Ethic
Ethical and Legal Obligations
Recent headlines describe people and situations in the financial world that have shaken our faith in those who have our money in our hands. Whether we have been affected by those making the largest headlines or simply in fear of the local person caring for our money; we are simply at loss as to whom to trust. This begs the question; isn't there some regulation or regulatory body who oversees accounting functions?
The bottom line is this; it is the individuals have a ethical and legal obligation in their financial reporting and because of human nature, it is necessary to have third parties and third party processes involved in overseeing the financial reporting processes. For the many whom have financial investments or involvements this is great news; but not a guarantee that their money will be safe. It still comes down to the ethical and moral character of those handling the money.
Determining the cause of the unethical behavior is not necessary to determine what the penalty should be for the actions; but understanding the cause of the unethical behavior allows us to look at situations to prevent the extensive damage these behaviors and actions cause. Consider the role of the director of a business that has stakeholders involved in the business. This relationship is based on the information that the director gives the stakeholders; if the director is honest the relationship is not guaranteed to be a positive one. Geoffrey Whittington, in the article, "Trust in Financial Reporting", said, "the directors of the company have responsibility for producing financial reports, and the shareholder-director relationship is a classic example of an agency relationship. This relationship is characterized by information asymmetry: the directors know more than the shareholders, and the financial reports are suppose to redress this imbalance to some extent. The effectiveness of the financial reports depends upon shareholders being...
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