COMMON UNETHICAL PRACTICES OF BUSINESS ESTABLISHMENTS

Accountants are information gatekeepers.

It helps you recognize ethical issues that aren't always obvious.

It prepares you for pressure from management.

It reinforces the professional responsibility of accountants.

It helps you understand why accounting scandals happen

Why do we need to understand these common unethical practices?

Misrepresentation

Over-persuasion

Most common Unethical practices of business

establishments:

Direct Misrepresentation

is characterized by actively misrepresenting about the product or customers.

Indirect Misrepresentation

is characterized by omitting adverse or unfavorable information about the product or service.

1.Deceptive Packaging

2.Misbranding or Mislabeling

3.False or Misleading Advertising

4.Adulteration

5.Weight Understatement or Short Weighing

6.Quantity Understatement or Short Numbering

Kinds of Direct Misrepresentation

Deceptive Packaging

the practice of placing the product in containers of exaggerated sizes and

misleading shapes to give a false impression of its actual contents

Misbranding/Mislabeling

the practice of making false statements on the label of a

product or making its container similar to a well-known product for the

purpose of deceiving the customer as to the quality and/or quantity of a

product being sold.

Advertisements with pictures or statements that convey exaggerated

impression of the product’s reliability or quality.

Advertisement that claims that the product is the “fastest selling brand”

or “the product of the year.”

Advertisements using fictitious or obsolete testimonials

Examples of Misleading Advertising

Adulteration

the unethical practice of debasing a pure or genuine

commodity by imitating or counterfeiting it, by adding something to increase

its bulk or volume, or by substituting an inferior product for a superior one

for the purpose of profit or gain

Weight Understatement/Short Weighing

mechanism of the weighing scale is tampered with or

something is unobtrusively attached to it so that the scale registers more

than the actual weight.

Quantity Understatement/Short Numbering

the measuring stick or standard is shorter than the

real length or smaller in volume than the standard.

1.Caveat Emptor

2.Deliberate Withholding of Information

3.Passive Deception

Examples of Indirect Misrepresentation

Caveat Emptor

also means “let the buyer beware.”

Caveat Emptor

Under this concept, the seller is not obligated to reveal any defect in the product or service he is selling. It is responsibility of the customer to determine for himself the defects of the product.

Deliberate Withholding of Information

No business transaction is fair where one of the parties does not exactly know what he is giving away or receiving in return

Passive Deception

Business ignorance is ________ because the businessman is unable to provide the customer with the complete information that the latter needs to make a fair decision.

the willingness of the seller to generate profit by taking advantage of the buyer’s lack of information

What makes Caveat Emptor unethical?

1.Plain Graft

2.Interlocking Directorship

3.Negligence of Duty

4.Insider Trading

Unethical Practices of Corporate Management [BOD]

1.Claiming a vacation trip to be a business trip

2.Having employees do work unrelated to the business

3.Loose ineffective controls

4.Unfair labor practices

5.Making false claims about losses to free themselves from paying the

compensation and benefits provided by law

6.Making employees sign documents showing that they are receiving fully

what they are entitled to but is not the case

7.Sexual harassment

Unethical Practices of Corporate Management [Executive Officers & Low-level Managers]

Over-Persuasion

persuasion used for the sole benefit of selling a product without considering the

Persuasion

the process of appealing to the emotions of a prospective customer and urging him to buy an item of merchandise he needs. This is legitimate and necessary if done for the interest of the buyer.

1.Conflict of interest

2.Dishonesty

Unethical Practices of Corporate Management [Employees]

Plain Graft

Some BOD gives to themselves the earnings that otherwise would go to other stockholders. This is done by voting for themselves and the executive officers huge per diems, large salaries, big bonuses that do not commensurate to the value of their services, and authorizing purchases of goods and services at a higher price for commission.

Interlocking Directorship

often practiced by a person who holds directorial positions in two or more corporation that do business with each other. This practice may involve conflict of interest and can result to disloyal selling.

Disloyal Selling

happens when this person is compelled to decide which of the two corporation’s interest should be protected or upheld. Thus, whatever decisions the person makes, he betrays the trust reposed on him by the shareholders of either of the two companies.

Neglect of Duty

A more common failure of the members of the BOD than breach of trust is _______ when they fail to attend board meetings regularly. Because this is the time where they can protect the rights and interest of the shareholders.

Insider Trading

involves trading in a public company’s stock by someone who has non-public material information about that stock for any reason.

Insider Trading

can be either illegal or legal depending on when the insider makes the trade. It is illegal when the material information is still non-public (info that can impact a decision but is not out in the public yet), and this sort of insider trading comes with harsh consequences.

Conflicts of Interest

arises when an employee who is duty bound to protect and promote the interests of his employer violates this obligation by getting himself into a situation where his decision or actuation is influenced by what he can gain personally from it rather than what his employer can gain from it.

a.Taking office supplies home for personal use.

b.Padding an expense account through the use of fake receipts when claiming reimbursements.

c.Taking credit for another employee’s idea.

Examples of Dishonest Acts of Employees