Ethics in accounting and financial decision making

¶ … Spinning the numbers: handling an ethical dilemma over accounting practices can be doubly difficult when it's not certain that the practices themselves would breach the bounds of acceptability - Ethics" (December 2002) HR Magazine.

This article, entitled, "Spinning the numbers: handling an ethical dilemma over accounting practices can be doubly difficult when it's not certain that the practices themselves would breach the bounds of acceptability - Ethics" from HR magazine (December 2002) begins with a compelling scenario. Unlike the dilemmas of black and white that have gripped the headlines, this article presents what is often known as an ethically grey scenario, where one member of a firm lets the other member know that he uncertain of what to do because "there's something going on at work" that is troubling him as an accountant, from an ethical point-of-view.

As the article progresses, Jim then tells Fred, over the course of this hypothetical scenario, that in strict confidence -- "the company's chief financial officer was planning to have Summitt take an aggressive stance on sales revenue reporting that, in Jim's view, would stretch the boundaries of acceptable accounting practices." (HR Magazine, 2002) in other words, the accounting practices that would now be adopted could put the firm in possible jeopardy -- not only were they legally and ethically questionable, but if brought to light, could put the firm under public scruitny. On one hand, Fred, the aforementioned and unwilling confidant of Jim, does not want to be a party to potential improprieties, but on the other hand he does not want to put company stockholders in financial jeopardy by disclosing evidence that could injure the firm's otherwise blameless and salutary reputations.

Jim's lack of specifical knowledge about accounting is no excuse -- and Fred's disclosure is potentially alarming, given that not only did the friends have a personal agreement regarding keeping business to the side during their private meetings, but because he should not, regardless of his troubles, bring other and unrelated members of the firm willy-nilly into this matter.

The first organizational lesson from which to draw from this scenario is that a firm must have an ethical troubleshooter, to which individuals can report troubling matters, without fear of disclosure. This would have eliminated Fred's dilemma entirely, and given Jim a more effective and disninterested ethical springboard, agianst which he would have been able to 'bat' his potentially valid, or invalid but still personally troubling concerns. "If there are accounting irregularities, the top executives need to know of them so that they can decide for themselves if they want to take the risk. If there are no accounting irregularities, however, it is important to get the facts out to prevent a spread of misinformation and rumors. A perception of irregularities would tarnish the company's reputation and integrity nearly as much as would any confirmed accounting irregularities." (2002)

In other words, quieries about potentially overagressive, even if not actively illegal accounting irrecularities cannot be purely confined to the accounting department as these methods affect the entire firm's future performance if they are in fact unethical. However, if the rumors, even if untrue, remain spread about the company and enter the realm of fear and speculation, the problem presents itself that the company could be impinged upon by these rumors simply by their existence in the personal atmosphere of the firm, and could hurt the private morale and public perception of the firm. Also, as the accounting practices are described as aggressive, if the firm shows good results over the next quarter, this could be viewed with suspicion, even if the gains were made legitimately, and the accounting done within ethical parameters.