Ethical and Unethical issues in Finance Management

 Finance:

        Finance refers to activities related to the exchange of certain capital assets between individuals, companies, or states. The term also relates to the uncertainties and risks that these transactions carry. Finance is one of the branches of the economy.

 Financial Management:

              Financial Management means planning, organizing, directing, and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to the financial resources of the enterprise.

 Finance can be divided broadly into three distinct categories: 

1.  Public finance
2.  Corporate finance
3.  Personal finance.

Ethical issues in finance and accounting:

Falsifying Document:

Falsification of Documents is changing details on the original document and trying to pass them off as real. 

Falsifying Documents is a type of white-collar crime. It involves altering, changing, or modifying a document for the purpose of deceiving another person. In many states, falsifying a document is a crime punishable as a felony.

Some types of documents that are commonly falsified may include:

• Tax returns and income statements

• Personal checks

• Bank account records

• Immigration documents (such as visas, passports, etc.)

• Identification cards and birth certificates 

Underreporting Income:

Under-reporting income, in order to avoid taxes, is an illegal practice. When people underreport their incomes, the federal government loses tax revenue that could go towards social security, Medicare, and other federal projects.

The ethical issue for accountants becomes maintaining true reporting of company assets, liabilities, and profits without giving in to the pressure placed on them by management or corporate officers.

Unethical accountants could easily alter company financial records and maneuver numbers to paint false pictures of company successes. This may lead to short-term prosperity, but altered financial records will ultimately spell the downfall of companies when the Securities and Exchange Commission discovers the fraud. 

Unethical issues in finance and accounting :

Unethical issues occur when a company or an individual accountant does not follow the rules of generally accepted accounting principles (GAAP) or the rules governing accounting practices in the country of practice. 

Examples of not following GAAP include recognizing revenue before a customer takes physical possession of the inventory, not recognizing the expenses associated with revenue (revenue expenses), and not writing down bad inventory.

A company can inflate its sales by recording revenue for unsold stock. According to GAAP, a customer must take physical possession of the goods before revenue can be recorded in the income statement. The company can still write an invoice to the customer, but it cannot record it as a sale on its profit and loss statement until the inventory gets to the customer. 

Manipulation of financial statements, also known as window dressing in accounting.

Using confidential information for personal gain, e.g. blackmail.

Practicing with a fake license.