The Accountant's Dilemma: Ethics at the Top

In these unstable times every dollar counts and a lot can be at stake when a company is struggling to survive. Sometimes the pressure gets too much.

Suppose you are asked to sail too close to the wind – to bend the rules so far that they break.
What would you do?
Suppose you know that the stock market ‘expects’ a profit of $x, that your credit lines are due for renewal, and that finance would be difficult to obtain if the share price falls.
What would you do?
Suppose again that someone in authority asks you to ‘massage’ the numbers and make inappropriate accounting adjustments to increase profit and reduce liabilities. This would allow the company to meet stock market expectations and more or less guarantee renewal of credit facilities.  
What would you do?
Ethical Dilemma
We’ve all experienced ethical dilemmas in our business lives, maybe not as consequential as this one, but it’s the kind of situation that does happen. Who would suffer if you massage the figures to make sure the company survives? Possibly no one – but also possibly a great many.
Massaging the figures may mean that some people benefit, but there is a bigger picture. Confidence in accountants, in financial reporting and in business could be undermined, and certainly would be if everyone did it. This would be bad news for business as a whole and therefore bad for society too.
A business may be able to get by, even prosper, in the short term by abusing trust, and so can a person – or a profession. In the longer term, however, reputation and trust are what matters – a reputation built up over the years can be destroyed in an instant and that can destroy a business.
For a professional, such as an accountant, reputation is the most valuable asset. Achieving a truly professional business environment relies on all sorts of factors being in place, including the behaviour of the individual, and the workplace environment.
But perhaps most important of all is the quality of leadership and the ethical or moral tone set by those at the top of the organisation and by the professions.
A professional accountant’s duty is to act in the public interest. The International Federation of Accountants (IFAC) recently published a public policy paper called “A Public Interest Framework for the Accountancy Profession” seeking views. It looks at the criteria under which the accountancy profession must work to be mindful of the wider economic, political, and cultural implications of the public interest.
However, regulations, principles, standards and rule books cannot actually stop someone acting in an unethical fashion and there is no guarantee that regulatory systems will catch those acting unethically either.
Ethics at the Top
ACCA recently published a report called Risk & Reward: Shared Perspectives, which features a collection of essays from experts in the public and private sectors assessing the role of ethical corporate behaviour in risk management and governance.
A common theme discussed in the report is the importance of ethical leadership from the top. A strong commitment to ethical business conduct amongst directors and key staff is a strong defence against anything that may cause reputational damage i.e. unethical activity.
It is the senior executives that set the tone for the rest of the company. When they act ethically then their employees are likely to do so too. Most people want to do the right thing. Peter Drucker, a US management consultant, notes that: “Management is doing things right, leadership is doing the right thing”.
In the aftermath of the financial crisis, we have seen a huge focus on structural matters, most obviously the regulation of the banking sector. But however business activity is regulated, decisions will always, ultimately, be taken by individuals.
Regardless of how ethical standards are designed or enforced, it is the individuals that make the difference. It is they who must ultimately make the decisions about how to respond to ethical dilemmas and their behaviour impacts on those around them.
Individuals are so important to achieving an ethical and professional environment that having the right individual in the right place is absolutely critical. ACCA urges the business world to prioritise the recruitment of senior executives and financial staff with strong ethical compasses, and not just focus on business and financial skills.
Effective regulation and monitoring by regulatory bodies have an important role to play, but they need to be accompanied by a genuine commitment to ethical behaviour by businesses, starting at the top.
About the Author
Darryl Wee is country head of ACCA Singapore.

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