The accounting world is changing constantly and so are the rules that are being set up to protect companies and their assets. There are codes of conduct that accounting offices and their personnel must adhere to and when they are not followed, there can be an ethical challenges that you have to deal with. Users of accounting information perform different types of creative accounting. Some of these practices are ethical and legal and other are not. It is important for a company to set up procedures that check and double check everyone in the accounting department from the clerks to the Controller. There is never a time in any business that someone is allowed to do things without having someone else check on their work.
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When there is no follow up or checks set in place is when the company finds themselves in trouble. As accountants, we are required to make sure that the work that we produce is accurate, credible and true information. This information is used to help investors and banks to make a good business decision in regard to their credit and investment opportunities. Many times, an accountant will get “creative” with the numbers to assure just that outcome. The numbers are inflated to show a better financial picture and this will help the company get more money and have the bank invest more in their future.
Sometimes, this can go on for a long time without anyone knowing it is all false. Other times, companies get caught. May I remind you of Enron? Over the years stockholders and investors have lost large amounts of money due to false reporting or “creative” accounting. It is for this reason that the need for restrictions on those practices and find a solution to this problem became necessary.
A company that I worked for in the past had to eventually file for bankruptcy because the Executive Board was unaware of what the Controller was doing. Many of us were aware of the incorrect numbers and were not sure how to handle it because we could not really prove that the numbers that he was reporting were actually wrong. There are procedures in effect that prevent accountants from doing this, but not all companies follow them. This is why auditors are used with many companies. Auditors are there to make sure that all numbers and documents are proven to be correct and that there is no creative accounting or inflated numbers when looking at financial statements. Auditors can also be a deterrent for theft.
If there is never a check and balance with an accountant in a company, there can be a greater chance of theft. I know of a company that I worked for suffered a loss of over $50,000 because the Controller was not required to get a second signature on checks under $5,000, so he issued himself eleven checks in the amount of $4,000. He would take the check and record that the check went to a vendor or supplier. When the bank statement was sent to our office, he would do the bank reconciliation, so no one saw the actual cancelled check because he destroyed it. Had there been an auditor that would be checking his work, this never would have continued to happen, they would have found it after the first check. It is important accountants to maintain integrity and avoid questionable situations. There are many things that can be seen as inappropriate.
Many times over the years, I have been offered tickets to baseball games, dinners, gift baskets, etc. to use a particular company as a major supplier or to use a certain bank. I never thought much of accepting a gift basket, but I was told by an auditor for our firm that can be misunderstood and never to do that. This is a small scale, many companies have been known to get government contracts or big jobs because of making certain promises. Research has proven to our executives and investors that the only way to make sure that there is no inappropriate behavior by having internal and external auditors to examine the books on a regular basis. Knowing that there are audits completed on a random basis and knowing that those audits are being audited by external companies prevents mishaps, theft and misappropriation of funds.
Having a clear set of policies and procedures in place and also having a clear plan of action for employees that do not follow these procedures is a sure way to insure that your company is protected. GAAP (generally accepted accounting practices) defines what is and is not permissible, but it is not infallible. GAAP can be manipulated and subject to interpretation and accountants can commit fraud any time. Eventually, we have to count on good accounting procedures, our auditors and most importantly, employee ethics and morals to keep everything and everyone in line.
Al Momani, M. A., & Obeidat, M. I. (2013). The effect of auditors’ ethics on their detection of creative accounting practices: A field study. International Journal of Business and Management, 8(13), 118-136. Retrieved from http://search.proquest.com/docview/1418426106?accountid=458 Leung, E. C. (2004). Accounting ethics. Business and Society, 43(2), 226-226+. Retrieved from http://search.proquest.com/docview/199387513?accountid=458