Running head: ETHICS IN ACCOUNTING 1 Ethics in Accounting
Justin Lee
University of Minnesota Crookston ETHICS IN ACCOUNTING 2 Abstract
Many accountants could be dishonest and unethical in their practice. They can hide information
within their systems to where managers or owners would not catch the mistakes for a while. This
paper talks about the possible ways accountants could be unethical in their day to day work. It
also covers reasons why they should always be ethical. This paper shows cases of people getting
caught being unethical while holding an accounting position. Accountants are the backbone of
the company’s finances and must be someone the company trusts. They have access to all the
company’s accounts and have a great knowledge of how those accounts interact with each other.
The ethical dilemma is based on a person to person case. Will some of them be unethical? Of
course, there will always be some, but this paper shows a few ways to catch them in the act. It is
important for people in the business world to hold themselves to high ethical standards because
business is based on trust. This paper shows the importance of business ethics in the accounting
world and how to maintain them. It is important to make sure that as an accountant, someone is
never in question of stealing from the company funds. ETHICS IN ACCOUNTING 3 Ethics in Accounting
Ethics are an important part of each business as well as personal situations. They are what
gives a person credibility and allow them to keep advancing in the business world. Ethics are
something that can be taught but should be a second nature to most people. When greed takes
over people can become unethical and this is where it starts to lead to problems for them. An
accountant has the power and access to all the company’s money and accounts. They have every
chance to find a way to hide money or even steal money from the company. This happens more
than what is known to the public. This is something that becomes easy for them to do as well.
However, it is something that is not right and accountants should hold themselves to higher
standards.
Why it is Important to be Ethical in Accounting
Most people who work at a company have no idea of how the accounting process works.
Many of them hate numbers which is why they are not accountants themselves. Many times,
people get confused about debits and credits and which accounts should hold which type of
balances. Accountants on the other hand have a great understanding of this, and this could be
detrimental to the company if the power is in the wrong hands. In his article, “Why are
Accounting Ethics Important?”, author Jeffery Glen (2017), writer for Investor Guide had this to
say: “In today’s world the complexity and sheer scale of many corporate transactions has made
the need for a transparent and fair assessment of the obligations (liabilities) and value (assets) of
these transactions” (para. 1). Accountants just like any other member of a business should hold
themselves to a high standard of ethics. After all, they are working for the company as well and
being unethical could cause the company to fail. ETHICS IN ACCOUNTING 4 A company failing could lead to many other workers losing their jobs and becoming
unable to support their families if the fraud or unethical actions of one person goes too far. Oseni
(2011) writing for the Research Journal of Finance and Accounting says: “A distinguishing mark
of the accountancy profession is its acceptance of the responsibility to act in the public interest.
Therefore, a professional accountants’ responsibility is not exclusively to satisfy the needs of an
individual client or employer” (para. 5). This is important for accountants to keep in mind when
trying to remain ethical. There is not a single person that depends on them but many people who
depend on them. Amponsah, Boateng, & Onuoha (2016) also point this out in their research
paper “Professional Behavior of Accounting Academics: Fruits of Nonconcurrence”: “The
reputation of both the accountant and especially the profession is at stake whenever the
accountant exhibits unprofessional behavior” (para. 2).
Examples of Accountants Being Unethical
There are many ways that an accountant can be unethical that may or may not involve
altering the company’s books. According to a group of researchers who interviewed 1,700
accountants, there are many ways that they themselves are unethical or people around them in
the office are unethical. Here are some of the examples they have given. “About half (49 percent)
of respondents are aware of a manager or partner pressuring a colleague to ignore an adjustment
that should have been made to accounts” (Sheridan, 2015). About twenty percent said that ten to
twenty percent of their co-workers have helped their clients create misleading accounting
information. While some people in the business are concerned with being ethical always, not
everyone feels the same way. Only fifty-five percent said that people who intentionally sign off
on bad accounting practices should be banned for life. This is a number that should be 100%!
(Sheridan, 2015). ETHICS IN ACCOUNTING 5 Many people are aware of the Fannie Mae scandal that took place from 1998-2004. There
were members of the company who decided that it was okay to be unethical. So much to the
point where they had misappropriated $11 billion dollars. Even when the company was
confronted about the scandal, the article “Fannie Mae Fined $400 Million for Accounting
Manipulations” (2006) says: “Fannie Mae neither admitted nor denied wrongdoing under the
settlement but did agree to refrain from future violations of securities laws” (para. 4). The
scandal and manipulations in their accounting practices ended up costing the company $400
million dollars in fines. According to the article “Fannie Mae Fined $400 Million for Accounting
Manipulations” (2006), many of the malpractices that were conducted by Fannie Mae included:
“Fannie Mae in 1998 improperly put off accounting for $200 million in expenses to future
periods so executives could collect $27 million in bonuses” (para. 13). Not only were the
accountants being unethical but the highest ranked employees in the corporation were the one’s
telling them to change the books. This shows many levels of being unethical. Accountants are put
in a position and should be ethical no matter what. How are they supposed to tell their bosses no?
They are the ones in charge of the company and providing the accountant with direct orders.
An Accountant’s Duty to Shareholders
In their research paper, Carmen Bonaci and Jiri Strouhal (n.d.) had this to say:
“Accounting professionals and their relation to stakeholders represent an essential component
when considering corporate governance mechanisms” (para. 3). Accountants might not talk to
their stakeholders directly but they certainly have a direct tie to them. They are being trusted to
be honest and do the right thing with stakeholder’s money. Accountants have more connections
than almost any other employee in the company. They have connections with every vendor,
every customer, and every investor. They have a duty to do the right thing and to make sure that ETHICS IN ACCOUNTING 6 the money in where it is supposed to be. Accounting ethics or any business ethics for that matter
are not always automatic. Sometimes they must be taught.
Ethics in accounting is something that should be taught in schools and universities so that
students are already prepared upon taking their first career position after college. According to
Smith (2016) in his research paper: “Organizations that are truly concerned with ethical behavior
on the part of employees and fraud deterrence should begin by hiring graduates from colleges
and universities with a track record of producing ethically inclined students” (para. 11).
Something as important as ethics must be taught from the start so that when students become
professionals there is no question of what is right behavior and what is wrong behavior.
How Unethical Behavior Effects a Business
A company survives on their cash flow. It could be argued that it is the simple most
important asset to a company next to their employees. A company’s funds are such a delicate and
intricate part of their operations they must be willing to invest in protection. Accountants should
have the utmost respect and well-rounded business ethics of any employee. They simply have
almost too much power as one individual in the company. In his article “The Effects of Poor
Ethics in Accounting”, author Alan Li (n.d.) says: “Poor ethics can also inflict damages on the
business' reputation and trustworthiness of its stakeholders, such as customers and business
partners” (para. 4). Unethical accountants can cause much more than a little dent in the bank
account. They can cause a whole company to lose many customers or even close the doors for
good.
Whether the unethical accounting is being done by the accountant or other members of
the company, it could potentially hurt everyone in the company. According to Alan Li (n.d.), ETHICS IN ACCOUNTING 7 author of “The Effects of Poor Ethics in Accounting”, there are four major areas that can be
affected but unethical accounting. First Li points out criminal activities. This simply means that
by being unethical with the books or allowing such unethical practices to take place, there could
be criminal consequences that occur. There could also be personal consequences according to Li.
These might occur when the accountant is committing the unethical behavior and is eventually
caught by the company. More than likely the employee will be terminated immediately upon
discovery. Also, the employee might end up facing criminal charges for theft as well as having to
pay the company back any money that they have suspected the employee has taken. This is truly
detrimental to a person because they will have an extremely hard time finding another job that
involves money of any sort. They also might end up paying back money that was misplaced that
they didn’t even steal. Li also mentions business reputation.
When a company has bad accounting practices and has stakeholders, especially if they
were affected, the company is going to have a hard time staying in business. Business is built on
trust of customers, employees, shareholders, and anyone who is invested in the company. When a
company has a scandal and people no longer feel like their money is safe they are going to pull it
out and as fast as possible. This could easily allow the company to collapse and end up filing
bankruptcy if the unethical practices are not caught and allowed to continue. The last thing that
Li mentions is the usefulness of financial statements. This is extremely important especially to
shareholders because if they are being given false reports showing outstanding numbers for the
company they might increase their investment. This is detrimental to them because they are
being led on and could end up costing them a fortune. When a company puts out fake financial
statements, shareholders have nothing else to base their opinion on. Many times, they put out
fake numbers because they are failing and think the company will turn around before anyone will ETHICS IN ACCOUNTING 8 notice. In turn, the company is simply digging themselves a deeper hole and taking advantage of
the very people who believed in them. (Li, A., n.d.)
Catching Unethical Behaviors
Some ways to catch this before it goes too far are simple things. The owner(s) of a
company could bring in an outside team to audit the books. This would allow their books to be
monitored from a second or even third set of eyes, to try and catch mistakes or the beginning of
fraud. If one of the owners happens to have a background in accounting they could even start by
doing this step. Many things in business are run on checks and balances. Accounting should be
included and should be done with the utmost care.
A company could also make their accountants turn in all transactions of incoming or
outgoing money at the end of the week to be reviewed. This would allow a company to catch
things much faster before they take off. A company could also install a software on their
computers to record the day to day business of its employees. This would allow them to review
the footage and see if an employee is being unethical. Since the employees should be doing
nothing but business at work, this should not cause a problem. Also, if the employees have
nothing to hide they wouldn’t have a problem with this.
Companies That Have Been Caught Being Unethical
There are many companies in the United States that have been caught of being unethical.
According to Rao, Friedman, & Cox of the State University of New York at Oswego (2009):
“Accounting ethical scandals such as Enron, WorldCom, Sunbeam, Tyco, and Rite Aid have led
to discussions about the impact of business ethics education and training” (para.1). Another very
well-known scandal in business ethics was Bernie Madoff. Bernie Madoff could keep up a Ponzi ETHICS IN ACCOUNTING 9 Scheme for more than 20 years. Madoff had successfully built a client list of investors who
allowed him to pay back previous investors. This scheme was brilliant. He was paying people
back 10% of their investment each year without fail. None of his investors would question that.
They were making money that they believed to be all profit. They never suspected that he was
running a scheme and betraying them and their investments. He was eventually caught when the
economy started to collapse and people started to ask to withdraw their investments and he did
not have the money to pay them back.
Enron was caught misleading not only investors but employees. The leaders of Enron
were guilty of many counts of securities fraud as well as insider trading. They had taken out their
own shares of stock in the company and at the same time they were telling their employees to
keep purchasing stock. They had hired accountants to do poor accounting and hide debts as well
as show their profits as large than they appear. According to the article “10 Worst Corporate
Accounting Scandals of All Time” (2016): “inflated assets by as much as $11 billion, leading to
30,000 lost jobs and $180 billion in losses for investors.” WorldCom and Enron were very
similar, they both were conducting less than perfect accounting to say the least. They were
deceiving their employees as well as investors to make it look like the company was excelling
instead of slamming on the breaks. Their actions of being unethical in accounting practices cost
thousands of people their jobs as well as any money they had invested in their companies.
Toshiba was also caught over inflating their profits as well as underestimating their debts.
According to writer Sophia Yan (2015), a writer for CNN Money: “the company overstated profits
by 151.8 billion yen ($1.2 billion) over a seven year period, according to an independent committee”
(para.2). This was after Enron and WorldCom so it was caught much faster than the other two. When confronted with the scandal Toshiba’s CEO and President Hisao Tanka resigned. This is ETHICS IN ACCOUNTING 10 another example of why it makes it so hard for investors to choose companies to invest their
money. There are so many examples of companies who have falsified their financial statements
as of late that an investor doesn’t know who to trust. (Yan, S. 2015)
Some Things that Accountants Do to Remain Ethical
Accountants can remain ethical by doing several things. One thing that people have
suggested would be to take a refresher course on accounting and the ethics that are associated
with the job. Per Daniel Hood (2015), a writer for Accounting Today: “after conducting a survey
of over 1,700 accountants, a third of them feel that up to half of their peers are being unethical”
(para. 2). This is a huge number, 50% of accountants are suspected of being unethical. They have
taken the time to create accounts to hide money or misleading shareholders based on their
financial statements. This is a key reason why accountants should take a refresher on ethics.
Accountants should understand that they are simply not just entering numbers. Accountants are
responsible for people’s futures, people they have not even met yet. Their work and numbers are
what people depend on to make their investment decisions and it makes it extremely hard to
decide where to invest money when a person can’t trust financial statements.
Beyond making sure that an accountant is putting out precise and accurate financial
statements they should also consider the repercussions of not being ethical. They themselves
could easily lose their job if they are found to be unethical. Amongst that they could be
responsible for other employees around them losing their jobs. Of course, if they are caught they
will face jail time and will likely have to repay the funds if there was theft involved. If there was
deception of the financial statements involved they will surely be liable to repay the
shareholders, many of whom would pull their investments completely. There are countless ETHICS IN ACCOUNTING 11 reasons to remain ethical and the biggest of them is to think of all the people who depend on
accurate accounting.
How Can Accountants Avoid Ethical Issues?
The average person thinks that this should not be a hard thing to do. Go to work every
day and do your job and remain ethical. However, it is not always that simple. Just like in the
Fannie Mae situation, there were bosses from the top telling these accountants to do unethical
practices. They may have even feared for their jobs if they had no conducted the actions they had
been told to. This however does not excuse the things that they had done.
Here are some things that author Paul McDonald (2014) suggests accountants focus on
from his article “Ethical Issues for Accountants: 4 Pieces of Advice”. First McDonald (2014)
says: “Identify potential legal issues” (para. 1). This simply means, think about whether it is legal
or illegal. If something is illegal, you should stop immediately. “Take an outsider’s view of
ethical issues” (para. 2). McDonald (2014) suggests that accountants should think about if they
saw a similar case on the news and how they would react. If the accountant would react and
know that the situation is wrong, they should not put themselves in the same situation. “Identify
the parties affected” (para. 3). McDonald (2014) wants the accountants to think about literally
everyone that is affected. From co-workers, bosses, stakeholders, customers, everyone. Is it
worth hurting all those people so you can get a little ahead? “Get professional advice” (para. 4).
McDonald (2014) suggests that if an accountant sees unethical behavior they should be willing to
report to the proper professional figures. This could include the boss if they are unaware of the
situation. If in the case the boss is aware of the situation, then the accountant might want to seek
legal advice on the matter. There are many things that an accountant can do to protect not only
their selves but fellow co-workers, stakeholders, and customers. ETHICS IN ACCOUNTING 12 Conclusion
Accountants are very smart people who are equally smart with numbers. If there is
anyone that could literally make money disappear it would be a company accountant. Although
there are many opportunities for personal gain, accountants must remember to remain ethical
always. There is a quick chance for them to make money and get themselves ahead in the short
run however it will not last forever. With so many company scandals in the books in the last
twenty years, auditors and the SEC are cracking down on accounting practices. Even if the views
of accounts weren’t as dialed in as they are, there is no reason to be unethical. Nothing bad ever
lasts forever, and it is not worth the temporary gain to hurt so many people. There are hundreds
of thousands of hardworking Americans that depend on accountants.
It might not seem like so many people rely on an individual accountant but they truly do.
American’s want to invest their money for retirement and they want to invest that in a company
that they believe in. They are helping that company grow from the bottom up and they only want
a small percentage of profit in return. Accountants must think about everyone that they could
possibly be hurting by misrepresenting financial statements. Accountants should think about how
they would feel if they were the investor and someone was showing them bad financial
statements. How would that make them feel? Nothing is worth stealing, honest and ethical work
is something the accountant can be proud of at the end of the day. Accountants need to remain
ethical at all times because that is what they would expect themselves as a customer. ETHICS IN ACCOUNTING 13 References
Amponsah, E., Boateng, P., Onuoha, L. (2016). Professional Behaviuor of Accounting
Academics: Fruits of Nonoccurrence. Research Journal of Finance and Accounting, 7(2).
pp. 65-76. Retrieved from
http://iiste.org/Journals/index.php/RJFA/article/viewFile/28532/29279
Bonaci, C., Strouhal, J. (n.d.). Accounting Ethics: Some Research Note. Recent Researches in
Applied Mathematics and Economics. Retrieved from http://www.wseas.us/elibrary/conferences/2012/Vouliagmeni/MMAS/MMAS-21.pdf
Hood, D. (2015) Accountants May Need an Ethics Refresher. Retrieved from
https://www.accountingtoday.com/news/accountants-may-need-an-ethics-refresher
Fannie Mae Fined $400 Million for Accounting Manipulations. (2006). Associated Press.
Retrieved from http://www.foxnews.com/story/2006/05/23/fannie-mae-fined-400million-for-accounting-manipulations.html
Glen, J. (2017) Why are Accounting Ethics Important? Retrieved from
http://www.investorguide.com/article/14079/why-are-accounting-ethics-important-d1013/
Li, A. (n.d.) The Effects of Poor Ethics in Accounting. Retrieved from
http://smallbusiness.chron.com/effects-poor-ethics-accounting-37750.html
McDonald, P. (2014) Ethical Issues for Accountants: 4 Pieces of Advice. Retrieved from
https://www.roberthalf.com/finance/blog/ethics-for-accountants-are-more-importantthan-ever ETHICS IN ACCOUNTING 14 Oseni, Abubakar Idris (2011). Unethical Behavior by Professional Accountant in an
Organization. Resarch Journal of Finance and Accounting. 2(2). pp. 1-8. Retrieved from
http://iiste.org/Journals/index.php/RJFA/article/viewFile/188/72
Rao, H., Friedman, B., Cox, P.L. (2009) The Impact of Ethics Courses on Accounting Majors’
Attitudes Towards Business Ethics. SBAJ. 9(2). pp. 70-88. Retrieved from
http://www.tsu.edu/academics/colleges-and-schools/jesse-h-jones-school-ofbusiness/pdf/sbaj/sbaj-volume-9-no2-paper2.pdf.
Sheridan, T. (2015) Unethical Practices Alive and Well in Accounting Profession, Report Finds.
Retrieved from http://www.accountingweb.com/practice/clients/unethical-practices-aliveand-well-in-accounting-profession-report-finds
Smith, J. (2016). Accounting Information Systems: Ethics, Fraudulent Behavior, and
Preventative Measures. University Honors Program Theses. Retrieved from
http://digitalcommons.georgiasouthern.edu/cgi/viewcontent.cgi?
article=1188&context=honors-theses
The 10 Worst Corporate Accounting Scandals of All Time. (2016). Research Journal of Finance
and Accounting, 7(2). pp. 65-76. Retrieved from http://www.accountingdegree.org/scandals/
Yan, S. (2015) Toshiba CEO resigns over accounting scandal. Retrieved from
http://money.cnn.com/2015/07/21/investing/toshiba-ceo-resigns/

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