For as long as businesses have existed, so has accounting. With time, it has become more complicated and detailed, but it is still a process of keeping financial accounts in order. Through accounting, or financial reporting, a system is set up to keep track of, maintain and audit the financial proceedings. Because accounting and financial reporting of a business is so important for its accuracy and in general, a lot of ethical, technological and legal concerns are involved. In this paper, we will look identify and explore the concerns of each of these.
What does it mean to be ethical? Regardless of where you are in the world, the word ethical has a similar meaning for all. We are holding true to our moral principles, or the company’s principles, and always striving to do the right thing by recognizing and avoiding the wrong, unethical thing. Depending on our culture, the way we were raised, not everyone carries the same standard of ethics within them. This is why each company develops a code of ethics by which they expect their employees to abide by and be in accordance with the rules and the code. Being that accounting and financial reporting deals with money, it is crucial for employees to be ethical and moral. Anyone within the accounting profession might face ethical issue such as pressure from the management. Management might ask the accountant to falsify certain financial reporting, or hide certain numbers, for the sake of the company. This further takes us into another concern where the accounting might be put in a position to become a whistleblower, or break the laws and become unethical. It is the accountant’s duty to report any violations within the company.
Not reporting illegal actions and false reporting could create a lot of problems for the executives and the accounting that would be held just as reliable as the management. “Executives and other corporate officers could also face criminal prosecution, leading to heavy fines and prison time”, (Small Business, March 28, 2014). Cleary, ethical issues are the most important and extremely sensitive concerns within the accounting and financial reporting of a business. While there are many more concerns pertaining to ethics, these are some of the most important ones.
Second concern that is of huge importance is technological concern for the accounting and financial reporting. Security within the computerized program is limited and if the database system is poorly protected, it will leave room for unauthorized personnel to access the financial information that could potentially result in devastating results and loss of potential projects. Furthermore, the constant changing technology and necessary training are also of a big concern. “Computerized accounting system may become outdated over time. The functionality of an older system is limited compared to updated software”, (Frost, Small Business, March 28, 2014). Because of this, companies are always exposed to more costs and the cost of training of their employees. And lastly, one big concern that companies risk when ti comes to technological concerns, is entering the information into the system incorrectly thus further causes confusing on all of the financial reports by the generated system. Without a doubt, extreme caution is necessary when working with the technology systems and constant updates and training.
The third concern of the accounting and financial reporting of business is legal concerns. This concern is of the utmost importance because not only does it entail all legal issues, but also issues mentioned above because any concern can eventually lead to become a legal concern, especially those entailing ethics. The most common type of fraud within businesses is accounting and financial reporting fraud. The U.S. Securities and Exchange Commission (SEC) has made enormous efforts to establish laws and regulations by which accounting professionals and companies have to abide by to prevent fraudulent reporting and any sort of unethical activity. Many are very well aware of the Enron scandal which shook eth American business industry very much. A lot of investors were hurt and millions of dollars were lost. Enron’s CEO Jeffrey Skilling ended up being sentenced, even though his sentence was later reduced to 14 years of prison, (Berman, The Huffington Post). Because of the Enron scandal and few other similar ones, former President George W. Bush signed the Sarbanes-Oxley Act of 2002 into law. This act impacts all CPAs as well as CPA firms that conduct public company auditing. Attorneys, investment bankers, dealers, financial analysts and brokers are affected as well.
The Sarbanes-Oxley Act of 2002 now requires the New Public Company Accounting Oversight Board (PCAOB) to retain a seven year record, cooperate with CPA groups, complete annual inspection, investigations may be completed at any time, registration with the board is mandatory, certain sanctions for violations may be put into place, etc. Without a doubt, there are a lot of legal technicalities involved with accounting and financial reporting, too many to list. But each is appropriate and necessary to protect the companies, employees, investors, and everyone involved.
Now that all three major concerns of accounting and financial reporting have been identified and explored, it is easier to recognize the importance of each concern. Laws exist to protect every each and one of us whether we are the business owner, the investor or just an employee within the accounting department. Penalties for fraud have been stiffened for corporate and criminal fraud, CEO’s and management are now held more responsible, companies are mandated to adopt a code of ethics for all of their senior financial officers, and myriad other rules to be followed. Just like many other professions that are operating in the business world, accounting and accountancy is a public service that is obviously faced with ethical dilemmas.
These dilemmas are often complicated and challenging to resolve. Discipline, proper code of ethics and truly understanding it is of utmost importance in every company to avoid law complications. Each law, principle and ethical code is unique and important. Behaving ethically and legally in all manners is not only important for the company and its’ business partners, but also for the society.
Lister, J. (n.d.). Ethical Issues Facing the Accounting Profession. Small Business. Retrieved March 28, 2014, from
Frost, S. (n.d.). Technology Limitations in Accounting. Small Business. Retrieved March 28, 2014, from http://smallbusiness.chron.com/technology-limitations-accounting-34162.html
Berman, J. (2013, June 21). Ex-Enron CEO Jeffrey Skilling’s Prison Sentence Reduced To 14 Years. The Huffington Post. Retrieved March 30, 2014, from http://www.huffingtonpost.com/2013/06/21/jeffrey-skilling-prison-sentence-reduced_n_3480145.html