Issues In Accounting Ethics

1391 Words 6 Pages
Ethics play a central role in accounting and the business world in general by addressing questions about the right or wrong of the used methods (Onyebuchi, 2011). Pakaluk (XXXX) states that one of the main reasons for the financial crisis in the year 2008 was caused by unethical accounting. (Pakaluk & Cheffers, 2011, p. 28). AIG, a big insurance company, sold so called credit default swaps (CDS) which serve as an insurance for the buyer XXXXX. If the debtor is not able to pay the debt, the seller of the CDS covers the outstanding debt. In exchange the buyer pays for this insurance with regular payments to the seller (Pakaluk & Cheffers, 2011, p. 30). AIG sold CDS which covered about 450 billion dollars. As the seller of those credit default …show more content…
Gellerman (as cited in Duska, XXX) states four reasons how accountants may explain their unethical behavior (Duska, Duska, & Ragatz, 2011, p. 140). First of all, accountants use techniques such as mispresenting positions in their financial reports up to a certain degree in order to hide the true financial state of a company, also called “window dressing”. Nevertheless, this technique is accepted under GAAP (Generally Accepted Accounting Principles) and therefore not actually illegal or immoral (Duska, Duska, & Ragatz, 2011, p. 141). Secondly people working for a company belief they are expected to be loyal and therefore taking actions in the company’s best interest, although the same individual would not take those actions as a neutral outsider (Duska, Duska, & Ragatz, 2011, pp. 141-142). Third, people belief that no one will ever find out if acting unethically (Duska, Duska, & Ragatz, 2011, p. 143). Fourth, individuals who act unethically belief that the company they work for excuse or even protect them since they acted in the interest of the company (Duska, Duska, & Ragatz, 2011, p. …show more content…
Accountants who are biased may do unethical decisions while auditing a client. There are three aspects to influence the professional accountants’ judgement. Firstly, accountants may understand various information in different ways due to the ambiguity bias and therefore they form self-serving conclusions. Furthermore, professional accountants do not want to lose their clients and thus are strived that the audit has a positive outcome for the client. The auditors career would be on the line, even if working for a big enough company which could cope with the loss of a client. Lastly, an accountant assesses the judgements already done by someone from the client. Rather than making judgements on their own the auditors might accept existing judgements from the client which might be wrong. (Bazerman, Loewenstein, & Moore, 2002).
But how to prevent unethical behavior in the first place? First of all, there are no settled rules between laws and ethics. Ethics change over time, so does the law to reflect the changes in moral principles. The society all in all utilizes laws to indicate what individuals can and cannot do. Additionally, laws indicate what will be the penalty if those rules are not followed (Jones & George, 2016, pp.

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