Effect of Unethical Behavior

Posted: October 17th, 2013

Effect of Unethical Behavior

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Effect of Unethical Behavior

Ethics is defined as the moral or expected of a professional in their profession. The following principles are expected of a professional accountant: objectivity, confidentiality, integrity and professional competence and behavior. Types of unethical behavior include monetary rewards for financial fraud, accepting bribery in order to give employment, hiring of unqualified staff to keep financial records and careless handling of financial data and records. Several situations might lead to unethical behavior by accountants.

The first reason is greed. An accountant may act unethically, for example, by embezzling funds. Secondly in order to increase one’s stock portfolio, for example, by giving overrated financial statements. The third reason is the fear of losing one’s job. The accountant may be pressured by the client or his superiors to give false financial statements, especially when there are high expectations of improvement of the company. Fourthly, when there is conflict of interest in a firm, for example, if the firm owes the accountant money, the accountant may feel compelled to give false financial statements.

The fifth reason is when accountant has not taken enough time to analyze financial data and hence ends up giving false information and financial statements. Other reasons that may lead to unethical behavior in accountancy include when a firm rewards or ignores unethical behavior. In this case, individuals may fear speaking up when they notice unethical conduct and may even be compelled to act in the same way. A firm may also feel challenged competing with a firm, which supports and practices unethical behavior. For effective competition, the firm may feel pressured to act unethically too.

Sarbanes-Oxley Act

The Sarbanes-Oxley act’s independent provision affects the way auditing firms sell in order to maintain and develop relationships with clients that are highly placed publicly. This is because it has not been well understood or appreciated. On the other hand, audit firms that are not well skilled in selling and marketing have been having a hard time trying to build relationships with clients. In this, if firms do not act according to the status of the market, they will find it difficult to get the trust of clients. The Sarbanes Oxley Act has particular sections that affect, the buyer who is the client and the seller who is the audit firm. On that basis, audit firms are finding it hard to form and maintain relationships with public companies.

Section 201 of act has prohibited the cross selling of non-audit services, when selling an audit service to a client. Section 301 stipulates that an audit firm should sell audit services to an exterior audit committee of a company. The committee should be allowed by the board of directors to pay and employ the auditor. The act has also destroyed relationships between a firm and its client, through section 206 and 203, which stipulate that the partner of audit firms should last for more than five years and that employees are not allowed to take up positions with a client, when the year of audit is still running. This makes selling of services hard, as client should respond to the services they are given by buying additional services, in this, a firm is able to establish a good and stable relationship with the client.

As the audit firm has been left in charge of deciding where a company will buy audit services, it makes the selling of this services complex. On the other hand, section 404 of the act has left staff in audit firms with too much work, so that they can meet its requirements. Firms should look at ways in which to develop their relationship with audit committees, in order to meet the needs of the client and at the same time meet the requirements of the committee.

Reference

Oseni, Idris, A. (2011). Unethical Behavior by Professional Accountant in an Organization. Research Journal of Finance and Accounting, 2. Retrieved from www.iiste.org/journals/index.php/rjfa/article/download/188/7

Kate, J. & Ronald, J. (2010). Becoming a More Relational Firm in the Post-Sarbanes-Oxley Era: Certified Public Accountant. The CPA Journal, 80, 64-67.