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CIMA knowledge fast forward

CIMA knowledge fast forward is a knowledge sharing initiative which strives to improve the conceptual clarity of the business community with regard to a core management/financial accounting knowledge area, describing the concept, and explaining how it applies in practice.

Sudarshan Senaratne, FCMA, is a past president of the CIMA Sri Lanka Division. He was also a Member of CIMA U.K. Council and holds a BSc from Colombo University. He has held senior positions including board positions in leading public and private sector institutions. Currently, he works as a financial and management consultant and has carried out assignments for several international institutions in the Southasian region. He is also the managing director of Development Concepts Pvt Ltd, a consultancy firm which he established.

Organisational ethics and the role of the Accountant
Adhering to proper norms of ethics in your day to day work as an accountant or financial professional is vital for the success of your organisation. In today’s highly competitive corporate environment, such practices are proving to be ever more challenging for an accountant.

CIMA in its course of study emphasizes the need for high ethical standards and values among its students and members, as they go out into the corporate world. Integrity, objectivity, professional competency and due care, confidentiality and professional behaviour have been identified as fundamental ethical principles a member of CIMA should adhere to in their field of work. Acting according to the above principles would ensure that the individual complies with professional ethics.

However, ethics are not just for individuals. It is important that organisations too follow high ethical standards and practices. Organisations do not operate in isolation; they have responsibilities to their stakeholders. Larger the organisation the greater their responsibilities become.

Unethical practices can expose an organisation to very high risks with disastrous consequences to its stakeholders, the society and economies at large. Not only do such practices yield companies unfavourable in the eyes of its stakeholders and the public, but they also expose companies and organisations to legal suits. In such instances, those responsible for conducting such unethical practices such as directors, senior mangers including accountant may end up paying hefty fines and in some extreme cases even in imprisonment. In recent times, organisations and directors who have ignored their responsibilities have been subject to such punitive measures.

A number of stakeholders have been driven into bankruptcy by several high profile organisations due to unethical practices. A heavy responsibility lies with CIMA accountants to ensure that the organisations where they work, practice within an established ethical framework. Accountants should take all precautions not be swayed by pressures created by the senior management in the organisation or by attractive incentives offered to allow organisations to report inaccurate information and cover up unethical practices.

One of the primary tasks of the accountants is to ensure that true and fair financial reporting takes place, since this is the medium through which an organisation communicates its financial performances with stakeholders. The Accountant should follow accounting standards and leave no room for manipulation.

In some companies accountants could unwillingly contribute towards evasion of taxes and payment of government levies. The accountant should advice the management or directors of companies to refrain from engaging in such activities by making them aware of possible adverse consequences to the organisation as well as individual officers in such cases. Some companies deliberately delay or avoid making statutory payments relating to employment such as EPF and ETF.

The accountant should ensure that the company does not violate employment regulations.
Another common issue in the world today is the potential threats and damages caused to the environment by organisations. This is especially applicable when organisations engage in manufacturing using hazardous material or processes that could harm the environment. Unlike in the past, stakeholders show increasing concern in environment conservation. Therefore, organisations which harm the environment through their work will develop a negative image and unfavourable reputation. Adopting ethnical practices in their work place, while acting responsibility with regard to protecting the environment, would result in greater profits and make the organization sustainable in the long term. 

Disregard for ethical practices has resulted in the collapse of many companies, as in the case of Enron a few years ago where financial statements were deliberately distorted. Arthur Andersen, the fifth largest audit firm then, which was auditor of Enron, also contributed towards these practices by failing to apply appropriate standards.

This was because a substantial part of the revenue of the audit firm was generated through audit and consultancy services provided to Enron.  This massive corporate scandal resulted in shareholders losing an estimated $11billion and hundreds of employees losing their jobs, among others. 
Thus the consequences of unethical practices are severe. 

There have been several examples of unethical practices adopted by some companies in our country as well. The recent collapse of a well known financial institution resulted in depositors losing billions of rupees.

In today’s corporate world, pressure for short term results has often led to the senior management of organisations resorting to such unacceptable practices. Working at an organisation involved in unethical or dishonest practices creates a stigma in an individual’s career. An accountant needs to be a ‘whistle blower’ if he/she is aware that the organisation and senior management is engaging in unethical practices Whistle blowing is to tell the public or relevant authorities about the illegal or unethical practices occurring in an organisation. 
 
In conclusion, it is imperative that, as a CIMA finance professional, one should strictly adhere to ethical practices. However this responsibility is not limited to the individual. It is critical that an accountant should not undertake tasks that compromise the ethical guidelines even if they are pressured to perform such tasks. A finance professional has a responsibility to ensure that the entire organisation conforms to ethical practices. Only then will an organisation will be assured of its long term sustainability.

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