INTRODUCTION

Ethics is simply define as something that asks us to consider whether our actions are
right or wrong. But, to be more precise ethics is derived from a Greek word ‘ethos’ which
means way of living. Ethics is a branch of philosophy that is concerned with human conduct,
more specifically the behaviour of individuals in a society. Now, what is accounting?
Accounting in simple way of translation is the process or work of keeping financial accounts.
It is the process of measuring, processing and sharing financial and other information about
businesses. Based on the main title of this assignment which is ethics in accounting, it is
meaning by how to make good and moral choices in regard to the preparation, presentation
and disclosure of financial information. This ethical issues in accounting was brought into the
forefront during the 1990s and 2000s when a series of financial reporting scandals
happened. Accounting ethics normally refers to following specific rules and guidelines set by
governing bodies that every person associated with accounting should follow to prevent
misuse of the financial information or their management position. There are some examples
of accounting ethics such as the introduction of official standards, disclosure and conflict of
interest and Sarbanes-Oxley Act. This accounting ethics for sure have it owns advantages
and disadvantages. The first advantage is preventing the misuse of the information available
to the client by the accountant, auditor or any other accounting person. Other than that, a
business that pay proper attention to accounting ethics always do better compared to other
businesses. It creates the right image in the eyes of the customers and the other parties and
thereby helps increase the business in the long run. Lastly, there is decreasing in legal
liability because almost all things are taken care of well in advance by the concerned
persons so that they are liable for any legal actions. While the disadvantages of accounting
ethics such as involves a bit huge amount of cost. This happens as a proper training should
be given to everyone associated with accounting to provide the information on the different
rules and guidelines for accounting ethics and such training normally involves a considerable
cost. Next, as the person is required to know every aspect that he has to follow and update
the information regularly for any changes that take place, it requires lots of effort and time.
And most commonly, person who tries to follow accounting ethics, there are high chances
that they will not get support from the company’s management. Accounting ethics is one of
the critical concepts according to which every person associated with accounting has to
follow certain types of rules and guidelines set by the different governing bodies having the
power to set the same. Also, in the areas where the proper accounting ethics are
followed,there is decreased legal liability as almost all the things are taken care of well in
advance by the concerned persons, and it creates better Professional Environment as
everyone has the proper mindset of maintaining high level of ethical standards.
MAIN BODY

1) Based on the findings that I found about the ethical violations in accounting, there are
one similar issue but in two different cases. The ethical violence issue is accounting fraud.
On 24 Oct 2022, Cronos Group Inc., a Nasdaq-listed cannabis company based in Toronto
has been charged by the Securities and Exchange Commission(SEC) for improperly
accounting for millions of dollars of revenue and for other accounting misconduct in multiple
reporting periods. William Hilson, the former Chief Commercial Officer of Cronos was caught
with fraud, aiding and abetting the company’s violations. According to the SEC’s order, in
three separate quarters between 2019 and 2021, financial statements that contained
material accounting errors related to among other things, revenue recognition and goodwill
impairment was submitted by Cronos. In one of the quarters, Hilson entered into an
undisclosed oral agreement to sell cannabis raw material and to repurchase cannabis
product in the following quarter. This agreement was never known nor accounted for Cronos,
which then discovered the $2.3 million accounting error during an internal investigation. The
SEC’s order against Hilson finds that he violated the antifraud provisions of the federal
securities laws and further aided and abetted and caused Cronos’s violations of the reporting
books and records, and internal controls provisions. After discovering the accounting errors,
Cronos promptly reported the misconduct to the SEC and provided extensive cooperation
that meaningfully advanced the Commission’s investigation. It also took effective remedial
steps to enhance its internal accounting controls. Cronos and Hilson then made a settlement
offer by promising to stop and desist from violating the accused provisions in the future
without acknowledging or disputing the SEC’s conclusions. Cronos also consented to hire an
impartial compliance expert to examine, evaluate and offer recommendations about the
company’s financial reporting and accounting systems. Hilson consented to a three-year
officer and director bar as well as a minimum three-year suspension from appearing and
practising as an accountant before SEC. In light of Hilson’s agreement to pay the Ontario
Securities Commission $70,000(CAD) or roughly $54,000(USD) for comparable behaviour,
the Commission decided not to levy a monetary fine on him.

Referring to the above issue, Hilson is the one who violated the ethics in accounting.
He was caught with fraud because he entered a never-known agreement which caused a
huge amount of error in the financial statements. This had shown that he has violated the
accounting principles. Accounting principles are the rules and guidelines that companies and
other bodies must follow when reporting financial data. These rules make it easier to
examine financial data by standardizing the terms and methods that accountants must use.
The accounting principles that involved in this issue are historical cost principle. This
principle requires companies to record the purchase of goods, services or capital assets at
the price they paid for them. Assets are then remain on the balance sheet at their historical
without being adjusted for fluctuations in market value. The historical cost principle is a trade
off between reliability and usefulness. Cronos should record the purchase of the cannabis
raw materials at the first place if the process is surely happened. But, since the process
never takes place, so this historical cost principle also counted as being violated by them. If
the repurchase of the cannabis product happened, Cronos should records its purchase at
the price they paid for them. Then, the products will became their assets which the cost or
price is then never adjusted for changes in the market or economy changes due to inflation.

This issue also gave a huge impact on the roles of accounting. It affected both management
and financial accounting. Management accounting as we all know, plays a key role in
helping managers carry out their responsibilities. Because the information that it provides is
intended for use by people who perform a wide variety of jobs, the format for reporting
information is flexible. With this kind of issue, Cronos has given inconvenience to the
financial manager in making decision. This is because reports are tailored to the needs of
individual managers, and the purpose of such reports is to supply relevant, accurate, timely
information in a format that will aid managers in making decisions. While as in financial
accounting, Cronos had cause a lot of trouble. As financial accounting is responsible for
preparing the organization’s financial statements including the income statement, the
statement of owner’s equity, the balance sheet and the statement of cash flow that
summarize a company’s past performance and evaluate its current financial condition. In
preparing financial statements, financial accountants adhere to a uniform set of rules called
generally accepted accounting principles(GAAP) which is the basic principles for financial
reporting issued by an independent agency called the Financial Accounting Standards Board
(FASB). Users want to know that the information reported in financial statements is accurate,
thus they want to know that the financial statements have been prepared in accordance with
GAAP. They are also aware that they can contrast the financial statements of one company
with those of another in the same sector. Because the sales and purchase that Hilson did
does not written in any agreement, so he also counted as violating the GAAP. From here we
can say that after users knows about this issue, they will start to have doubt to Cronos.
Speaking about users, who are the users that related to this issue? The users of managerial
accounting information basically are the firm’s managers themselves. But, users of financial
accounting information are more extensive. For this Cronos issue, the users that are
involved are owners and managers. Financial statements serve as owners’ and managers’
report cards by describing the results of a company’s financial activities over a specific time
period. They show, for example information regarding the company’s financial situation, such
as whether the company made a profit or not and furnish other information about the firm’s
financial condition. They also provide information that managers and owners can use in
order to take corrective action. Owners and managers of Cronos Group Inc. literally are
having difficult time as their financial report is not done correctly. To ensure that financial
statements are helpful to their end users in making financial decisions, accounting standards
and regulations are in place. Financial statements must be timely prepared, accurate and
loyal to the financial circumstances in order to be relevant in the decision-making process. In
addition to increasing the likelihood of criminal activity, poor accounting ethics also injure the
business by damaging its brand and making its financial statements meaningless.

Poor ethics in accounting can severely affected the society. One of the impact is loss of
market confidence. What it is mean by? When a violence of accounting ethics happened in a
firm, even after financial restitution is made, those involved with those business are less
confident in their dealings with your firm. The result may be losing customers or employees
who are no longer comfortable with their relationship with those company. The ability to bring
in new investors, new clients and new hires can also suffer. Here, we can say that Cronos
Group Inc. might losing a lot of customers, suppliers and also investors. This perhaps can
led to a bankruptcy of the company. Other than that, employee relations are also affected.
When a manager or head of a business exhibits a lack of ethical behaviour, he might as well
faces losing the respect of his employees. It is difficult to have a successful businesses
without well-respected leaders. A lack of ethical behaviour can also cause tension among
employees, with some employee resenting those who do not play by the rules and still
manage to get ahead. Unethical behaviour in a company also has the potential to lead to a
lack of trust among employees, which is detrimental to a business that relies on collaboration
and a sense of community. This means, Hilson might be losing respects from his co-workers
and creates an uncomfortable atmosphere at the workplace.

Not just society, but the business itself will be hit with a more devastating impact. This
poor ethics can also inflict damages on the business’ reputation and trustworthiness of its
stakeholders, such as customers and business partners. The business finds it challenging to
do business with others when there is a lack of trust. Accounting business suffer the most
from this harm to their reputation because they rely so heavily on it to stay in business. Due
to Arthur Andersen LLP’s dishonest behaviour in the Enron scandal, the company essentially
vanished. The business might also facing a huge financial loss. At the least, the company
and the person who violated the ethical accounting himself are expected to make restitution.
They might also faced with fines and penalties that add to their overall cost. Depending on
the extent of the fraud, they might face high costs for forensic accounting services and legal
representation. In this issue, we can see that Cronos and Hilson offered to settle the matter
by agreeing to cease and desist from future violations of the charged provisions. And, in
addition, Hilson agreed to a three-year officer and director bar and agreed to be suspended
from appearing and practicing before the SEC as an accountant for minimum three years.
But in this case, Hilson didn’t being imposed a financial penalty by the SEC on light of his
consent to pay $54,000 (USD).

Economic aspects are also affected by this ethical violence issue. Accounting
information is used to prepare the government budget for resource allocation. The only
solution for an effective decision-making process, for investors and all interested parties, to
be assured that their investments are safe and for economic growth is proper and well laid
down accounting structures. As accounting is really important for the economy, a good
ethical accounting must be practised. As in this Cronos’s issue, the financial report that had
been wrongly recorded will affect the economy as it is used to determine the resource
allocation which is the cannabis products itself.

In conclusion for this Cronos Group Inc.’s issue, they has created various problems for
their environment. In addition to the consequences affecting Cronos and Hilson themselves,
various groups are also involved such as the investors and their business partners.

2) The second case was happened in Atlanta involving Thomas Addaquay who was
found guilty of 29 counts of fraud-related offenses in a stolen ID tax refund fraud, including
conspiracy to commit wire fraud, wire fraud and money laundering. In at least five years from
2011 until 2016, Addaquay fraudulently obtained the names, Social Security numbers and
dates of birth of taxpayers to prepare and file false federal income tax returns. Thousands of
refund cheques has been issued as the result of those fraudulent tax returns filing.
Addaquay, to cash these tax refund cheques issued in the names of the victims whose
identities he stole, represented to a third-party payment processor that he had received the
tax refund cheques from customers who used the services of his cheque cashing business,
United Consolidated Accounting and Business Services Inc. Relying on Addaquay’s
misrepresentations. the third-party payment processor processed the refund cheques and
deposited more than $12 million into Addaquay’s bank accounts on the basis of false
statements made by the company. Thomas Addaquay, 48 is scheduled for sentencing on
January 31, 2023. Addaquay also worked with two other people in the tax fraud scheme who
previously pleaded guilty. They will also be sentenced in 2023.

Based on the above issue, there are two ethical violations take place. The first one is
wire fraud or fraudulent in stealing confidential information of customers and also money
laundering. Now, what is meant by wire fraud? Wire fraud is a type of fraud that involves the
use of some form of telecommunication or the internet such as through a phone call, a fax,
an email, a text message or even social media messaging, among many other forms.
Normally, wire fraud is punishable by either prison or fines or both prison and fines. While
money laundering is a process that criminals use in attempt to cover up the illegal source of
their revenue. Money is ‘cleaned’ of its illicit origin and made to seem like legitimate business
profits by moving through intricate transfers and transactions or a network of businesses. As
well as the first case, this issue also gave impact to the accounting principles. But differ from
financial accounting. Tax accounting has it owns principle called Internal Revenue Service
(IRS), which dictates the specific rules that companies and individuals must follow when
preparing their tax returns. For example, it focuses solely on those transactions that affect an
entity’s tax burden, and how those items relate to proper tax calculation and tax document
preparation. This IRS built to ensure that all associates tax laws are adhered to by tax
accounting professionals and individual taxpayers. The IRS also requires the use of specific
documents and forms to properly submit tax information as required by law. In this case,
Addaquay has violate this rule because he just not stole the taxpayers’ confidential
information, but he also filing false federal income tax returns. He violated the IRS as he
didn’t make a proper tax document preparation.

This issue also gave a huge impact to the roles of accounting. But for tax accounting,
there is difference in the roles of accounting. There are two types of tax accounting. The first
one is tax accounting for an individual. Tax accounting only considers activities that have an
impact on an individual taxpayer’s tax liability, such as income, eligible deductions,
investment gains or losses and other items. This reduces the quantity of data required for an
individual to manage an annual tax return and while an individual can engage a tax
accountant, it is not legally required. Next, is the tax accounting for business. From a
business perspective, more information must be analysed as part of the tax accounting
process. While the company’s revenues or entering funds must be managed exactly as they
are for the person, any exiting monies intended for specific business commitments add an
extra layer of complication. This can include money allocated to shareholders as well as
money for particular business expenses.

This issue also affected the society. It is proven as the criminal activities is increasing.
Poor ethics amongst accountants means that those persons are more willing to break the
rules to benefit either themselves or the business illegally. For example, an unethical
accountant granted too much control and too little oversight from superiors can embezzle
from the business and conceal the evidence. By contrast, a dishonest accountant working on
behalf of the company has the power to use data manipulation to commit a variety of crimes
such as fraud and tax evasion. Similar to this Addaquay’s issue, he was willing to break the
rules to benefit himself. It is proven by the $12 million that goes into his bank account. Other
than that, his poor ethics also affected the company he worked with itself. For sure, after this
issue happens, taxpayers will be scared to use their services as their private information is
not safe. This may led to the company’s losses and if they didn’t get to fix the trust of the
customers, bankruptcy might occur too. In addition to above consequences, investors,
customers and employees might lose faith in your business and brand if you are unethical in
accounting. Plus, being unethical in accounting could spell doom for your start up and cause
you to close up shop for good.

Closure

In conclusion, ethical behaviour is very important in accounting. Accounting ethics is one of

the critical concepts according to which every person associated with accounting has to
follow certain types of rules and guidelines set by the different governing bodies having the
power to set the same. These rules and guidelines prevent the misuse of the different
powers given to the various accounting professionals. Why you should keep things legal and
follow ethics in accounting? You deal with sensitive information on the daily. Maintain the
confidentiality and security of any sensitive corporate or employee information handled when
managing the books for your organisation. Avoid emailing any sensitive data, check the
security of the WiFi, install firewalls and other security measures. Next, following specific
accounting laws and regulations, such as the GAAP is part of being ethical in the accounting
industry. However, keep in mind that not all companies are obligated by law to adhere to
GAAP. Therefore, you must act professionally if you want to be taken seriously as a
professional. Like any other accounting expert, follow accounting ethics to prevent any fines
or adverse effects.