Ethical and Unethical Business Practices

This paper will go over several ethical and unethical business practices. I will define both ethical and unethical followed by examples. There are numerous definitions of ethics. The definition usually depends on the context of the situation. For example, there are medical ethics and business ethics among many, many others. In general, business ethics is when employers conform to the approved standards of their profession. And unethical business practices is the opposite, not conforming to approved standards. Unfortunately, being unethical does not always mean that it is illegal.

Ethics has many different definitions and means many different things to different people. Ethics in general, is a type of moral philosophy. Ethics should be defined by the context in which it is used (i.e. business, medical). Logically, since we are dealing with businesses we will define ethics within the context of business practices. Business ethics is the application if ethical values to business behavior. Basically, what society believes is right and wrong and is applied to businesses. The generally accepted accounting principals (GAAP) "provides assurance to outsiders (external decision makers) that the information available in a given decision situation was prepared in accordance with a well-defined set of rules and guidelines" (Werner, & Jones, (2004) (1)16. Notice the phrase given decision situation. It means that the person who made the decision was following guidelines and rules. GAAP permits a certain degree of managerial discretion. Therefore, we rely on the people within this classification to be ethical.

A perfect example of someone who has access to be able to manipulate a business's finances is a manager. He or she has the ability to control net income from several approaches. He or she can change accounting policies (depreciation methods, inventory valuation (LIFO vs. FIFO). He or she can also manipulate the net income by various accrual methods (warranty cost). So as you can see, a manager has a great opportunity to display unethical behavior. Although we view some things as unethical, that does not mean it is illegal. It is very important to remember this if you ever purchase stock in a company. There will always be a chance for your money to be tossed around. And if you are in a position to manipulate financial assets yourself, be careful. Uncle Sam will come after you if you are caught.

Werner, M.L. & Jones, K.H (2004). Introduction to Accounting: A User Perspective, Second Edition. Upper Saddle River, New Jersey: Pearson Prentice Hall. (1) 16