Zhang was employed as a qualified accountant in a small accounting practice. Following an investigation, the disciplinary committee of the professional body to which Sam belonged found that he provided misleading sets of financial statements at the request of clients on several occasions, in return for substantial payments. This was done without the knowledge of his employer.
Trust is an important part of the accounting profession. Accountants have an ethical obligation to present financial statements that are accurate and true to the best of their ability. Many people depend on accounting statements to make financial decisions. Accounting statements are used to make business forecasts and for strategic planning. They are used by investors to decide if the company is a good risk or a bad risk. Many people depend on the statements of accountants and they must trust that the information that they receive is as accurate as possible.
There is little room for error and no room for mistrust in the accounting profession. People assume that the information contained in accounting statements is true to the best of the accountant's knowledge. Bad information on the accounting statement means bad financial decisions and a feeling of mistrust in the future. Accountants must adhere to a strict code of ethics in order preserve faith and trust in the statements that they present.
Accounting is an integral part of the world that we live in. Accounting has affected society as much as society has affected accounting. Accountants live in a world of dual loyalties. They have a duty to serve the public interests and provide and accurate picture of the firms that they represent, but they also have a duty to the capital interests of their clients. Their clients pay the accountant to perform services for their and it is not good business practice to make clients angry.
However, sometimes the accounting statement does not paint the client in the best possible light. When this happens, the accountant finds himself or herself in s tricky situation. They must please the public need for honesty and accuracy, yet they must remain loyal to their client's interests as well (Kaidonis, 2006). This was the reason for the development of ethics legislation such as APES 110, which clearly defines the ethical standards to which accountants must adhere. This was the key to the conundrum in which Sam was placed.
Which sections of APES110 have been violated?
APES 110 is in conformity with international accounting standards including the IFAC Code of Ethics for Professional Accountants
(Wijeshinghe, 2007). The key differences between APES 110 and the IFAC code are in terminology used. Currently, this standard is being revised so that the language is more consistent with international standards. A review board also plans to explicitly state in APES 110 that it is consistent with IFAC standards, but these changes are still in process.
Differences exist in the various codes with which accountants must comply. Some standards are more rules based, while others serve as guidelines to assist accountants in decision-making processes. For instance, the AICPA code is considered to be a rules-based code. Accountants are expected to follow these rules to the letter. By comparison, the IESBA code is a principles-based code that is similar to APES 110. These two codes can be compared to the U.S. GAAP. Accountants are expected to comply with the rules portion of the code and to use the framework of the code to make decisions on situations that arise in their individual practices (Allen, 2010).
APES 110 represents both mandatory requirements and guidance to the accounting profession (Lewis, 2010). This is a unique for an accounting standard. It represents the dual purpose of the law. However, this can make it difficult to determine whether a particular section is mandatory or simply a piece of guidance. Revisions have been suggested to separate the mandatory sections from the parts that are merely guidance (Lewis, 2010). It has also been suggested that APES 110 also need to be revised to reflect IFAC language. However, these changes have not yet been made. These suggestions do bring the position of APES 110 into question and makes it difficult to interpret. However, this is no excuse for Sam's actions. What he did was unethical by any measure. He created a conflict of interest between the company that he works for and his position as an employee.
APES 110 is clear about what is allowed and what is not allowed by accountants. Although it represents a set of guidelines more than hard, fast rules, they still clearly state what is expected from accountants. They leave little to interpretation, yet leave enough platitude to allow accountants to use their own judgment when the situation calls for it. The following will examine Sam's actions and the specific sections of APES 110 that were violated.
Part A of APES 110 sets forth the purpose of the document. Part A, section 100.1 states that as a member of the accounting profession, the person's primary responsibility is to the public interest. It is not, "to satisfy the needs of an individual, client, or employer," (APESB, 2006, p. 4). This principle was clearly violated by Sam's actions. His actions violated the public interest in providing accurate accounting statements. He acted in the interests of two individuals, himself and the client who paid him to falsify statements.
Part A established the following six principles as the keys to application of the code. These six principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behavior (APESB 110, 2006, p. 5). The code is intended to help accounting profession members identify specific ethical threats as they arise. It provides them with a decision-making framework to help them make decisions regarding a particular action. If they are unable to make a decision about a particular action themselves, the standards provides them with a chain of command to aid them in the decision-making process.
Sam blatantly ignored the chain of command that should have been followed in this case. When a client offered to pay him for falsifying accounting statements, he should have immediately taken the matter to his manager, or perhaps higher, according to established protocols within the company.
Part A, section 100.8 provides an out for those who might not be aware that they have violated a section of APES 110. The provision states, "A Member may inadvertently violate a provision of this Code. Such an inadvertent violation…once the violation is discovered, the violation is corrected promptly and any necessary safeguards are applied," (APESB, 2006, p. 5). This was not what Sam did; instead, he did it several more times. This cannot be overlooked as a simple mistake. It can be construed as criminal motive in the case of Sam. Sam did not correct it, but did it again and again.
Part A, section 100.10 addresses threats to ethical accounting procedures. Subsection (a) addresses self-interest threats. These threats occur when financial or other interests occur either for the member of the organization or other members of their close family (APESB, 2006, p. 6). In this case, Sam acted unethically clearly in his own self-interest. Subsection (e) provides for the only possible grounds to alleviate some of the blame from Sam. If Sam was threatened or coerced by the client, perhaps by threatening to drop the account if Sam did not comply, or by some other threat, then they might share some of the blame. Yet, even if this were the case, Sam should have gone to his supervisor. However, it might be noted that Sam did this with several clients and it is highly unlikely that all of them made threats.
The most blatant violation of APES 110, Part A, is that of section 110 (Integrity). In section 110.2 this section states that,
"A Member should not be associated with reports, returns, communications or other information where they believe that the information: (a) Contains a materially false or misleading statement; (b) Contains statements or information furnished recklessly; or (c)
Omits or obscures information required to be included where such omission or obscurity would be misleading" (APESB, 2006, p. 8).
This section could not be clearer in regards to Sam's actions. Not only did he present misleading statements; he continued to do so repeatedly.
Sam's most blatant violation occurred in the section on integrity, but he also violated the principle of objectivity. Part A, section 120, subpart 120.1 states that objectivity is a requirement for members of an organization and that they by no means supposed to create a situation in which bias of conflict of interest could occur (APRSB, 2006, p. 9). Sam received money from both his employer, in the way of salary and from the client. If can be assumed by Sam's actions that the amount offered by the client was sufficient to sway Sam's representation of them on the accounting ledger. This created bias in the accounting reports and is a clear conflict of interest.