Effects Of Ethics On Fraud

Effects Of Ethics On Fraud

Effects Of Ethics On Fraud

Ethical analysis of behaviors in an economy significantly impacts individuals, firms, and the broader society. Accountants play a crucial role in ensuring the trustworthiness of financial data and shaping the moral culture of business and society. To uphold integrity, accountants are expected to adhere to professional codes of conduct such as those established by the American Institute of Certified Public Accountants (AICPA). They are responsible for providing reliable financial information, often faced with situations that pose ethical dilemmas—circumstances where they must choose between moral principles and external pressures to manipulate financial results.

Financial statement fraud involves intentionally misrepresenting financial data to deceive stakeholders such as investors, creditors, and the public. Common techniques include overstating revenues and assets or understating expenses and liabilities. The perpetrators can be employees, managers, accountants, or top executives aiming to present a more favorable financial position. Consequently, ethical standards and codes of conduct have been implemented across organizations to curb such dishonest practices.

The AICPA Code of Professional Conduct, revised in 2014 and enforced from 2015 onward, mandates that accountants act with integrity, objectivity, professional competence, confidentiality, and due care. These standards require disclosure of conflicts of interest and transparency regarding referral fees or commissions, emphasizing that accountants should prioritize public interest over personal or employer gains (Mintz, 2018). Strengthening adherence to these ethical principles reduces temptations and enhances professional accountability, thereby diminishing opportunities for fraud.

At the core of professional ethics is integrity, which is essential for fostering trust within the accounting profession. Integrity entails acting based on moral principles and doing what is right, regardless of potential negative consequences (Metzger, 2011). Accountants demonstrating integrity are honest, candid, and transparent, refraining from manipulating financial data for personal benefit or to serve third-party interests. Maintaining high integrity levels discourages fraudulent activities, as ethically committed accountants are likely to refuse pressures to distort financial information and may even choose to resign when faced with unethical practices.

Overall, ethical behavior rooted in integrity and adherence to professional standards plays a vital role in preventing accounting fraud. This is supported by research indicating that firms with strong ethical cultures are less prone to fraudulent activities, which can have severe financial and reputational consequences. The importance of fostering moral reasoning among accountants is underscored by the work of Kohlberg, who identified stages of moral development. Encouraging future accountants and current professionals to progress from basic reward-and-punishment reasoning to higher stages based on societal welfare and principled ethical principles is essential (Stephens, Vance, & Pettegrew, 2012).

To further combat fraud, organizations should implement multifaceted detection strategies such as anonymous whistleblower hotlines, surveillance systems, and real-time monitoring tools (ACFE, 2016). While technological measures can be effective, ethical cultivation remains paramount. Education in moral reasoning, ethics courses in universities, and ongoing professional development can enhance accountants' capacity to make ethically sound decisions, contributing to a culture of honesty and accountability. These combined efforts—ethical training, technological safeguards, and strong professional standards—are crucial in reducing the prevalence of financial fraud.

In conclusion, ethics profoundly influence the incidence of fraud within the accounting profession. Upholding integrity, fostering moral development, and implementing effective detection systems will collectively serve to minimize dishonest practices. Human virtues and a commitment to moral righteousness are indispensable for maintaining the trust and stability of financial markets and societal institutions.

References

• Association of Certified Fraud Examiners (ACFE). (2016). Report to the Nations on Occupational Fraud and Abuse, 2016 Global Fraud Study.
• Metzger, L. (2011). The Keys to Integrity and a Sense of Well-being for Accounting Professionals. CPA Journal, 81(3), 10–12.
• Mintz, S. (2018). Accounting in the Public Interest. CPA Journal, 88(3), 22–29.
• Stephens, W., Vance, C. A., & Pettegrew, L. S. (2012). Embracing Ethics and Morality. CPA Journal, 82(1), 16–21.
• American Institute of Certified Public Accountants (AICPA). (2014). Code of Professional Conduct.
• Metzger, L. (2011). The Keys to Integrity and a Sense of Well-being for Accounting Professionals. CPA Journal, 81(3), 10–12.
• Stephens, W., Vance, C. A., & Pettegrew, L. S. (2012). Embracing Ethics and Morality. CPA Journal, 82(1), 16–21.
• Association of Certified Fraud Examiners (ACFE). (2016). Report to the Nations on Occupational Fraud and Abuse, 2016 Global Fraud Study.
• Mintz, S. (2018). Accounting in the Public Interest. CPA Journal, 88(3), 22–29.
• Metzger, L. (2011). The Keys to Integrity and a Sense of Well-being for Accounting Professionals. CPA Journal, 81(3), 10–12.