1 Accounting in Business: Ethics, Fraud, and Internal Control By Dina El Bassiouny.

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Presentation transcript:

1 Accounting in Business: Ethics, Fraud, and Internal Control By Dina El Bassiouny

2 Outline Accounting as Part of Everyday Life. Accounting as Part of Everyday Life. Importance of Ethics in Accounting. Importance of Ethics in Accounting. Facts and Figures. Facts and Figures. Fraud. Fraud. Losses on the Way. Losses on the Way. Motivating Forces for Unethical Behavior. Motivating Forces for Unethical Behavior. Effective Ethical Controls. Effective Ethical Controls. Effective internal controls. Effective internal controls. Conclusion. Conclusion. References. References.

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

4 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 the U.S., according to the Association of Certified Fraud Examiners (ACFE), losses from fraud and abuse => $600 billion … In Egypt, …..??????? In Egypt, …..??????? Classic Case of Deception and Double Interests: “ Enron ”… 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 ” In Egypt: “ NO regulation in place requiring independence of auditors ” Those who violate rules should be disciplined or suspended from practice … (Gamal, 2002)

5 Importance of Ethics in Accounting Fraud Fraud is an intentional deception, misappropriation of a company ’ s 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.

6 Importance of Ethics in Accounting Losses on the Way Losses due to Unethical Behavior: Losses due to Unethical Behavior: Costs of legal action taken against perpetrators. Costs of legal action taken against perpetrators. Costs of reduced productivity. Costs of reduced productivity. Increased unemployment as companies are forced to downsize or go out of business. Increased unemployment as companies are forced to downsize or go out of business. Economic loss to organization, hence to society. Economic loss to organization, hence to society.

7 Solution??? Investigate Motives for Unethical Practice Administer Effective Ethical and Internal Controls

8 Motives for Unethical Behavior Motives for Unethical Behavior HighLow High Low High Opportunities Situational Pressures Personal Characteristics (Integrity) UnethicalEthical (Hall, 2004)

9 Effective Ethical Controls Effective Ethical Controls A code of conduct that applies to the practice of a profession. A code of conduct that applies to the practice of a profession. AICPA adopted codes of professional conduct that must be followed by CPAs. AICPA adopted codes of professional conduct that must be followed by CPAs. Integrity Objectivity Independence Due Care Integrity Objectivity Independence Due Care Integrity Objectivity Independence Due Care

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

11 Conclusion Situational Pressure Opportunities Effective Ethical Control Personal Integrity Effective Internal Controls

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

13 T hank Y ou T hank Y ou