Academic journal article Journal of Financial Management & Analysis

Financial Management Call for New Approach to Ethical-Based Financial Statement Analysis

Academic journal article Journal of Financial Management & Analysis

Financial Management Call for New Approach to Ethical-Based Financial Statement Analysis

Article excerpt


Writing on this revolutionary and new approach to financial statement analysis is a difficult assignment as aptly pointed out by renowned applied financial (accounting) statisticians-cum-corporate finance experts, Lusk, et. al (of the Wharton School : The University of Pennsylvania, U.S.A.) in their seminal paper relating to 'Idiosyncratic Risk':

. . .although most often social reaction to moral, dilemma is to increase regulation, monitoring and sanctions, we wish to offer the creative alternative offered by Professor M. R. Kumara Swamy's Idea of Ethical Based Financial Statements' . . . This is a provocative idea (the first time that we have encountered such a revolutionary concept) in the sense that it is an attempt to use a moral or spiritual context for the development of financial statements .... Needless to point out that there are a number of significant hurdles to breach to move in this direction .... This is certainly a topic for future consideration2.

It is true but a sad commentary that to day's business world has been characterised by moral bankruptcy violating all norms of good business ethics which, in turn, has caused mounting financial problems due to frequent bank failures and/or insolvencies - - the result of their engaging in fradulent deals like currency and drug trafficking, smuggling, corruption, forged letters of credit and bankers receipts and manipulating accounts, etc.

It is self explanatory that as financial economists have to work with diverse institutions comprising human beings of diverse nature (and tackle their problems) and face new challenges posed by economic development contradictions (based on selfish versus selfless considerations) and conflicts between capital-rich-cumcivilized (industrialized) countries (with negative cultural ethos) and culturally rich-cum-capital scarce (developing) countries with positive moral ethos, they must realize that corporate ethics, as a discipline is so new that its scope is still undefined. The economic relationship between the operator in the economic system (human beings) and the society (environment) has to be rightly understood by posing the following questions:

* Why should the individual serve others?

* What claims has society on individual?

It is in this perspective that the subject, ethics : corporate business and government has, of late assumed great significance in theory and practice (as encoded in customer service manual and employees rule book of organisations and as a teaching subject: course in educational institutions and organisations) in almost all countries of the world - - industrialized, developing countries.

Man and Money : Loss of Virtue

A close examination of mottos of selected countries - -

U.S.A. (world's strongest democracy) :

"In God We Trust"

NIGERIA (Africa's largest country) :

"Unity & Faith; Peace & Progress"

INDIA (world's largest democracy) :

"Truth Alone Wins"

- - in the light of Benjamin Franklin's (the Founding Father of American Management) Management Ethic* which constitute. Individualism; Industry and Frugality; Experimentation and Honesty which is encoded in the cultural DNA that continues to shape the American management vis-a-vis other countries institutions and 'Character Ethic' which is based on the idea that human existence is governed by objective, fundamental principles to which people must conform for maximum effectiveness in life and the highly relevant observations of Divine Sathya Sai Baba:

when the manager follows the conscience, good results accrue; when the manager follows the vagaries of monkey mind, destructive consequences will follow... we want a Government/Institution which will make the people tread the path of truth and righteousness. GOD-MENT is the real Government.

This amply attests to the fact that money makes many wrongs. Though man has made many innovations in various fields of life, he has not succeeded in getting happiness from any of them. …

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