Ethical Issues In Accounting: A Case Study
The Three Ethical Theories and Their Application to the Situation
Discuss about the Effectiveness Of Instruction In Accounting Education.
From the case study it is evident that there are certain ethical issues that are faced by Joey. It is observed that Tube needs considerable capital injection for modernizing its plant and equipment. The machineries that are available are incapable of manufacturing new products because of its poor quality level. There also has been certain prolonged industrial concern with the labor union for which the business is performing below required level (Kelly, 2017). Situation of the company is observed not to be fit enough to gain capital from the bank. Despite such situation, Joey has been asked by Mary to lie about the financial condition of the company to the bank. Joey has been asked to tamper the financial report of the company in order to gain capital from bank. Mary pressurized Joey to mention false financial statements for the company or else it might result in Tube Company’s insolvency.
Ethical egoism can be defined as normative ethical position which moral agents consider to do that is in their individual self interest. It is different from psychological egoism that claims that individuals can only act within their individual self interest. Based on this theory, Joey is recommended that Joey acts as per Mary’s advice to overstate the financial statements of the company. This is for the reason that such overstatement can help Tube Company to gain capital from capital as it will show that it is producing new goods as per maintaining international standard and is doing well in the global market (Mintz, 2016). Ethical egoism theory provides with such recommendation for the reason that it does not take into account the aspects those are fair to all human beings. It focuses on a belief that people must act in the best interest to solve the immediate situation faced by the company.
Utilitarianism ethical theory is focused on the aspect whether the action benefits individuals more than it can harm them. In this theory the self-interests of the individual are set aside and all the actions those are recommended are focused on improving the good of a huge number of individuals (Marzuki et al., 2017). Recommendations based on this theory is leaned toward the organizations which offers services and goods along with doing the least harm along with that it condemns organizations that results in increased chain than benefit to the others. Within this theory, the advantages of this ethical theory that can be attained by Joey includes that she can make sure the greatest services for maximum pople. Through employing this ethical theory, the person can also speed up the decision making process of the company towards taking right decisions on raising capital in a situation where the company is facing losses (Marzuki et al., 2017). Utility along with the increased happiness principles holds that the actions are correct in proportion. This is because this is likely to promote contentment in the company environment. This ethics theory is applicable to the accountants as it makes sure that they are truthful, have integrity, follows advices on maintaining commitments and avoids harming other people. This ethical theory can encourage Joey to make people work for them along with the consumers of the company to do the same (Marzuki et al., 2017).
Changes in Accounting Regulation and Practice Throughout History
Deontological ethics theory is focused on maintaining fairness and takes priority over all the consequences that the actions might have. The major focus of this theory is to consider rights, fairness, commitments and conducting the right thing. This theory is applicable in the case study situation as for avoiding any risk of legal actions that can be taken against the company for reporting false financial statements (Boyce, 2014). To avoid such situation, Joey must apply this ethics theory in order to maintain a fair and consistent relationship with all its users of financial statements. Joey must also make sure that she is following through her commitments to attain bank loan in an ethical manner. This is for the reason that if this ethical theory is not followed in this case, all its consumers and investors will lose interest in the company. Moreover, following this ethical theory can account for effective, cross cultural moral intuitions. This is deemed to be the best selection for the people in accounting professions like Joey as it matches up with “AICPA’s code of conduct” (Ferrentino et al., 2016).
After explaining the above three ethical theories and related recommendations for Joey, it is gathered that Deontological ethics theory is the most suitable ethics theory that can solve the situation aroused in the case study. This theory is applicable in the case study situation as for avoiding any risk of legal actions that can be taken against the company for reporting false financial statements (Chawla et al., 2015). To avoid such situation, Joey must apply this ethics theory in order to maintain a fair and consistent relationship with all its users of financial statements. Joey must also make sure that she is following through her commitments to attain bank loan in an ethical manner (Burns, Tackett & Wolf, 2015). This is for the reason that if this ethical theory is not followed in this case, all its consumers and investors will lose interest in the company. In this ethical theory, Joey can make sure that wrongful choices will not be made. She can be able to take decisions on ethical financing statement reporting and its benefits that will further confirm a moral norm. These norms are to be obeyed properly by the moral agent or Joey and these norm meetings are not to be maximized by the moral agent (Thompson & McCoy, 2016).
Major changes as been observed in the accounting regulation and practice that took place after the years from 1800. Certain consequence of stock market crash resulted in a effective call for accounting discipline in order to develop accounting information on which the interested parties might depend (Rutherford, 2016). Certain changes are also observed in the information that bore certain association with the economic reality along with uniformity of practice by the practitioners. After 1800’s accounting practice undergone a drastic change and it became vita for NYSE to restore some public confidence for investing within the organizations (Scott, 2015). There are certain changes in the accounting perceptions over the decade of 1970’s. Major changes in the accounting regulation also took place. This is for the reason that there was a tremendous dissatisfaction with the operations of “Accounting Principles Board (APB)” that emerged in 1959 in order to replace “Accounting Procedures Committee” (Jones, 2015).
The Importance of Ethical Accounting Frameworks and Practices in Organizations
This is because this committee was failing to generate any theoretical foundations based on accounting. In order to address these emerging concerns, drastic changes in accounting practice and regulation was observed after the year 1800s. For maintaining highly effective accounting standards and ethics, FASB issued several kinds of publications that encompass “Statements of Financial Accounting Standards or GAAP”. There are also certain anticipations that clarify, explain and elaborate on the principles of GAAP. Such new accounting standards also went through a major project in order to maintain certain theoretical accounting foundation considered as a conceptual framework.
Previous attempts within Australia for issuing the accounting principles mimicked the ones those were those were previously developed by ICAEW. Certain accounting principles were recommended and were developed by “Institute of Chartered Accountants in Australia (ICAA)”. However, these have less effect on accounting practice and were observed to have a great degree of non-compliance. Such situation resulted in another change in accounting practice and regulation in Australia. Development of an ethical conceptual framework is observed to be among an important change by FASB in 1973 (Lukka & Pihlanto, 2014). AASB developed policy statement that had a diagram which indicates the building blocks of a conceptual framework. It includes seven levels that results in accounting standards development along with having a further level dealing with monitoring compliance in the accounting standards. These days the accounting frameworks and practices are aptly focused on maintaining ethical accounting regulation in the organizations. Considering the same, AASB’s framework has identified that there are a great range of users.
Moreover, financial statements must comply with the characteristics that can make information useful to all its users. This includes four aspects such as relevance, understandability, comparability and reliability. With such framework being the foundation on which the accounting standards remain devised there will be great consistency within the accounting standards. In the previous years, the accounting standards were developed individually and were highly ad hoc. Moreover, there were certain contradictions among standards. The recently developed accounting regulations and framework explains the aspects of the financial statements. This will make it simpler to associate the need of one standard with other standards. With several nations implementing IFRS along with “Framework for Preparation of Financial Statements” there will be increased global accounting ethics and uniformity.
The accounting history can be observed as a pattern of continuous evolution along with growth for the intention of addressing changing requirements of the users. Accounting is observed to be progressive and relative. The phenomena that develop its subject matter are changing regularly. Older methods of accounting turn out to be less efficient within changing conditions. Previous ideas on accounting turn out to be irrelevant in emergence of new problems. For this reason, the surrounding situations develop new ideas and stimulate the needs to develop new accounting methods. Before 1970’s there were several divisions in the financial accounting research, auditing along with managerial accounting (Christensen, Nikolaev & Wittenberg?Moerman, 2016). A great transformation took place after that that was characterized by a great focus on numerical and positivist research. Accounting professions claim to serve the public interest can be considered to focus on offering opinions and advice to the third parties.
With the changing needs of the users it has been observed that certain accounting practices also changed. High quality accounting standards is deemed necessary with the passing years that are important for development of a superior quality international financial reporting structure. Distinct accounting traditions have emerged all through the world with the changing needs of users for whom the financial information is developed (Baxter, 2014). For instance, in certain nations accounting standards have been developed depending on the requirements of private creditors. On the other hand, in other nations the requirement of tax authorities or planners is deemed to have a drastic impact. In United States, accounting standards have been developed for addressing the needs of the participants within the capital markets. The constantly modifying accounting regulations and standards offers a framework for reporting that intends to offer transparent, comparable, consistent along with reliable financial information.
Developing along with sustaining superior quality accounting standards are deemed to be important for the Australian approach to regulation of the capital markets. This further relies on offering superior quality information in order to support informed investment decisions. In the past years, distinct views on the function of financial reporting made it complex to encourage the accounting standards convergence (Glöckner, 2016). However, with the passing years there are increasing international consensus that must be provided by the financial reporting. This must offer high quality financial information that can be compared, is transparent and consistent as per the requirement of the investors. From the past history of accounting it has been realized that foreign organizations take their decisions regarding whether to provide or list securities in the nation for numerous financial, political, economical and other causes. Most of these causes are observed to be associated with the nation’s regulatory needs (Level & Schöndube-Pirchegger, 2014). For this reason, accepting financial statements developed employing IASC standard without the need of reconsolidation that might be an inducement to cross-border offerings.
References
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