Accounting in Business: Ethics, Fraud, and Internal Control

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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.

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Importance of Ethics in AccountingFacts Figures

• In the U.S., according to the Association of
  Certified Fraud Examiners (ACFE), losses from
  fraud and abuse gt 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 AccountingFraud

• 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 AccountingLosses 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.

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Solution???
Administer Effective Ethical and Internal
Controls
Investigate Motives for Unethical Practice
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Motives for Unethical Behavior
Situational Pressures
High
Low
Opportunities
High
Low
Personal Characteristics (Integrity)
Low
High
Unethical
Ethical
(Hall, 2004)
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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
Integrity
Integrity
Independence
Independence
Independence
Objectivity
Due Care
Objectivity
Due Care
Objectivity
Due Care
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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
Fulfill Main Objectives
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 ?