Abstract
The importance of ethics in the accounting discipline has increased in recent years. A Mexican company reported a slower profit growth than expected, hiring external auditors to research the reasons behind this economic growth slowdown of a profitable company. This empirical research is the key for the success of any newly born firm (especially for small and medium sized firms), to establish the safeguards to avoid corruption and fraud, offering awareness to those eager to grow in the business environment. The firm needed an integral revision of the company's finances and operations to discover the role of the persons involved in the creation of the fake invoices and to enforce the needed safeguards to avoid recurrent breaches of trust. External auditors prove to be an important tool to provide a fresh perspective about the breach of trust in the accounting professional ethical code and its criminal implications.
TopBackground And Literature Review
The chapter bases its analysis on the professional code published by The International Federation of Accountants (IFAC), which is a defense organization for good execution of the financial accounting and auditing professions (IFAC, 2006).
The sustainable development of a strong international economy is based on the establishment and adherence to high-quality professional standards. The key to a firm’s failure could be focused on corruption and a lack of adherence to those professional standards. IFAC created the Ethics Standards Board for Accountants with the mission to develop and issue, under its authority, high-quality ethical standards and other pronouncements for professional accountants for use around the world. The result was the creation of The Code of Ethics for Professional Accountants establishing the ethical requirements for professional accountants.
Key Terms in this Chapter
Breach of Trust: A treason to the firm’s professional ethical code. It could be envisioned as a failure to act with responsibility when a firm has given the employee its valuable records to keep them safe and successful for its economic and financial achievement. The most visible effect of a breach of trust is the financial and economic loss in the commercial achievement of a company which could endanger future investments and the firm’s future survival.
Professional Competence and Due Care: There are principles that every firm expects every professional to execute, implementing his professional knowledge and skills to move the company towards its targets. This professional competence requires the awareness of current developments in the market, in any company’s field practices, legislation changes, innovative techniques, etc. “Due Care” is a level of responsibility of the executive to be in tune with the changing business environment, moving according to the rules to successfully reach the goals of a company.
Safeguard: An action that might restrain activities to protect the firm against corruption, fraud, or other criminal threats. It is designed for protection before an economic injury in the company could lead it to bankruptcy.
The International Federation of Accountants (IFAC): A defense organization for good execution of the financial accounting and auditing professions. Every professional accountant must read the principles for outstanding execution of the profession. This organization summarizes these principles as follows: Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, and Professional Behavior.
External Auditor: An independent accountant who certifies a firm’s financial statements and the accuracy and complete disclosure of a firm’s accounting records. There are several reasons to hire an external auditor: if it is a requirement of investors and/or banks, for marketing purposes, or to establish safeguards in the company to eliminate corruption or fraud.
Confidentiality: Avoid dissemination of information from the company with any other individual, company or organization. It is the strict need not to divulge information about the company with no one.
Professional Behavior: The respectful and courteous conduct, honoring the ethical codes of a company and values of human life. Even though a company lacks an ethical code, there is an inside ethical human code towards respect, tolerance, patience, teamwork, showing compassion for others, being supportive to everyone and team building within the company. But also, it must encompass the responsibility of developing personal skills to favor the success of the company, delivering excellent services to peers and clients, having an innovative spirit to find correct solutions to any problems, wisely using the resources towards the targets of the company, providing direction to others when it is required, etc.
Objectivity: The decision-making of a professional should be done without any favoritism towards one side or another. It is the principle that guides every professional to see and evaluate straightforward any situation avoiding a bias towards someone or something.
Invoice System: The framework required by every country to submit valid invoices following a country’s Secretary of Finance requirements. There could be breaches in the process.
Integrity: Encompasses the principles to enhance the quality of being honest, establishing a moral and acceptable pattern of behavior, being eager to defend and refusing to be negatively influenced. Professionals must be strong enough to keep moral values from any bad influence in life.
Ethics: The principles of ethics are part of a moral philosophy that encompasses the process of identifying and defending concepts to let every person establish a pattern to evaluate and recognize right from wrong.
Professional Ethical Code: An enhanced conceptual framework that offers extensive revisions as a ‘safeguard’ throughout a firm’s accounting activity that is better aligned to threats. This code offers the possibility to identify a breach of the fundamental principles, especially in the preparation and presentation of accounting reports and information. The base of this ethical code is objectivity, integrity, confidentiality, professional behavior, and professional competence and due care.