ETHICAL ISSUES IN FINANCIAL ACTIVITIES

INTRODUCTION:- Financial managers prepare reports, oversee accounting functions, plan investment strategies and direct cash management functions. They also are involved in branch management functions at banks and other financial institutions. They are required to uphold the highest ethical standards because internal and external stakeholders depend on transparent, timely and complete financial documents to make decisions. This blog will discuss various ethical  issues in financial management in an organization.

Accuracy

A company’s financial manager ensures that all financial publications accurately and fairly reflect the financial condition of the company. Accounting errors and financial fraud damage the interests of shareholders, employees and affect confidence in the financial system. Some organizations document ethics guidelines specifically for financial managers. 

Transparency

Financial documents reflect a company's performance relative to its peers, and its internal strengths and weaknesses. Regulatory agencies require publicly traded companies to submit periodic financial statements and make full disclosures of material information. A change in the senior executive ranks, buyout offers, loss or win of a major contract and new product launches are examples of material information. Transparency also means explaining financial information clearly, especially for those who aren't familiar with the company’s operations. Financial managers should not hide, obscure or otherwise render relevant financial information impossible for ordinary shareholders to understand.

Timeliness

Timely financial information is just as important as accurate and transparent information. Management, investors and other stakeholders require timely information to make the right decisions. Many cases exist of a publicly traded company's stock reacting sharply and negatively to negative earnings surprises or unpleasant product-related news. For example, a company should promptly disclose manufacturing problems that could temporarily affect sales. Similarly, the company should not hold back news of a major contract loss in the hope that it can replace the lost revenue with new contracts.

Integrity

Financial managers should strive for unimpeachable integrity. Customers, shareholders and employees should be able to trust a financial manager's words. Managers should not allow prejudice, bias and conflicts of interest to influence their actions. Managers should disclose real or apparent conflicts of interest, such as an investment position in a stock or an ownership interest in one of the bidding companies for a procurement contract. The structure of certain stock-based incentive compensation schemes could also result in ethical issues. For example, managers might be tempted to manipulate stock prices by selectively disclosing or not disclosing relevant financial information.

Falsifying documents

Many times, accountants or financial managers falsify documents for their personal benefit or to alter the final profit or loss. This is not only unethical but also illegal at the same time. This type of fraud affects the financial position of the firm. As a result, the stakeholders of the company are cheated as they are unaware about all this. 

Evading income tax

Many firms manipulate their profits to evade income tax. This is undoubtedly the violation of ethics. Government has the right to receive tax out of the profits of the firm. Those who evade income tax deprive government of huge funds and as a result the whole society suffers.

Insider Trading

Insider trading is the buying or selling of a security by someone who has access to material nonpublic information about the security.  Insider trading is illegal (and immoral) because the true insider is trading on information that is not their own.  They have misappropriated the information. It is unethical, because in a company you can know what is going to be the performance of company so you will take a call early and sell/buy stocks, so for company employees there is a blackout period before the results , so that share trading is not influenced on insider news.