, which the managers needed to figure out or would have figured out earlier if this vice had been stopped at the beginning. The consequence of condoning the vice are far much devastating than the loss of bonuses and career development path for the young executives.

There are so many instances that point out disastrous consequences that have been met where the malpractice and the breaking of the accounting code of ethics were practiced. The following are some of the cases that have proved to be futile when accounting code of ethics is broken. Let’s take the case of a firm named the Enron, the firm buoyed up the prices of stock, which were then used up as collateral to float up loans that were used to cover up bad debts. Potential shareholders were lured to purchase the stocks at an exorbitant price of $90. The auditing firm that was assigned to Enron saw this but instead of pointing it out to the public it kept a blind eye assuming that things would be okay. Andersen’s, the firm that was auditing Enron, realized the anomalies in Enron’s business activities as early as 1998 did nothing but allowed Enron to continue duping the misadvised public. The trend continued for a long time until keen journalist and other independent business analysis pointed out the credibility and the real value of Enron stock. This realization came in when it was too late and nothing could be done to salvage both Enron and the Andersen. This resulted into catastrophic results for both firms. Andersen was charged for violating the code of ethics and also obstructing justice. The firm was found guilty and was prohibited from auditing public firms. Its employees’ reputation was tainted and nobody would associate with them due to the bad publicity that was tagged to them. The collapsed Enron had further devastating effects since almost 4000 employees lost their jobs, stockholders lost all their invested money and the general economy suffered a big blow. All this could have been avoided if Andersen’s had followed the GAAPs to the book.

Apart from the Enron tragedy, it is also bad to engage in falsehood assuming that nobody will notice it. Some managers would approach a lending firm and misrepresent his or her firms profit to get a loan knowing by presenting the correct figures no loan would be forthcoming. Giving false information only work in the short time and only applies when the principle of the liar’s rider is applied. The liar, who assumes that the one lied, doesn’t know that he is being duped and would trust the liar and hence be truthful to him. Liars are selfish and thrive on double standards in that they know that when the act of lying is universal they will not gain since the ones they would be lying to would also be lying too so they try as much as they can in order to operate in the lying mode for long before being detected by their prey. As an accountant, who is engaged in falsehood, and condone accounting’s malpractice know that a time will come when you would be caught and there will be no audacity for you to ever have an audience of business and professional integrity. The lying process would result in what is termed as irrational lying or self –contradictory. The contradiction and the irrationality lie in the fact that you are simultaneously willing to have the possibility of misrepresentation, by imagining the impossibility of misrepresentation, willing out of the presence of the condition that you will do the act you will do.

Conclusion

In conclusion, there is an overwhelming reason for a seasoned accountant to avoid the temptation of abandoning the laid done principles of anaccounting for the benefit of few individuals that have devastating results in the long-run. In case of Gem, the benefit of enjoying bonuses by violating the code of ethics cannot be justified by considering the devastating effects that would be caused if such information leaked to the third party and the media. The investors would lose trust, the stock prices would go down and the firm can run into bankruptcy and those engaged in malpractice activities would lose their entire jobs.

It is evidenced that most auditing firms and their clients, who are engaged in unethical practices, end up losing in the end. A good example is the case of Andersen and Enron, who condoned the vices and ended up losing their integrity as well as the invested money that they had gained through the bad conduct.