Unethical Accounting Practices and Behavior. Unethical Behavior

¶ … unethical accounting practices and behavior. Unethical behavior occurs when there is a combination of motive and opportunity, along with a lack of integrity.

Situations that contribute to ethical lapses in accounting occur because of the very nature of accounting fraud being a white collar, non-violent crime. Accounting provides an opportunity to "cook the books" and exercise one's greed without pointing a gun or breaking into someone's house. Accounting crimes are tempting because nobody seems to be getting hurt (Xaxx, 2011).

There are people, who under other circumstances would never seek out a crime to commit, will submit to the temptation to commit accounting crimes just because the opportunity presents itself. Accounting often deals with large sums of money, some of which may be easily hidden, siphoned off, or removed with little likelihood of detection. Some people find this amount of temptation hard to resist, especially if they see themselves as being in financial need (Xaxx, 2011).

Likewise some corporate cultures can promote a sense of hubris and entitlement so that when accounting irregularities occur that benefit the business or individual, unethical conduct may seem normal to someone who has lost touch with the ethics and standards that exist outside the company (Xaxx, 2011).

Castellano, Rosenzweig, and Roehm (2004) argue that the widespread management practice of managing by objectives (MBO) and managing by results (MBR) fosters a climate that encourages manipulation of accounting figures and unethical behavior. When companies focus recognition efforts on a specific organizational component, such as an individual, department or profit center, employees are discouraged from seeing a system view of an organization. By implementing poorly designed process variations, such as contests or competitions between departments that encourage winning at any cost, including reporting inflated numbers, management may inadvertently lay the groundwork for an unhealthy ethical climate. By fostering internal competition rather than cooperation and teamwork, a company creates a corporate culture that is rooted in fear of job loss, for example, and barriers to cooperation that can lead to distortion of the system and manipulation of accounting figures.

The most obvious motivation to behave unethically usually involves self-interest or greed, and many situations enable this pursuit. There is no getting around the fact that there are people who enjoy having lots of money and they will break the law to get it. When an accountant embezzles funds or a CFO prepares financial statements to appear as though a company is performing better than it is, they stand to gain financially from their unethical behavior.

Other situations involving corporate pressure can also lead to unethical behavior. An accountant may be pressured by his or her client to report false information. Or, a CFO may encounter demands for improvement from the board of directors, the company's president, owners, or stockholders; or the accountant may fear losing their job. Or, an accountant may fail to conduct an in-depth analysis when preparing and revising financial information, preferring instead to take short cuts (Jacobsen, 2008). Any of these situations can lead to unethical practices.

Certain management practices can also lead to problems. The lack of adequate controls makes it easier for management to manipulate financial results. Lack of a code of ethics may also contribute to a company culture which does not condemn unethical behavior. Failure to have an anonymous internal mechanism, such as a hot line for reporting suspected unethical behavior also enables unethical practices. Likewise, an audit committee that does not take an active role does not provide the necessary oversight of management's activities. Unethical practices can result from the following instances of an audit committee not fulfilling its duties: