Ethical Challenges and Agency Issues
Analyzing ethical challenges
Most people are aware of the ethical challenges businesses face in today’s world especially, in the financial services industry. Financial services became a major target after several scandals such as Enron and MCI. Unfortunately, the financial industry is very large, which encompasses entities such as banks, insurance companies, mortgage lenders, pension, and securities funds. “The financial service sector represents 20 percent of this index’s market capitalization. Because of the vast size, the industry tends to garner lots of headlines, many of which tout its ethical lapses” (Federwisch). Based on the case study, “Level of Executive Pay” the Chairperson of NYSE is compensated $1.4 million in salary and $1 million in bonuses. This shows he was greedy and his goal was to maximize profit for his personal interest.
Individuals should take responsibility of their organization’s financial security. For example, as in the case study, “Timely Reporting of Budget Problems” the client failed to provide auditors with appropriate records to complete the audit. This behavior caused the company additional funds and additional time for completing the process.
The daily operation of a business globally is another ethical challenge organizations encounter during expansion especially, dealing with various cultures. Competition is another challenge and in the process of completion may force individuals to cut corners to remain on the competitive edge.
In today’s business world, managers are not confident that employees possess the organization’s desired ethical values. Instead some people have their personal values; therefore, management must be diligent and frequently implement its ethical values. “Thus the organizational integrity strategy fully acknowledges the importance of compliance with the law; its aim is to achieve right conduct in general” (Hartman, 2004). Need page number
“An accountant frequently encounters ethical issues regardless of the industry and must remain continually vigilant to reduce the chances of outside forces manipulating financial records, which could lead to both ethical and criminal violations” (Lister, 2013). Need page number Accountants are obligated to follow ethical guidelines and report accounting violations to the Financial Accountancy Standards Board. Agency Issues
Agency issues are rampant in any organization. These issues involve implicit and explicit contracts in the business world and how to minimize the costs of another person make a decision that affects an organization (Emery, Finnerty, & Stowe, 2007). The organization must minimize the cost by creating, incentives, constraints, and punishments on the contract, have monitoring procedures in place, and develop contracts that attempt to minimize any conflicts before the work begins (Emery, et. al., 2007).
Agency issues can arise from conflicts between the principal and agent in a contract. A conflict between these two can develop from the principal not seeing the agent as putting forth the adequate effort needed to get the work done. This is one of the agency issues in the case, “Timely Reporting of Budget Problems.” CPA firms create an explicit contract with organizations and develop the budget of professional hours for an audit. If an area of the audit is over budget because the client fails to establish appropriate records for a new accounting method, there may be a conflict between the principal and agent about how this is handled (Eldenburg, 2005). The CPA firm would need to inform the client about the overage and work out any price adjustments for the extra work. The failings of the client is the reason for the overage, the CPA firm must notify the client about the issue before the extra work is completed to avoid surprises (Eldenburg, 2005). If the overage of the budgeted time is the CPA firms failure, the auditor must find ways to correct...
References: Addison-Hewitt Associates. (2006). A Guide to the Sarbanes-Oxley Act. Retrieved from http://www.soxlaw.com/index.htm
Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). Corporate Financial Management (3rd ed.). Retrieved from The University of Phoenix eBook Collection Database.
Federwisch, A. (2013). Ethical issues in the financial services industry. Retrieved on August
22, 2013 from http://www.scu.edu/ethics/practicing/focusareas/business/financial-
The Data Manager 's Public Library. (2012). SOX-online: The Vendor-Neutral Sarbanes-Oxley Site. Retrieved from http://www.sox-online.com/basics.html
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