Reflective Statement on Current Ethical Issues.

Reflective Statement On Current Ethical Issues

Accountants provide financial information of an organization for a wide range of stakeholders including investors, creditors, suppliers, and customers in making their decisions. Therefore, professional accountants are responsible to act in the pubic interest rather than merely act in the best interest of their clients or employers. Ethical dilemma arises when there’s conflict of interests between different parties. Professional accountants, who have the responsibility for the credibility of the information provided for various users, are obliged to be ethical in performance of their duties, and a commitment to high ethical standards is crucial for accountants in identifying and dealing with moral issues in business practices.

Fraudulent Financial Reporting involving misleading information are common in recent accounting ethical issues. Sometimes, issues that are unethical may not be illegal when accounting treatment decisions are involved. Quoting from Melissa Claassen, CFO of Adidas for Hong Kong and Taiwan, “Some of the biggest challenges for any CFO can be discussing accounting treatments with the front end of the business……Revenue recognition is probably one of the biggest topics to discuss with the front end.” To identify and assess ethical issues in line with the ethical codes, there are some case studies developed by the UK and Ireland’s Consultative Committee of Accountancy Bodies (CCAB). The following discussion will be based on one of those cases called “Improper accounting for sales”.

The case is about an accounting firm which engaged to prepare year end accounts and tax returns for a young and fast-growing company five years ago. The company now has a workforce of 200 but still remain below the size of company requiring a statutory audit. Due to the close relationship between the partner of the accounting firm and directors of the client company, the partner became aware that staff purchases of goods manufactured by the company are authorized by production managers and processed outside the accounting system. The proceeds of sales are used to fund the firm’s Christmas party.

In this case, there are several parties being affected by the staff sales issue. First, the client company. The staff sales which processed outside the accounting system fail to comply with the relevant accounting standards, and moreover, whether the practice of using proceeds to fund party is appropriate according to the company’s policy or relevant laws and regulations is of great concern. Second, ethical dilemma exists when the partner of the accounting firm intends to correct the accounting treatment applied by the company. Compliance with accounting standards may be threatened by the familiarity between the client and the accounting firm due to a long and close relationship^[1] and the action may also be deterred from intimidation threat^[2] of losing the client and future service income. Third, the users of the financial report could be misled and tax authority is also involved who may impose investigation on the accounts.

I believe the value of honesty, fairness and responsibility is related to the case. The client company should be honest to the transactions and act in accordance with the regulations to disclose the real sales. The partner of the accounting firm shall be responsible for the client and other users so that true financial information must be reported on the accounts and tax returns. Further, the principle of integrity stipulated in HKICPA Code of Ethics for Professional Accountants requires all professional accountants to be straightforward and honest in all professional and business relationship. A professional accountant shall not knowingly be associated with reports, returns, or other information where the professional accountant believes that the information contains a materially false or misleading statement^[3].Thus, the partner should take steps to reflect the staff sales in financial reports after he knew about the facts. Otherwise, the integrity principle is compromised. Another relevant principle is objectivity which imposes an obligation on professional accountants not to compromise their professional or business judgment because of bias, conflict of interest or the undue influence of others^[4]. The accountant shall maintain objectivity when raising the concerns which may be threatened by the potential threat of familiarity and intimidation of dismissal from the engagement. Besides, the principle of professional competence and due care requires all professional accountants to act diligently in accordance with applicable technical and professional standards when providing professional services^[5]. The partner shall exercise professional judgment and ensure the accounting service provided for the client to be complied with technical standards. Lastly, the principle of professional behavior requires professional accountants to avoid actions that they know may discredit the profession^[6]. Therefore, the partner shall report the issue to the client and act to protect the reputation of the firm and his profession rather than ignore it or compromise to risk the credit of profession.