Corporate Governance Values and Ethics

ETHICS IN FINANCE
Click to edit Master subtitle style By :- SHIKHAR VERMA 4/26/12

Ethics In Finance : Overview

All business dealings are involve finance.

[Even not for profit making organizations (NPO) are also deals in finance.]

Most of the ethical issues regarding finance are concerned with financial reporting*.

*[Is a formal record of the financial activities of a business, person, or other entity.]

The internal financial reporting has to 4/26/12

Types of Finance
Corporate accounting and finance, which refers to the accounting practices reporting through financial statements of public limited companies is broadly categorized as follow :1)

Accounting. Financial Management.

2) 4/26/12

4/26/12

Financial Accounting : What is Accounting ?

Accounting is the art of :

Identifying Recording Classifying Summarizing Measuring Interpreting Communicating

All the information in a significant 4/26/12

Financial Accounting

Financial accountancy is used to prepare accounting information for people outside the organization or not involved in the day-to-day running of the company. It is basically concerned with the preparation of financial statements for decision makers, such as :4/26/12

Stockholders

Primarily historical.

Features of Financial Accounting

(Basically based on the data generated in the past.)

Designed and intended for use by shareholders, creditors, and public regulators. Reported publicly.
(Generally in the AGMs of the organization)
4/26/12

Management Accounting

Management accounting or managerial accounting is concerned with :

The provisions and use of accounting information to managers with in organizations. To provide them with the basis to make informed business decisions.

4/26/12

Primarily forward-looking, instead of historical.

Features of Management Accounting

Designed and intended for use by managers within the organization, instead of being intended for use by shareholders, creditors, and public regulators. Usually confidential and used by management, instead of publicly reported. Computed by reference to the needs of managers, often using management information systems, 4/26/12 instead of by reference to general financial

Financial Management

The management of the finances of a business organization in order to achieve financial objectives The key objectives of financial management would be to:

Create wealth for the business

4/26/12

Elements of Financial Management

4/26/12

Ethics In Finance

Ethics in general is concerned with human behavior that is acceptable or "right" and that is not acceptable or "wrong" based on conventional morality.

General ethical norms encompass truthfulness honesty integrity

4/26/12

Unethical Activities in Finance

Insider Trading Financial Deception Churning Suitability

4/26/12

INSIDER TRADING

Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options) by individuals with potential access to non-public information about the company. For example :

Rajat Gupta Former Director Goldman Sachs Group

4/26/12

FINANCIAL DECEPTION

Financial deception (or financial scam / financial fraud) is the Attractive but false presentation of financial assets, Transactions or schemes, By manipulators whose real aim is to pocket those investor's savings.
4/26/12

For example :- Satyam Scandal

CHURNING
Churning is a slang term that is defined as

Excessive trading on a client account by a broker. The purpose of the activity is not to benefit the investor, But to generate additional commissions for the broker. Also referred to as twisting,

The practice of churning is considered to 4/26/12 be highly unethical

SUITABILITY

Suitability refers to the situation when a broker recommends to the clients that you buy or sell a particular security. In making this assessment, the broker must consider the clients risk tolerance, other security holdings, financial situation (income and net worth), financial needs, and investment objectives.

4/26/12

The following practices are examples of violations of the suitability rules: a reasonable Recommending securities without having
basis for the recommendation Recommending securities without taking the client's financial situation, needs and objectives into account

Recommending the same security to all clients

Failing to describe important facts and risks about the security to each client

Making trades of excessive size in a client's account

4/26/12

Way to Encourage Ethical Behaviour in Financial Services

Organizations are making some arrangements for giving advanced ethics education to its employees and workers.

Decentralization in various steps involved in any deal.

Separation of different functions from one to many.

Time to time survey of the client.

Encouraging ethical behaviour to reduce pressure 4/26/12 created by the corporate culture.

4/26/12

4/26/12