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Accounting in Business:

Ethics, Fraud, and

Internal Control

By

Dina El Bassiouny

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Outline

Accounting as Part of Everyday Life.

Importance of Ethics in Accounting. Facts and Figures.

Fraud. Losses on the Way.

Motivating Forces for Unethical Behavior.

Effective Ethical Controls.

Effective internal controls. Conclusion.

References.

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Importance of Ethics in AccountingFacts & Figures

In the U.S., according to the Association of CertifiedFraud Examiners (ACFE), losses from fraud and abuse=> $600 billion

In Egypt,

..??????? Classic Case of Deception andDouble Interests: Enron

Arthur Andersen =Auditor +Internal Auditor +Managementconsultant!!!!!!!!!!!!!!

In Egypt: NO regulation in place requiringindependence of auditors

Those who violate rules should be disciplined orsuspended from practice

(Gamal, 2002)

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Importance of Ethics in AccountingLosses on the Way

Losses due to Unethical Behavior:

Costs of legal action taken against perpetrators.

Costs of reduced productivity.

Increased unemployment as companies are forced to

downsize or go out of business.

Economic loss to organization, hence to society.

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Solution???

InvestigateMotives for

Unethical

Practice

Administer

Effective

Ethical and

Internal

Controls

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Motives for Unethical Behavior

High Low

High

Low

Low

High

Opportunities

Situational Pressures

Personal Characteristics (Integrity)

Unethical Ethical(Hall, 2004)

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Effective Ethical Controls

A code of conduct that applies to the practice

of a profession.

AICPA adopted codes of professionalconduct that must be followed by CPAs.

Integrity

Objectivity

Independence

Due Care

Integrity

Objectivity

Independence

Due Care

Integrity

Objectivity

Independence

Due Care

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Effective Internal Control SystemControl Environment:

Influence Control

Awareness of

Management and

Employees.

Risk Assessment:

Identify, Analyze, and

Manage Risks Relevant

to Financial Reporting.

Monitoring:

Entities Activities.

Information and

Communication:

Quality of Info Impacts

Reliability of Financial

Statements.

Control Activities:

Transaction Authorization

Segregation of DutiesSupervision

Accounting RecordsAccess

ControlIndependent Verification

Safeguard Assets of the Firm Ensure Accuracy & Reliability of ACCT

Records & InfoPromote Efficiency in the Firms

Operations

Fulfill

Main

Objectives

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Conclusion

SituationalPressure

Opportunities

Effective Ethical Control

Personal

Integrity

Effective Internal Controls

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References

Gamal, Wael (2002). Book-Fixing, Here andThere.Al Ahram Weekly. 22-28 August.

Hall, James A (2004). Accounting InformationSystems. Thomson. South Western.

Needles, Belverd E., Jr.; Powers, Marian;Crosson, Susan V. (2002). Principles of

Accounting. Houghton Mifflin Company.Boston. New York.

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