Defining Financial Ethics

Introduction

This report will cover the meaning of Financial Ethics, what kind of accounting practices are considered to be unethical and how a company can overcome problems. In addition this report talks about the use of EBITDA in accounting practices and how EBITDA can be manipulated to show a company’s performance as good when in fact they are suffering. The report will also show how EBITDA and financial ethics can be intertwined with each other.

FINANCIAL ETHICS

Financial ethics is a form of business ethics but with more emphasis on the financial end of the business. To be a trustworthy person in this field it is a requirement that you refrain from bad accounting practices such as aggressive accounting. Aggressive accounting is where numbers are changed in order to make investors/shareholders feel comfortable with their investment. Aggressive account also inflates stock prices using false data to report income, not reporting all the expenses occurred within the company, concealing losses the company experienced, and overall not reporting an accurate financial statement to increase or stabilize the stock price and keep investors happy. This type of accounting practice is unethical and is an outright lie to investors and or stockholders. This type of accounting fraud involves one or more employees or an entire accounting division, modifying , getting rid of or marring accounts so the true information on these accounts are not revealed to stockholders. Why would a company do this type of illegal accounting? Companies do this in order to show they are doing well in order to obtain a higher credit limit with a bank, or financial institution making higher loan amounts available. Another reason is to pump up the share pric...

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...holders/investors showing good assets yet the company itself can be cash poor. Companies with none to small cash flow are companies that are in financial difficulties, which again if not reported accurately to investors and stockholders can be misleading. This is why there should always be ethics in reporting finances to investors and stockholders so they are aware of any problems the company may be experiencing, and to hide these problems is unethical. Companies as well as healthcare industries are responsible for reporting accurate income to debt expenditures to all investors and stockholders regardless if it shows a negative impact on the company. Ethical reporting is mandatory to keep companies honest and investors well informed. EBITDA should not be used to cover up any bad investments, or lack of cash flow, but should be used to report honest information.