Brett Millecam

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Professor David Alldredge

Accounting 2010
18 March 2015
Personal Ethics and Financial Reporting
What comes to mind when one thinks of ethics? Most people will say that ethics is a system of
moral values. Personal ethics are defined as a category of philosophy that determines what an
individual believes about morality and right and wrong. Early philosophers used man's sense of
morality to support the existence of God. These philosophers typically agreed that a divine power
instilled personal morality in humankind, creating a basic universal system of right and wrong
(Wisegeek par.2).
After taking several Psychology classes, I believe that morals and ethics are a product of your
environment and largely influenced by your parents or the people who raised you. I personally was
born into a stable family. In early childhood I had two loving parents and a loving older sister. We did
regular family things like play board games together and go on family vacations. We lived in a nice
neighborhood with good public schools. These surroundings helped me develop honesty, integrity,
empathy and respect for others. I had a father who I could look to for guidance during my teenage
years. He taught me valuable lessons. My father would tell me, Treat people the way you want to be
treated.
Environment plays such a key factor when it comes to developing ethics as a child. Living in a
poor inner cities typically have underfunded education systems. Growing up without a father or
growing up with abusive parents are also going to have a major impact on your development. If a

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young kid sees his father verbally or physically abusing their mother, he might interpret that as normal
behavior. These type of situations have an important effect on ethical development.
When I was in high school I faced an ethical dilemma that tested my character. As a student in
an American History class, my friend, Thomas, was a student-aid for our teacher, Mrs. Smith. It was a
difficult class that required quite a bit of homework, most of which were packets that had to be
completed each week.
Part of Thomas' responsibility as a student-aid, was to submit the student's scores into Mrs.
Smith's computer at the end of the week. Mrs. Smith was an older lady, very sweet, but also naive.
Thomas was a popular kid in high school and was friends with most of the other students in the class.
Knowing he had access to their grades, they began to ask him to adjust their scores and change their
grades. Thomas even offered to change my grade for me.
This was a difficult situation for a high school student. I knew what Thomas was doing was
wrong and it was unfair to all the other students who worked hard and didn't have their grades adjusted.
He was also my one of my good friends and telling the teacher what was going on could cost me his
friendship. I ultimately made the decision not to tell my teacher and preserve our friendship. Looking
back at the situation, I know the right thing to do would have been to tell Mrs. Smith the truth. By not
saying anything I went against my morals and the values my parents had taught me. If I could do things
differently I probably would have personally talked to Thomas and convinced him to not changes
students grades.
In the financial world, I do believe there is a direct connection between your personal ethics and
financial reporting. Fraudulent financial reporting is the misstatement of the financial statements by
company management. Usually, this is carried out with the intent of misleading investors and
maintaining the company's share price. It is extremely important for accounting professionals to be

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ethical in their practices due to the very nature of their profession. The nature of accountants work puts
them in a special position of trust in relation to their clients, employers and general public, who rely on
their professional judgment and guidance in making decisions. These decisions in turn affect the
resource allocation process of an economy. The accountants are relied upon because of their
professional statues and ethical standards. Thus, the key to maintaining confidence of clients and the
public is professional and ethical conduct (Freedman par. 1).
The question then becomes, why do people commit fraud when it comes to financial reporting?
This can be explained by fraud triangle. The fraud triangle consists of opportunity, rationalization and
pressure. Each portion of the triangle plays a significant role in accounting fraud. Pressure is one of the
main motives in fraud. In the late 1990's and early 2000's, Healthsouth ordered their senior financial
officers to falsify company reports to control the company stock prices. They recorded false earnings
due to outside pressure and in order to meet investor expectations
Opportunity is another key component. The person committing the fraud sees an internal
control weakness and, believing no one will notice if funds are taken, he or she begins the fraud with a
small amount of money. If no one notices, the amount will usually grow larger.
Rationalization is the final part of the fraud triangle. Fraudulent accounting can become easy to
justify, especially if an individual is suffering from financial pressure in their personal life. This is
when people commit white collar crimes. An accountant who has no criminal history could find
himself stealing money because if he doesn't make his house payment, he will default on his loan and
lose his house. They might rationalize their decision by saying I'm just going to do this one time, or
I'll pay the money back.
The key to preventing financial fraud is by having a strong internal control. This means having
a strong control environment or a strong tone at the top. Another key is to educate managers. Smart

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companies train their managers to be able to spot potential fraud before it happens. Segregating
accounting functions is also necessary. All of these can prevent financial fraud but the most important
thing you can do is to have employees with strong personal ethics. Doing a background check is not
enough. Ask thorough questions about ethics and morals during your interviews. Call the references
listed on their application, check with old employers to get a good idea as to what type of person they
are. Strong personal ethics set the foundation for success in business and in life.

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Work Cited

Freedman, John. What is an ethical issue in financial accounting. Demand media. (1998):
Web. Print
Wisegeek. What are personal ethics? n.d. Web. Print