Table of Contents
Introduction: Impact of accounting on corporate performance 1
Ethical Challenges Faced to Maintain Cost Accounting 1
Ethical Issue in Cost Accounting 1
What are the Factors that Influence Ethical Behavior in Cost Accounting? 2
Conflicting Interest and Corporate Influence to Maintain Performance Measures 2
How Does Self-Motivate Interest Lead to Unethical Decisions? 2
Direct and Indirect Conflict of Influence by Corporations? 2
Conflicting Interest and Corporate Influence 3
Impacts of Budgeting and Financial Reporting Misinformation 3
What Short Term Impact does Misinformation have on a Corporation Financially? 3
Long Term Effect of Misinformation of Corporate Finance 3
Consequences of Unethical Actions 3
Consequences for Unethical Actions 3
How Does the Government Influence Unethical Actions? 4
Introduction: Impact of accounting on corporate performance
Ethical challenges are routinely faced in cost accounting, budgeting, and performance measures to maintain corporate performance. Accounting helps managers create budgets, understand public perception, track efficiency, analyze product performance, and develop short- and long-term strategies, aided by accounting figures. However, with the increase in international business and expansions, corporations have been plagued with ethical dilemmas heavily influenced by managerial accounting misinformation. Managerial accounting provides corporations with the financial information needed to assess sales data, revenue, operating expenses, and cost of operation. However, managerial accounting has ethical challenges to maintaining performance, conflict of interest, the corporate influence that impacts decisions, and inaccurate reporting of financial data, which leads to a consequential impact on the organizations.
Ethical Challenges Faced to Maintain Cost Accounting
Ethical Issue in Cost Accounting
In cost accounting, the most important factor is honesty: the accountant must be sure to provide factual information, determine the nominal price of goods and products, and always maintain appropriate relationships with others. This final aspect is truly important, especially because relationships can get in the way of doing ones work honestly. An inappropriate relationship or when where one party is putting pressure on another to report dishonest statements can lead to major ethical problems. Fraud is the biggest mistake an accountant can make. Recording transactions in a manner that is not in accordance with general principles can also lead to trouble. Overall, if one intends to mislead others, one is engaging in fraudand the poster child for this type of activity is the story of Arthur Andersen and Enron (Brown, 2005; Molyneaux, 2004).
Other issues one can face include misappropriating of assets, disclosure violations, destroying information, manipulating information, interfering with an audit or other investigation, or even having to become a whistleblower when it becomes apparent that management is engaging in fraud. Some important ideas to keep in mind are that historical cost can be more reliable than fair value accounting (Flegm, 2008). As Laux and Leuz (2010) note, some have argued that fair value accounting was partly responsible for the great financial crisis of 2008. Thus, it is very important that cost accounting be approached honestly in every way.
What are the Factors that Influence Ethical Behavior in Cost Accounting?
Attitudes and values within an organization will say a lot about how that organization is managed and what is expected of one (Hofstede, 1998). This is usually the main source influence for unethical behavior in cost accounting. When a company like Enron has a poor and unethical workplace culture built-in, it can corrupt even the best accounting firms, and Arthur Andersen up to that point had the highest reputation in the industry. Other factors that can influence ethical behavior in cost accounting include personal factors, such as greed, desire for influence, or weakness of character and being unable to resist pressure from upper management. Accountants must remember that they have a legal responsibility to represent the facts and truthnot the will of the manager above them or of the board if it is trying to hide data.
Conflicting Interest and Corporate Influence to Maintain Performance Measures
How Does Self-Motivate Interest Lead to Unethical Decisions?
Independence needs to be observed in accounting and auditing (Chen, 2019). Corporations may try to undermine this independence or influence auditing and accounting because they want to project to stakeholders a more robust balance sheet than they actually have. This is fraud, and accountants must recognize when such influence is being used. For example, financial incentives in the form of client services might be something that management offers to an accountant performing an audit, engaging in budgeting, or providing performance measures to maintain corporate performance. This type of influence is meant to reward…to disclose to parties outside the entity may exist:
a. To comply with certain legal and regulatory requirements
b. To a successor auditor when the successor makes inquiries in accordance with section 315, Communications Between Predecessor and Successor Auditors
c. In response to a subpoena (AU 316.82)
For reporting purposes, the company should engage in auditing so that it can be in compliance with governance mandaes. The PCAOB (2022) states under Auditing Standard No. 12:
In an integrated audit, the risks of material misstatement of the financial statements are the same for both the audit of internal control over financial reporting and the audit of financial statements. The auditor's risk assessment procedures should apply to both the audit of internal control over financial reporting and the audit of financial statements.
2 Corinthians 8:21 states that For we are taking pains to do what is right, not only in the eyes of the Lord but also in the eyes of man. In accounting, one has no greater responsibility than to do what is right because so many people are depending on ones reports: those reports need to be verifiable, honest, trustworthy, and accurate. The accountant is the transmitter of truth, and when truth is clouded over or distorted it becomes misshapen by liesand lies deceive. Lies lead others to make wrong decisions. The accountant must remember that he is responsible or accountable for those wrong decisions that are made based on his poor accounting.
The accountant plays an important role in the organization. Cost accounting, budgeting, and performance measures to maintain corporate performance all fall within his purview. Managers need help in creating budgets and knowing what the public perceptions are, and accountants can provide assistance in both as they report on the truth of the matter. They can track efficiency, analyze performance, and assist in strategy development. Corporations have to have good corporate governance, however, because this is where the ethical accountability comes from: they must oversee the culture of the company so that the right people with the right kind of character…
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