Business Ethics Paper

Running Head: Account Ethics in a Corporation 1

Accountant Ethics in a Corporation

Ryan Van Riper

BUSM 2230-01

April 30, 2014

Account Ethics in a Corporation 2

Abstract: This paper involves an ethical review of accountants in a corporation. It will

begin with an overview of corporations and the ethics involved in it. Then, it transfers to the

overview of the ethics involved in accounting. After an overview of accounting, the next section

will involve the tools that are used by accountants to monitor, prevent, and resolve ethical

dilemmas. Finally, this paper will involve my personal approach to working and managing

ethically from two perspectives. The first approach will be from an employee and then the other

approach will be from a manager.

Keywords: accountant, ethics, statement


Every day, corporations are faced with ethical issues related to their business. It involves

everything from scheduling conflicts to dealing with employees who make the wrong decisions,

acting negatively towards consumers. Ethical dilemmas can also come from inside the corporate

office, including the board room. Sometimes, businesses that are not careful get caught and

through the justice system, become prime examples of how not to run an ethically successful

business. For example, “Organizations such as Enron and WorldCom have rocked the corporate

world and become front-page news…creating concern from consumers about whom to trust and

who is ethical in today’s business world…corporate Social Responsibility has become

increasingly important” (Leonard and McAdam, 2003, p. 27). The best example between Enron

and WorldCom was by far Enron’s story. Enron was an energy company that was established in

Oregon in the mid-1980s. They were so successful in their early years that by 2001, they held

one quarter of the world’s energy trading contracts. They also became “…one of the world’s

most admired corporations, holding a consistent place in Fortune magazine’s 100 best

companies to work for. The sign in the lobby of Enron’s headquarters read, WORLD’S

LEADING COMPANY” (Jennings, 2012, p. 233). The problem was that Enron was allowed,

like other energy companies, to record noncash gains they expected to receive, which was based

on assumptions. This began the downfall of Enron. The amounts that were recorded were based

on what the current market was doing and since the market was booming leading up to the year

2000, they were recording massive amounts of cash that they did not receive yet. They also

recorded off the book entities with corporations in the Cayman Islands and other places where

they took up Enron’s assets and debts. The downfall continued when then-CEO Jeffrey Skilling

stepped down from his position in 2001 and their share price fell by almost half. They also let go

its then-CFO Andrew Fastow and reported massive reductions in earnings. Just like Enron and


WorldCom, there are many more U.S. corporations that have faced ethical dilemmas which have

led to indictments, lawsuits, fines, guilty pleas and even jail sentences for high-profile

executives. These disclosures have led to the financial failures of many businesses, and the loss

of billions in investors' savings and many jobs.

To counter actions like Enron’s from happening again, or at least decreasing these

instances, corporations are required to hire more accountants for their company. Not only that,

they are also being forced to have the accounting firms they work with not be their consulting

services in order to eliminate any conflict of interest. Congress is also stepping in to decrease the

chances of unethical actions being performed by corporations. One of the major ways is that they

“…enacted the Sarbanes-Oxley Act in 2002 to create stronger oversight of the nation's major

companies” (Nichols, Nichols, and Nichols, 2007, p. 37). They can do all they can to force

corporations to change, but the real change from within corporations cannot happen unless top

management and the board members change first. “Once the top executives demand high ethical

standards and demonstrate allegiance to ethical behavior, all employees will be more likely to

follow suit” (Nichols, Nichols, and Nichols, 2007, p. 38). Corporations even help out during

times of war. Ford Motor Company had a plant in Germany during World War II. The German

military needed vehicles to transport military personnel and the Ford Werke Chairman of the

Board, Robert H. Schmidt, decided to help since he was a supporter of Nazi Germany. Since he

decided to help, Ford could not shut down their plant since it was under the German

government’s control. Then-GM CEO Alfred Sloan said it best about the situation that while in

“…Nazi Germany… ‘We must conduct ourselves as a German organization … We have no right

to shut down the plant.’ Following Sloan’s logic, and common business practice then and today,

business has no right to interfere in the internal politics of another country” (Betton and Hench,


2002, p. 536). Corporations must always be ethical, but accountants must especially be ethical as

well.

Accountants deal with a countless amount of personal information every day from social

security numbers to street addresses from clients. When it comes to tax time or even when

companies are in need of items recorded in their ledgers, they are given a large amount of trust

from their clients and other customers that they will oblige to the law and not do anything

unethical. They also have a strong knowledge base in their profession, which includes many

legal items and what to include and what to not include in balance sheets, income statements, tax

returns, and other legal documents that are seen by the state government. “Accounting

professionals have a specific skill set that includes knowledge of tax laws, accounting principles,

and auditing standards” (Breaux, Chiasson, Mauldin, and Whitney, 2009, p. 2). Customers

normally go to the accounting professionals because of the knowledge gap between customers

and accountants. There was a survey conducted about what ranks high and what ranks low in

terms of specific accounting topics. One of those topics, the coverage of ethics, ranked very low

in terms of recruiting decisions for entry level college accountants. This spells bad news, because

this portrays that companies do not care if their new accountants will be ethical in making

decisions. As long as the new accountants follow orders and perform the company’s accounting

actions, there is no need to teach or train the new employees about ethics because, according to

the company, they were taught ethics in school. “Although they have been taught professional

ethics in an academic setting, these may be easily ignored in practice” (Lv and Huang, 2012, p.

1479). The main reason for this is because of managers and top executives wanting their profit

percentages and other assets and costs to be at specific amounts when in reality they are not.


The determining factor if companies are to repeat their actions is if their financial

statements will be recorded or not. “Auditors who are pressured by the managers of the audited

company are more willing to allow (material) errors in financial statements if the financial

statements are not published, if the company is financially healthy, and if there is a small risk of

a takeover” (van Dijk, 2000, p. 298). The companies who are powerful enough to avoid legal

trouble normally take this route, but companies who are not as powerful and are ethically sound

do not take this route. The powerful companies that have multiple lawyers sometimes do not get

by the legal system and become front-page news in the newspaper, being noted as an unethical

company. Accountants have the information from many sources to record everything in their

proper places. Sometimes the accountants are forced to record information unethically from

management while other times they record information unethically themselves because they

receive poor treatment from management. “The accounting profession provides information used

by investors, stock market analysis, and shareholders. The effects of unethical behavior by

accountants can cause catastrophic events that extend from the corporation to its shareholders”

(Breaux, Chiasson, Mauldin, and Whitney, 2009, p. 2). There are an increasing amount of

women becoming accountants and because of that, there are some assumptions that are made

about them. Some assumptions are true, like the fact that women’s attitudes and judgments are

different than men’s and they are stronger in gender and moral development. There are other

assumptions that may be questionable in regards to their truthfulness. “Because women are

usually taught more connectedness between individuals, they see moral and ethical correctness

as part of the social norm that helps them gain approval from others” (Lv and Huang, 2012, p.

1478). Not all women in the business world see moral and ethical correctness as part of the social

norm. There are ruthless leaders who are women that are willing to take more risky, unethical


chances than their male counterparts in order to succeed. Accountants use tools, mainly financial

ones like bank statements and general ledgers, every day when recording transactions done by

their company, but the ethical use of the tools is vital if they want to stay in their profession.

The tools used by accountants are not physical tools like those used by construction

workers or by barbers and hairstylists or even by our police force. Tools that are used by

accountants are financial statements, which have been in use for years. Financial statements are

the records of financial activities performed by businesses. Two of the most important and

arguably the most popular are the income statement and the balance sheet. The income statement

records the revenues and expenses of an organization that were performed for a specific time

frame. The balance sheet records the assets, liabilities, and the owner’s equity for a company at

their current amounts at the end of a given period. Both of these tools have been in the business

world for many years. Businesses continue to share with anyone and everyone what their

financial position is by using the income statement, the balance sheet, and other financial

statements that are required by law. One of the issues with these tools is that a company can lie

on the statement and state that they are doing well when in reality they may not be. They do this

to protect their image so that customers will continue to buy their products and use their services

and not hear in the news that they are financially in trouble and are about to go bankrupt. Not all

companies are able to be successful while lying on financial statements about their financial

position. When companies get caught lying on the income statement and the balance sheet, they

know that they will be both punished and regulated somehow. So “…throughout corporate

America, companies have been adding more outsiders to boards, beefing up crucial committees

and recruiting financial experts to bolster their audit panels” (Leonard and McAdam, 2003, p.

28). For companies that have done this, they have realized that this simply makes good business


sense, they become more respected by not only their local community, but the entire country, and

have an enhanced reputation which leads to greater financial value. For companies that do not

have outsiders perform their audit reports and have their accountants perform them, there is a

possibility of mistakes being done that are normally not done by auditors. “The most important

source of information on an entity’s going concern and cease of an entity’s activity should be…

the annual financial statements and… the auditing report” (Neag and Pascan, 2011, p. 230). With

accuracy from the financial statements via the auditing report, companies can focus their

attention on what needs to be fixed, whether it is to increase an asset or to decrease an expense.

In addition to these two, there are a couple more tools that are used. One of them is the

cash flow statement, which “…records the amount of cash that is entering and exiting a company

during a specific period of time” (G. Andrus, personal communication, April 3, 2014). The other

tool that is used is analytics, which is the discovery and communication of patterns of

meaningful data. These tools that accountants use are only as accurate as the information that is

inputted by them. To determine whether or not they will follow through and record the

information ethically, they have to answer questions that are similar to what employees at a

calculator-making company have to ask themselves. “Texas Instruments employees receive a

reference card to help them make ethical decisions on the job. It includes statements as ‘Does it

comply with our values?’, ‘If you do it, will you feel bad?’, ‘How will it look in the newspaper?’,

‘If you know it’s wrong, don't do it!’, ‘If you're not sure, ask’, and ‘Keep asking until you get an

answer’” (Nichols, Nichols, and Nichols, 2007, p. 38). Accountants will always have to make

ethical decisions under extreme pressure every day. If they were to have a tool like the reference

card Texas Instrument employees are given, they would be more comfortable making ethical

decisions. They would also be able to explain to their superiors why they made the decisions


they did. In addition to having an ethical reference card, another way to resolve ethical dilemmas

in accounting would be to have accountants realize that some actions will work in the short term,

but will catch up to you in the future.

As an employee for an accounting firm, I would want to know how my manager deals

with ethical issues. Being raised in a family that is ethical in their decision making while the

companies they work for might not be goes a long way in determining how I will make

decisions. The decisions my parents make are always ethical and fair. Being in the accounting

industry, we will be having ethical dilemmas every day. So knowing how a manager makes

decisions when a situation appears in our company will help me decide if I will continue working

for that specific accounting firm or if I will put in my resignation from the company. I will not be

working for a company that does not believe in, nor actually put into practice, the ethical

business ideas that make sense to common people. Business entities that are responsible to keep

their ledgers and accounting books all separate from each other is a company I would like to

work for. That proves to me that they have very high organizational and responsibility skills that

they possess. Article 10 of Accounting Law indicates, “The entities set out… shall, as a rule,

organize and keep the books in separate departments, headed by the financial-accounting

director, the accounting officer, or any other person empowered to fill this position” (Neag and

Pascan, 2011, p. 233). If I were to work for either the financial-accounting director or the

accounting officer for an accounting firm, I would like to learn how to keep all of the

information that is gathered separated, recorded, and organized so that the recording and proving

of transactions will be a simple task. I would want to be taught the ethically correct ways of

dealing with every situation. I know that I cannot learn all of the situations in the classroom, but

if I learn a fair amount of them, I know that my job experiences will help me along the way


outside the classroom. An example of this is that in the classroom, I can only be taught the main

dilemmas that I will be dealing with as an employee because of time constraints from the college

and the extent of material that must be covered in any given semester. In real life though, I can

learn much more because most work days are eight hours and more events and situations

naturally happen within that time frame compared to an hour or two twice a week in a college

classroom.

An influence that can have a major impact on my abilities as an employee in accounting

is from an industrialist named Henry Ford. “Henry Ford’s traits included… humanitarianism,

sincerity, simplicity, competence and individuality” (Betton and Hench, 2002, p. 534). As an

employee, I want to know that my manager has these characteristics. Managers like these are

becoming harder to come by, especially since upper management is bottom line focused, forcing

lower managers to be focused like that as well. Although he was a great businessman, Henry

Ford’s business, the Ford Motor Company, was in cooperation with the German military and

made up to 20 percent of all the vehicles they used during World War II. There were stories that

came about after the war that some of the workers were abused and sometimes beaten. They

were constantly pushed and there was no situation in which the workers were evaluated for their

performance. Even though what they were doing was for the war efforts and they technically did

not have to evaluate their workers, the workers might have wanted to know how good of a job

they were doing in producing the military vehicles. “There were also reports in Ford’s files of

beatings of forced laborers. In the fall of 1943, the numbers of such reports were increasing”

(Betton and Hench, 2002, p. 535). There were three reports in three days in October 1943. The

reports were because of mistreatment and beatings of workers by management. As an employee,

I know that if a manager continually pushed me without any type of criticism, encouragement, or


reward and then mistreated or even beaten me, I would feel like I was being used so that they

would reap the rewards of having their goals being met or exceeded. In accounting as an

employee, I have goals to meet as well. Some of these goals I have include completing financial

statements on time, being very accurate within the financial statements, and communicating

effectively with my clients.

As a manager or a leader for an accounting firm, I will want to be as fair and firm as

possible to everyone, do everything that I need to legally and ethically, and not be intimidating

towards anyone. I will also want to implement an open door policy where anyone and everyone

can approach me and talk to me about any situation, whether job related or not. Also, I will want

to be especially sure that my employees are trained and prepared ethically to do their job

correctly. “Because being an accountant is the most trusted profession, if you enjoy working with

numbers and with people, you can go far with being an accountant” (T. Banks, personal

communication, April 29, 2014). Ethics training is absolutely necessary for the success of any

accountant, or any other profession. Without it, companies will not last very long and go out of

business quickly unless the person that invested into the company has so much money that they

can avoid the legal system. The problem with that strategy is that it will not last forever and they

will eventually be caught. Ethics training will be implemented at my accounting firm if anyone

has had an ethics class or not. I will implement an ethics test during the interview process to

determine how much ethics training I will need to invest in a job candidate if I hire them for a

specific job position. College students who are in the accounting field will have to make more

ethical decisions than most professions because of the amount of personal information and other

accounting information they will be in possession of every day as well as goals that they will

have to meet. “As students enter the professional world, they will have to make a wide range of


decisions; thus, it is important that instructors strive to instill in them a commitment to high

ethical standards” (Nichols, Nichols, and Nichols, 2007, p. 37). If college instructors do this,

then the amount of time I will have to spend on college students teaching them ethics will be

reduced.

People today are becoming more sophisticated in what quality products and services

really are compared to what they are not, they are becoming knowledgeable about what products

and services society really needs, and how ethical and unethical products and services affect our

world. Due to these facts, “…the right thing for business and the right thing ethically become one

and the same (Leonard and McAdam, 2003, p. 29). As a manager, knowing that society is

becoming more and more knowledgeable daily, I will make sure that the services we provide and

the actions we perform are ethical, fair, and legal. Religion will play a role in what will be

acceptable behavior and what will not be acceptable. I know that all religions are not the same,

but at the same time, all religions have the same basic principles. “Religious beliefs are

significantly correlated with accounting students’ ethical-reasoning abilities. Accounting

students with religious beliefs tend to present at the higher levels of ethical-reasoning abilities”

(Yi-Hui, 2009, p. 677). I also understand that not all people are religious and that not all people

even go to church, so to counter that, I will make sure that all of my employees use basic ethical

practices, like showing respects towards customers, coworkers, and managers. There have been

studies about accounting firms and their poor choice of ethical decision making. The “…studies

have shown that auditors are willing to allow (material) errors in financial statements as this will

prevent clients from leaving the audit firm” (van Dijk, 2000, p. 298). As a manager, I am not

pleased with that because even though they can do that to keep their clients for years to come,

they are not praising their clients who are accurate on their books. One manager who would not


do this is Henry Ford. He was a model business leader of the twentieth century and became to be

a very popular manager and businessman. He was the archetype of an entrepreneur “…tough,

competent, moral, independent individual freed by wealth from external constraints” (Betton and

Hench, 2002, p. 534). I would like to be as successful as him as a manager. He treated everyone

with fairness and integrity. As the famous saying goes; I would like to treat others in the same

way I would like to be treated, both as an employee and as a manager.


References

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Business Ethics Paper