7.2 Gifts, Entertainment, and Bribery
4 min read•august 15, 2024
Gifts, entertainment, and pose ethical challenges for accountants. These practices can blur the lines between professional relationships and improper influence, potentially compromising and objectivity. Understanding the boundaries is crucial for maintaining trust in the profession.
Accountants must navigate complex legal and ethical landscapes when dealing with gifts and entertainment. Clear policies, adherence to professional standards, and a commitment to are essential. Recognizing and avoiding bribery is vital to uphold ethical standards and comply with anti-corruption laws.
Gifts and Entertainment in Accounting
Distinguishing Between Acceptable and Unacceptable Gifts and Entertainment
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- Gifts and entertainment are common in business relationships but there are legal and ethical boundaries that must be observed, especially in the accounting profession where independence and objectivity are paramount
- Acceptable gifts are typically of nominal value, not given with the intent to influence a business decision, and would not be perceived as compromising an accountant's integrity or objectivity (small promotional items, moderately priced meals, occasional tickets to local events)
- Unacceptable gifts are those that are lavish, extravagant, or given with an explicit or implied expectation of receiving something in return, such as preferential treatment, confidential information, or a favorable decision
- Cash gifts are generally prohibited
- The frequency and timing of gifts and entertainment should also be considered
- Accepting multiple gifts from the same party or gifts during sensitive periods like contract negotiations or audits may create the appearance of impropriety
Guidance on Acceptable Practices
- Company policies, professional ethics codes, and cultural norms provide guidance on acceptable practices
- Accountants should err on the side of caution and consult with supervisors or ethics officers when in doubt
- Examples of company policies may include setting value limits on gifts, requiring disclosure or approval for certain types of entertainment, or prohibiting gifts from audit clients
- Professional ethics codes like those issued by the AICPA and IFAC emphasize the importance of integrity, objectivity, and professional skepticism in dealing with gifts and entertainment
Bribery and Corruption: Legal and Ethical Implications
Defining Bribery and Corruption
- Bribery is the offering, giving, soliciting, or receiving of something of value to influence the actions of an official, or other person, in charge of a public or legal duty
- Corruption is the abuse of entrusted power for private gain
- Engaging in bribery or corruption is illegal under domestic and international laws
- Penalties can include fines, imprisonment, and reputational damage for both individuals and organizations
- Bribes can take many forms beyond cash payments (lavish gifts, entertainment, travel expenses, charitable donations, job offers for decision makers or their relatives)
Ethical Considerations and Public Trust
- Facilitation payments, sometimes called "grease payments," made to expedite routine government actions may be allowed under some laws but are still ethically questionable and prohibited by many companies
- Even the appearance of bribery or corruption can undermine public trust in the accounting profession and the integrity of financial markets
- Accountants have a responsibility to act with honesty and integrity and to report any suspected wrongdoing
- Turning a blind eye to bribery or corruption, even if not directly involved, can make an accountant complicit and damage their professional reputation
Anti-Bribery and Anti-Corruption Laws for Accounting
Key Laws and Regulations
- Numerous laws and regulations exist at the national and international levels to combat bribery and corruption
- Key examples include the U.S. (FCPA), the U.K. Bribery Act, and the OECD Anti-Bribery Convention
- These laws generally prohibit the payment of bribes to foreign officials to obtain or retain business and require companies to maintain accurate books and records and adequate internal controls
- Violations can result in significant fines, imprisonment for individuals, and exclusion from government contracts
The Role of Accounting Professionals
- Accounting professionals play a critical role in preventing, detecting, and reporting bribery and corruption
- They are responsible for ensuring that financial statements are free from material misstatement due to fraud and that internal controls are effective
- Auditors are required to assess the risk of material misstatement due to fraud, including bribery, and to respond appropriately
- This may involve additional audit procedures, communication with management or those charged with governance, or reporting to regulatory authorities
- Professional ethics codes, such as those issued by the AICPA and IFAC, also address bribery and corruption and provide guidance for accountants on how to maintain integrity, objectivity, and professional skepticism
Policies for Handling Gifts, Entertainment, and Bribery
Establishing Clear Policies
- Organizations should establish clear, written policies on gifts, entertainment, and anti-bribery that align with applicable laws, regulations, and professional standards
- These policies should be communicated to all employees, directors, and third parties acting on the organization's behalf
- Gift and entertainment policies should set value limits, define acceptable and unacceptable types of gifts and entertainment, address timing and frequency, and provide guidance on when prior approval or disclosure is required
- Anti-bribery policies should prohibit the offering, giving, soliciting, or receiving of bribes, , or other improper payments
- They should also address facilitation payments, political and charitable contributions, and hiring of government officials or their relatives
Implementing Procedures and Enforcement
- Procedures should be implemented to support compliance with these policies
- This may include due diligence on third parties, training for employees, regular risk assessments, monitoring of expenses and transactions, and mechanisms for reporting and investigating potential violations
- Accounting and record-keeping procedures should ensure that all transactions are accurately and transparently recorded and that there are no "off-books" accounts or hidden payments that could be used to conceal bribes
- Enforcement of policies is critical
- Violations should be promptly investigated and disciplined, and the effectiveness of policies and procedures should be regularly reviewed and updated as needed
- Tone at the top is important - senior management and the board should model ethical behavior and reinforce the importance of compliance
Key Terms to Review (16)
Bribery: Bribery is the act of offering, giving, receiving, or soliciting something of value with the intent to influence the actions of an official or other person in charge of a public or private duty. It raises significant ethical concerns, as it undermines trust, distorts decision-making processes, and can lead to unequal treatment. Understanding bribery is crucial for identifying ethical dilemmas and analyzing the implications of gifts and entertainment in business contexts.
Conflict of Interest: A conflict of interest occurs when an individual or organization has multiple interests that could potentially influence their decision-making, leading to a situation where personal, professional, or financial considerations may compromise their judgment. This situation is particularly important in various fields, as it can undermine trust, transparency, and ethical conduct.
Enron: Enron was an American energy company based in Houston, Texas, that became infamous for its accounting fraud and corruption scandal in the early 2000s. The company used complex financial structures and deceptive accounting practices to hide its debt and inflate profits, ultimately leading to one of the largest bankruptcies in U.S. history. This scandal raised significant concerns about ethics in accounting, particularly regarding gifts, entertainment, and bribery as it illustrated how corporate culture can compromise ethical standards.
Ethical decision-making model: An ethical decision-making model is a structured approach used to evaluate and resolve ethical dilemmas by systematically considering the moral implications of various choices. This model helps individuals and organizations navigate complex situations by assessing the consequences, stakeholders, and values involved in making decisions related to gifts, entertainment, and bribery. It ultimately aims to promote integrity and ethical behavior in professional conduct.
Foreign Corrupt Practices Act: The Foreign Corrupt Practices Act (FCPA) is a U.S. law that prohibits individuals and businesses from bribing foreign officials to gain or retain business. It aims to eliminate corruption in international business transactions by making it illegal for companies to make payments to foreign officials in exchange for favorable treatment or business opportunities. The FCPA also requires companies to maintain accurate books and records, promoting transparency and ethical behavior in financial reporting.
GAAP: GAAP, or Generally Accepted Accounting Principles, refers to the framework of accounting standards, principles, and procedures that companies must follow when they compile their financial statements. It ensures consistency, reliability, and transparency in financial reporting, allowing stakeholders to make informed decisions based on comparable financial data across organizations.
IFRS: IFRS stands for International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board (IASB) that aim to make financial statements comparable, transparent, and consistent across different countries. These standards facilitate international investment and improve the quality of financial reporting globally by providing a common framework for companies, regardless of their location.
Incentives: Incentives are motivators that influence individuals' or organizations' behavior, often driving them to act in a particular way to achieve certain outcomes. In the context of gifts, entertainment, and bribery, incentives can lead to ethical dilemmas as they may encourage individuals to prioritize personal gain over professional integrity, potentially resulting in misconduct or corruption.
Integrity: Integrity in accounting refers to the adherence to moral and ethical principles, ensuring honesty and fairness in all professional actions. It involves maintaining consistency of actions, values, methods, measures, and principles, which builds trust with stakeholders and promotes a culture of ethical decision-making.
Kickbacks: Kickbacks are payments made to someone as a reward for facilitating a transaction or service, often in a way that is unethical or illegal. They usually involve a third party receiving a portion of the funds from a transaction, where such payments are not disclosed or authorized by the involved parties. This practice can undermine trust and integrity in business relationships, particularly within accounting and finance.
Legal Liability: Legal liability refers to the legal responsibilities and obligations that an individual or organization has, which can result in being held accountable for actions or omissions that cause harm or damage. This concept is crucial in understanding the ethical conduct required in various professional settings, particularly in ensuring compliance with laws and regulations while maintaining the integrity of the profession.
Reputation Damage: Reputation damage refers to the harm caused to an individual or organization's public image and credibility, often resulting from unethical behavior or misconduct. Such damage can have significant long-term consequences, including loss of trust from stakeholders, decreased customer loyalty, and financial losses. The integrity of accounting practices and adherence to ethical standards are crucial in preventing reputation damage.
Sarbanes-Oxley Act: The Sarbanes-Oxley Act (SOX) is a U.S. federal law enacted in 2002 to protect investors from fraudulent financial reporting by corporations. It was created in response to major financial scandals and aimed to improve the accuracy and reliability of corporate disclosures, thereby enhancing accountability in accounting practices.
Transparency: Transparency refers to the openness and clarity with which information is shared, particularly in financial reporting and decision-making processes. It promotes accountability and trust among stakeholders by ensuring that relevant data is accessible and understandable, reducing the potential for misunderstandings or manipulation.
Utilitarian approach: The utilitarian approach is an ethical framework that assesses the moral rightness of actions based on their outcomes, specifically aiming to maximize overall happiness or utility. This perspective emphasizes the greatest good for the greatest number, guiding decision-making by considering the consequences for all stakeholders involved. It is particularly relevant in evaluating situations where gifts, entertainment, and bribery may impact the well-being of individuals and organizations.
Wells Fargo Scandal: The Wells Fargo scandal refers to the unethical practices that emerged in 2016 when it was revealed that employees created millions of unauthorized bank and credit card accounts to meet aggressive sales targets. This incident is a significant example of how corporate culture, focused excessively on profit and performance, can lead to widespread unethical behavior, particularly in the realms of gifts, entertainment, and bribery, as the pressure to deliver results may have encouraged employees to engage in deceitful practices.