Unfortunately, in recent times, we have seen a number of examples of unethical b

Question

Unfortunately, in recent times, we have seen a number of examples of unethical behavior in organizations, often tied to the organization's handling of finances. In this question, discuss ethical issues facing the top leadership or financial managers in today's corporate environment regarding their approach to the financial matters of the firm. What pressures exist that might encourage unethical behavior, particularly as it pertains to the firm's financial reporting or situation? How might these be mitigated? (You might want to conduct a search to identify examples or to examine actions suggested or taken to help mitigate these instances.) Detailed response needed with references.

Explanation / Answer

In today's corporate world the ethical issues related to financial reporting mainly emerge from the fact that many of the performance targets are linked to absolute financial parameters like growth in EPS, ROI, ROA, ROE , net Earning etc etc. The Executives of the firm are keen to achieve the financial ratios targeted to boost the performance of the companies and that of their own . In this race towards corporate finacial excellence , many times ethical factors are sidelined and to show a better performane parameter unethical ways are used to misstate the financial data or to manage the figure in a way that suits the requirements of the management.

There is no instatnt solution to this problem as the performance targets of companies will always be linked to financial parameters , however, deploying high level Corporate Governance is one of the measures that can ensure that ethical financial reporting is practised and investors get the fair information from the financials provided.

SOX Act has done major work towards establishment of Inetrnal control framework, Independent Audit provision, Strengthening of Audit Committee etc, but the same type of strong corporate governance required in private sector companies too to get rid of these unethical practices in reporting.

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