Ethical Issues In Financial Accounting: A Case Study Of 7-Eleven Essay.

Role and importance of ethics in business

Describe an Ethical Issue related to the Financial Accounting of an Organization.

This report aims to describe an ethical issue related to the financial accounting of an organization. Financial accounting is a very imperative part of business that describes integrity and values of a company through its corporate transparency with its stakeholders in long term (Otalor & Eiya, 2013). Thus, this study elaborates the case study of 7-Eleven a convenience store in Australia to exhibit the importance and role of ethics in business organizations. Along with this, the report also insights some recommendation for future related to the case study. Moreover, it has been analyzed that often big organizations involved in scandals are encouraged by the top level management such as cases like Toshiba and FIFA scandal in 2015(Matthews & Gandel, 2015).  However, fair and true view of accounting helps an organization to earn credibility in the market. The business of an organization should be based on the morals and ethical code of conduct that protects the right of the clients, shareholders and its employees. There are various branches of business ethics that helps the organizations in structuring strong ethical practices in the business environment such as corporate social responsibility, code of conducts, compliances and corporate governance.

An ethical business practice makes a great value to the companies in the market which is very importance for its survival with other competitors (Mihailovi?, et al., 2015). Ethics in business is a necessary tool that helps the organization in executing their business activities in a systematic and legally valid way. The business imposing ethical practices facilitates flexibility while negotiating with the government and labor union. In addition to this, it helps the organizations in achieving honesty and fairness in business which gives transparency and credibility in corporate governance. The organization also gains trust of investors in the market when executes its business with ethics and morals that facilities them easy loans and money from the stakeholders and banks. Moreover, it provides effective and impressive leadership skills to the organization which assembles and strengthens the relationship of human resource and shareholders at the same time (Kumar, et al., 2014). Ethical practices improve the decision power of the company and create monopoly of organization among its competitors in the market.

Financial and accounting ethical behavior is very important issue that has been invigilated by the government and financial institution to avoid any scams and scandals (Ferrell et al., 2012). Financial and accounting reporting includes ethical issues such as asset misappropriation, financial reporting with deceitful or fake amount, full disclosure which are very common in any scandal. It destroys the organizations goodwill in the market and failure the business activities. Not only has it ended the growth of many organizations, but also impacted on workers and stakeholders negatively to a great extent (Brink, 2011). For this purpose many organizations such as GAAP, investment accounting, disclosure rules, American accounting standards, international financial reporting system and security and exchange commission has set some guidelines, regulations and rules while recording the accounts. The ethical dilemmas consist of accounting and financial reporting in the organizations, which can be resolved with the help of chartered accountants and other professionals of their respective fields. Some of the major solutions to make the transparency unquestionable from the start are showing consistency in the accounting and reporting regarding financial details as per true and fair view in records, integration of information technology system to make the clear transactional record, use proper evidence approach though billing and invoices. Along with this, coordinating values of organization between management and internal supports also helps in appropriate recording of the transaction (Mihailovi? et al., 2015).

Concept of ethical dilemma in financial accounting

7-Eleven company was commenced in Texas, US in 1927 is a very renowned Convenience store chain around the world. It is being situated in more than 18 countries with 56600 stores in the world (7-Eleven, 2017). Recently, the company was in news because of the wage theft scandal in Australia in August 2015. The charges on the company were very serious on hiring low wage workers from foreign countries which are residing illegally in Australia from a long time. The company was exploiting its foreign workers from ages and threatened their workers for not exposing these practices. In case any complain been raised by any worker, the worker was fired and threatened by the management of the company. This prevents the scandal uninformed till 2015 and no legal charges were filed till that time. It has also been found in the investigations that 7-Eleven did not operate its business as per financial accounting standards since employees were not given half of their minimum payrolls rates (Ferguson& Toft, 2015). In fact, sometimes company gave no compensation or half of the minimum payroll to the foreign workers for their overtimes, weekends, holidays and night shifts. These practices and theft of worker’s wages in terms of accounting was recorded in more than two third of the franchises of the company in Australia.

In the meanwhile, it has also been discovered that the company has fired several employees without any compensation for their due wages. Along with that, former employees were underpaid like half of the minimum legal rate of wages holiday. It has also been revealed, that somehow wage theft in 7-Eleven case was exposed in 2015. After the depiction, company started giving their workers a minimum legal payroll whilst within sometime they started recollecting half of the money in cash from the workers after giving them wages. Hence, situation remained the same as before. As a consequence, when the case reopened and exposed for the second time, the jury of the court took all the underpaid wage claims individually for each worker. It has also been realized that the top-level authorities were also involved in the case which cleared the doubts on why any action was not taken even after many complaints from workers to the top supervisors and management. Top management also helped the management in concealing the complaints by firing the employees who raised their voices against management (Ferguson &Danckert, 2016).  In the end, Russ Withers and Warren Wilmon from the top level management of 7-Eleven were replaced by Bob Baily and Michael Smith respectively after their resignations.

7-Eleven Company Wage Scandal- Case Study

In this particular case study, there are several ethical dilemmas that should be considered for the financial reporting accounting such as wage theft. Recording figures with wrong amount and misleading information about the workers actual working hours are some of the major issues in the case. Along with this, there are ethical issues such as non-compliance of stakeholders or workers right of minimum legal wage payroll. The company has recorded all the incorrect financial figures relating to the wages and manipulated its financial accounts (Ekuma& Akobo, 2015). The business practice of 7-Eleven was full of false representation of accounts to its shareholders, supported by the top-level management itself. It has been evaluated that by hiring illegal workers and threatening them for less payment also violated the human rights which is against the ethical business practices.  

Additionally, the study is structured with two theories related to the ethical practices in the accounting including deontological ethics theory and categorical imperative theory (O'Donohue & Ferguson, 2003). In deontological theory, the recommendation is fully concerned with the fairness and trueness actions as a priority. It is more about doing the right practices in the business activities and supports it with full commitment and right to do rational things. It is more focused on the rights of everyone more than desire of an individual. In the similar way, categorical imperative theory also assumes and believes in treating others with fairness. It also states that a good leader set an ethical example by following and acting ethically (O'Donohue & Ferguson, 2003). It describes the same set of rules for everyone with the same guidelines and practices.

In the present context, there are some recommendations that can help the management in overcoming the inadequacy in the ethical practices. It has been seen in this case that top level management was supporting the unethical practices of wage theft which suggests that management and top senior authorities should be changed frequently or time to time with a fair system of voting rights of stakeholders (Mehrotra, 2012). The accounting and financial recording was fraudulent and had hidden many assets in the record to deceive stakeholders which is a result of loses internal control and corruption among financial accountants of the company. Thus, all the financial accountants should be changed and a professional trusted chartered accountant should be deployed for the transparent and fair accounting system. The company also requires time to time audits with external authorities to make the recording more trustworthy and to gain trust of all stakeholders again (Crane& Matten, 2016). 

Conclusion

From the above discussion, it can be inferred that ethical business practices are very essential for business organizations to follow. Unethical activities are often encouraged by the top level or senior level management that converts into scandals and scams later such as Toshiba and FIFA scam. It has also been provided that every crime or violation of ethical code of conducts is exposed after some period of time in any organization that does not follows it. The effective compliance with ethical code of conduct is certainly very important aspect in building trust among stakeholders. It helps in achieving credibility and value in the market. In the present study, 7-Eleven-case study is a perfect example of accounting and financial ethical dilemma that describes the wage theft and accounting record to deceive stakeholders of the organization. The company also violated human right and employment rights by firing and threatening their former employees. The company has not even paid half of the amount according to the minimal legal wage rate. As a recommendation, change of management in some minimum period of time and external audits are suggested.

References

7-Eleven. 2017. About Us. Financial. Retrieved on August 16, 2017, from https://corp.7-eleven.com/corp/about

Brink, A. 2011. Corporate Governance and Business Ethics. Springer Science & Business Media.

Crane, A., & Matten, D. 2016. Business Ethics: Managing Corporate Citizenship and Sustainability in the Age of Globalization. Oxford University Press.

Ekuma, K. J., & Akobo, L. A. 2015. Human Resource Management Ethics and Professionals’ Dilemmas: A Review and Research Agenda. Human Resource Management Research 5(3), pp. 47-57.

Ferguson A., & Toft, K. 2015. Retrieved on August 16, 2017, from https://www.abc.net.au/news/2015-08-31/exploitation-part-of-7-eleven-business-model-insider-says/6733682

Ferguson, A., & Danckert, S. 2016. An inconvenient year for 7-Eleven. Retrieved on August 16, 2017, from https://www.smh.com.au/business/retail/an-inconvenient-year-for-7eleven-20160826-gr1xff.html

Ferrell, O. C., et al. 2012. Business Ethics: Ethical Decision Making & Cases. 9^th ed. Cengage Learning.

Kumar, K. S., et al. 2014. The Importance of Business Ethics in Globalisation -A Study. International Journal of Advancements in Research & Technology 3(4), pp. 285- 298.

Matthews, C., & Gandel, S. 2015. The 5 Biggest Corporate Scandals of 2015. Retrieved on August 24, 2017, from https://fortune.com/2015/12/27/biggest-corporate-scandals-2015/

Mehrotra, C. 2012. Ethics: ?Its Importance, Role and Code in Information Technology. International Journal of Advanced Research in Computer Science and Software Engineering 7(2), pp. 417-421.

Mihailovi?, B., et al. 2015. Role of business ethics in management of human resources. ??????? ?????????? “?????????” ??? 61(1), pp. 85-96.

O'Donohue, W., & Ferguson, K. E. 2003. Handbook of Professional Ethics for Psychologists: Issues, Questions, and Controversies. SAGE. 

Otalor, J. I., & Eiya, O. 2013. Ethics in Accounting and the Reliability of Financial Information. European Journal of Business and Management 5(13), pp. 73-81. 

Tham, J. C. 2016. 7-Eleven is the tip of the iceberg in worker exploitation. So who's turning a blind eye? Retrieved on August 16, 2017, from https://www.theguardian.com/commentisfree/2016/may/12/7-eleven-is-the-tip-of-the-iceberg-in-worker-exploitation-so-whos-turning-a-blind-eye