Ethical and Uenthical issues in Finance.

Ethical Issues Faced By Financial Managers

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.

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, such as what was seen in the cases of Enron and World Com, damage the interests of shareholders, employees and affect confidence in the financial system.

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.

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.

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.

UNETHICAL ISSUES FACED BY FINANCIAL MANAGERS  

The unethical practices in accounting are more in proprietary, partnership and private limited companies. It is at lower levels in public limited companies and MNCs.

 Some of the unethical practices in financing and accounting        are as under:

i. Deliberate abnormal delays in payments to (a) Vendors, (b) Dealers commissions and promotion costs.

ii. Delays in paying wages, interest to financiers, incentive, bonus to employees.

iii. Holding up bills of vendors on silly reasons and ultimately buying from others to avoid payment to earlier vendors.

iv. Not prompt in statutory payments of ESI, PF, Sales Tax and Excise Duties.

v. Cheating employees of their dues towards medical expenses, leave travel assistance, children education fees etc.,

vi. Opening of current accounts in different banks to avoid adjustments against loans by earlier banker.

vii. Creating bogus bills of purchase to show higher costs and hence losses to avoid bonus payment to employees.

viii. Collecting loans from private financiers at higher rate of interest to help kith and kin and to get kick-backs.

ix. Quick release of payments to known or adjustment parties and delaying payment to others.

x. Taking private finance only from those who are ready to do personal favors to the finance department head.

Unethical Practices in Investment Decisions

Business and industries do need money. The requirement of funds may be long term, medium term and start term type.

There are different approaches to raise funds as shown here under:

(1) Long Term Financing:

The popular sources for long term financing are as under:

i. Issue of equity shares,

ii. Issue of irredeemable debentures,

iii. Retained earnings (plough back of profits),

iv. Financial assistance from special financing institutions.

(2) Medium Term Financing:

The usual sources of finance are as follows:

i. Issue of redeemable debentures,

ii. Issue of preference shares,

iii. Public deposits,

iv. Medium Term loans,

v. Financial assistance from special financing institutions.

(3) Short Term Financing:

The commonly used modes of short term financing are:

i. Trade credit,

ii. Bank credit and

iii. Advances from dealers and customers.

While taking credit and during public issues the companies have to furnish the accounts and performance details including the details of promoters. To what extent truthful information and data is provided to financiers/investors is the ethical issue involved in investment matters.