Accounting Business Reporting for Decision Making

68 Accounting: Business Reporting for Decision Making

In fact, impartiality and regulation are seen as essential components of a moral system. Would you

trade on a securities exchange that you knew was rife with insider trading? If insider trading was the

universal law and people could trade on inside knowledge, then if you weren’t the insider, and there-

fore didn’t have access to the information, you would hardly risk placing your money in the system,

and the system would eventually collapse. Another example in business is the audit function. External

auditors undertake their audit of financial statements on behalf of shareholders, creditors, employees

and other stakeholders. The independence of external auditors to the company and its management is

crucial to ensure the credibility of the audit. If an auditor has a partial relationship with their client,

the objectivity of the audit could be or could be perceived to be impaired. There have been numerous

cases where the impartial relationship between auditor and client has been tested in a court of law.

A well-known example is that of the audit firm Arthur Andersen LLP and its client Enron. Suffice to

say, in the Enron collapse, the scrutiny paid to the audit firm showed partiality and favouritism in the

audit engagement.

Ethics and regulation

According to Carroll (1979), the four key responsibilities of business can be grouped into four categ-

ories: economic, legal, ethical and discretionary. Business entities have an economic responsibility to

provide goods and services at a fair price, to repay their creditors, and to seek a reasonable return

for their shareholders. Legally, they are required to uphold the laws and regulations of government.

Ethically, businesses are obliged to act in the way expected of them by society. Discretionary responsi-

bilities are carried out voluntarily. Discretionary responsibilities can become legal or regulatory res-

ponsibilities over time as expectations change. For example, dismissing women workers who married

was acceptable practice in the 1950s, but now discrimination against women is legally punishable. A

contemporary example of a change in business responsibility from discretionary to legal can be found in

the debate on the environment. The environment affects all of us and belongs to the world community;

therefore, carbon or greenhouse gas emissions into the environment from business activity are gaining a

lot of attention. Traditionally, it was not seen as the responsibility of business to consider carbon emis-

sions. However, with the fear of global warming there is now an expectation that business considers

the environmental costs of the technologies it employs. Some large companies such as BP, Toyota and

British Airways joined forces in January 2005 at the World Economic Forum and took upon themselves

the responsibility of monitoring their carbon emissions because they felt it was the right thing to do for

the environment and their business (see World Economic Forum 2005). A number of countries, including

Australia and New Zealand, have taken steps to regulate carbon emissions.

Other areas in which regulatory action has been required include price skimming, exploitation, the

selling of harmful products, whistleblowing, bribery, insider trading and corporate governance. In some

of these areas, there has been a move from discretionary responsibility to regulatory responsibility.

Most countries would regulate the general areas of their securities exchange, financial system, company

pricing and competition, industrial relations, privacy, e-commerce, consumer advocacy, human rights,

and tax system. An outline of the relevant regulatory bodies was presented in the previous chapter and

the reality check ‘ACCC investigations’ below provides some recent cases.

REALITY CHECK

ACCC investigations

In 2015 the Australian Competition and Consumer Commission (ACCC) targeted the areas of cartels,

product safety and truth in advertising. They have a number of cartel investigations underway and, if

individuals are found guilty, they could face severe jail sentences (up to ten years) and significant fines

(up to $340 000 per cartel offence). Cartel misconduct includes price fixing, sharing markets, rigging

bids, controlling output and limiting supply. The ACCC also included government procurement pro-

cesses in their investigations.