You are on page 1of 27

Ethics in Finance

Characteristics of Management
Prone to Fraud
• Unduly aggressive financial Targets
• Domination by person or group without
• Aggressive accounting practice to keep
stock prices high
• Pressure to reduce tax liabilities
• Major performance related compensation
• Non-Financial personnel involved in
accounting matters

Ethical issues in Finance • Financial statements • Hostile Takeovers • Financial Markets – Insider Trading .

Fraud in Financial Statements • Fictitious Revenues • Concealed Liabilities and Expenses • Fraudulent Asset Valuations • Improper or Fraudulent Disclosures or Omissions Creative accounting – form of fraudulent financial reporting so as to provide misleading .

Duties of an Auditor • To give an accurate statement to the members about the state of affairs of a company • To meet the objectives of the Companies Act 1985 and also the Articles of Association • To be reasonably skillful and careful in identifying the true nature of the accounts .

Ethical Audit • An audit that assess a business’s structures. • It measures the extent to which the activities of a business comply with the standards it has publicly declared to its external customers • It measures business conduct against varied moral standards of the community. systems and policies. . procedures.

Objectives of Ethical Audit • to provide a critical assessment of functioning of business • To investigate into acquisition or restructuring operations • To determine the type of training necessary for employees • To establish ethical conduct of business • To enhance. measure and promote the quality that increases business performance by assessing them against the ethical business objective • To improve the quality of governance by evaluating the performance and ensuring that financial information is both available and reliable .

Ethical Issues in Financial Markets • Deception: act of misrepresenting relevant information • Churning: Excessive or inappropriate trading for clients account by a broker who has control over the account with intent to generate commissions rather than to benefit client • Unsuitability • Unfairness in Markets .

Insider Trading • Refers to trading on price sensitive information by company employees or individuals closely connected with the firm • This information has not been disclosed to other market participants .

Ethics & Insider Trading • It violates equality of opportunity • Does not give a level playing field between insiders and outsiders • Might harm exchange as a whole because investors might not be willing to trade on exchange that does not give shareholders their rights. .

Hostile Takeovers • Are those that elicit opposition from the boards or employees of Target company • Reasons for opposition are as follows:  Disagreements over price  Protecting their own interests .

Anti-takeover defense measures • Poison Pills • Green mail • Golden Parachute • People Pill .

Poison Pills • An anti-takeover device used by company’s management to make takeover prohibitively expensive for the bidders • Company under target changes AOA so that group of Shareholders have special rights to buy and sell preferred stock at highly favorable prices (At times below market price) .

. Ethics & Poison Pills • Poison pills are prohibited in Britain by takeover code because they prevent open competition between bidders for shares • Use of poison pills are ethical if they are designed to protect the management from unwanted takeover bids.

Greenmail • It occurs where a potential takeover agent purchases stock in a company • After the purchases have totaled five percent the agent must announce his intention to takeover the company. if that is the intent • Stock prices go up in anticipation of takeover battle • Management of target company sends greenmails to prevent a shareholder from taking over the company • Takeover agent ends up selling the shares back to company at an increased or higher negotiated price .

Ethics & Greenmail • Target company may be forced to incur debts to raise funds to finance the buy back of shares at premium price .

etc • Presence of parachute allows management to evaluate takeover bid more objectively . bonuses. Golden Parachute • A company gives lucrative benefits to its top executives such as stock options.

People Pill • Management threatens that in event of a takeover the entire management team will resign • If managers act in their own interest rather than company’s long term value then they are acting unethically .

. bring it back to market to make substantial profits. Management Buyout • It occurs when management decide to bid for the company • They convert the company into a private company and at a later date.

Ethics & Management Buyout • Shareholder believe that management may resort to unethical practices to bring down share prices and buy out at cheaper rate • Unethical activities can involve leaking confidential information by managers for their benefit during buy out .

• Coal Scam . . Top Famous Financial Scams in India • Harshad Mehta • Ketan Parekh • Satyam Scam • Roop Bhansali Scam • Subrata Roy • Saradha Scam • NSEL Scam...

Tech Support Scams .scammers have been contacting computer uses claiming to be from the Global Privacy Enforcement Network.Check Scams.FTC (US Federal Trade Commission) 2. invoices.Internal Revenue Service (IRS) Scams 4.5 Small Business Scams in 2017 listed by Business Insider 1. account statements. flyers or brochures 5.look like bills. The scammer then explains that the user's email has been hacked and is sending fraudulent messages.Directory Scams .designed to encrypt digital files .Ransomware Scams . 3.

these directory services promise to deliver greater visibility and ultimately more customers for your growing business. In return for a fee. Directory Scams • Owners of small businesses and non-profits often get inundated with phone calls and messages from people who want to list their companies in online directories. • FTC US Federal Trade Commission went after a Slovakian company called Fair Guide for deceptive practices after it fooled US businesses into paying millions of dollars to be listed in an online directory. .

• Federal investigators say scammers have been contacting computer uses claiming to be from the Global Privacy Enforcement Network. Tech Support Scams • In this criminals posing at tech support personnel contact a user and request computer access so they can "fix a problem" that doesn't really exist-have been around for quite a while. The scammer then explains that the user's email has been hacked and is sending fraudulent messages. And now there's a new twist. They also threaten to take legal action if the user .

the IRS does not receive or request payments in the form of a gift card. an iTunes card. The IRS would never threaten to arrest or sue the person they contact- and lastly. The IRS would never request personal information-such as credit card or Social Security numbers-over the phone. IRS Internal Revenue Service Scams • IRS needs to reach somebody. they'll do it via US mail first. . or a MoneyGram or Western Union wire transfer.

Companies that cash the check may be agreeing to get billed monthly for products or services that are unwanted or unneeded. • Read the fine print carefully. Check Scams • These solicitations usually look like bills. account statements. invoices. And getting out of those contracts can be a nightmare. Businesses may also get something that looks like a rebate or refund check-and there's strong possibility that it's a scam. flyers or brochures. . such as internet access or a listing in an online directory.

That's why it's critical to make sure that all data is properly backed up and easily recoverable in the event of an attack.000 ransomware attacks occur every single day in the United States alone. however. • The best way to avoid a devastating ransomware infection is to make sure employees use extreme caution when opening email attachments or clicking on links inside the bodies of emails. consumers and businesses of all sizes made headlines in 2016 because they fell victim to nasty ransomware viruses designed to encrypt digital files and render them useless until a hefty ransom is paid to get them back. Ransomware Scams • Ransom ware is more prominent. Firewall and antivirus software can also help companies avoid an infection. Any unsolicited email-or emails that look suspicious in any way-should be avoided altogether. Hospitals. more sophisticated and more troublesome than ever. About 4. . according to the US Department of Justice. A high-quality cloud backup solution is the only way to make sure your data will be safe and accessible no matter what happens. • None of those measures are foolproof.