Unethical Practices by Accountants

An accountant is an individual whose work involves the application of accounting in performing some or
all of the following: preparing financial statements; conducting financial investigations; preparing,
reporting and advising on the purchase and sale of businesses, business combinations, obtaining capital
for enterprises, changes in partnerships, fraud and insolvency; preparing tax returns; giving advice on
taxation; contesting disputed tax before officials; preparing or reporting on profit forecast and budgets;
planning external and internal audits and supervising audit work; advising on, reorganizing, devising, and
overseeing the installation and implementation of accounting, bookkeeping and related systems.
(Department of Employment, London, 1972) Wherever accountants work, their responsibilities centre
on the collating, recording and communicating of financial information and the preparation of analyses
for decision making purposes. The accountant working within business has a different set of ethical
problems due to the dual position as an employee and a professional accountant. There is a potential
clash of issues where the interests of the business could be at odds with professional standards. Ethics is
an important aspect of the accountant in business enterprise’s work and profession. Professional ethics
in this context can be summed up as the commitment of the management accountant to provide a
useful service for management. This commitment means that the management accountant has the
competence, integrity, confidentiality and objectivity to serve management effectively (Blocher et al,
2005: 23-25). The standard of competence for example, requires the accountant to develop and
maintain the skills necessary for his or her area of practice and to continually reassess the adequacy of
those skills as the firm grows and become more complex. The code or standard of confidentiality
requires adherence to the firm’s policies regarding communication of data to protect confidential
information. Integrity refers to behaving in a professional manner such as refraining from activities that
would discredit the firm or profession (e.g. unfair hiring practices), and to avoiding conflicts of interest
(e.g. not accepting a gift from a supplier or customer). Objectivity refers to the need to maintain
impartial judgment (e.g. not developing analysis to support a decision that the accountant knows is not
correct. The type of unethical practices by accountants in business include the followings: i. requests by
employers to record purchases or expenditure or sales that never occurred; ii. requests to produce
figures to mislead shareholders, e.g. participation in the production of false and misleading financial
statements; iii. request by employers to manipulate tax returns; iv. request to conceal information; v.
requests to manipulate overhead absorption rates to extort more income from customers; and to
manipulate cost allocation; vi. requests to authorize and conceal bribes to buyers and agents, a common
request in some exporting business; vii. requests to produce misleading projected figures to obtain
additional finance or loan; viii. requests to conceal improper expense claims put in by top management
or senior managers; ix. requests to over-or under-value assets; x. request to misreport figures in respect
of government grants; xi. requests for information, which could lead to charges of ‘insider dealing’ in
shares or stock. xii. requests to redefine bad debts as ‘good’ or vice versa; xiii. requests for padding the
budget by knowingly include a higher amount of expenditures in the budget than they actually believe is
needed; xiv. wasteful spending to exhaust remaining budgeted amounts before the end of the period;
and xv. requests to prepare unreasonable Executive compensation plan. The tax authority can deny a
firm’s right to deduct compensation that it determines to be unreasonable. Roman O. Omorokpe and
Jude O. Nomuoja 92 The cause of unethical practices by accountants in business can be traced to the
problem of dual ethical structures, namely, as professionals and employees. The remedy for this conflict
causes many problems for the accountant who is left with only three possible solutions, namely: i. Take
some action by either informing a superior (letting them take some action) or by whistle-blowing to an
outside agency such as professional body, EFCC, the police, the media or whatever. This, may well cause
the accountant some personal problems and is difficult if the superior is the ‘guilty party’. ii. Resign on
principle and leave the organization with personal and professional ethics intact but with a possibly
damaged career. iii. Ignore the action and hope someone else notices the unethical behaviour and takes
the appropriate action.

Unethical Practices by Auditors

Auditor, in this context means an individual, a partnership firm, or an organization carrying out an audit
of an enterprise or an undertaking. Such persons are not usually employed by the accounting entity or
by its managers and is, as far as possible, independent of the persons who manage the entity, hence
they are often referred to as ‘external auditors’; or ‘accountants in practice’. The Companies and Allied
Matters Act (CAMA) 2004, Cap C20, LFN requires every limited liability companies to appoint an auditor
or auditors who must be a Chartered Accountant or a firm of Chartered Accountants at annual general
meeting (AGM), to audit their financial statements (section 357, CAMA). The external auditor or
accountant in practice has a considerable body of ethical support to work from particularly if he is a
member of one of the various Chartered Accountancy bodies. These bodies (e.g. ICAN and ANAN)
publish guidelines covering key areas of accounting work and behaviour such as their relationship with
the client; the type of work they can do for the client; the way to safeguard independence; the standard
of behaviour expected of accountants; the manner of dealing with conflicts of interest; the way they will
behave in given situations such as take-over, insolvencies and so on, and the nature and type of advice
they can give clients. The common areas of unethical practices by auditors include: making or permitting
others or audit clients to make false and misleading entries in accounts or records and financial
statements; soliciting for equity holdings and/or directorship in client company; begging for loan or
other financing inducements from audit client; imposing unreasonable fees and charges on clients;
failing to follow relevant accounting and auditing standards during the conduct of an audit; failing to file
tax returns or remit payroll and other taxes collected for others (e.g. audit employee taxes withheld);
withholding a client’s books and records and important working papers when the client has requested
their return; disclosing any confidential information (e.g. client trade secret) without the specific
consent of the client; and expressing unqualified opinion on financial statements that contain material
misstatements. The causes of these unethical practices are (i) greed on the part of the auditor and (ii)
the auditor’s quest to retain his appointment or tenure with the client, and (iii) outcome of conflicts of
interest.

To remedy these ethical problems, accountants in public practice (auditors) must be careful in all areas
of practice. They must not lose sight of the non-accountants’ perspective. No matter how complex or
technical a decision may be, a simplified view of it always tends to cut away the details of special
technical issues to get directly to the heart of the matter (Robertson and Louwers, 2002:490) A sense of
professionalism coupled with a sensitivity to the effect of decisions on other people are invaluable in the
practice of accounting and auditing. Auditors must also adhere to the fundamental of professional
conduct such as integrity, objectivity and independence, due care and public interest.