An ethical Dilemma refers to an issue that is faced by an accountant in the decision-making process. There are always two choices that are faced by the accountant in doing the business. One might be ethical and the other unethical. At times there are choices where an unethical approach will help in making higher profits than an ethical choice (Jaijairam, 2017). This is where the accountants face an ethical dilemma. They can either opt for an ethical way or an easier and profitable way. In recent times there are various ethical dilemmas that have cropped up in the organizations and have affected the compliance of ethics that are developed by the International Ethics Standards Board for Accountants (IESBA).
The very first instance is with KPMG where the company had an embarrassing year. The company had an allegation on them where they were accused of stealing the information that belongs to the Public Company Accounting Oversight Board. This was done by the company to improve the results of the annual inspection of PCAOB's. The company also cheated on the exams that were internal which were intended to check whether the principals of accounting have been understood or not. KPMG professional's compromised the efforts for checking their performance. In the instance, KPMG first stole the test, and later to clear it to answer keys were shared to manipulate the scores (Jaclyn Jaeger, 2019).
This is an ethical issue as the inspection will be cleared through cheating and stealing. The appropriateness of the quality of inspection will be doomed. The inspection won't be fair. The PCAOB's inspection is carried out in various firms. KPMG having the information that is not available to everyone will have an unfair advantage over the others. Also, cheating on the test will create a situation that will raise ambiguity about the understanding of the concepts in the business.
Various people will be affected by this act. Companies that are being audited by PCAOB will not have an appropriate result. Also, the people sitting in the test who are unable to get the answers will be at loose end. Other stakeholders that will be affected are the clients of KPMG. The accountant has crossed the test through cheating so it won't be clear whether they have the appropriate knowledge or not. It might happen that they are not able to accurately audit the reports due to which the other company gets into trouble. The clients of KPMG will have to pay in the future. Also, the investors who are investing in the client companies of KPMG will not have an appropriate report. So, various stakeholders will get affected by the actions of KPMG.
These actions will lay a negative impact on the accounting profession. People trust the accountants and auditors to provide the appropriate information and when they merge in such conspiracies, it overalls maligns the image of the accounting profession. These ethical problems will also affect the compliance of IESBA. Integrity, Objectivity, Professional competence, professional behavior all will be impacted. According to the Integrity principle, it is required that there is an honest relationship between all professional dealings while in Objectivity it is required that judgment should not be compromised due to undue influence (International Code of Ethics for Professional Accountants, 2020). KPMG created an undue influence and stole the data where both the principals were broken. Professional competence cannot be judged as tests were cheated. This proves a threat to the principal. Also, professional behavior suggests that all laws should be followed relevantly but KPMG and higher authorities at PCAOB broke this code.
Another unethical conduct happened at Enron where top executives of the firm did fraud and overstated the earnings of the company by a hundred million dollars. Enron executives sold their stock before the downfall while lower-level employees suffered due to restrictions. They lost their life long savings and left with worthless pension stocks. The employees did that by using the loopholes in accounting and hid billion dollars debt. This was an unethical act as it brought losses and laws were jumped. With that, it also led to losses for low-level employees (Edwards, Hawkins & Schedilitzki, 2019).
There were various stakeholders attached to the act. The first one being the employees of Enron who suffered enormous losses. The government and SEBI also suffered and had to recheck the laws. Government has to maintain an economy as a loss is to be beard by them. This ethical issue proves a threat to all the principles that are laid down by the International Ethics Board for Accountants (IESBA). The top executives did not follow integrity as they hid debts. Objectivity was compromised as they benefit themselves. Professional Competence and Due diligence were not being undertaken as professional standards were not followed appropriately. Also, professional behavior was discredited as due to accounting they were able to carry out the major fraud.
Certain actions can be taken to stop these kinds of unethical practices. For KPMG, it is required hat ethical training is conducted. With that, control and audit for every activity are to be conducted whether it is internal testing or auditing. While carrying the audit, it should be checked that no undue influence or favoritism is being carried out. The internal test can be audited and random interviews can be conducted for testing the knowledge of the person about the accounting principles. This will make sure that a person working as an auditor has appropriate knowledge about the accounting standards.
Frauds like Enron can be stopped by conducting internal audits quarterly and also by conducting external audits rigorously. Proper statements of the banks can be asked for and all the details regarding the projects that have failed. This will help in knowing about the debt that was taken and how it has been paid by the company. Another step that can be taken by SEBI is to set a trigger when there is an abnormal selling by the company’s staff members. This will help them in understanding that there is something unusual going with the company. Thus, by taking these steps solutions can be provided.
Edwards, G., Hawkins, B., & Schedlitzki, D. (2019). Bringing the ugly back: A dialogic exploration of ethics in leadership through an ethnic-narrative re-reading of the Enron case. human relations, 72(4), 733-754.
International Code of Ethics for Professional Accountants. 2020. Complying with the code, fundamental principles, and conceptual framework. Retrieved from: https://www.iesbaecode.org/part/1/110#s1020
Jacklyn Jaeger. (2019). Top ethics and compliance failures of 2019. Retrieved from: https://www.complianceweek.com/opinion/top-ethics-and-compliance-failures-of-2019/28237.article
Jaijairam, P. (2017). Ethics in Accounting. Journal of finance and accountancy, 23, 1-13.
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