ACCOUNTING ETHICS AND ITS IMPORTANT ROLE FOR REDUCTION OF ACCOUNTING FRAUD: AN EMPIRICAL STUDY IN HANOI BY VU HAI YEN 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 (Accouting) Hons JUNE 2010 Declaration of Originality and Word Count DECLARATION I hereby declare that the graduation project is based on my original work except for quotations and citations which have been duly acknowledged I also declare that it has not been previously or concurrently submitted for any other courses/degrees at HELP University College or other institutions The word count is 9,477 words Vu Hai Yen Date: Abstract ACCOUNTING ETHICS AND ITS IMPORTANT ROLE FOR REDUCTION OF ACCOUNTING FRAUD: AN EMPIRICAL STUDY IN HANOI By VU HAI YEN June 2010 Supervisor: Dr Le Van Lien Ethics is a sensitive concept of any profession in society, especially for career that closely associated with economic activities such as accounting Given the code of ethics for professional accountant, and the factors that contribute to accounting fraud, this study aims to examine the significance of ethical issues that challenge professional accountant in good corporate governance and sustainable business practices It is carried out via a survey of 200 accountants which are divided into groups They are both from public and private companies The result of this study shows that, accountants who have less experiences work more objectively than the one who have more experiences But they have more possibility to break ethical culture than the one who have more experiences And, ethical conflicts commonly arise in the organization's relationship with customers, employees, suppliers, and other individuals, and also as a result of these acts as courtesy gifts, kickbacks and discriminatory pricing Acknowledgements This study wouldn’t have been performed without the help of helpful people Sincere thanks to my supervisor, Dr Le Van Lien for his support, guidance and vision for all my study Sincere thanks to Mr Dang Ngoc Quang for helping me conduct survey quickly and effectively TABLE OF CONTENTS Page Declaration of Originality and Word count Abstract Acknowledgements Table of Contents Chapter 1: Introduction 1.1 Research Background 10 1.2 Problem Statement 12 1.3 Objectives and Sphere of Research 14 1.3.1 Objectives of Research 14 1.3.2 Sphere of Research 14 1.4 Research Methods 15 1.5 Structure of Research 16 Chapter 2: Literature Review 17 2.1 Code of Ethics 18 2.2 Code of Ethics for Professional Accountant 19 2.3 The Factors that Contribute to Accounting Fraud 21 2.3.1 Corporate Transparency 21 2.3.2 Corporate Values and Behaviour 22 2.3.3 Money Culture 24 2.3.4 Vices of a Capitalistic Society 26 2.3.5 Legalistic Culture 28 Chapter 3: Research Methodology 30 3.1 Research Objectives 31 3.2 Research Method 32 3.3 Scope of Study 33 3.4 Sources of Data and Sample Selection 34 3.4.1 Collecting Data 34 3.4.2 Sample selection 34 3.5 Hypothesis Statement 36 Chapter 4: Result Analysis 37 4.1 Collection of Questionnaires 38 4.2 Description of Result 39 4.2.1 Part 4.2.1.1 Integrity 40 40 4.2.1.2 Objectivity 41 4.2.1.3 Professional competence and due care 42 4.2.1.4 Confidentiality 43 4.2.1.5 Confidentiality 44 4.2.2 Part 4.2.2.1 Money culture 45 45 4.2.2.2 Corporate values and behaviour and vices of a capitalistic society 46 4.2.2.3 Corporate values and behaviour, corporate transparency and legalistic culture 4.3 Result Analysis 47 48 4.3.1 Hypothesis 48 4.3.2 Hypothesis 49 4.3.3 Hypothesis 50 4.3.4 Hypothesis 51 4.4 General Discussion 52 Chapter 5: Conclusion and Recommendation 53 5.1 Conclusion 54 5.2 Recommendation 56 5.3 Limitation of Study 58 5.4 Suggestion for Future Research 59 References (Harvard System) 60 Appendices 64 CHAPTER INTRODUCTION 1.1 Research Background 1.2 Problem Statement 1.3 Objectives and Sphere of Research 1.3.1 Objectives of research 1.3.2 Sphere of research 1.4 Research Methods 1.5 Structure of Research 1.1 Research Background Ethics is a sensitive concept of any profession in society, especially for career that closely associated with economic activities such as accounting If there is no professional ethics, the quality of accounting services provided to society will not ensure its use value For accountants, the professional ethics are “intangible assets” In Vietnam, Ministry of Finance issued a decision on the issuance and publication of professional ethical standards of accounting and auditing in 2005 These standards are built on the foundation of “independence, integrity, objectivity, confidentiality, expertise and prudence, occupational status, compliance with professional standards.” (http://www.tailieu.vn) They indicate that the scope and the nature of accounting activities should be provided in an ethical way However, in practice, accountants not always follow the rules and apply them in every aspect How many bosses will raise wages for employees if they the work to comply with ethical standards, benefit the public but the boss made a loss, if they deny wrongdoing or ethical behavior can cause damage to the organization in a short time, but in the long term it can provide greater benefits to reputation as well as financial by the organizational decisions that remove acts as dishonest or fraudulent? It is a big and difficult question Clearly, the boundary between “ethical” and “unethical” is very ambiguous Vietnam's economy is increasingly integrated with worldwide The financial institutions like banks, financial leasing companies, securities companies are appearing more and more This also means that when demand increases, the quality of accountant 10 CHAPTER CONCLUSION AND RECOMMENDATION 5.1 Conclusion 5.2 Recommendation 5.3 Limitation of Study 5.4 Suggestion for Future Research 53 5.1 Conclusion Accountants today are facing pressures such as competition, advertising, and introverted environment Issues such as outstanding figures, unexpected funds and commission had placed the accountant in the risk of ethical problems An ethical problem is simply a situation which requests to have the thoughts, discussions, or surveys to examine the impact of ethical decision Once an individual realizes ethical problem and discuss with others, it means he is in the process of making ethical decisions When people believe they cannot discuss what they are doing with their colleagues or superiors, it is a good condition for moral issues has the opportunity to appear The level of an ethical problem reflects ethical sensitivity of an individual or a group involved in the process of making ethical decisions All other factors including the development of moral awareness, cultural institutions, and intentions, will determine why each individual has different perceptions on different ethical issues For example, managers can influence on perception of subordinate by using the reward or the punishment In other words, managers can affect the importance of ethical issues through the promotion of positive or negative And, employees who have different profiles and different moral standards will make different ethical decisions Identifying the ethical issues that likely occur or has occurred is extremely important for the repair and treatment And, if an ethical issue is not being aware, it will be a danger for any organization, especially when business is considered a game in which the usual rules not apply Although the researcher has described a number of relationships and situations that create ethical problems, but it's hard to recognize the specific ethical issues in practice One way to determine whether an act or a specific 54 situation is the moral element is to ask other individuals see how they feel about it and they have approval or not Another way is to decide whether the organization has adopted specific policies on the operation or not If this occurs regularly in a sector that it is a moral issue It is found that individuals increasingly recognize the importance of an ethical issue is how much more they are less unethical behavior and suspicious much Ethical issues are considered key factors in the process of making business decisions 55 5.2 Recommendation The literature mentioned in chapter is general theory For each country, it is applied in different ways Especially, for Vietnam, a developing country, it is very important for the investors, business managers and authorities to base on those theories to drive the economy effectively With the knowledge and insight gained from the study, there are some recommendations which suggest in relation with the state of Vietnam To the government, it should ensure that audit firms as well as the accountants have been competing in the framework of law The government should quickly complete improving code of Ethics for Vietnamese accountants which is in accordance with economic conditions and current market To universities and training institutions, Universities and institutions have to identify and gradually build an accounting training centre which is separate and professional to improve the quality of accounting They should fully equip with facilities necessary for teaching and scientific research of teachers and students During the training process, they should focus on mentioning and disseminating moral, ethical behavior and professional status for students To the organizations, a good regime, effective management methods, professional environment are important factors contribute significantly to the quality of accountant Thus, they can safely work, dedicate and advanced level, professional skills Besides, they should involve in teaching and learning activities in universities and institutions For example, they should offer suggestions about training human resources From the practical experiences, they should take part in discussion which provide 56 information of professional for students, they even should participate in teaching specialized classes for accountants To accountants, to become a professional accountant, the real and practical knowledge, professional experiences are indispensable factors Accountant has to cultivate and train themselves They have to train their own objectivity, independent, impartial, fair, careful, diligent, responsible, and mature They must always have new urban attitude, learn and draw experience Nowadays, institutions and individual investors increasingly focus on bringing social accountability Investors are trying to find the company which always has legal responsibility and social responsibility and care about the interests of shareholders, communities and society They offer challenges for enterprises to improve recruitment and environmental initiatives Economic pressure from investors to increase the acts which have social responsibility and ethics is a great motivation for the reform of the government, businesses and individuals 57 5.3 Limitation of Study Because the researcher is still a student, as well as the limitation of time and cost, this study has some limitation The first limitation is the small sample size The researcher distributed 200 questionnaires, and after filtering out the invalid response, only 102 of them have been used for the study It is a small sample size It is not sufficient to present all the view of accountants in Hanoi The other limitation is language problem The survey was written in English, but not all the people who take part in the survey can read English fluently Therefore, some accountants might misunderstand the meaning of situations 58 5.4 Suggestion for Future Research In the research process, since the researcher has to face difficulties, this study has not been deep and wide Therefore, in order to overcome the limitations of this study, there should be some suggestions for the future researches which have similar topic The first suggestion is that the sphere of future research should be bigger which can be conducted in more cities, even over Vietnam Thus, the sample size would be larger It would give more accurate result The other suggestion for future research is that it should be conducted more extensively For example, it should add some interviews from students to the top experts in the field of accounting 59 References (Harvard System) Báo Tài Nguyên Môi Trường, (2008), Vụ biển thủ công quỹ chi nhánh Công ty vàng bạc đá quý Sài Gòn: Chỉ kiểm tra nội phát 15 tỷ đồng “bốc hơi” Available at: http://www.tainguyenmoitruong.com.vn/phap-luat/vu-bien-thu-cong-quytai-chi-nhanh-cong-ty-vang-bac-111a-quy-sai-gon-chi-kiem-tra-noi-bo-111a-phat-hienhon-15-ty-111ong-201cboc-hoi201d Accessed on May 2010 Bộ Tài Chính, (2005), Quyết định việc ban hành công bố chuẩn mực đạo đức nghề nghiệp kế toán,kiểm toán Việt Nam Available at: http://tailieu.vn/xem-tailieu/quyet-dinh-87-2005-qd-btc-cua-bo-tai-chinh.57809.html Accessed on 19 April 2010 Brainy quote, (2010), Ethics Available at: http://www.brainyquote.com/words/et/ethics161764.html Accessed on May 2010 Bruce R, (2002), Less taste for accounting: future of accountancy, Financial Times, London, p 02 Cahn ES, No more throw-away people, chapter excerpt: money: our drug of choice Sourced from Timedollar Institute; 2000 Retrieved September 17, 2002 http://www.timedollar.org/nmtap/Concept mastering rules.htm Clarke F, Dean G, Oliver K, (2003), Corporate collapse: accounting, regulatory and ethical failure (revised edition), United Kingdom: Cambridge University Press Ghazala saeed, (2010), Are Ethics Important For Professional Accountants? Available at: http://ezinearticles.com/?Are-Ethics-Important-For-ProfessionalAccountants?&id=516791 Accessed on 20 April 2010 60 Googins BK, (2002), Time for companies to invest in good citizenship, The Boston Globe Hastings RD, (2002), Accounting: not its first crisis, Collections & Credit Risk, p 56– 58 Hiếu Hiền, (2007), Cảnh báo đạo đức nghề kế toán Việt Nam Available at: http://vietbao.vn/Viec-lam/Canh-bao-dao-duc-nghe-ke-toan-tai-VietNam/30202296/267/ Accessed on 19 April 2010 IFAC, (2010), The Code of Ethics for Professional Accountants Available at: http://www.ifac.org/Ethics/Pronouncements.php Accessed on 19 April 2010 Imhoff Jr EA, (2003), Accounting quality, auditing and corporate governance, Accounting Horizons, p.117–28 Jones A, (1998), The next war: over the fate of the earth, National Catholic Reporter, p 20 Korten DC, (1998), Do corporations rule the world? And does it matter?, Organization & Environment, p.389–398 Lapham L, (1988), Money and class in America: notes and observations on our civil religion, New York: Weidenfeld and Nicholson Mary Low, Howard Davey, Keith Hooper, (2006), Accounting scandals, ethical dilemmas and education challenges, Elsevier Ltd, p 223-254 Phillips K, (2002), The cycles of financial scandal, The New York Times, p 19 61 Pratt MJ, (2002), Commentary on „accountability of accounting educators and the rhythm of the university: resistance strategies for postmodern blues‟, Accounting Education p.185–90 R.A Fisher and F Yates, Statistical Tables for Biological Agricultural and Medical Research, 6th ed., Table IV, Oliver & Boyd, Ltd., Edinburgh, by permission of the authors and publishers Ruquet ME, (2002), Accountants under scrutiny before Enron, National Underwriter p.14–15 Schwartz JM, (2002), The Enron debacle, Dissent, p.5-7 Soros G, (1998), The crisis of global capitalism: open society endangered, London: Little, Brown and Company Sykes T, (1988), Two centuries of panic: a history of corporate collapses in Australia, Sydney: Allen & Unwin Australia Pty Ltd The Economist Intelligence Unit, (2002), Corporate governance: the new strategic imperative, A white paper sponsored by KPMG International Tinker T, (2000), Briloff and the lost horizon, Accounting Today vol, p Vn Tax, (2010), Hệ thống chuẩn mực kế tóan Việt Nam - Những vấn đề cần tiếp tục hòan thiện Available at: http://www.vntax.vn/baiviet/he-thong-chuan-muc-ke-toan-vietnam-nhung-van-de-can-tiep-tuc-hoan-thien Accessed on 21 April 2010 Wikipedia, (2010), Accounting ethics Available at: http://en.wikipedia.org/wiki/Accounting_ethics Accessed on May 2010 62 Young S, (2003), Moral capitalism: reconciling private interest with the public good, San Francisco: Berrett-Koehler Publishers 63 APPENDICES Appendix A: Questionnaire sample 64 Appendix A: Questionnaire Sample The Survey on Accounting Ethics When you discover an error in the financial statements created by yourself It is just a small mistake It has no serious effect on the users of this statement Do you publicly repair your mistake?  Yes No In case your boss asks you to cut down some information in financial statement which benefit to investors but not benefit to organization, you agree?  Yes No If you were offered a higher position, with a higher salary but you don’t have enough technical and professional standards, you agree?  Yes No If you were paid a huge amount of money just to mix some information of the organization, you agree?  Yes No 65 When faced with difficulties at work, did you ever intend to break the relevant laws or regulations?  Yes No In case you are in business trip, you incur some personal expenses Do you ask your company to charge these amounts as business expenses incurred?  Yes No A client has bought a $70,000 car and instructs you to treat the purchase in their accounts as business purchase so that they can claim depreciation allowances Would you disagree and be prepared to lose that client’s business?  Yes No An audit you are working on reveals the existence of an off-balance sheet subsidiary, which is greatly in debt and could jeopardise the viability of the parent company It is quietly hinted to you that if you ignore the subsidiary you will be promoted, while if you make a fuss about it, it could be the end of your job and any future reference you required would brand you a “troublemaker” Would you ignore the subsidiary’s existence?  Yes No 66 67 [...]... field of applied ethics, the study of moral values and judgments as they apply to accountancy It is an example of professional ethics Accounting ethics were first introduced by Luca Pacioli, and later expanded by government groups, professional organizations, and independent companies Ethics are taught in accounting courses at higher education institutions as well as by companies training accountants and. .. (http://www.brainyquote.com) In conclusion, the word 'Ethics' is derived from the Ancient Greek word ethikos; means customs and habits It is a major branch 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) Accounting has its own definition of ethics, which... and equitable integration with countries in the field of accounting and auditing, including import and export accounting 12 and auditing services (http://www.vntax.vn) Therefore, along with the reform of accounting systems, accounting ethics is also a concern especially because it is the foundation for sustainability and long-term development of an organization 13 1.3 Objectives and sphere of research... Code of Ethics for Professional Accountant Code of Ethics for Professional Accountant is issued by the International Ethics Standards Board for Accountants (IESBA), an independent standard-setting board within IFAC It set the ethical requirements for professional accountants and provides a conceptual framework for all professional accountants to ensure conformity with the five fundamental principles of. .. discussed in a prominent position than ever, and their activities and behavior affect strongly to the health of a nation 11 1.2 Problem Statement For an organization, ethics plays an important role in curbing accounting fraud Like Nguyen Phuong Mai, chief of the representative office of the UK-based Association of Chartered Certified Accountants (ACCA) said that expertise can train but training ethics. .. 2.3.1 Corporate Transparency When accounting fraud occurs, it creates a lack of confidence and uncertainty in financial reports and reduces the decision usefulness of that reports Therefore, it shakes the confidence of investors, the public perception of corporates and the accounting profession And, if the authority wants to make the financial markets and economic 21 activity continue to exist, they... professional and the reliability of financial information provided by organizations have been undermined by accounting fraud According to the 2003 Task Force on Rebuilding Public Confidence in Financial Reporting, an independent group that was commissioned by the International Federation of Accountants, “many of the examples of reporting failure evidence a failure to act in ethically by at least some of the... of professional ethics These principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behavior  Integrity: A professional accountant should be straightforward and honest in all professional and business relationships  Objectivity: A professional accountant should not allow bias, conflict of interest or undue influence of others to override professional... culture in an organization? The answer is yes Embezzlement case in a branch of Saigon Jewelry Holding company-SJC is an example which support for this answer The fact of this case is that when the inspection teams of SJC Company check financial records periodically for the settlement in 2008, they discovered that Ms Hoang Thi Thu Ha, the director of the North Branch and accounting department has intentional... Objectives of research  To determine applying the code of ethics for professional accountant in Vietnam  To define the factors that contribute to accounting fraud related to the state of Vietnam  To reflect reality from theoretical model to practical theory  To recommend some suggestions to investors, companies for the importance of ethics within an organization to curb accounting fraud 1.3.2 Sphere of ... major branch 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... problems exist today in accounting, auditing and corporate governance is undermining the quality and integrity of financial reporting, and accounting rules required implementation by managers to disclose... comprehensive and equitable integration with countries in the field of accounting and auditing, including import and export accounting 12 and auditing services (http://www.vntax.vn) Therefore, along