Ethics is a pervasive component which influences both the business and social institutions. Ethical decision-making is necessary for business initiatives such as accounting. Accounting is a business-related discipline that involves the computation of and drafting of financial statements. Accountants perform finance-related roles in business organizations. The drafting of financial reports by accountants is expected to reflect the actual figures in the institution. However, this is not always the case as some institutions have been known to use false figures, and this has consequences. [“Write my essay for me?” Get help here.]
The accounting process is subject to several ethical regulations. The U.S. Financial Accounting Standards Board determines the rules that guide the functioning of accounting systems. The rules apply regardless of whether the transaction is a capital lease or an operational lease. In direct contravention of these regulations, an increased number of accountant resort to doctoring the figures in financial reports, a concept known as creative accounting. Other names for this phenomenon include income smoothing, earnings smoothing and cosmetic accounting (Amat & Gowthorpe, 2014). All these terms refer to the act of intentionally changing the values in a financial report to gain an economic advantage.
Creative accounting is motivated by several factors. These include the need to appeal to potential investors, tax evasion, and the need to reinforce the confidence of the consumers. Creative accounting has both positive and negative implications. Some of the techniques of creative accounting include regulatory flexibility, the dearth of regulation and the reclassification and presentation of financial information (Amat & Gowthorpe, 2014). The prevailing legal frameworks do not curb the employment of creative accounting. Even though it is not an illegal activity, it inspires several ethical issues. In some cases, creative accounting allows risk reduction, which enhances stakeholder optimism. Still, the deception of investors and stakeholders results in a negative implication. The subject of creative accounting inspires significant ethical issues. The three major ethical issues that arise from accounting manipulation include legal process values, injustice, and immorality. [Need an essay writing service? Find help here.]
Legal Process Values
Legal processes reflect the values that are assumed appropriate for a given segment or mechanic in the society. Consequently, it is the duty of all individuals to respect the law. A legal framework is projected to be an extension of the interests of the majority in the society. Respect for the law is necessary for the law to sustain its significance. Essentially, when the laws are flouted deliberately and openly by a few individuals for whom it was intended, a legal framework has to command respect and adherence to remain effective (Lyons, 1984). Essentially, “regulation loses authority if it is open to manipulation by a powerful interested part and if it cannot be enforced (Gowthorpe & Amat, 2005).”
Rules by the U.S. Financial Accounting Standards Board prevail against the documentation of figures which may deceive the stakeholders. Even though there is an absence of documented regulation against creative accounting, these rules are intended to promote honesty and openness which is essential in business transactions. Given the persistent flouting of these regulations, there is a risk that the entire regulatory frameworks established by the board may be overlooked. When accountants repeatedly manipulate the niches in the regulatory frameworks, they jeopardize the authority of all the laws that guide the accounting profession (Amat & Gowthorpe, 2014). There is a possibility that an increased number of persons may employ the niche to deceive stakeholders in accounting. This will result in lawlessness in the profession which will have negative implications everyone involved in the accounting field. The sustainability of a legal framework is dependent on how well the people to whom it applies integrate it (Lyons, 1984). The more it is flouted, the less impact it projects until it is completely inconsequential.
Creative accounting constitutes a lie. It follows the principle of utilitarianism, which overlooks the actions that were engaged to achieve a particular end. Utilitarianism is an ethical contrivance that wrongful overlooks the concept of morality. Adherents of the ethical framework prevail that one is often forced to overlook their individual inclinations for the larger benefit. Morality defines the wrong and right of an action. Every individual in the society is a moral agent (Gowthorpe & Amat, 2005). Like any other segment of life, business decisions cannot be exempted from the moral metric. Every action is subject to rightness and wrongness. Deliberately engaging in actions which border on deceit constitutes an immoral act. Human beings have an individual responsibility for all of their actions. This is regardless of whether the actions were intended to draw positive results.
Accountants are human beings with religious and cultural values. They are an extension of the values of their backgrounds. Business is just as a personal a concept as any other socioeconomic phenomenon. These interactions comprise interactions and deliberations which are conducted both psychologically and emotionally. In making business decisions, one ought to be guided not only by the end gains but also by the means by which these gains are made. Doctoring figures in financial statements comprise a wrongful action (Gowthorpe & Amat, 2005). It does not represent the truth on the ground. As individuals, people do not like it when they are lied to. The truth enables one to make a decision that is mutually beneficial to them and the person to whom the decision will apply. When the accountants lie to investors, they benefit from the investment. However, they curtail the perspective of the investors. The investors become the victims of a lie and make decisions which may hamper their business interests. A wrong action does not validate the result.
Inequality and Injustice
The manipulation of financial records constitutes an injustice. Leaders and individuals in the professional world are expected to practice responsibility. An abuse of one’s position comprises an injustice (Solomon, 1993). Accountants act as middlemen between corporations and the outer world. They are a representation of what the company stands for. Consequently, it is not admissible that they should use their positions to deceive their victims. Their role as middlemen requires that they link the stakeholders to the corporation. Therefore, creative accounting impedes this goal. It does not succinctly link the stakeholder to the corporation. Linking can only be ratified when the stakeholder is privy to all the information that appertains to the corporation. However, given the injustices of creative accounting, one may not be able to make decisions which are effective (Solomon, 1993).
Creative accounting breaches the principle of equality. Equality prevails that every individual should draw a benefit(s) from a particular action that involves two or more people. When one deliberately manipulates financial data to gain benefit from it, they are essentially locking out the recipient of the action from any benefits that may result from the initiative. They in turn, given that they are aware of the implications of the actions, draw all the benefits to themselves. Therefore, creative accounting promotes inequality, which is an unethical practice.
An increased number of financial analysts and accountants engage creative accounting in the execution of their duties. This is because there are no legal frameworks which are specifically intended to mitigate the concept. Nonetheless, creative accounting constitutes an unethical practice. It promotes immorality, dissent to the law, injustice, unfairness, and inequality in the society. There is a need for the development of regulatory frameworks that will specifically address creative accounting.[Click Essay Writer to order your essay]
Amat, O., & Gowthorpe, C. (2014). Creative Accounting: Nature, Incidence and Ethical Issues. SSRN .
Gowthorpe, C., & Amat, O. (2005). Creative Accounting: Some Ethical Issues of Macro- and Micro-Manipulation. Journal of Business Ethics, 57(1), 55-64.
Lyons, D. (1984). Ethics and the rule of law. Cambridge: Cambridge University Press.
Solomon, R. C. (1993). Corporate roles, personal virtues: an Aristotelian approach to business ethics.
E. Winkler, & J. R. Coombs (Eds.), Applied ethics: a reader (pp. 201-221). Oxford: Blackwell Publishers.