Ethical challenges in financial accounting after the Enron scandal

Ethics in Accounting

Issues in Financial Accounting for Businesses

The most important purpose of financial accounting for businesses is to represent the company and its assets as accurately as possible. This is important for the businesses to be able to have better control of their finances, for forecasting, and for many other purposes. Financial accounting is important for stakeholders so that they can understand the risks and possible future returns of their investment. Customers also demand to have accurate information about the company so that they can decide if there are a company with whom they wish to do business. Many different entities depend on the accuracy of financial accounting to make decisions about the business. This research will discuss key ethical, legal, and technological concerns that have arisen regarding financial accounting for businesses.

Business Ethics Today

Providing an accurate and honest representation of the company is the only concern of the accountant. Many entities depend on the accuracy and dependability of their data. Faulty data needs to faulty decisions and if the error was intentional in order to produce a certain image, the data can be a source of mistrust. It is important for accountants to maintain the trust of the entities for whom they work, stakeholders, and also to maintain public trust. Inaccuracy in accounting statements harms the overall image of the company. The company must be able to trust the integrity of the data that is presented by its accountants.

The highly publicized Enron case, which led to the conviction of its executives, changed the decision-making behavior of management, and created a major shift in what is considered ethical behavior within corporations (Bolt-Lee, 2010). According to the author of the study, the Enron case created a sense of heightened awareness of ethical issues regarding accounting.

In response to the Enron case, many companies developed their own ethics training programs. However, the results of these programs have been mixed. In a recent study, the least effective programs were found to be those that utilize coercive control mechanisms and focus on punitive measures for enforcement. These programs dictate ethical behavior, but they do not develop employees skills in addressing issues that arise in ambiguous situations (Bolt-Lee, 2010). The problem lies in differences in individual judgment.

Everyone agrees that it is wrong to lie about the numbers in the financial report. However, not every situation fits neatly into what is considered legal in the accounting profession. For instance, valuation of assets is one of the areas where accountants must often use their own judgment in regards to how they are reported. This is one of the most difficult areas in the development of standard ethical practices among financial accounts. Another similar area is how to report intangible assets. Many times the core issues are more of a matter of differences in judgment. This makes resolving ethical issues in financial accounting for businesses difficult.

Conclusion

High profile cases regarding ethical in the accounting profession have garnered global attention. In response, standards for financial reporting were tightened and new technologies were developed to help provide better monitoring and greater transparency of the accounting processes. However, many issues that require judgment of the accountant continue to pose challenges for those who wish to study ethics in accounting and for those who wish to teach ethics and moral judgment to future accounts.

Ethical issues in accounting have led to dramatic changes in state of the art among accounting professionals. The issues that still remain suggest that the adoption of rules, laws, and new technologies are not the sole solution to every ethical issue that arises in accounting. This has led to a paradigm shift in the way accounts think about ethical issues that arise in their daily practice. This new way of thinking about ethics asks accounts to consider the consequences of their actions for the various stakeholders that must make their decisions on the data being presented (Pava, 2010). The concerns of top executives are now no longer the primary concern for accounts. They now know that only they are responsible for the data that they present and for making certain that they act ethically. New levels of transparency create an even heavier burden for maintaining high ethical standards in the accounting profession.

The field of accountancy has a responsibility that extends beyond their paychecks. This responsibility extends beyond the wishes of their company and its executives. Their responsibility carries with it the future of the ability to maintain successful trade relations. Regardless of whether the company is large or small, trust is an important part of the decision making process of its customers and other business associates. The ability to make good financial decisions depends on accurate and honest data. The main changes in accountancy since the Enron case and others that followed it, is that accounts now know that they are held personally accountable for their actions. Accounts have a tremendous weight on their shoulders to maintain high ethical and technical standards in their profession.