Accounting for Corruption: A Review of Theories and Practices Essay

This essay delves into the critical topic of accounting for corruption, examining the detrimental effects of corruption on organizations and stakeholders. It defines corruption and its impact on businesses, emphasizing the importance of anti-corruption measures and transparency. The essay focuses on two key accounting theories: stakeholder theory and agency theory. Stakeholder theory, as explained in the essay, emphasizes the importance of considering the needs of all stakeholders, not just shareholders, in corporate decision-making. Agency theory is also discussed, which addresses the relationship between principals and agents within a firm. The essay provides a critical analysis of these theories in the context of corruption, suggesting how firms can use them to guide their anti-corruption efforts. It also reviews the existing literature on the subject, and provides a discussion on how to implement the theories. The overall aim of the essay is to provide a comprehensive understanding of how accounting theories can be applied to combat corruption and promote ethical business practices, with the goal of fostering long-term sustainability and stakeholder welfare.

Running head: ACCOUNTING FOR CORRUPTION
ACCOUNTING FOR CORRUPTION
Name of the Student
Name of the University
Author Note

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Part A: Accounting for Corruption Essay
Introduction
Corruption can largely be defined as a practice which is largely undertaken by the
different organizations and managers as present to get their personal needs fulfilled at the cost of
the other stakeholders as present in the organization. Corruption occurs when the different agents
as present in a firm tend to undertake illegal actions so as to fulfil the personal greed and fulfil
their personal intentions (Hess 2009). However, these intentions often tend to clash with the
overall intention of the different employees as present in the workplace along with the interest of
the different customers. Hence, in line of this, the Accounting Board worldwide, had come up
with various techniques and measures which will help them in ensuring that they are successfully
able to disclose all the anti-corruption practices the organization is undertaking and how the firm
is progressing towards the overall sustenance of the business (Benston 1967). However, many
firms who are more exposed to the corruption activities, are not welling to engage in this
procedure which reflects their attitude towards the overall sustainability and welfare of the
stakeholders. Hence, it can be mentioned that the primary aim of the particular essay is to outline
the overall accounting theories largely related to the accounting for corruption practices. These
theories which have been chosen for this purpose can be stated to be the theories named the
Stakeholder theory and the Agency theory. The essay will critically analyse the different theories
in relation to the topic of corruption and recommend the ways in which the different firms can
make use of theories to choose the right direction for their firm.
Discussion
Accounting for Corruption

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The corruption can be rightfully defined as the abuse of entrusted power for a personal
gain. As the business ethics and related corporation cases have been coming up, it can be
rightfully understood that the public confidence has been going down considerably and in line of
this, it has become considerably important for the different firms to come up with initiatives
whereby they can reflect their anti-corruption activities easily. The corruption, inclusive of
bribery, extortion as well as fraud is known to add up around 10% to the global business costs
and hence, the different firms as present are adopting both external as well as internal techniques
to control the particular ill-effect (Brenkert 2004). Out of these measures which are chosen to
control the corruption, the formation of the anti-corruption policies can be understood to be one
of the most commonly used methods which can be utilised in order to see to it that, from the top
management to the lower level management, the organization is renewed in a manner such that
there exists a strong message with respect to the maintenance of the ethical standards. The lead
by example can also be understood to be another technique which needs to be deployed by the
different members of the firm. According to Cooper and Sherer (1984), although formation of
the policies can be understood to be a relative measure which can be made use of in order to
bring the corruption practices to a limit, however, the reporting of such practices should be
soundly encouraged in order to see to it that, the employees, consultants and the customers are
provided with the right to report such instances where they have witnessed corruption (Nikolaeva
and Bicho 2011). In addition to this, this also ensures that, the firm is successful in bringing up
corruption issues and intricate investigation.
In addition to this, another method which can be largely used by the different firms in
order to ensure that they are successfully able to attain their overall objectives in relation to the
corruption which takes place in the different organizations can be understood to be practices

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related to the promotion of transparency in the workplace. Various theories have been formed
which will guide the different firm managers as well as members to take the correct initiative
(Larcker, Richardson and Tuna 2007). These theories will be discussed in the following section.
Review of Literature
Stakeholder theory
The stakeholder theory has been defined as a theory by Edward Freeman and seeks to
focus on the different stakeholders of a company or any party which are greatly affected by the
operations of the company and related workings. The stakeholder theory was formed in a
response against the shareholder theory which was proposed by Milton Friedman and states that
the stakeholders of a company are crucial but the shareholders are the most crucial ones of them
(Craig and Diga 1998). The theory of the former just focused on the profit making ability of the
business and hence, their ultimate aim was to satisfy their shareholders and thereby ensure a
successful growth of the company. However, in contrast of this, Dr. Freeman came up with the
theory of stakeholders which suggested that the stakeholders should be provided with equal
importance and in line of this, it was also mentioned that, a stakeholder is one except which a
group ceases to exist and these groups comprise of the customers, employees, the suppliers and
the political action groups. In a similar manner, the environmental groups, local communities,
the media as well as the financial institutions also come under the particular group. Hence,
according to DeMarzo and Duffie (1995), the overall view of the stakeholder group comprises of
these parties and the corporate environment forms an ecosystem of these related groups who are
required to be considered as well as their needs are required to be met with in order to ensure that

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the company enjoys a successful and healthy relationship with its stakeholders and the overall
image of the firm also increases considerably.
According to the theory by Freeman, a healthy company is one which never loses the
sight of its investors and other employees as present (Shapiro 2005). The theory believes that the
company when performing in a particular manner, it will have certain detrimental impacts on all
the members of the firm and deteriorate the image of the firm as it may help in earning short
term profits but when the stakeholder are dissatisfied, the company would not be able to survive
(Donaldson and Preston 1995). In line of this, the author of the theory is also under the belief
that in case the firm wants to ensure long term success, then in such a case they would be
required to see to it that the different stakeholders of the firm are flowing in a direction which
related to the company and hence, this helps in gaining adequate power as well as momentum
(Hill and Jones 1992).
In the global economy, the stakeholder theory has become even more important because,
it is important for the different companies to ensure that they are being able to cater to the needs
of those individuals who are not only holding the different stocks of the companies but are also
working in the different stores, provide supplies, are located near to the place of work and
additionally are being able to shape the overall landscape of the industry (Jones and Wicks
1999). The companies like Unilever have been using the stakeholder theory in order to ensure
that they are successfully able to see to it that, they get into positive relation with their employees
and other stakeholders alike. This they have learnt from the giant company, Enron which was
brought down by corruption as well as related scandals in the early 2000 (Freeman et al. 2010).
To name a few, the different stakeholders which the company is required to cater to can be stated
to be the suppliers, the manufacturers, the environmentalists, housing activists, the employees as

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present as well as the governmental bodies. In this manner, the firm will be able to ensure that it
becomes successful in the long run.
Agency theory
The agency theory is a principle theory which assists in solving the different issues
related to the relationship between the different business principals as well as their agents. The
theory majorly focuses on the relationship that a firm shares with its shareholders as the
principals and company executives and managers as the agents (Eisenhardt 1989). The agency
theory seeks to bind the relationship between two parties where one is a principal and the other is
an agent. As an agent it is the duty of the company executive to take actions in interest of the
stakeholders and that they are required to act as mere agents of the firm on their behalf. The
principal in this case, provides the decision making power to the agent and they are greatly
dependent on them and hence, there should not be a difference of opinion and the decisions
should always be taken in the favour of the stakeholders.
However, the conflicts in interest often cause the principal and agent problem. In line of
this, it can be stated that the Agency theory can be largely used as a useful framework which
goes a long way in designing the overall governance as well as controlling the costs of the
different organizations as present (Freeman, Wicks and Parmar 2004). The theory helps to
evaluate the overall strengths as possessed by the company and also goes a long way in outlining
the different weaknesses as possessed by the company. In the field of organizational as well as
industrial context, it can be rightfully mentioned that the Agency theory is very useful as it
assists to resolve then alterations as present in the different functioning’s of the firm and are able
to undergo the costs and related dilemmas so as to ensure that the firm is successfully being able

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to help in protecting the overall needs of the principals who are the relative shareholder or the
stakeholder as present in the firm (Griseri and Seppala 2010).
The agency theory states that the financial planners as well as the managers, who act on
behalf of their principals, will be required to undertake initiatives which will ensure that, the
interest of the principal is being safeguarded and in line of this, they are also able to ensure that,
the manager is successful in taking decisions largely in favour of the organization. Very often,
there takes place certain agency conflicts because of the clash in the motivation of the different
agents as well as the principles (Ross 1973). This means that, the agent will be willing to
undertake a particular initiative, it may or may not be in the welfare of the principal and hence,
this is where the corruption often comes into place.
Critical analysis
Therefore, in line of the accounting for corruption and related practices which are
required to be undertaken by the different organizations in order to ensure that they are
successfully able to take steps so that the non-corruption activities can be disclosed, it can be
understood to be very important for the firm to see to it that, in order to remain on the right track,
the organization takes into consideration the two theories of Stakeholders and Agency (Freeman
1994).
According to Friedman and Miles (2002), the stakeholder’s theory suggests that, the firm
would be required to focus on all the stakeholders as present and their overall welfare. The
welfare of the stakeholders is considered to be of utmost importance and in line of this, it
becomes critical important to mention that, when a firm aims to engage in the success in the long
run, it would be required to meet the needs of the stakeholders. Any activity which is undertaken

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by the firm, which is not suitable for the stakeholders can be stated to be corrupt or unethical in
nature. Hence, in accordance with Bushman and Smith (2001), it can be mentioned that the
stakeholder theory sets a guideline for the organization and assists them in seeing to it that, they
are able to engage effectively in anti-corrupt practices and additionally take initiatives which will
ensure that they are able to receive successfully achieve their objectives and reflect back and
return to the stakeholders as present.
According to Barkemeyer, Preuss and Lee (2015), similar to this is the Agency theory
which reflects that the different individuals in the firm who are appointed as agents would be
required to ensure that they are able to meet the overall needs of the stakeholders on behalf of
whom they have been appointed as the agents of the firm. In line of this, it can also be mentioned
that in any case, the agent takes a decision which is not in favour of the principal then such
activists can be labelled as the corrupt activities. In line of this, these two theories serve as a
guidance to the different members of a firm to take initiatives and account for corruption.
Conclusion
Therefore from the given essay, it can be concluded that, in order to ensure success in the
long run, the best practice which may be adopted by the different organizations, is to report for
the corruption practices. In this manner, they will be successfully able to ensure that they are
being able to attain their overall objectives and that they are successful in attaining their social
responsibility as present. If a firm is engaging in the right practices then in such a case, they will
not be required to hide their operations and will thereby report for the anti-corrupt activities

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however, in cases where they will be engaging in the corrupt activities, they will not be inclined
towards reporting for the same.

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Part B
As understood from the given section, the Accounting for the Corruption can be
considered to be a relatively important procedure which may be adopted by the firm in the form
of an initiative which will go a long way in assisting the businesses to undertake various
initiatives which will not only help them to find overall success in the long run but also
contribute effectively to the society as a whole. The two theories which were relatively aligned
with respect to the specific topic named Accounting for Corruption can be related to the theory
of Stakeholders theory and the Agency problem, both of which indicate that it is the sole purpose
of the firm to act in accordance with the overall objective of the stakeholders and not engage in
any decision which will lead to the fall out of the stakeholders as these activities will be
understood to be largely illegal or corrupt practices of the long run (Barkemeyer, Preuss and Lee
2015). The following section will be analysing the case study of Apple and Samsung, which are
multinational global companies as engaged in the electronic industry. The Apple is a company
with its headquarters situated in California whereas, Samsung is a company of South Korea.
Hence, it can be understood that both the firms are in the same industry, they are operating in the
same consumer market but may differ in their operations and reporting standards.
Analysis of the financial statement of Apple in regard to Accounting for corruption
Apple can be stated to be quite a responsible company as present in the business
environment which generally takes certain initiatives which will help the firm to be socially
responsible to the different stakeholders as present. In line of this, it can be rightfully understood
that, after analysing the financial report of 2018, an understanding could be made that the firm
engages in sustainable accounting which helps it to ensure that it is successfully able to not only
cater to the needs of the different shareholders as present but also cater to the needs of all the

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stakeholders as present. In regard of this, it could be rightfully understood that, there have been
certain instances in the past where the firm has taken initiatives which have only been able to
meet the needs of the different shareholders, however, it learnt the tough way and was publically
called out for the iPhone battery incident. In regard of this, currently, it has undertaken the
sustainability reporting method whereby the firm has been able to outline different risks which
the firm generally faces in the long run and in addition to this, the different processes and steps
which the firm has taken in the response of this, has also been mentioned accordingly
(Apple.com 2019). Apple is undergoing the ethical business principles and accounts sufficiently
in order to convey all the financial as well as non-financial performances during the accounting
years to the different stakeholder groups as present. In addition to this, the firm also ensures that
there does not take place any agency problems whereby the needs and requirements of all the
principals are met with successfully.
Analysis of the financial statement of Samsung in regard to Accounting for corruption
Samsung is one of the largest electronic firms as present in the market and with respect to
this, it can be understood that the overall responsibility which the firm possesses towards the
market is also considered to be relatively large. In line of this, after analysing the financial
statements of the firm it was understood that as Samsung is relatively a larger firm than that of
Apple, the different responsibilities of Samsung are larger than Apple and the firm ensures that it
is able to maintain this league (Samsung.com 2019). The firm has been successfully following
the non-financial measures which it is bound to and in regard of this, it is also being able to take
considerate steps which will allow the firm to report for corruption successfully and in line of
this, they are also required to reflect effectively the use of the funds as involved in the different
activities of the organization (Agrawal and Chadha 2005). The firm lays down the earnings in the

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consolidated income statement and then provides the breakup of the different expenses as
incurred by the company. In line of this, it can be rightfully mentioned that, even Samsung has
been successful in following all the crucial guidelines of ethical reporting which enables the firm
to attain success in the long run.
Hence, it can be understood after analysing the report of Samsung and Apple that, these
global giants are setting an example and reflecting their stand against the corrupt practices. The
companies have been successful in undertaking various initiatives to show their stand against
global corruption and engaged in ethical practices.

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