STOP IFRS - Ethics and the Bottom Line

Another class in Ethics but no confessions in this class. Instead the class addressed some of the usual issues we have heard regarding whistle-blowing and the perpetrators of fraud.

What drives ethical behavior in an organization? According to John Felming, there have to be appropriate incentives for employees. That means pay me or reward me for behaving ethical or else I will do otherwise. Interesting take on what drives ethical behavior. I'm ethical and I don't get an extra reward by my employer for that.

Perpetrators of fraud - who are these people. Research says that about 90 percent of the financial fraud in the US have been perpetrated by the CEO, CFO or both. CEOs and CFOs are you listening? It is a bold statement and based on research has to be true. What about public image? Imagine you introduce yourself to a group of people as the CEO or CFO of a company. What do you think goes off in these people's heads? Many years ago the answer could possibly be - wow, he/she has a great position and it is definitely worth aspiring for. Today, one of those people could be analyzing in his/her head that you are a possible perpetrator of fraud. 90 percent is an astounding number.

Research was done to analyze cases reported for whistle-blowing. The results - when the whistle-blowers stand to benefit, they were more likely to alleged wrongdoing by a company. Naturally, whistle-blowing have a negative economic consequence for the companies involved. These companies tend to have more earnings restatements and more shareholder lawsuits. The good news is that the companies exposed to whistle-blowing improved their governance. CEOs were replaced and insiders on boards were reduced.

Who could be a likely whistle-blower? The answer to that was discussed in the class - "who is a CPA". Whether in public or private practice, CPAs become aware of wrongdoings by companies. For CPAs in public practice, being a whistle-blower is no big deal, as the CPA still have many other clients. What about the CPA in private or "industry" practice? Who is the client? Yes, the client would be your employer. A dilemma at its best! So what do you do? In the current economic crisis, you don't have the luxury of quitting and finding a job waiting for you. If you have solid finances to back you up and put ethics at the top of your list, you will probably quit and wait it out to get another job. But this option is not available to most people so they ignore it.

I have earned my four CPE credits for ethics. Next challenge here I come.