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Accounting in Business:

Ethics, Fraud, and Internal Control


By Dina El Bassiouny
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Outline

Accounting as Part of Everyday Life. Importance of Ethics in Accounting.


Facts and Figures. Fraud. Losses on the Way.

Motivating Forces for Unethical Behavior. Effective Ethical Controls. Effective internal controls. Conclusion. References.
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Accounting as Part of Everyday Life

Is one discipline of study that all people regardless of job position should have some knowledge of How to read your bank statement? Know your financial gains and losses Your income! What are your tax dues? Its useful in peoples everyday lives. Companies must have reliable financial statements for both internal and external users.

Importance of Ethics in Accounting


Facts & Figures

In the U.S., according to the Association of Certified Fraud Examiners (ACFE), losses from fraud and abuse => $600 billion In Egypt, ..??????? Classic Case of Deception and Double Interests: Enron
Arthur Andersen = Auditor + Internal Auditor + Management consultant!!!!!!!!!!!!!!

In Egypt: NO regulation in place requiring independence of auditors

Those who violate rules should be disciplined or suspended from practice


(Gamal, 2002)
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Importance of Ethics in Accounting


Fraud

Fraud is an intentional deception,


misappropriation of a companys assets, or manipulation of its financial data to advantage of perpetrator. Symptoms can include:
Key executives appearing to be living beyond their means. Key executives have close associations with suppliers.

Company uses several different banks, none sees full financial picture.
One or two individuals dominate the company.
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Importance of Ethics in Accounting


Losses on the Way

Losses due to Unethical Behavior:


Costs of legal action taken against perpetrators. Costs of reduced productivity. Increased unemployment as companies are forced to downsize or go out of business. Economic loss to organization, hence to society.

Solution???

Investigate Motives for Unethical Practice

Administer Effective Ethical and Internal Controls

Motives for Unethical Behavior


High

Situational Pressures

Low

High

Opportunities

Low

Low

Personal Characteristics (Integrity)

High

Unethical
(Hall, 2004)

Ethical
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Effective Ethical Controls

A code of conduct that applies to the practice of a profession. AICPA adopted codes of professional conduct that must be followed by CPAs.
Integrity IntegrityIntegrity Independence Independence Independence Objectivity Objectivity Due Care Objectivity Due Due Care Care
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Effective Internal Control System


Control Environment: Influence Control Awareness of Management and Employees. Information and Communication: Quality of Info Impacts Reliability of Financial Statements. Fulfill Main Objectives Risk Assessment: Identify, Analyze, and Manage Risks Relevant to Financial Reporting. Monitoring: Entities Activities.

Control Activities:

Transaction Authorization Segregation of Duties Supervision Accounting Records Access Control Independent Verification

Safeguard Assets of the Firm Ensure Accuracy & Reliability of ACCT Records & Info Promote Efficiency in the Firms Operations
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Conclusion
Effective Ethical Control Effective Internal Controls

Situational Pressure

Personal Integrity

Opportunities

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References

Gamal, Wael (2002). Book-Fixing, Here and There. Al Ahram Weekly. 22-28 August. Hall, James A (2004). Accounting Information Systems. Thomson. South Western. Needles, Belverd E., Jr.; Powers, Marian; Crosson, Susan V. (2002). Principles of Accounting. Houghton Mifflin Company. Boston. New York.
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Thank You

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