Tài liệu The importance and effective of the ethical principles within an organization (business) to curb fraudulent

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THE IMPORTANCE AND EFFECTIVE OF THE ETHICAL PRINCIPLES WITHIN AN ORGANIZATION (BUSINESS) TO CURB FRAUDULENT BY NGUYEN THI BINH Graduation Project Submitted to the Department of Business Studies, HELP University College, in Partial Fulfillment of the Requirements for the Degree of Bachelor of Business (Accounting) Hons OCTOBER 2011 DECLARATION OF ORGINALITY AND WORD COUNT I hereby declare that the graduation project is based on my original work except quotations and citations, which has been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other course/degree at Help University or other institutions. The word count is 12,624 words. NGUYEN THI BINH 17 OCTOBER 2011 ii ACKNOWLEDGEMENT To complete this thesis, first at all, I want especially to thank sincerely to my supervisor Dr Pham Duc Hieu, International School, Vietnam National University Hanoi. He is the teacher who is not only caring me during my thesis work but also a mentor to teach me all those years in International School. I would like to express my thanks to Ms. Sumathi, Help University College, who initiated and give so much instruction and support about the dissertation. Additionally, I also wish to take this opportunity to thank all others Vietnamese teachers at International School and the Malay teachers at Help University College who taught and helped me during the study process at the International School Now. Based on knowledge accumulated over 5 years of study and major in accounting literature time, I have completed the course of this dissertation. I cannot express all my thoughts here. I will never forget he teachers and friends who have worked closely with me throughout my five years of study at the University. Finally, I would like to express want to send thanks for my parents who are laid on my background and create everything for my completeness of course during five years at school. iii THE IMPORTANCE AND EFFECTIVE OF THE ETHICAL PRINCIPLES WITHIN AN ORGANIZATION (BUSINESS) TO CURB FRAUDULENT BY NGUYEN THI BINH OCTOBER 2011 Supervisor: Dr. PHAM DUC HIEU ABSTRACT Fraud is the sensitive problem in any organization in business. It’s not easy for us to get information about this problem. It’s also link with code of ethic. In this thesis, I test with three hypotheses. As the results, I examine whether economic conditions influence the propensity to commit accounting fraud. I find that the incidence of observed accounting fraud is increasing and is at its highest in the periods leading up to an economic peak. One more result, new accountants who have less experience have high accounting transparency than old accountants who have more experience. But they also break money culture than who have more experience. Because of all the things, so we constantly learn about fraud and errors in accounting and auditing. iv TABLE OF CONTENT DECLARATION OF ORGINALITY AND WORD COUNT ii ACKNOWLEDGEMENT iii ABSTRACT iv TABLE OF CONTENT v LIST OF TABLES viii LIST OF ABBREVIATIONS ix CHAPTER 1: INTRODUCTION 1 1.1 Research background 1 1.2 Problem statement 2 1.3 Research question 3 1.3.1 Fraudulent in developed countries 3 1.3.2 Fraudulent in Vietnam 5 1.4 Thesis structure 7 1.5 Objective of thesis 7 CHAPTER 2: LITERATURE REVIEW 8 2.1 Definition of Fraudulent 8 2.1.1 Detecting Fraud 9 2.1.2 Why does the definition matters 10 2.1.3 Small, medium and large enterprises 11 2.1.4 Internal and external fraud 11 2.1.5 Outsourcing fraud control 12 2.2 Code of Ethics 15 v 2.2.1 Definition of business ethic and factors affecting business ethics 15 2.2.2 Code of ethics 2.3 Related Theory 16 18 2.3.1 Control fraud theory 18 2.3.2 Ethical theory 19 2.3.3 Utilitarian approach 19 2.4 The Factors that Contribute to Accounting Fraud 21 2.4.1 Corporate Transparency 21 2.4.2 Money Culture 23 2.5 Relationship between fraudulent and ethic 25 2.6 Hypothesis statement 25 CHAPTER 3: RESEARCH AND METHODLOGY 3.1 Research method 28 28 3.1.1 Quantitative methodology 28 3.1.2 Qualitative methodology 28 3.2 Data source 29 3.2.1 Secondary data 29 3.2.2 Primary data 30 3.3 Research tool 30 3.3.1 Internet tool 30 3.3.2 Questionnaire 31 CHAPTER 4: FINDING AND DISCUSSION 32 4.1 Questionnaire Results 33 4.2 Result Analysis 34 4.2.1 Hypothesis 1 34 vi 4.2.2 Hypothesis 2 36 4.2.3 Hypothesis 3 39 4.3 General Discussion CHAPTER 5: CONCLUSION AND RECOMMENDATION 5.1 Implications 41 43 43 5.1.1 Implications for Government 43 5.1.2 Implications for the enterprise 44 5.2 Prevention 45 5.3 Conclusion 46 REFERENCES 48 APPENDIX A: QUESTIONAIRE SAMPLES 51 APPENDIX B: CHI-SQUARE TESTS 54 vii LIST OF TABLES Table 2.1: Outsourcing fraud control Table 4.1: show respondents of each statement Table 4.2: Descriptive statistics for hypothesis 1 (economic survey) Table 4.3: Chi-square test for economic survey Table 4.4: Descriptive statistics for hypothesis 2 (transparency survey) Table 4.5: Chi-square test for transparency survey Table 4.6: Descriptive statistics for hypothesis 3(CEO and money culture survey) Table 4.7: Chi-square test for CEO and money culture survey viii LIST OF ABBREVIATIONS APS Australian Public Service CEO Chief Executive Officer CFO Chief Financial Officer EPS Earnings Per Share FS Financial Statements GAAS Generally Accepted Auditing Standard GAAP Generally Accepted Accounting Principles IFAC International Federation of Accountants IESBA International Ethics Standards Board for Accountants ODA Official Development Assistances PE Price per Earning PMU Project Management Unit WTO World Trade Organization ix CHAPTER 1: INTRODUCTION 1.1 Research background During the period when Vietnam joined the WTO-World Trade Organization, the economy of my country is facing with a new challenge and Vietnam and auditing industry entered a period of great development with many difficulties and new opportunities. The auditing firm was established competition. Hence, organizations tend to fraud in order to serve the purpose of personal firm to harm interests of the community. The organization can survive in the competitive era without resorting to unethical practices. This study provides readers with an understanding of the necessity of the role of ethics in the modern organization. It mentions the importance of leadership in the establishment and maintenance of ethical principles in the organization and pinnacles with a set of recommendations that leaders can be assigned to ensure that our moral remains. This study examines the growing emphasis that companies place on business ethics, business ethics as well as inform the lives of people in business. Current perspective and legal only enhance the importance of moral codes, making them an important part of the landscape of the company. The increasing relevance of the cost regardless of business ethics is recorded. Emphasis is placed on the importance of stressing business ethics in society, and about teaching the concept to us that they will carry a strong sense of ethics in the business world effect. Conversely, any problem in an y field has two aspects, particularly moral in an organization, too. There are ethical and unethical behaviors. Concretely, in unethical of some Vietnam organizations nowadays, the 1 fraudulent is understandable. It belongs to each sense or ethic of individual. None can sure that they can do all things by right ethics; hence, so many organizations have fraudulent work. For instance, according to recent studies indicate an emerging problem in Vietnam is now the fraud in the petroleum business. Fraud in information disclosure on financial statements is one of the current topics in news, especially after a series of events companies in the top world is being bankrupt in the early 21st century. The bankrupt company was said to be fraud on financial statements can tell a lot as: Lucent, Xerox, Rite Aid, Waste Management, Micro Strategy, Raytheon, Sunbeam, Enron, WorldCom, Global Crossing, Adelphia, Qwest. Senior managers including chief executive officer (CEO) and chief financial officer (CFO) of these companies were allegedly involved in the processing of data lead to fraudulent financial reporting. 1.2 Problem statement Today, the issue of fraud in business is increasing for instance the case of sale or falsified invoices in the invoice price does not tend to decline. This situation is puzzling managers in particular and society in general, there are those who took advantage of the loophole in the law and the management of the company to extract more money from companies and individuals own pocket. Arising from the problems mentioned above, the need to research the side of morality and take measures to minimize these problems is essential. So, to better understand these issues I would like to present the theme: “The importance and effective of the ethical principles within an organization (business) to curb fraudulent” 2 1.3 Research question This study concern about” the important and effective of ethical principles within an organization to curb fraudulent”. Hence there are some involving this theme. What is the relationship between ethics and fraud? Why Fraud Is Increasing? How is fraudulent in developed countries and special in Viet Nam? How to Prevent Business Fraud? How is important of ethical principles in curbing fraudulent? Why are ethical principles effective to curb fraudulent? ...To answer all these above question, we will discuss gradually widespread all this thesis. 1.3.1 Fraudulent in developed countries In recent years, it has been nearly impossible to open any business newspaper or magazine without seeing headlines relating to various types of corruption. One type of corruption has been especially prevalent - fraudulent financial statements. While Europe has experienced several financial statement frauds, including those of Parmalat, Royal Ahold and Vivendi, they have not been nearly as devastating as those in the US. Enron, WorldCom, Fannie Mae, Waste Management, Sunbeam, Qwest, Xerox, Adelphia, Tyco; these and many other recent financial statement frauds have shocked the business world. In this part, I present the problem of fraud related to the developed countries and it is second typical for the world's financial statement fraud that is WorldCom and Enron. The cost of all frauds - especially financial statement fraud - is extremely high. For example, when a company manipulates its financial statements, the market value of that company's stock usually drops considerably, sometimes by as much as 500 times 3 the amount of the fraud. Six of the top ten bankruptcies in US history occurred in 2002. When a company such as WorldCom declares a $102bn bankruptcy, nearly every person who has a pension or owns mutual fund shares is hurt financially. Indeed, the cost of these financial statement frauds was borne by the entire country. When a financial statement fraud occurs, the decline in market value and lost revenue for a company can be astronomical. A company's financial position is largely a result of its performance and the level of growth it is trying to achieve. Most of the companies that committed financial statement fraud in the past few years had large amounts of debt and leverage. This placed tremendous financial pressure on executives, not only to have high earnings (to offset interest costs), but also to report earnings to meet debt and other covenants. Enron's derivatives related liabilities increased from $1.8bn to $10.5bn in 2000. In the 1990s and early 2000s, many of the problems at US companies were masked by the good economy. History has now shown that several of the frauds were actually being committed during the boom years, but the economy hid the behavior. The boom also caused executives to believe their companies were more successful than they were. Sundaramurthy and Lewis (2003) found that extended periods of prosperity can reduce a firm's motivation to comprehend the causes of success, raising the likelihood of faulty attributions. Managers can also feel significant pressure when their personal financial status is at risk. For example, they may feel their job is in jeopardy if performance falls below a certain level. The fear of losing one's job as a result of poor financial performance has contributed to various frauds throughout the past decade. 4 1.3.2 Fraudulent in Vietnam In recent years in Vietnam, a series of economic fraud, trade fraud and fraud on the financial statements are brought to light, that cheating occurs in all types of enterprises and in all areas. On 25/11/2008, in Hanoi, the State Auditor held a press conference and publicly the results of several audits in 2008. According to the audit results were announced this time for the unit: Electricity of Vietnam, Ta Trach Lake of project and procurement management and use of property in the original project manager of several ministries and local. Through the inspection, the state audit process and the proposal were withdrawn and the State budget is being paid thousands of billion: Electricity of Vietnam: 2,216 billion, Ta Trach Lake of project: 128 billion. And according to a result of auditing the State Auditor in a public meeting publicize results of several audits on 02/12/2009 in Hanoi, the general results of the audit report was issued and the released to 30/11/2009, discovered and financial proposals over 6.566 billion. Clearly, business fraud involve cheating on the financial statements are no longer problems of an industry - a sector that has invaded the whole economy: from the state corporation, the Investment funds using ODA capital, the company shares listed on the stock market to the private companies. * The type of fraud for each type of enterprise. - Fraud in state enterprises: + Fraud in procurement of equipment, declaring costs: One of the typical businesses for this type of fraud is fraud in corporate aviation Vietnam Airlines. + Fraud in construction. 5 Fraud in construction is a hot spot in recent years. Frauds not only through the bidding process, bid (lower bid to win the bidding, bribed the authorities). But then, to compensate for losses in the bidding process, the contractor did not hesitate to reduce the cost of construction, installation, and even corruption and embezzlement. The quality of construction, thus increasingly impaired. Investors, construction and design consulting combustion monitoring period, do not handle the road according to the designs, skip loading phase should have completed construction is already sunk. - Cheating in stock listed companies: The Bach Tuyet Cotton Corporation (BBT stock) report loss to profit - Fraud in the private enterprises, limited liability companies - Fraud in companies with foreign capital: Although there is not an official report on the fraud in the financial statements of companies with foreign capital, but through interviews and testing auditors showed that two common trends make fraud in these companies. In the case of a subsidiary in Vietnam has committed to profitable business plan for the parent company. If the company does not achieve the ability to plan, will be fraud and declared lower cost of debt or moving costs - the debt of the period to the next accounting period, or declaration of income. Conversely, if the company is focused on reducing the problem of enterprise income tax payable, it shall be taken to the declaration of expenses and liabilities or deliberately prepaid expenses of public debt in the next accounting period are now, recorded lower revenues. 6 1.4 Thesis structure My research included five parts and each part is a chapter Part one is chapter one: Introduction Part two is chapter two: Literature Review Part three is chapter three: Research Methodology Part four is chapter four: Finding and Discussion Part five is chapter five: Conclusion and Recommendation 1.5 Objective of thesis  To learn about the factors that constitute accounting fraud  to learn about the application of ethical principles of accountant or auditor in Vietnam and other developed countries  To learn about how this theory is applied in practice?  To help us understand how the importance of effective and ethical principles in an organization to combat fraud?  Because accounting plays an important role in the financial statements of the business, so in this essay can help us confirm the value of ethical principles correctly 7 CHAPTER 2: LITERATURE REVIEW 2.1 Definition of Fraudulent In the world, there is no premise legal definition for fraud exists, because such actions were covered up the actions of each country. Each country with a national fraud that it has the action for fraud, so there is no international act exists for it. According to Vietnamese dictionary, fraud is an act of dishonesty, deception, trick so as to fraud other people. In broad terms the fraud is distorting the truth, implement illegal acts to fraud, deception to obtain a certain benefit. Three common expressions of fraud are: appropriation, fraud and theft. As I personally know, fraud is the act of intentionally falsifying information economics, finance by one or more persons in the organization or the third party made, which affect the audit object. In the field of financial accounting, fraud might merely an intentional act of infringement of property, embezzlement, embezzlement, corruption, collusion ... but infringe upon the property often associated with distortion of accounting information as the profession records are not true, counterfeit or repair documents, hiding files and documents, covering key information, etc. 8 2.1.1 Detecting Fraud Fraud is a broad category, we cannot determine when it occurs, and it is intentional or unintentional? Auditors play an important role in detecting fraud. So the ability to judge and main key in detecting potential fraud and auditing standards generally recognized GAAS (Generally Accepted Auditing Standard) gives specific guidance in detecting fraud. Specifically:  The auditor may decide to cheat is separate from the affected area and report to the board significant business results or not?  If the effect on the auditor may decide to fraud is separate and can be significant in controlling the business system, item or not?  If it not major impact on the individual areas, auditor consider this issue related to the management system or not? Auditors must consider whether disclosure fraud is affecting the whole seriousness and integrity required of the administrator or not? If the auditor's decision errors caused by fraud or substantial and auditors cannot determine the level of fraud affecting the financial statements, I think that auditors may consider the following guidelines:  Have to collect more evidence  Consider their impact on other areas of audit  To discuss this issue, including what is obtained in the investigation of additional management level.  To consider consulting with clients to detect fraud 9  To consider withdrawing from the audit if the audit results indicate that the existence of material misstatement related to fraud and should discuss the reasons to withdraw from the audit client  Consider consulting advice of legal experts. Experience has shown, the determination of the likelihood of losses due to fraud is an art, not merely a pure science. Information gathered from different sources should be checked before coming to conclusions. In this regard, organization should first: - Assess the possibility of fraud in the enterprise based on the internal control environment, the resources to handle fraud, management's efforts to detect fraud and other ethical standards in business industry. - Based on your experience, gather the available evidence of fraud in businesses such as reports of fraud before, the losses cannot be identified, the problems noted in previous audits, complaints of customers or suppliers. - Collection of information available about the damage and loss due to fraud within the business from the same scale in the industry. - Collect information from surveys of fraud such as fraud investigations of the global Ernst & Young on bribery and corruption in business, this is the source document provides valuable information relevant to this subject in Vietnam. 2.1.2 Why does the definition matters The consistent application of this definition of the national government provides the fundamental framework for verifying, put in writing and control fraud. It reinforces the assessment of risk and fraud control plans, and ensures that APS employees understand the causes leading to fraud. Defining the problem of fraud to 10 help the government measure accurately and allocate resources to match, as well as APS to handle fraud cases fairly. 2.1.3 Small, medium and large enterprises The size of each different business accompanied by the appearance of various types of fraud is different. So they will be faced with different problems of fraud. The provisions made by law, apply to businesses are the same and consistent. Because the intangible value of each different businesses that it is important that each business be aware of legal issues which made them to be able to control fraud easier. For small and medium enterprises need the support from big business than it and the support from the consultant’s economic law to create system of strict control fraud for the purpose of achieving economic efficiency as set out. For large businesses need be uniformity in the organization of personnel, decentralized management, allocated resource makes the corporate structure more complete for the purpose of preventing and limiting fraud by improving aware of the importance of controlling fraud. 2.1.4 Internal and external fraud There are several common methods to control fraud, regardless type of organization, whether it's fraudulent internal or external. Internal fraud is carried out by an employee of the agency they work for. External fraud is implemented by someone from outside agencies. Fraud can be committed to cooperation between body worker and someone from outside agencies. For example, support staff can take 11
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