Tài liệu Accounting ethics and its important role for reduction of accounting fraud an empirical study in hanoi

Declaration of Originality and Word Count DECLARATION I here by declare that the graduation project is based on my original work except for quotations and citations, which have been duly acknowledged. I also want to declare that it has not been previously or concurrently submitted for any other courses/degrees at HELP University College or other institutions. The word counts is 9932 words HOANG VAN THU DATE: 17/10/2011 -1- ACCOUNTING ETHICS AND ITS IMPORTANT ROLE FOR REDUCTION OF ACCOUNTING FRAUD: AN EMPIRICAL STUDY IN HANOI By HOANG VAN THU October 2011 Supervisor: Dr. Nguyen Hong Quan ABSTRACT As we know that ethic can be defined as many way, but in this part I just want to mention that it is a set of principle of right conduct or set of moral values help by individual or group. By other way, ethic refer to the standard of right or wrong, which prescribe what humans ought to do, usually in term of rights, obligation, benefits to society, fairness. We can see that example of ethic as link to those standards, which impose the reasonable obligation to refrain from stealing, murder, and fraud. With these above mentioned ethics as a sensitive norm that related to business, especially in accounting fields. Nowadays, the code of ethics for professional accountant is providing for all people who work in this field. However, its still have some problem that relate to accounting fraud in the world. We can ask question that how can help us to reduce accounting fraud in business today. It is not easy to have perfect answer of this question. However, in this study we can see that the significant of ethic in accounting fields. And the way that help to reduce accounting fraud in environmental accounting today. In this part, I would like to -2- show that sample of survey on accounting fraud in Hanoi. This survey carried out 100 accountants who are work in accounting fields. In additional, they are separate into two groups. The first group include people who less experience in accounting than other. The second group includes people who have experience and less possibility to break the rule in accounting standard. Moreover, ethic also relate to other factor as suppliers, customer, investor and other relation in business. So to keep the ethical for the accountant, who depend on individual or group of accountant who have responsibilities in this field. To reduce the fraud in accounting field, we need to apply the GAAP (General Accepted Accounting Principal) in the system effectively. -3- ACKNOWLEDGEMENT With the position as a student I always consider that learn and collect information from the teacher or supervisor. Basing on this factor, we can expand knowledge or other significance problems. There are still having any people, who help me to complete this project. However, I would like to thank to guiding me the right way to for this part and motivate me to complete its. Firstly, I would like to say thank you to my supervisor Mr Nguyen Hong Quan for his support, guidance, and vision for all my study Secondly, I would like to say thanks you to Ms Sumathi from Help University College, for instruction and support for my project Thirdly, sincere thanks to Mr Hoang Van Nam for helping me to perform the survey effectively. -4- TABLE OF CONTENT PAGE DECLARATION ........................................................................................................ 1 ABSTRACT ................................................................................................................ 2 ACKNOWLEDGEMENT ......................................................................................... 4 TABLE OF CONTENT ............................................................................................. 5 CHAPTER 1: INTRODUCTION ............................................................................. 7 1.1 Research and background ................................................................................... 7 1.2 Problem and statement ........................................................................................ 9 1.3 The objective and sphere of research ............................................................... 11 1.3.1 Objective of research ...................................................................................... 11 1.3.2 The sphere of research .................................................................................... 11 1.4 Research method ................................................................................................ 11 1.5 Structure of research ......................................................................................... 12 CHAPTER 2: LITERATURE REVIEW ............................................................... 13 2.1 Definition of Ethics............................................................................................. 13 2.2 Code of Ethics for Professional Accountant .................................................... 14 2.3 The Factors that Contribute to Accounting Fraud ......................................... 16 2.3.1 Conflict of interest ........................................................................................... 16 2.2.2 Driven by profit management ........................................................................ 17 2.3.3 Corporate transparency ................................................................................. 18 2.3.4 Money Culture................................................................................................. 19 2.4 The role of Accounting ethic that help to reduce Accounting Fraud ............ 20 3.1 Research Objectives ........................................................................................... 23 -5- 3.2 Research Method ................................................................................................ 24 3.3 Sources of Data and Sample Selection ............................................................. 25 3.3.1 Collecting Data ................................................................................................ 25 3.3.2 Sample Selection .............................................................................................. 25 3.4 Scope of study ..................................................................................................... 26 3.5 Hypothesis Statement ........................................................................................ 26 CHAPTER 4: ANALYSIS AND FINDING ........................................................... 28 4.1 Collection of Questionnaires ............................................................................. 28 4.2 Description of Result .......................................................................................... 29 4.2.1 Part 1 ................................................................................................................ 29 4.2.2 Part 2 ................................................................................................................ 33 4.3 Result Analysis ................................................................................................... 34 4.3.1 Hypothesis 1 ..................................................................................................... 34 4.3.2 Hypothesis 2 ..................................................................................................... 35 4.3.3 Hypothesis 3 ..................................................................................................... 35 4.3.4 Hypothesis 4 ..................................................................................................... 36 CHAPTER 5: CONCLUSIONAND RECOMMENDATION ............................. 37 5.1 Conclusion........................................................................................................... 37 5.2 Recommendation ................................................................................................ 38 5.3 The limitation of study ....................................................................................... 39 5.4 The ideal or suggestion for research in the future .......................................... 40 REFERENCE ........................................................................................................... 41 APPENDICES .......................................................................................................... 43 -6- CHAPTER 1: INTRODUCTION 1.1 Research and background As we know that, ethics refers to the sensitive concept with any field in business in society, in particular link to the accounting. Besides that it refers to “the critical, structured examination of how we should behave — in particular, how we should constrain the pursuit of self-interest when our actions affect others”. Moreover, ethic also reflects a personal set of value and used by individual to guide their actions and to recognize any obligation, it is not a objective, but a subjective for individual”. And it relate to the code of conduct dependence upon circumstance and the life experience of the individual. “The ethic also relates to accounting and it has difference way to define ethics. We can understand that it is one of the first field applied ethic in systems. There are several factor that have been applied in accounting as moral value, judgments” We know that accounting has their own definition of ethics, which is primarily a field of applied ethics, the study of moral values and judgments as they apply to accountancy. It can be considered as an example of professional ethics. We have to consider the code of ethics for profession accountant and some factor that relate to the accounting fraud. According to the recent survey about 150 accountants in Vietnam. All of them divided into two types. They are both from public and private companies. This result of the survey shows that, accountants who have more experience also less objectivity rather than accountant with less experience. However, there is no doubt that they are more possible to break the rule in accounting or culture rather than the one who have -7- more experiences. There are many ways that raise the risk in accounting ethics such as customers, suppliers, and other individual who have relationship with the organization within ethical problems. Next, I would like to introduce some problem that link to accounting ethic, specialty in Vietnam. In 2005, the Ministry of Finance of Vietnam makes the decision for auditing and accounting through professional ethical standard. There are some standard that getting from the basis of “integrity, objectivity, confidentiality, expertise and prudence, occupational status, compliance with professional standards.” All of these standards give us above are the reach and character of accounting activities should be provided in an ethical. However, we cannot exist accountant do the right way as the standards above. We know that Vietnam’s economy is increasingly and integrated with worldwide. For instance, Vietnam was joined in WTO in 2006, becoming a 150th member of WTO. When Vietnam take part in this organization, there are many enterprise may have opportunities as well as face with difficulties and challenges to compete with other rival com from other countries. Moreover, World Trade Organization will be taking to effort of Viet Nam to reach the global trading market, enhancing the position of Vietnam in the international trade market, creating a premise integration and economic development. With the member of WTO the Vietnam’s economy, particular some industries as banks, finances, services, which need to be more develops than other industries. As a result, when the demand rising, that means the quality of accountants are need to improve and upgrade to suitable with the quality of accounting in the world. To conclude, I am going to analyze the accounting ethic and its role for reduction of accounting fraud in this project. -8- 1.2 Problem and statement Nowadays, the ethics has been played a vital role in accounting major as well as other industries in the business. Recent year, accounting fraud is increasing more and more and it means that the important of accounting ethic is rising. As we know that, to reduce the accounting fraud in Vietnam likewise other countries in the world, which very difficult to solve its. This research about accounting ethics in Hanoi is less than this one in Vietnam, so the project will contribute to reduce the accounting fraud in Vietnam. The purpose of this research that analyze accounting ethics and its role to reduce accounting fraud in Vietnam. So the first problem that I want to mention: What does the important role of ethic in accounting? To answer this question, we need to understand that professional accountant must follow the guideline of judgments and moral values in practicing accounting. Professional accounting also need to consider ethic as the first thing to be strictly as well as the professional in the field of medicine and law. With respect of customer, “they also want to receive the service of accounting professional not only rely on his skill and ability, but also on his professional integrity”. It leads to customers, who used the service of professional accounting also need to follow the ethic followed them. So the code of ethic for professional accounting needs to be developed under these above reasons. Beside that the professional accountant must be followed them, that mean they respect customers. They have high degree responsibility of code of ethic. So accounting ethic assurance that the objectivity and integrity in this major. Now, I would like to mention that the role of ethic in accounting. It can be considered as the way for accountant to follow certain rule, when they perform their works at the right ways. Furthermore, the ethic help professional accountant have -9- confidence while they are doing in the public or in their own fields. According to the recent big trouble happen in business, which relate to the role of ethic in accounting, for instance, Enron, WorldCom and Global Crossing in the USA. Almost these companies also have problem with ethic in accountant. In the case of Enron Corporation, they are concentrating on preparing for the good finance practices. Since, investors and other stakeholders rely heavily on the financial statements of a company. And they need the information of the financial statement, in order to make good decision in business. So the ethic has been played a vital role for profession accountant. Next, the second problems: How does accounting ethic help to reduce the accounting fraud. As we know, accounting fraud can be defined as “deliberate and improper manipulation of the recording of sales revenue and/or expenses (with a purpose of making a company’s profit performance look better than it actually is) is qualified as accounting fraud.” There are some several actions that consider as accounting/bookkeeping fraud: -“Not listing prepaid expense or other type of assets” - “Collapsing short-term and long-term debt into one amount” - “Not showing certain classification of current assets or liabilities” So, it is not easy to reduce the accounting fraud in Vietnam likewise other countries in the world. For example, “ According to Nguyen Phuong Mai, chief of the representative office of the UK-based Association of Chartered Certified Accountants (ACCA) in Vietnam, it is difficult for training ethic for accountant. In order to reduce the accounting fraud, we need to apply the rule of General Accepted Accounting Principal (GAAP). Under this rule, we can prevent the accounting fraud effectively. Since any professional accountants - 10 - also must follow the rule of its. We can assume that if they fail to report financial statement, they have responsibility with its. Moreover, if they do not follow the rule of GAAP, they will respond to the sanctions of accountant. Next, we can prevent accounting fraud by disclosure on all reporting. And all the transaction must be reviewed and properly documented through accounting staffs. Furthermore, any companies must disclose the policy to inform their employees of consequence relate to accounting fraud. 1.3 The objective and sphere of research 1.3.1 Objective of research  To verify about apply the code of ethic for professional accountant in Vietnam  To describe some factors that add to accounting fraud in Vietnam  To give an important role of ethics inside company or group to control accounting fraud for stakeholder or enterprise 1.3.2 The sphere of research  Place of performing this research: Hanoi National University, International School, Hanoi capital, Vietnam  Purpose of research: accountants, students who are learning accounting major at other Universities in Hanoi.  Companies in process of research: public companies and private companies in Hanoi, Vietnam  Time period of conducting research: from 18 July 2011 to 17 October 2011 1.4 Research method There is no doubt that to bring the successful for any research, it is difficult for student. However, in this research, the method to study, which very important to me. - 11 - There are several methods for me to choose. But, I will choose the qualitative and secondary data to use. As we know, qualitative method show that attitudes, behavior and experiences through such methods as interviews or focus groups. This research aim at people, who are accountants and work for public or private company. Besides that students who are study at university as well as student studying master degree in Hanoi, Vietnam. In this research, I will be used questionnaires, in order to measure through the process. We also know that this research used knowledge and information in the past. There are two part, which be used in this research as questionnaire and qualititative method. With the qualititative method, I will choose the sample size as n=100. Besides several aspect as follow “ages, gender, and experiences or the accountant” are significance factor to answer the questionnaire. Next, student or researcher need to be based on some other factor to gather information or data. Moreover, they have to see how accountants receive about ethical problems. In the process of research, the researcher will be used chisquare test. This helps them to analysis as well as estimating after gathering information. Basing on the historical data in the past research, which help new researchers have significance information to analysis. 1.5 Structure of research There are five chapters in this research. Chapter 1: Introduction It represent about background of research, concepts, and the purpose of research Chapter 2: Literature Review Chapter 3: Research Methodology Chapter 4: Result Analysis The result will be reflect through information and data collected Chapter 5: Conclusion and Recommendation - 12 - CHAPTER 2: LITERATURE REVIEW 2.1 Definition of Ethics Accounting has been played a vital role and its part of our businesses and financial words. However, the accounting ethic needs to be kept in mind through all transaction. The terminology “Ethics” is sourced from the Ancient Greek “ethikos” that means the background and habits. Besides that it consider as a major component of philosophy, which is the study of values and customs of a person or group and covers the analysis and employment of concepts such as right and wrong, good and evil and do's and don'ts (Ghazala Saeed). Furthermore, accounting ethic relate to primarily a field of applied ethics, the study of moral values and judgments as they apply to accountancy. It consider as an example of specialized ethics. Besides that Luca Pacioli was introduce ethic in earlier pass. And it has been expanded by the government, professional organizations, and independent companies in the world. We can define ethic by difference ways. For instance, “it refer to the human duty, or body of rule drawn from science, particular system of principle and rules concerning duty, whether true or false, rule of practice in respect to a single class of human actions” There are many ways to define ethics such as the science of human duty; the body of rules of duty drawn from this science; a particular system of principles and rules concerning duty, whether true or false; rules of practice in respect to a single class of human actions. Business ethics is the subset of overall ethics term. It is related to the conduct of ethics and moral conducts when managing and controlling the business. It is vital to - 13 - the companies and its stakeholders. And the most important aspect of business ethics is accounting ethics. Wikipedia defines accounting ethics as “the primarily a field of applied ethics, the study of moral values and judgments as they apply to accountancy. It is an example of professional ethics.” These are the strict rules, which people in the accounting and business-handling department of a company must comply to. Since the diverse range of accounting services and recent corporate scandals, ethics issues are paid more attention within the accounting profession. Stakeholders make investment decisions based mainly on the accounting information and financial statements. Therefore it is the responsibility of the accounting professionals to stick to the code of ethics, i.e. this is the role of ethics in accounting, so that nobody loses confidence given information. The essence of accounting ethics is in the maintenance of professional objectivity and integrity. 2.2 Code of Ethics for Professional Accountant When I mention about the rule for Professional Accountant, I always consider the code of ethic, GAAP (General Accepted Principal) for professional accountant. Both of them are essentials part for this research. According to my research, the International Ethics Standards Board for Accountant (IESBA) was created the Code of Ethic for Professional Accountant. This organization also depend on the IFAC. Out of these aspect, its include ethical requirement and present a conceptual framework for professional accountant. Moreover, it contain five principle of professional ethics such as “integrity, objectivity, professional competence and due care, confidentiality and professional behaviors”. Next, I will state these five principles following part. . - 14 -  Integrity: A professional accountant must be simple in any situations, be honest through every professional and business relationship  Objectivity: There are some factor that need to be consider as bias, conflict of interest, inserted through other person or overriding are not accepted for professional accountant.  Professional Competence & Due Care: To maintain professional knowledge, skill, in order to solve or ensure every trouble when customer needs them. That is the obligation of professional accountant. And they need to be diligently in any easy or difficult situation to provide professional service.  Confidentiality: The confidentiality often requires respect of professional accountant. Beside that they cannot provide or disclose any information to the outside when they do not have proper and specific authority. Unless there is still have the right or legal, duty to disclose its to other. And professional cannot use information for personal advantage  Professional Behavior: A professional accountant should follow the relevant laws and regulations and should avoid any action that discredits the profession. With these all principles, professional accountant can apply in practice at any field of business. There is no doubt that this framework, which effective for professionals’ accountant. Five principles as I mention earlier, help them to limit the risk or fraud in accounting. Basing on them, they can make better decision for any accounting transactions. Besides, they can determine the threats to these fundamental principles and, if there are threats, apply safeguards to ensure that the principles are not comprised. - 15 - 2.3 The Factors that Contribute to Accounting Fraud Nowadays, we are often hearing information about accounting fraud through the media as television, newspaper, and the Internet. However, we do no know how its still alive in business does today. Besides that a major part of businesses also want to know why increasing cheating and committing fraud. According to many experts in the world, they realize that it derived from misleading auditors, auditors looking the other way, disguising transactions, withholding information, providing unbalanced advice, and misusing insider information. We also know that the accounting fraud lead to diminish the integrity and reliability of accounting and financial information. And accounting fraud originally from these factors as follow: conflict of interest, driven by profit management, corporate transparency, money culture. 2.3.1 Conflict of interest According to may research, conflict of interest occur when an individual or group involved in multiple interest between them. Another way to define its as follow a situation in which a person has private or personal interest sufficient to appear influence objective exercise of his or her official duties. The conflict of interest is becoming one of major part of global concerning today. In business, it refer to a situation that when employees personal financial interest or fiduciary duties owed to third parties. Next I would like to mention about conflict of interest in manner of business as it is “a major cause behind recent corporate governance shortcomings” (Bertok, 2003) likewise it is able to cause the serious damages to the integrity of organizations. In my research, there are some reasons that lead to conflict of interest as the financial and pecuniary interest. Basing on the view of government and law, it often cannot consider as wrong and fraud, in some circumstance. Since, it also depend on the estimate of regulation likewise laws. For example, “first seeking or - 16 - accepting gift. Acceptance of a valuable gift or service from an organization with which the University is has or will be negotiating an agreement or conducting business, would be a conflict of interest. Gift does not include a breakfast, luncheon, dinner, or other refreshments consisting of food and beverage provided for immediate consumption.” However, in general situation, conflict of interest consider as a matter of legal when an individual intentionally (successful or not) in affecting the outcome of a decision, for personal gain. Beside that someone accused of a conflict of interest may deny that a conflict did not happen whereas he does not do any harmful actions. In fact, conflicts of interest may exist even if there is no harm behavior. In additional, the conflict of interest also contains agency problems and insider trading in business. In real business, such as big organization or enterprise the owners always authorize the activities for the manger and they do not involve in managing the daily operation activities. But the owner always wants to maximize the shareholder wealth. With the position of managers, they often consider their own benefit such as bonus, salary, as well as promotion to new position. These benefits above, that is not easy for them to achieve. However, they used their own way to perform business by not maximize the shareholders wealth. And they argue with the owner that they always do the right thing together with there is not still have conflict of interest here. Therefore, this is not true whereas managers ignore the most important objective is to maximize overall wealth rather than the ability to maximize profit. 2.2.2 Driven by profit management As I stated in earlier chapter that the manager sometimes do not make decisions based on the best interest of shareholders or for the enterprise but his own. Some circumstance that happen in the past, manager often give their own benefit first - 17 - before they do anything for other or especially for enterprise. Also, the managers or employees can also make personal decisions that result an increase in salaries and commissions. With this aspect both of them always find the shot way, in order to promote or increase salaries. Moreover, they are in the daily operations and therefore have a competitive advantage to access the internal and confidential information to get the benefits. Insider trading is one of these frauds can be realized in this factors. Since, insider trading can help them to get their own benefit effectively through negative way, but their co-worker or the owners do not know how to get its. 2.3.3 Corporate transparency We know that if we have weakness in corporate governance and lack of transparency in our system. This reason can be considered causes of the financial crisis, and the subsequent events of corporate collapses and accounting fraud. An organization lacks of transparency in their financial report leading to stakeholder "especially investors" unsure decisions about an organization's real fundamentals. Besides, they will be worried about risk likewise reduces the decision usefulness of organization’s reports. I would like to give an example as follow, a firm's growth prospects will be related to how it invests. It depends on the way that manager apply in the system. It's difficult if not impossible to evaluate a company's investment performance if its investments are funneled through holding companies, hiding from view. Another issues, which I want to mention that lack of its. Corporate transparency may also obscure the company's level of debt. If a company hides its debt, investors may face challenge as difficult to estimate their exposure to bankruptcy risk. Thus, if the organization wants to maintain and develop their economic activity, they must restore the confidence of investors in the financial report. In the United State, after the bankruptcy of Enron and Worldcom, the - 18 - requirement of transparency was concerned more. These companies and some organizations have secret books of accounts repairs. It is a reason leads to bankrupt of Enron and WorldCom. As a result, workers lose their jobs as well as lose all pensions and savings. Therefore, the government stated: "If companies do not voluntarily disclosure information in a transparent manner, the government will set out the rules to force companies to implement". 2.3.4 Money Culture Nowadays, money has played a vital role in the world. Since we cannot assurance our life, if we are run out of money as well as shortage its. Following my research money can be defined as a medium of exchange and standard of value in the modern economy today. In additional, it is easily to know that the important role of money in business. It can be estimated from several ways, but in this part I just want to mention some factor that affect on its as follow Volume of production; the Direction of production; Pattern of consumption; Method of distribution; Direction and volume of exchange; and last but not least the Rate of saving and investment in the country. Besides that if there is shortage of money, we may face with problem to have any resources for upgrade and grow as well as cannot have a comfortable life. In reality, money and standard of value also go together and help out have anything, which is needed. Moreover, two factor money and standard of value prove our to become active rather than in the past such as take part in active environmental business in the world. There exists a question that how does behavior of people change their attitude when the value of money changes over time. For example, Embezzlement at Thanh Pho Ho Chi Minh Water Draining Supplying Joint Stock Company. The fact of this is that: on 14th August 2003, Nguyen Duc Toan (treasurer of Thanh Pho Ho Chi Minh Water Draining Supplying Joint Stock Company) took - 19 - over 6 billion the funds of company. Before, Nguyen Duc Toan confessed Mrs Suong (Chief Accountant of the company) is taking 3.5 billion of company to buy land in District 2. Mrs. Suong check the funds again and she found that Toan take more than 2 billion and use these amounts for personal purpose Since, Mrs Suong fears of responsibility, she did not report for board of directors. 2.4 The role of Accounting ethic that help to reduce Accounting Fraud First of all we need to understand the ethic in accounting. As I mentioned in earlier part, ethics likewise set of principles that guide person or groups behaviors. Moreover, it also includes the value as fairness, honesty, and responsibility that is the standard form for basis of ethic in business likewise accounting. Nowadays, there are many companies are face with accounting fraud from their staffs. For examples, the case of Enron Corporation is. It is a multinational enterprise that not reported a true and fair view of financial statement for all stakeholders in several years. The reason that relate to Enron Corporation, which is investor and other stakeholders rely heavily on financial statement of this firm. Furthermore, their decisions also have impact on the financial statement. Although investor used their money with the wrong purpose, in order to use for their own purposes. This example brings a good implication for other companies in business. We see that accounting ethic cannot bring all benefits, in order to prevent fraud or briber. However, it can play vital role to help reduce accounting fraud in accounting environmental today. There are several scandal related to accounting fraud as Nugan Hand Bank, Worldcom, AIG. All of these scandals relate to creating new accounting, misleading financial analysis likewise bribery. Now, I want to mention some factors that can help reduce accounting fraud as follow: First, it can be called as “Forensic accounting” it helps to deal with financial - 20 -