Accountants need to be strong in their ethical principles
Kang Wai Geat and Ang Soon Lii
7 January 2015
Business Times Singapore
NEWS broke on Dec 12, 2014, that three former top executives of Singapore Technologies Marine (ST Marine) were charged in court for corruption and falsification of accounts. Among them is ST Marine’s former financial controller, a professional accountant, who was charged with making fictitious petty-cash claims amounting to over S$500,000 when there were none. It would be easy and convenient for accountants, dealt another blow by this debacle, to be generalised as being dishonest.But one rotten egg in a basket should not render all other eggs to be equally bad. Fundamentally, honesty and integrity are personal values inculcated from young. Accountants are no different. In fact, ethics plays an important part in the accountancy profession where accountants operate in a highly complex commercial world that is also fraught with temptations.
In the course of their profession, accountants are further trained on ethics standards that reinforce their values on honesty and integrity. Accountants are also professionally bound by a code of ethics to prepare information fairly, honestly and in accordance with relevant professional standards so as to depict clearly the true nature of business transactions.
As much as accountants would like to do the right things, in reality they may face pressures exerted by others in their companies that breach ethical principles. For instance, a chief financial officer (CFO) may be instructed by her chief executive officer (CEO) to send lavish gifts to customers as “loyalty rewards” for choosing their company over their competitors and to record these items in the books in a “presentable manner” to avoid arousing suspicion.
Of course, these transactions were nothing remotely legitimate. Another CFO may be coerced by her CEO to overstate the soon-to-go-public company’s profits, to meet quarterly earnings targets to create the facade of a profitable investment to investors. Typically, in the above scenarios the CEO would have dropped hints of a more suitable replacement should the CFO refuse to take instructions. On the other hand, a handsome year-end bonus or accelerated career progression awaits the CFO if she does as the CEO demanded. As a result, the CFO may find herself inexorably drawn to the “dark side”. Worse, she may need to exert pressure on her team to also breach ethical principles to get the job done. These are not isolated incidents. In fact, they have been part of ongoing concerns highlighted by accountants globally. In many such situations, the only option available to accountants is to resign from their posts to avoid committing an illegal act and breaking the law.
While it may seem harsh to suggest that walking away from pressure situations is the only option open to accountants, it could very well be the best option. The consequences of staying put could be much more severe, especially if the accountant ends up becoming an accomplice to a dishonest act. The case files in Singapore are replete with such lessons.
In one such example, the CFO of a listed company fabricated documents to inflate the company’s profits by several millions in the financial year to meet his CEO’s annual profit projection of S$8 million. Under the CFO’s instruction, the group financial controller in turn directed the company’s staff to falsify tax invoices to inflate its revenue.
Incidentally, the CFO was promoted to deputy CEO earlier that year. The long arm of the law soon caught up with the trio. The CFO was jailed for a year and fined S$100,000 while the financial controller was sentenced to 10 months’ jail. The CEO was sentenced to one year in jail and fined S$280,000 for his role.
In another case, the CFO had, together with his CEO, overstated his company’s post-tax profits by several hundred thousands to make it more attractive to investors in the company’s upcoming initial public offering exercise. After they were found guilty, the CFO and CEO were sentenced to seven months and 15 months in jail for their respective roles in the crime.
Some perpetrators may justify their actions by stating they are not causing any harm to any individual or the companies they work in. Some may even think they are actually helping their companies win clients or preventing the downfall of these organisations. Regardless of how “noble” the cause may be, the fact remains that these acts are illegal.
Crime does not pay. But morals and even common sense could be obscured under the combined onslaught of pressure from superiors and promise of short-term personal gains. Accountants are susceptible and often caught in pressure cooker situations because of the role they play in their companies. They need to be strong in their ethical principles, or risk being “cooked” by the pressure.
* The writers are respectively deputy head and manager of technical standards development & advisory at the Institute of Singapore Chartered Accountants