Issues of ethics, regulation and compliance and the extent to which they are constraints or threats to the organisation

 Issues of ethics, regulation and compliance 

As said by Thobjorn (2023),Accountants are responsible for upholding the integrity and transparency of financial procedures, therefore ethics are critical. Upholding ethical standards is critical for developing stakeholder confidence, assuring accurate reporting, and contributing to an organization's long-term success.

Ethics are the moral principles that direct human behavior, and they are essential to the accounting industry. Since accounting experts are in charge of handling financial data that influences stakeholders' actions, they enjoy a respectable standing in society. We shall examine the moral difficulties that accountants encounter in finance and accounting in this blog.

The ethical issues faced by accountants:

1. Confidentiality

Confidentiality is an extremely important ethical issue in finance and accounting. Accountants and finance professionals have access to highly confidential financial data, and it is their obligation to keep it secure. Any illegal exposure of this information might result in severe consequences for both the customer and the accountant. Accountants and finance professionals must maintain confidentiality at all times and only reveal information with the client's consent or as required by law.

2.Independence

Independence is another important ethical consideration in accounting and finance. Accountants and finance experts must remain independent and objective when offering services to their clients. This means they must avoid conflicts of interest and not let personal ties or financial interests influence their professional judgment. Accountants and finance professionals must also avoid taking activities that may compromise their independence, such as accepting gifts or favors from customers.

3.Fraud

Fraud is a major ethical concern in finance and accounting. Accountants and finance professionals must be dedicated in detecting and avoiding fraud on their clients' financial accounts. They must also report any suspected fraud to the proper authorities. Accountants and finance professionals must exhibit caution and due concern when analyzing financial statements for imperfections or errors.

4.Professional Conduct

Professional conduct is an ethical issue in accounting and finance that concerns an accountant's or finance professional's behavior and activities. Accountants and finance professionals must maintain high professional standards and avoid doing any acts that could harm their or the accounting and finance profession's reputation. They must also follow professional standards and rules, and avoid from any unethical or unprofessional actions.

5.Professional Competence

Professional competence is an ethical concern in accounting and finance that refers to an accountant's or finance professional's capacity to give high-quality services to their clients. Accountants and finance professionals must have the necessary knowledge, abilities, and experience to provide professional-level services. They must also stay current on changes in accounting and finance rules and regulations to ensure that their clients receive accurate and reliable information.

Constraints vs. Threats


Ethics, regulation, and compliance can be considered constraints when they limit company activity or require more resources to assure compliance. For example, strong environmental rules may limit the types of items that a corporation can produce or need expensive pollution control methods.

However, failing to handle ethical, regulatory, and compliance issues may cause major hazards to an organization. Ethical failures may cause protests and strikes, regulatory violations can result in large fines and monetary penalties, and noncompliance can destroy trust with customers, investors, and regulators. Finally, disregarding these challenges could risk the organization's long-term viability and success.

Factors that could constraints or threats to the organization:


Regulatory Constraints

Laws and regulations governing the industry in which the company operates may act as restrictions. Failure to comply with these regulations may result in fines, legal action, or damage to reputation.

The Financial Accounting Standards Board (FASB) is responsible for developing and enhancing US GAAP which is also applicable in Sri Lanka. The Public Company Accounting Oversight Board (PCAOB) enforces auditing standards, which are required by the SEC. The PCAOB's mission is to defend the public interest during the compilation of audit reports. The FASB and PCAOB oversee all accounting in the sir Lanka now and  The IFRS Foundation and the International Accounting Standards Board (IASB) govern international accounting.

The GAAP is often known as International Financial Reporting Standards (IFRS)Which outline's the rules and  how financial statements should be prepared and presented, maintaining uniformity and comparability.

In October 2018, the government implemented new policy measures, including margin deposit requirements for letters of credit for personal motor vehicle imports and certain non-essential consumer goods imports. Furthermore, in April 2020, the government imposed a series of temporary restrictions on products it considered 'non-essential' as a move to reduce the higher demand for foreign currency following the financial stimulus that the government implemented to assist COVID-19 affected industries.  Although the prohibitions were extended in June 2020, January 2021, and 2022, exceptions might be made if the goods is imported for value addition or return.  With the exception of automobiles, the government dissolved import restrictions in October 2023. Sri Lanka now passed a new anti-dumping and unfair duty law and a safeguard measures law in 2018 to provide protection for domestic industry.

The Sarbanes-Oxley Act The United States law, passed in reaction to financial allegations for demands to severe reforms to improve financial disclosures and combat accounting fraud. It contains provisions for internal controls and auditor independence in Sri Lanka too.

Securities and Exchange Commission (SEC) Regulations the Public companies  to follow SEC laws governing disclosure, reporting, and accounting methods.

References

Ramani, I. (2023) what are the ethical issues in accounting &finance faced by accountants. Available at: https://medium.com/@dm.ebizfiling/what-are-the-ethical-issues-in-accounting-finance-faced-by-accountants-e6a41b517e17, [Accessed 17th May 2024 at 11.38am]

Thobjorn, J, p. (2023) Ethical Considerations in Accounting: Exploring Integrity and Transparency in Financial Practices. Available at: https://medium.com/@johnpaulthorbjornoslo/ethical-considerations-in-accounting-exploring-integrity-and-transparency-in-financial-practices-d760c7612a48, [Accessed 17th May 2024 at 12.10pm]

Sri Lanka - Country Commercial Guide. Available at: https://www.trade.gov/country-commercial-guides/sri-lanka-trade-barriers , [Accessed 30th May 2024 at 11.03pm]

Personal Finance Lab.Available at: https://www.personalfinancelab.com/finance-knowledge/accounting/accounting-regulation-and-ethics/ [Accessed 30th May 2024 at 11.06pm]



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