Evaluating Accountants' Ethical Role in Corporate Governance Context

This essay provides a comprehensive analysis of the role of accountants within the corporate governance framework, emphasizing the importance of ethical conduct and the potential consequences of ethical failures. It defines corporate governance from both narrow and broad perspectives, highlighti...Read More

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Introduction
In view of Marc Palker (2016), who is the Principal at MPP Associates and also is the
IMA Chair of the Global Board of Directors, accountants are the gatekeepers of financial
reporting and governance. Through the effective communication of the corporate governance
structures in the entire organization, particularly across its hierarchy levels, the organizations can
easily facilitate ethical and more accurate information. When the businesses operate in a
corporate umbrella, a number of business basics are presided by the results and practices of
accounting. Accounting is the thing which helps the companies in tracking their income and
expenditure and in establishing the correct picture of the entire financial status. Thus, the
accounting helps the companies in running their operations in a smooth manner, which have
legal, practical and ethical basis, and also helps in laying down the foundation stone towards the
continues success and growth (Ray, 2018).
However, the blunders of the recent past, particularly the scandals which took place in
HealthSouth, Enron, WorldCom and Tyco are the examples where the role of accounting is
misused and the ultimate loss is to be dealt by the stakeholders. The widespread failures in the
financial reporting have been the key blame holder over the feeble internal controls. The
investors lost their faith and the ultimate impact was seen on the stock market plummeting
(Browning & Weil, 2002). This discussion is focused on highlighting what exactly corporate
governance is and the importance it holds. The role and the professional duties which have to be
properly discharged by the accountants to maintain the good governance practices would also be
highlighted, along with the lack of ethical behaviour of these individuals resulting in reporting

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failures. The discussion, before concluding, would highlight the manner in which the ethical
issues impact the public interest.
Corporate governance and its importance
Corporate governance, as a term, can be defined from two perspectives, i.e., the narrow
and the broad one. From the narrow perspective, corporate governance is related to the
relationship present between the directors, varied stakeholders and corporate managers. When
the broad perspective of corporate governance is looked at, it covers the combination of listing
rules, voluntary private sector practices which allow the firm to attract capital, generate profit,
meeting legal and societal expectations, perform efficiently, laws, and regulations (Gregory &
Simms, 2005). As per Okeahalam and Akinboade (2003), corporate governance refers to the
public and private institutions which include accepted business practices, laws and regulations,
which govern the relationship between entrepreneurs and corporate managers in market economy
on one hand, and the ones who invest in the resources of the companies on the other hand. It is
related to the creation of a balance in between the social and economic objectives, and in
between the community and individual objectives, where the use of resources is encouraged,
accountability in using stewardship and powers, and aligning of the interests of the different
stakeholders is undertaken.
Corporate governance is a concept which is gaining a lot of attention, due to the events
which transpired in the recent history. It is a mechanism through which the stakeholders of the
company are able to exercise control on the corporate managers and are also able to provide an
overall direction to the company, particularly in such a manner that the interests of the
stakeholders are protected (Larcker & Tayan, 2015). When such happens, the company is able to

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operate in a more responsible and profitable manner; the relations of the company are enhanced
with the different stakeholder groups including suppliers, employees, policyholders, society at
large, and most importantly, the shareholders; the company starts thinking long term; the quality
of the executive and that of the non executive directors is improved, there is proper monitoring
of executive management to protect the interest of the shareholders; and the informational needs
of all of the stakeholders are properly fulfilled. In this setting, the role of the accountant is the
maintenance of equilibrium in between the different components of the system, for making
certain that the accounting and the auditing tools play the requisite governance role, and that the
good governance procedure pillars are properly placed (Tricker, 2015).
Role and professional duties of accountants
When it comes to the question on what exactly is done by the accountants, the reply is
that they act as the independent auditors and the tax agents. The role which is performed by the
accountants is often not understood properly and is also forgotten. The significance of the role of
accountants in the business scenario in context of ensuring that the quality of financial reporting
is upheld cannot be emphasized enough. The accountants often take centre stage in safeguarding
the financial reporting’s integrity. The quality of financial reporting is to be defended by the
professional accountants at the very source, where the figures and numbers are born. The
accountants play a key role in making contributions towards the overall progress and the stability
in society (Jeffrey, 2011).
A competent account is deemed as an invaluable asset in the business and an inquiring
mind is employed by the accountants to the work based on their knowledge of the financials of
the company. They make use of their intimate understanding of the company and the skills,

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along with of the environment in which they operate. The accountants basically ask the
challenging questions. They adopt an objective and a pragmatic approach for solving the
problems. This becomes a very valuable asset for the management of any company. The
accountants in the business helps in corporate strategy where the advice is provided and the
businesses are helped in reducing the costs, in mitigating the risks and in improving the top line.
The role of the accountants includes the one as the board directors, where they govern the
organization in terms of the approval of annual budgets and the accounting to the stakeholders
for the performance of the company. They also appoint the chief executive, along with
determining the compensation of the management. In their role as internal auditors, they provide
independent assurance to the management regarding the risk management of the company, its
internal control processes and the governance in an effective manner. As the chief financial
officers, they have the oversight on all matters which relate to the financial health of the
company. Included in this is the creation and driving of the strategic direction of the business to
create, analyse and communicate the financial information (Jui & Wong, 2013).
The basic statutory duty of the accounts is to report to the shareholders on the annual
accounts of the company being prepared in a proper manner, to give a true and fair view, and on
the report of director being consistent with the accounts; and also of the variance in these (ECGI,
2018). In the multifaceted role of the accountants, it is their duty towards the public to protect
their interest. This is due to the fact that the accountants are given the privileged position in the
society and amongst the different roles given to the accountants; the theme continues to protect
the public interest. This requires maintenance of high standards but also in helping the company
to act in an ethical manner. The accountants would not be able to get the name of being the

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protectors where the public interest is not on them. In the very basic manner, the confidence in
financial data, which the accountants produce, creates the roots of public value and trust.
Accountants are also faced with competing demands which makes it crucial for them to balance
these demands and perform their roles ethically. By following the ethical codes of accountants,
these individuals are compelled to work in a manner where their duty of protecting public
interest is met (Jui & Wong, 2013).
Lack of ethical behaviour of accountants
The requirement for good corporate governance stems from the need of protecting and
enhancing the value of shareholders, in meeting the obligations of the company to the employees
and for securing the interests of the stakeholders present in the corporate environment. The main
objective is to protect against such abuses which could result in financial crisis and corporate
scandals which poses a threat to the corporate relations in the last decade. There is a lack of
ethical behaviour in the accountants which results in the reporting failures (Plessis, Hargovan &
Harris, 2018). There are a number of reasons for the ethical lapses in the corporate scenario by
the accountants. The first one is the self interest metamorphosing in selfishness and greed, where
the focus shifts towards the short terms profit maximization in place of long term. There is also
the stunted moral development on part of management and corporate officials, where the key
purpose of the business becomes to earn more for the shareholders, thereby legitimizing any
action which is undertaken to get to that objective. There are also such instances where the
individuals equate the moral behaviour with the legal one, and disregard the fact certain actions
are not unlawful but immoral. At times, the push to act in an unethical manner comes from the
client where the demands of client wither the individual responsibility (Osisioma, 2013).

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Corporate reporting is deemed amongst the most significant functions which the
companies need to take care of, and also require the adherence to higher code of ethical
behaviour. This is particularly true for the public entities in which the reports of company helps
in determining the decision of the shareholders in the financial instruments and financial
decisions of the company. These statements help the users who are not in such a position where
the entity could be required to form a report which suits the information requirements. These
statements help the users in making rational credit decisions, investments and the other
decisions. Even though the users of financial statements assume to be judicious in business, yet
they do not have the full insight over the actual affairs of the company. This puts the reliance on
financial reporting practices to make the decisions and judgments, making the role of accounts
all the more important. The true and fair statements are taken as the foundation for the decisions
and for promoting confidence in the financial reporting. However when unethical reporting is
done, major issues are caused in the company, which even have an impact over the economy of
the nation (Badshah, 2015).
The misadventures and the corporate scandals which caused the global meltdown had far
reaching and dramatic implications for the profession. To show the manner in which the
reporting failures are caused due to the lack of ethical behaviour of the auditors and accountants
can be further illustrated through the famous examples. WorldCom is famous for its accounting
failure where the company, from the outside, looked like a strong leader. However, it was later
on revealed that the company had been indulged in fraudulent reporting where it stated that it had
earned a profit of $3 billion, when it reality it had incurred a $0.5 billion loss. The investigations
revealed misstatements of $11 billion (Scharff, 2005).

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Focusing on the role of auditors and accountants played in this blunder, there was a lack
of independence and also of the awareness of Board. The chairman of the audit committee, Max
Bobbitt was Ebbers’ loyal. The members of the audit commit chose to ignore the fraudulent
misstatements from 1999 to 2001. The committee, as per the estimates, oversaw $30 billion
revenue generating company, which even after meeting for 3-6 hours annually did not raise any
issue (Ashraf, 2011). There was a virtual non existence of accounting controls. The committee
did not pay heed to the policies, internal controls or the audit programme of the company. Even
when Arthur Andersen had defined the company as a maximum risk client, and had told the audit
committee regarding the misapplication of the GAAP in case of some of the investments,
nothing was done by the committee, which ultimately led to a clean and unqualified opinion
being given by Arthur Andersen (Zekany, Braun, & Warder, 2004). It is important that the
committees fulfil their duties by overseeing the internal control structure of the company, and
making certain that the company followed the laws, standards and the regulations (Romney &
Steinbart, 2008).
There are a number of other corporate accounting scandals which explains the manner in
which the lack of ethical behaviour amongst the auditors and accountants result in reporting
failures. The waste management scandal of 1998 in which $1.7 billion were reported in fake
earnings is an example. This had the company falsely increasing the time length of depreciation
for the assets. The Enron scandal of 2001 is another example, where huge debts were kept off
balance sheet and this resulted in the shareholders losing $74 billion, employees losing their job,
and investors losing their retirement accounts. The Tyco scandal of 2002 saw stealing of %150
million and inflation of company income by $500 million. Another famous scandal which had a

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key role of the auditors of the company was Lehman Brothers scandal of 2008. And the recent
one in Satyam where the revenue was falsely boosted by $1.5 billion is another scandal where
the accountants failed to uphold their professional standards (Accounting Degree, 2018).
Enhancing public interest: ethical issues
Leung and Cooper (2005) have highlighted that there are three ethical issues which play a
crucial role in maintenance of ethical standards, i.e., the proposal of clients to evade tax, the
proposal of the clients to manipulate the financial statements, and the presentation of the
financial information in the manner that the users are not deceived. These are the key in
enhancing the public interest when it comes to the financial reporting. Though, these issues have
technicality in them as they are related to the matters of accounting and financial statement.
These issues are deemed as ethical issues due to the conflict which the accountants are faced
with in choosing between the needs of the clients and in protecting the public interest. The
professional accountants are under an obligation to fulfil the wishes of their clients irrespective
of their personal feelings. However, where ethics are not adopted when the accountants are faced
with such ethical issues, the faith of the public in the work of professional accountants would be
lost. Further, this would make way for the blunders like WorldCom and Enron. As a result of
providing their services to the business community and the general public, the professional
accountants are required to conduct their business in a manner which can be best deemed as
ethical. This is the reason why the codes have been developed, so that the members can deal with
such issues.
The greatest concerns of the professionals are in terms of the proposal of the client to
evade tax and to manipulate the financial statements. This is the reason why in Australia, the

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majority of professional accounting bodies adopt Code of Ethics for Professional Accountants,
which have been developed by the APESB, i.e., the Accounting Professional and Ethical
Standards Board. These help the accountants in protecting from the different ethical dilemmas.
Where these ethics are not followed and the work is done by the accountants for personal gain, in
the long run, the professionals would be the ultimate losers. This makes it crucial to uphold the
standards where the public is assured that the ethical decision would be undertaken; and where
the proposals are made by the clients for evading tax, the same would not be followed. These
become crucial also for the public to have faith on the financial reporting and to trust the reports
created by the professionals. Not doing the same results in incidents like WorldCom and Enron
(Bazley, Hancock & Robinson, 2014).
This is where the role of corporate governance becomes more significant and takes the
centre stage. The professional accountants are required to fulfil their roles in the manner where
the work is done for the clients and general public and a balance is maintained. In such cases
where the accountants are faced with ethical issues, there is a need to give supremacy to the
needs of general public, in order to continue the faith in the accountants and their profession.
This is the reason why the accountants identified the aforementioned ethical issues are the most
significant one. The theme of corporate governance in terms of being honest and working with
eternity is crucial for the accountants especially in such cases (Leung & Cooper, 2005).
Conclusion
Thus, based on the discussion carried in the previous segments, it can be concluded that
the corporate governance is a concept which holds a lot of significance in the role played by the
accountants. The accountants are required to work with integrity and in an honest manner, so that

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a true and fair financial position is presented. This helps in maintaining the faith of the general
public in the investments they make and also in the accounting professionals. Where the
incidents like Enron, Satyam, WorldCom, or Lehman Brothers take place, the faith of the people
in the accountants and in their profession are lost. This ultimately has an impact over the entire
economy. Thus, the role played by accountants is very crucial and there is a high need for the
accountants to be ethical in their work. For this purpose, the standards formed by the leading
bodies of the nation have to be followed. The reason for putting so much focus of corporate
governance on the accountants stems from their role and duties in maintenance of the good
governance practices. Corporate governance, along with the ethics, helps the accountants in
keeping true to their profession and also towards safeguarding the interests of the different
stakeholders who put their faith in the accountants. Even when the accountants are faced with
ethical issues, which is quite common as per the literature, there is a need to analyse the situation
and make the ethical decision, even when it involves declining the proposal of the clients for
evading tax, as in the long run, it proves disastrous not only for the clients but for the accountants
as well.

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References
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