Unethical accounting behavior has been on the forefront since the 1980s, in the United States. Unethical behavior is when someone takes advantage or manipulates another without their knowledge. Unethical behavior normally starts within upper management and transcends to the other employees. Unethical behavior consists of bribery, misusing funds, or manipulation of financial reports. When management or accountants knowing and unknowingly has overstated the value of the company’s assets and revenues, and has understated the expenses of the company, these acts are unethical behavior.
Companies and individuals commit unethical behavior, for personal gain, greed, and sometimes by human error. When companies are pressured to meet certain deadlines for vendors and upper management it can lead to unethical behaviors. Auditors giving management advice concerning external audits and accounting procedures to manipulate accounting information is another form of unethical behavior (James). One of the most common acts of unethical behavior is when a member of management instructs a subordinate employee to manipulate a record for a transaction.
Reporting incorrect information is unethical regardless of who is instructing the employee to do so. At no time is this appropriate behavior. Accounting principles requires companies to record their revenue for contracts only for one month. Anything outside of that one month will be recognized in the next year’s statements. Management should not instruct employees to record incorrect information to help boost revenues. This behavior is resulted from greed and personal gain.
The effects of unethical behavior can result in ruining the company’s reputation and creditability with internal and external investors. However, because of unethical behaviors from accountants and largely owned companies the Sarbanes-Oxley Act has been established. Sarbanes-Oxley Act 2002 is a United States federal law that set new and enhanced standards for all public company boards in the U. S. management and public accounting firms (Investopedia).
The SOX Act was enacted as a result of some major accounting scandals and fraud committed by Eron, Tyco, and Worldcom. Regulators of the government found relationships between the auditors and their clients that were inappropriate. SOX takes out the ability to use the excuse “I did not know”. Sox require companies to develop internal controls that will help eliminate potential fraud from happening. Internal controls are not 100% guaranteed to stop fraud but it is a good start.
Ethics and integrity play an enormous role in accounting. Ethics requires each person to know and understand their role and responsibilities to vendors, clients, and employees. It is easy to find yourself in a situation that may present an opportunity to perform unethical behaviors. The question is are companies willing to suffer the consequences behind unethical behavior. References Chron, Small Business Investopedia Sarbanes Oxley Act 2002 James, Kendra, Ethical Dilemmas in Accounting
Cite this Effect of Unethical Behavior Article
Effect of Unethical Behavior Article. (2016, Aug 22). Retrieved from https://graduateway.com/effect-of-unethical-behavior-article/