THE RELATION OF ETHICS TO ACCOUNTING INFORMATION SYSTEMS (STUDY OBJECTIVE 9)
Unfortunately, there are many opportunities for unethical or fraudulent behavior related to accounting information systems. Accounting information systems can be misused to assist in committing unethical acts or helping to hide unethical acts. That is, the AIS is often the tool used to commit or cover up unethical behavior.
In an anonymous company that sold computer software, the following unethical behavior occurred:
Top management set very ambitious monthly targets in order to meet annual revenue goals. Sales could not be booked as revenue until the product was shipped to customers. As it got closer to the end of a month and it appeared that monthly goals would not be met, salespersons were asked to call customers and ask them to take receipt of their orders earlier than anticipated. If these efforts did not produce enough revenue, there were instances where products were shipped to customers who had not ordered, knowing that customers would immediately ship them back to the company. The revenue, however, would already be recognized for the current month, which resulted in meeting the monthly sales goal.5
Notice that those who engaged in this unethical behavior presumed that there was an accounting information system that would record sales when orders were shipped to customers. These individuals were taking advantage of the AIS by forcing products to be shipped early and thereby artificially inflating revenue. Those involved in the deception knew that the shipping of goods to customers would trigger processes that would lead to revenue being recorded. The accounting information system would have captured and recorded data as if a sale were proper, because the system is set up to record shipments to customers as sales.
This is only one example of how an accounting information system can be misused to conduct unethical acts. Other examples of some potential unethical behaviors are as follows:
- Fraudulent financial reporting
- Revenue inflation
- Expense account fraud
- Inflating hours worked for payroll purposes
- Computer fraud
- Hacking
- Browsing confidential data
This is just a brief set of examples. In many cases, unethical acts have also been made illegal. For example, fraudulent financial reporting is unethical, and it is also illegal. However, using a 3 percent bad debt percentage as opposed to a more realistic 4 percent rate to “fudge the numbers” may not be criminal; yet it is unethical. For many reasons, accountants must become aware of the potential unethical behaviors. Some of those reasons are that accountants
- Assist in developing and implementing internal control structures that should lessen the chance of unethical actions. Those in this role must understand the nature of the various kinds of unethical actions before they can design a system to lessen the risk.
- Are often pressured to assist in, or cover up, unethical actions. Therefore, accountants must understand what actions are ethical and unethical so that they can avoid being coerced into unethical actions.
- Deal with assets or records that could easily tempt accountants to engage in unethical behavior. For example, someone who handles cash every day may be tempted to steal some of the cash. Accountants have control over or recording responsibilities for many assets. When professional accountants face ongoing temptation, having a better understanding of which actions are unethical may help them to resist temptation to commit unethical acts.
(These unethical behavior examples and many other ethical issues related to AIS will be discussed in the remaining chapters.)