Ethical Issues Relating to Financial Reports

Definition: 

Ethical behaviour results in fair and transparent actions that promote good in society. Unethical practice in Financial Management and Accounting have highlighted the need for codes of practice in financial reporting—unethical behaviour is common, motivated by greed / wealth through the deception of others.

• Creative Accounting: Intentionally using the limitations of financial reports to hide poor results, hide debts, and over inflate good results; adding to the overall value of the firm (share prices, business value). 

• Independent Auditing: The mandatory use of independent accountants to verify accounting statements to check accuracy / fairness. The audited accounts are used by investors (financial institutions) to determine if sound investment.

• External Audits are required by Corporations Act 2001 for public companies; unethical practice still takes place despite this extra level of oversite. Independent Credit Rating Agencies have also be corrupted before. Th overall aim is to have fair, transparent and standardised accounting practices to ensure no one gets ripped off or deceived as to the value of the firm.

• Record Keeping: Financial reports are based upon information drawn from accounting processes; accurate and regularly updated data from firm activity. Firms can intentionally withhold information to evade taxation (cash). Larger firms can shift revenue from Australian subsidiaries to other nations with lower tax rates.

• Reporting Practices: Information is key for investors to make accurate decisions. Stakeholders are entitled to receive timely and accurate information through the compilation of the Annual Report. Public companies must make announcements sensitive to the firm (impact share price) through the Australian Stock Exchange to ensure all investors have access to the information at the same time. 

Ethics is a common theme in the course: Marketing, Operations, Human Resources.