Accounting ethics is crucial for businesses because they facilitate accurate financial reporting and planning, ensuring realistic, sustainable, and legal plans. Companies or businesses thrive under ethical accounting, which provides a good reputation to both clients and businesses. In cases where the accounting team fails to uphold ethical standards, a business can incur substantial financial losses, ruin its image and reputation, and the accounting personnel can face legal charges, leading to imprisonment. In the case of Phar-Mor, the company thrived during its early days and built an excellent public image. However, the executives failed to uphold ethics in running the business finances when they realized the business’ losses. Patrick Finn, Phar-Mor’s chief financial officer, uncovered the business’ losses early but decided to follow Michael Monus’ directive to conceal the losses and cook up accounting figures. Such decisions resulted in a $500 million shortfall and Finn’s sentence to prison. Finn’s actions were unethical, despite knowing the repercussions that the company would face.
Patrick Finn perpetrated a serious accounting fraud by helping Michael Monus to cook up figures in the books of accounts, hoping they would find ways to help the company recover its losses. As a result, he participated in unethical accounting practices by concealing the truth from other senior executives, such as David Shapira, and lying to the investors and suppliers regarding Phar-Mor’s financial position. In addition, Finn continued to support Monus’ decisions to keep cooking up accounting figures even when the losses worsened. Finn also supported Monus’ decision to blackmail the company’s vendors by leveraging them to pay certain amounts for not selling competitors’ products. As the chief financial officer, Finn knew the money could not compensate for the losses but continued to go along. Finn continued to fax falsified finances to David Shapira and the board of directors and even lied to Shapira when a secretary mistakenly faxed real figures to him.
Patrick Finn’s unethical accounting practices caused Phar-Mor to accrue shortfalls of up to $500 million. If I were in Finn’s position, I would have chosen a different path and informed the Chief Executive Officer (CEO), David Shapira, and the board of directors. I would not have cooked figures to satisfy Monus because such losses would eventually come to the public’s attention and result in legal actions. According to Sepasi (2019), the principles of ethical accounting cover integrity, professional competence, objectivity, confidentiality, and professional behavior. On this account, Finn should have acted with integrity by showing honesty and neglecting personal gains or favoring another party at the cost of the company’s reputation. Moreover, the ethical practice requires any financial officer or accountant to put the company’s interests first and fulfill their duty to report accurate financial statements to the public and investors. Failing to report correct figures and notify the appropriate individuals violates the code of ethics since it shows professional incompetency and unprofessional behavior.
Ethical accounting requires a financial officer to remain objective and independent. Finn should have avoided the conflict of interest with Michael Monus and acted independently in his position. Lack of independence and objectivity can limit one’s ability to provide honest opinions regarding a business’s financial position (Vitez, 2019). As a good practice, Finn could advise Monus against falsifying the accounting information but chose a different path despite knowing he was a gambler who could bet on every situation. In addition, he could have unanimously informed the CEO, David Shapira, about the company’s financial position if he feared going against Monus. Even though he approached the authorities, it was already too late for the company, and he acted out of fear that Monus could point the blame on him. If I were in Finn’s position, I would have reported Monus to Shapira and advised him against rapid expansions and unnecessary investments, such as in a basketball competition.
Ensuring ethical practices in accounting by reporting correct financial figures for the benefit of a business, investors, and the public is the primary duty of accountants and financial officers. Patrick Finn failed to uphold his duties and violated accounting ethics by helping Michael Monus to report falsified accounting information and concealing the real figures. He also lied to the CEO regarding the accounting data, making the public and investors believe that Phar-Mor was performing well. As a result of his actions, the company sank into losses that would take years to recover. Such unethical practices eventually destruction of the company’s image and reputation, making it difficult for consumers to regain trust in Phar-Mor. Good financial officers and accountants should always uphold integrity, professional competence, objectivity, confidentiality, and professional behavior when conducting their duties.
References
Sepasi, S. (2019). Accounting Ethics. International Journal of Ethics and Society, 1(2), 23-29. https://ijethics.com/article-1-31-en.pdf
Vitez, O. (2019). Ethics in the Accounting Profession. Small Business – Chron.com. Retrieved 27 September 2022, from https://smallbusiness.chron.com/ethics-accounting-profession-3738.html.
write