As you prepare for future employment perhaps as an accountant, after viewing the

Question

As you prepare for future employment perhaps as an accountant, after viewing the lecture, why do you feel there is a high public expectation for accountants to be ethical? This is just as important for a personal accountant as it is in the corporate world. Why is this? Companies in the last decade have disappointed many stockholders when it was uncovered that their accounting principles had been less than ethical. What are some of these companies, and what were their unethical accounting practices?

Explanation / Answer

Ethics and the importance of ethical decision making have taken on increasing significance because of the pressures placed on business managers by stockholders, creditors, and other parties affected by financial performance. It is not surprising therefore that a recent survey of investment management firms revealed that nearly three-quarters of the respondents felt that unethical behavior, such as personal trading, insider trading, and fraudulent financial reporting are areas of high concern.

What are the factors that have led to the increased concern about ethics? Globalization of the economy has led to a mixing of cultures and socioeconomic systems. Increasingly, a company cannot assume that what was considered proper in its home market would be acceptable in another market. Technology has aided the globalization trend and made more transparent the effects of corporate unethical or illegal decision-making. Rising competition has resulted in increased pressure to cut corners, with companies looking for new ways to gain a competitive edge. The importance of meeting analyst forecasts for net income and EPS has dramatically increased the incentives for companies to manipulate their earnings to meet the forecasts. Finally, rising public expectations of ethical corporate behavior and the ability to use the legal system to be compensated for unethical or illegal corporate actions have increased the risk of personal and organizational liability.

Expectations of high standards of ethical corporate behavior are rising, as companies face legal and economic penalties for pursuing unethical and illegal activities. Indeed some companies have made ethical leadership in the market a central part of their corporate strategy. They believe that ethical behavior is not just the right thing to do, it is also good business.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.