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Ethics in Accounting

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Ethics is more than simply the pursuit of goods; is also about fidelity to ethically acceptable relationships. A crucial relationship is that of a professional towards his or her client. Because accounting is a skill that demands expertise, and because accountants have clients’ who depend on that expertise, accounting can be included among the professions. Accounting ethics in the field of accounting refers to the guidelines (consisting of judgments and moral values) that a professional needs to follow while practicing accounting. People using the service of accounting professionals rely on their professional competency to take decisions and in the process also relies on the ethics followed by them.
Roles an Accountant can fulfill
Although accountant’s primary purpose is to present a picture of an organization’s financial affairs, accountants play many other roles:
1) Auditing- the most important role is the role of an independent accountant (auditor). The auditors function is that the organizations estimate are based on formulas and those formulas are applied consistently year to year- thus to ensure reasonable and consistent application.
2) Managerial Accounting- In house role of accountant is to give most accurate picture of the organizations economic state so that company can flourish. The account’s main responsibility is to the company, but if the companies’ board, managers and share-holders are at cross purpose, the accountant is conflicted. This conflict forms the ground for many ethical problems.
3) Tax accounting- another important role of accountant is the determination of tax liabilities for clients’, individual or corporate.
4) Financial planning- more and more accountants are engaging in this kind of activity, which springs from the knowledge of tax law and financial investment markets-financial planning.
5) Consulting-because an accountant is exceedingly familiar with the financial status of the company he /she serves, the accountant can become a valuable company consultant in money management, income distribution, and accounting and auditing functions.
It is due to the above roles that the accounting professionals developed a code of conduct that all accounting professionals need to follow. The essence of the ethics lies in its use. The code of conduct or ethics entails an accounting professional to adhere to high degrees of self discipline which even goes falls beyond the legal precincts. Whenever an accounting professional becomes a member of organizations like IMA, IIA and CIA, they are directed to follow the code of conduct and ethics.

Factors influencing ethics
• Creative Accounting- is an accounting practice which takes advantage of the gaps in accounting rules and principles to misrepresent the financial position and performance of a company (Shah 1998). Creative accounting does not necessarily break any accounting rules but as Shah (1998) suggests, it goes against the spirit of accounting principles and rules. Creative accounting is practiced for various reasons such as, to increase employee and management bonus and to boost a company’s share price (Clikeman et al. 2000).
Thus if performance is linked to accounting figures those responsible for preparing the accounts will be tempted to manipulate the figures increase their rewards. Organizations have been criticized for encouraging unethical behaviour, due performance measurements criteria. It is thought that managers and employees should be rewarded for ethical behaviour rather than financial results which can lead to the manipulation of accounting figures to meet targets. Creative accounting impairs the integrity of accountants and opposes the IFAC Code of Ethics which requires accountants to be straightforward in carrying out their duties (IFAC 2008).
• Gender- differences in ethical decision making have been of interest to numerous researchers, with research focusing on ethical judgment, behaviour, intent and awareness (O’Fallon and Butterfield 2005). In the recent review of recent literature on ethical decision making, the researchers found females are more ethical than males. O’Leary and Radich (2002) also concluded that there is a significant gender difference in the ethical attitudes. Their findings revealed men were almost four times more likely than women to accept bribes. This view of gender differences is also supported by Glover et al. (2002) who used a laboratory format with a decision exercise to examine business students’ workplace values, the results show that women had more ethical concerns than men regardless of the situation.
• Age-Experience may influence ethical behaviour, as individuals face more ethical dilemmas they should be better prepared to respond in the future if they can learn from the past. More experienced professionals are likely to make better moral decisions than less experienced professionals, this may indicate that age affects ethical views (O’Leary and Stewart 2007).
• Culture and Risk-Su (2006) concluded that ethical perception in business practices is influenced by cultural differences. Individual attitude towards unethical behaviour changes when there is a risk of being caught (O’Leary and Cotter 2000; O’Leary and Radich 2000; Sadler and Barac 2005). The number of individuals who are prepared to act unethically will decrease if there is a risk of being caught. This suggests that people who engage in unethical behaviour may not seriously consider the consequences of such actions and might feel that they will not be exposed.

Business ethics1 enumerates six ways that code of conduct could be valuable.
• A code can motivate through using peer pressure, but holding up a generally recognized set of behavioral expectations that must be considered in decision making.
• A code can provide more stable permanent guide to right or wrong than do human personalities or continual ad hoc decisions.
• Codes can provide guidance to ambiguous situations.
• Codes not only guide the behavior of employees, they can also control the autocratic power of employers.
• Codes can help specify the social responsibility of business itself.
• Codes are clearly in the interest of business, for if businesses do not police themselves ethically, others will do it for them.

_____________________________
1Norman Bowie and Ronald Duska, business ethics, Prentice-Hall, 1985
American Institute of certified public accountants (AICPA) principals of Professional code of conduct
• Principle I- In carrying out the responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.
• Principle II- Members should accept the obligation to act in a way that will serve the public interest, honour the public trust, and demonstrate commitment to professionalism.
• Principle III- To maintain and broaden public confidence, members should perform all professional responsibilities with highest sense of integrity.
• Principle IV-A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities.
• Principle V- A member should observe the profession’s technical and ethical standards, strive continually to improve competence and quality of services, and discharge professional responsibility to the best of the ability.
• Principle VI-A member in public practice should observe the principals of the code of professional conduct in determining the scope and nature of services to be provided.
Ethics of managerial accounting
• Competence-The accountant must maintain an appropriate level of knowledge and skill; follow laws, rules and technical standards; and prepare reports that are clear and complete based on reliable and relevant information after appropriate analysis.
• Confidentiality- Information obtained when performing professional duties should not be disclosed to third parties unless there is a legal or professional requirement to do so (IFAC 2008). Accountants have access to privileged information and their clients need to be assured that this information is used appropriately.
• Integrity- This standard requires accountant to avoid both actual and apparent conflicts of interest and to refrain from activities that would prejudice the accountants’ ability to execute ethical duties. The accountant must refuse gifts and favours that could influence his or her actions, and should not subvert the organizations legitimate objectives. The standard further requires that the accountant admit to professional limitations, communicate favourable and unfavorable information, and refrain from behavior that would discredit the profession.

• Objectivity- The central standard of the code is objectivity, which requires the accountant to communicate information fairly and objectively and to disclose fully all relevant information that could reasonably be expected to influence an intended users understanding of reports, comments, and recommendation presented.

The Need for Ethical Behaviour
The accounting profession can be seen as one in which great reliance is placed on the work of its members by interested parties. Investors rely on the information provided in published reports to assist them in making informed investment decisions. Creditors also use this information to determine whether businesses are able to meet their financial obligations. The essence of accounting ethics is in the maintenance of professional objectivity and integrity. Ethics is the need of the day for the profession of accounting; more so, when the world is passing through a turbulent economic time.

References
Role of Ethics in Accounting www.bookkeeping-financial-accounting-resources.com/role-of-ethics The importance of accounting ethics writermarion.hubpages.com › ... › Workplace Ethics
Code of Ethics for Professional Accountants ethics.iit.edu/codes/code-of-ethics-for-professi-1.pdf Accounting ethics [electronic resource] / Ronald Duska, Brenda Shay Duska, Julie Ragatz
Encyclopedia of small business [electronic resource] / Anaxos, Inc., editor

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