Ethics in Accounting Case

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Objectivity and independence are important ethical values in the accounting profession. Accountants must stay free from conflicts of interest and other debatable business relationships when managing accounting services. Failure to remain objective and independent might hinder an accountant’s ability to deliver an honest opinion about a company’s financial information.

Due care is the ethical value demanding accountants to monitor all technical or ethical accounting standards. Certified public accountants are often compelled to review generally accepted accounting principles (GAAP) and apply this framework to a firm’s specific financial information. Due care requires bookkeepers to use competence, diligence and a proper understanding of financial information. Competence is generally based on an individual’s education and experience. Consequently, due care may require senior accountants to oversee and direct other accountants with less experience in the accounting profession.

The accounting industry normally limits the number of services public accounting firms or individual CPAs can offer clients. Accounting services consist of general accounting, auditing, tax and management advisory services. Accountants who do more than one of these services for a customer may compromise their objectivity and independence. For example, those who operate general accounting functions and then audit this information are basically revising their own work. This could permit an accountant to hide a company’s negative financial information.

Role of Ethics in Accounting

The main role of ethics in the field of accounting is to ensure that the accountants entering this field must be following certain established rules and standards in order to conduct the jobs in a justified and legitimate way. Moreover, it is also the responsibility of accounting professionals to facilitate the confidence of public in accounting. There are numerous institutes and organizations that develop these guidelines for professionals to follow, such as Institute of Internal Audit (IIA), and the Institute of Management Accountants (IMA). These professional organizations of accounting establish certain ethical guidelines and direct their members to follow those guidelines. The question that arises here is that whether ethics can be taught to professionals or not? The best answer to this question is that there are certain rules and standards that are taught to us by different people in our lives. Public accounting firms or private companies often form a code of ethics or conduct for accountants. These ethics and conduct guidelines guarantee all accountants act in a consistent manner. In the absence of specific regulations or principles, accountants have a duty to review their actions to ensure they are following commonly accepted principles.

Ethics play an important role in accounting and financial decision-making because money is an area where greed and deception easily come into play. Many companies can easily lose their success because of unethical practices, and laws such as the Sarbanes-Oxley Act help to regulate financial practices of companies and create an ethical code of conduct to follow.

Accountants, like others in the business world, are confronted with many ethical dilemmas, some of which are complex and difficult to work out. An ethical dilemma is a situation in which an individual or group is faced with a decision that tests this code. (Spiceland, Sepe, & Nelson, 2013) Such as, the capital markets’ concentrate on near-term profits may perhaps entice a corporation’s administration to bend or even break accounting rules to inflate reported net income. Another example of an accounting ethical dilemma is if the manager comes into the assistant controller’s office and asks them for a check for $200.00 for expenditures they sustained entertaining a customer last week. The controller might offer receipts for the claim. However, later on that day, the assistant controller learns that the expenses came from a dinner date the manager had with their husband. Due to the newly discovered information, by law and the Code of Ethics, the assistant control is not to continue processing the check, because the costs were for a personal gain. They are expected by the company and stakeholders to be accurate and honest in reporting the financial documents. Therefore, the $200 check cannot be processed for the expenses incurred last week, as the supervisor has requested. If the assistant was to give their manager a check for reimbursement on the dinner she and her husband had, they would be cooking the books to indicate fraudulent financial reporting. Based on AICPA Professional Standards, fraud may be concealed through falsified documentation, including forgery. (Consideration of Fraud in a Financial Statement, 2002) It would be so easy for the assistant controller to look the other way, but this would be going against biblical principles, and it is in contradiction of the law. Speaking up might lead to negative outcomes, but they, must abide by their decision. James 4:1 says, “So whoever knows the right thing to do and fails to do it, for him it is sin.” (The Quest Study Bible, New International Version, 1994)

Many have seen successful industries fail; they have observed cost-effectively running companies undergo a downfall and some seemingly operative firm take a great fall in their profits and reputation. The primary cause for these surprising catastrophes is the lack of professional ethics. A true discernment of right and wrong and the capability to differentiate between them are their moral values. Ethics is an important part of life, and having a prosperous corporation is no exception to this. To become a successful certified public accountant, a person needs to be driven by strong ethical standards. They must take each situation case by case and evaluate the facts, for some ethical breaches or violations are more severe than others. If an individual takes upon themselves to break one law, management have no other alternative but to reprimand or terminate the employee. This sends a message to the rest of the team that this type of conduct is not accepted. However, if the manager purely turns their head regarding this unethical behavior, they are by default approving the behavior.

Companies can expect long-term profits to be reduced if they allow unethical behavior in their business. The company will lose revenues from lawsuits, litigation expenses and fees, negative public relations, and most of all loss of company morale. There is also the probability of prison time, heavy corporate fines and penalties, or forfeiture of licenses. For example, in June 2000 Xerox was caught altering financial results for five years,