Ethical Issues in Accounting: Report

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Contents
Introduction ................................................................................................................................................... 3
a. Identify and briefly describe the ethical issues facing the CFO ............................................................ 3
b. Identify the ethical issues applying APES 110 ‘Code of Ethics for Professional Accountants’.
Explain clearly why these are ethical issues ............................................................................................. 4
c. Who are the stakeholders? How are they affected by the ethical issue/s? ............................................ 5
d. Describe the alternatives available to you or solutions to the problem ................................................. 5
Conclusion .................................................................................................................................................... 6
Reference ...................................................................................................................................................... 7

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Introduction
In this report, the ethical issues faced by the CFO will be discussed. Along with that this report
will also focus on these issues from APES 100 Code of Ethics. Few real life accounting cases
will be presented from Australia, which show breaches of ethical conduct by businesses. Another
aspect which will be covered in this report is the stakeholders who get affected by these ethical
issues. Finally, solution to the problem will be presented.

a. Identify and briefly describe the ethical issues facing the CFO

The CFO is facing an ethical issue in this case because the CEO has indirectly asked the CFO
that the life of this company and the employees is in now her hands. As a trained CFO, she
knows that responsibility of accounting department is to present the real financial picture to the
stakeholders so that everyone has the chance of making well informed decision1. At this point in
time, it is clear that the projections made after 6 months of the current fiscal year were not meant
at the point in time this discussion is happening. At this stage, the actual values are not too good
and if they are shared with the outside stakeholders, the share price will sharply fall. At one
hand, the CFO knows that many of the executives have borrowed heavily against their shares and
decrease in share price will mean they will suffer huge financial loses. However, APES 110 code
of ethics for professional accountants demand of the CFO to behave in ethically correct way. The
issues highlighted in this case are unethical from various points of view. First and foremost is the
fact that according to Part A, B and C of APES 110 Code of Ethics for professional accountants,
the CFO has to report the financial status of a company with complete honesty and integrity and
is supposed to always behave in public interest2. According to normative ethical theory of
deontological nature too, the CFO has to behave in a certain way and has to follow rules. In this
case as she is from single income family so according to teleological normative ethical theory
too, she is facing an ethical issue. Another ethical issue is that the CEO has indirectly hinted that
whatever the outcome of financial information sharing will be, the CFO will be directly
responsible. The CFO herself is from single income family so this will act as a threat to her own
family, and under which she might be pushed to follow the unethical practice.

1
Farrar, J. H (2001). Corporate governance in Australia and New Zealand. Oxford University Press.

2
Mintz, S. and Morris, R. (2013) Ethical obligations and decision making in accounting: Text and cases. McGraw Hill-Education.

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b. Identify the ethical issues applying APES 110 ‘Code of Ethics for Professional
Accountants’. Explain clearly why these are ethical issues

Part A of APES 110 code of ethics for professional accountants3, paragraph 100.1 suggests that
the CFO should always act in public interest. If the figures are misrepresented or some losses or
expenditures are not reported, many in the public might invest more in the company and bear
future losses. Thus reporting the financial situation incorrectly will be ethically wrong according
to paragraph 100.1. According to paragraph 100.5, the accountant is responsible for delivering
work with integrity, objectivity, professional competence and confidentiality. Australian Security
and Investment Commission vs. Rich case can be taken as an example. In this case ASIC
believed that accounting procedures and practices followed by Rich and other important people
in One Tel were not correct and due care and diligence was not shown by them resulting in
downfall of company. Their conduct was thus ethically incorrect 4. On the same line, if the CFO
shows the company as progressing, but the company at the end proves to be a failure, a lot of
people may suffer5. The ethical code according to paragraph 100.5 will question the CFO about
her due diligence. In this situation, any misrepresentation will be ethically incorrect. It is an
ethical issue of CFO facing threat as well. According to paragraph 100.12, there is a threat of
personal nature to the CFO due to her income status. There is an intimidation threat as well.
Another example from real life accounting cases would be Nugan Hand Bank case 6. The bank
faced a crisis in late 70s and collapsed in early 80s. Again, after the collapse it was noticed that
the bank was never solvent. The accounting reports were thus forged and not ethically correct.
As a result it led to a loss for many people who were involved.

3
APES 110 Code of Ethics for professional accountants (2013) Accounting professional and ethical standards board limited.

4
Vicky Comino, 2009, "Effective regulation by the Australian Securities and Investments commission: The Civil Penalty Problem", The Civil
Penalty Problem, Melbourne University Law Review, Volume 33

5
Tomasic, R. and Bottomley, S. (2002) Corporations law in Australia. Federation Press.

6
AML, 2012, The Infiltrator the story of an undercover cop and a Colombian carte, anti-money laundering magazine

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c. Who are the stakeholders? How are they affected by the ethical issue/s?

Stakeholders are people who directly or indirectly get affected by decisions taken by an
organization or a business. In this case, the employees of the listed company, the management,
the executives, the buyers of product or services sold by the company, the investors and the
creditors everyone is a stakeholder in this case. In this case the CFO herself is a major
stakeholder while making accounting information sharing decisions. Stakeholders are affected by
the decisions taken by disclosure of accounting information7. In this case for example, if the
actual financial information is disclosed, the executives who have borrowed against their shares
will face a marginal call. On the other hand, if the actual information is not disclosed, any
investor or buyer of shares from general public might face trouble. This is what makes it an
ethical issue. Ethically, the correct course of action for the company is to disclose real
information. Delaying any major expenses or not showing bad debts or showing investments in
unrealistic or incorrect way might have an impact over decisions that investors and creditors will
make. Wrong information will lead to wrong decision which can result in serious financial losses
for them.

d. Describe the alternatives available to you or solutions to the problem

According to Part A of APES 110 code of ethics for professional accountants paragraph 100.13,
it is important for all organizations to take steps that can provide safeguards against requirement
of accounting frauds. These frauds are usually conducted in situations when share price reduction
is to be avoided like in this case, or when investment or bank loans are to be approved. Despite
presence of these safeguard measures, sometimes still the ethical issues are raised due to
unexpected circumstances. Part A of APES 110 code of ethics for professional accountants
paragraphs 100.17-100.22 suggest solution to ethical issues in accounting8. According to these
paragraphs, relevant facts and ethical issues pertaining to these facts should be discussed in open
meetings as many times as required. Minutes of these meetings must be maintained as a record.

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Mintz, S. and Morris, R. (2013) Ethical obligations and decision making in accounting: Text and cases. McGraw Hill-Education.

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APES 110 Code of Ethics for professional accountants (2013) Accounting professional and ethical standards board limited.

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The problems and courses of actions available to the company should be discussed and one
major suitable course of action should be selected. Professional and legal advice should be
seeked if there is no alternative which is acceptable to all involved according to internal
procedures of the company. The external advice should be taken on legal grounds. If there are no
solution, even after all these steps, one should step aside from such a matter of such organization.
According to Low et al (2008)9 organizational transparency and ethically correct corporate
values should be encouraged.

Conclusion
In conclusion it can be said that the situation is an ethical issue for the CFO as the ethically
correct course of action will take her organization towards a serious financial problem. On the
other hand, if she ignores the code of ethics for the professional accountants, she can be charged
later for lack of due diligence. The ethical issue should be resolved by detailed discussion among
the members of this organization under study.

9
Low, M. Davey, H. and Hooper, K. (2008) Accounting scandals, ethical dilemmas, and educational challenges. Critical perspectives on
Accounting. 19. 222-254.

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Reference
APES 110 Code of Ethics for professional accountants (2013) Accounting professional and
ethical standards board limited.

Duska, R. Duska, B. and Ragadz, J. (2011) Accounting Ethics. Wiley-Blackwell.

Farrar, J. H (2001). Corporate governance in Australia and New Zealand. Oxford University
Press.

Low, M. Davey, H. and Hooper, K. (2008) Accounting scandals, ethical dilemmas, and
educational challenges. Critical perspectives on Accounting. 19. 222-254.

Mintz, S. and Morris, R. (2013) Ethical obligations and decision making in accounting: Text and
cases. McGraw Hill-Education.

Tomasic, R. and Bottomley, S. (2002) Corporations law in Australia. Federation Press.