Throughout
the recent years, the relationship between fraudulent financial reporting and
the tone at the top of an organization has stimulated momentum globally. The expression,
‘tone at the top’, refers to the ethical culture that is created in the
workplace by an organization’s top management and then trickles down through
the rest of the organization. If the tone set by the senior manage-ment upholds
operating values that reflect commitment to integrity, employees will be inclined
to reinforce that ethical culture. However, if the senior management upholds a
poor corporate culture, then everything else will fail. Consequently, tone at
the top is a fundamental philosophy for setting the foundations of an ethical
corporate culture as it is the glue that holds an organization together.

 

The tone
set by management is an essential internal control that is necessary for
promoting investor confidence and ensuring the mitigation of emerging risks. According
to the report, Center for Audit Quality, 72% of executives acknowledged that the
principal reason for economic crimes is a poor corporate culture. Undoubtedly, the
ethical tone set by top management determines the values and norms of an
organization. However, if top management’s sole objective is profit maximization
at all costs, it sends employees the signal to do whatever it takes to pursue
profits ultimately creating a workplace culture of fraud.

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Thus, by
implementing a strong corporate culture that creates an expectation for
everyone to do the ethical thing, organizations can counteract the pressures of
employees succumb-ing into unethical behaviours to achieve short-term goals.

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