Ethics For Accountants
Memorandum
Subject: Personal Expenses in Accounts payable
To: Director of the Internal Audit Committee
From:
Date:
The money that a company owes to the creditors is accounted for in the accounts payable. All the expenses in account payable are generally short-term obligations. According to the accounting standards, payments to staff should not be included in accounts payable because these staff payments should be paid via the expenses system or payroll. In the context of the ethical term, it should be realized by the executives and employees of the company that business is not their piggy bank. The money which is held by the company must need to be used for business purposes. It means that money could not be used by the executives or employees to pay for their vacations, groceries, mortgage and for any other purpose that have no relation with the business. When business expenses are shown as personal expenses then it will indicate that tax evasion is carrying on the company by unethical means. It is the ethical responsibility of executives to follow the company policy regarding the reporting of expenses. In this case, it might be possible that the company’s expenses are shown as personal expenses that might lead to tax evasion. The reimbursement of personal expenses indicates that the company is considering reducing tax liability by taking a tax-deductible advantage.
The main objective of this memorandum is to draw your attention to unethical reporting carried out on the company. Accounts payable of the company revealed that proper reporting is not carried by the company because I came to point out that business expenses are shown as executive expenses, but the business is taking a tax exemption which is not ethical because it is leading to the tax evasion. The company’s expenses are taken as executive expenses, which are personal expenses, so there is no tax deduction. It indicated that the company is unethically saving taxes. It is common that the executives of the company cannot claim personal expenses, but in our company, I found that the executives are claiming personal expenses which must need to be considered. Another important aspect is that the directors are reimbursing the personal expense which is not tax-deductible expense which is against the ethical act occurring in the company. As the directors and the executives have legitimate power to use the funds of the company, it made it difficult to detect the unethical acts done by the executives. In this way, unethical means are used by the directors to conduct tax evasion. Tax evasion in this way conceals or misrepresents the true and real state of the company to the tax authorities, which is the unethical conduct of the company. It is significant to note that it is unethical for the company to justify avoiding paying a fair amount of taxes. According to my perception, this wrong reporting by the executives is avoiding a social obligation. Tax evasion carrying on the company is an unethical and immoral practice because of the reason that the integrity of the tax system is undermined by tax evasion. Some of the important unethical aspects considering in the company are given below:
- The executives are claiming those expenses for which executives are not entitled to reimbursement.
- The limits regarding the allowable expenses are exceeding by the management
- Legitimate expenses are inflating in the company
- There is no documentation regarding the advantage taking by the executives of maximum reimbursement allowed
- Personal items under the use of executives are expensed in the company (McGee).
I want to point out that the company knows that expenses are reported fraudulently, but there is no proper action taken. It would develop a sense of thinking in the employees that some level of unethical act is okay in the company. Here important factor to consider is that employees and executives should not allow determining independently that what unethical attitude and behavior are acceptable in the company. Clear expectations must be there in the company. The investigation of unethical reporting of business expenses is required, and it is important to take proper action against the personnel responsible in the company. There should be a proper policy based on which those expenses will be reimbursed that directly related to the services or work performed by the directors or employees in a company. The adoption of adequate accounting in a company is a basic need to ensure that all the transactions and expenses are recorded accurately. The company currently lacks the proper accountable plan because these expenses shown in Account Payables have no documented evidence. The company must have to maintain prompt recording regarding the excess payments made to the executives because in the case when excess payments are not returned from the executives than the difference of amount would be gross income of the executives in respect of which they are held responsible for paying income tax.
Ethical principles of consistency, transparency, and accountability should need to be guided for underpinning the tax policies of the company. The proper way for the company is to focus on the development of proper tax planning which should be transparent rather than hiding behind the tax evasion by showing the business expenses as personal expenses of executives or through reimbursement of personal expenses. The main concern of our company regarding the tax system is certain to know the tax liability for which it is important to plan the investment and strategy of the company in a proper way (Back). According to codes of ethics, it would be good practice for the company to have a transparent and clear statement about the payment of taxes which a company has to pay to tax authorities. It is required to realize that tax evasion is illegal fundamentally because currently the fictitious transactions are recorded in the company and expenditure of the company is inflating which is unethical means of reducing the tax liability. A zero-tolerance policy needs to be implemented in the company with the consideration of predictable regularity because it will encourage the executives and employees to behave ethically. In the context of the expense reporting process, it is significant to demand honesty from the executives. It would be helpful in developing an ethical culture in the company (Coenen).
It is requested to give focus on the company’s policy regarding the reporting process of business expenses and personal expenses. The unethical reporting of business expenses and reimbursement of personal expenses should need to be eliminated because this act by the executives can make the company vulnerable. Tax evasion in this way is against the ethical responsibility of the company. If the proper focus is not given to unethical acts, then it will damage the reputation of the company and public trust will be destroyed, which would be costly for the company. It should be realized by the executives that by making a fair amount of tax the tax authorities will show the company as socially responsible. I want to draw your attention to these arrangements of tax planning that are going beyond the policy intent of tax law that is not ethical because it could affect or exploit the tax system.
Regard
Name and Signature
Work Cited
McGee, Robert W. “Three Views on the Ethics of Tax Evasion.” Journal of Business Ethics 67.1 (2006): 15-35.
Back, Philippa Foster. “Corporate Tax Avoidance: You Pay, Why Won’t They?” Ethics.Org. Ethics.Org, 22 September 2018. Web. 8 November 2018. http://www.ethics.org.au/on-ethics/blog/october-2016/corporate-tax-avoidance-you-pay-why-wont-they.
Coenen, Tracy. “Expense Report Abuse: A Sign of Bigger Problems.” All Business. All Business, 12 October 2018. Web. 8 November 2018. https://www.allbusiness.com/expense-report-abuse-a-sign-of-bigger-problems-2-5220446-1.html.
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