fbpx
Ethic in Accounting Matter
5 Reasons Ethics in Accounting Matter in Business

5 Reasons Ethics in Accounting Matter in Business

The code of ethics in accounting is a set of basic ethical guidelines that professionals must adhere to. These ethical guidelines are more closely described as general principles applying to honesty, morals, and integrity.

Ethics in Accounting However, the “code of professional conduct” is a specific set of rules enforced by governing bodies of certified public accountants. These are rules that must be strictly adhered to.

Organizations such as the American Institute of Certified Public Accountants (AICPA), the Chartered Institute of Management Accountants (CIMA), and the Institute of Internal Accountants (IIA) all have professional codes of ethics for accountants. The IIA guidelines are short and sweet, only two pages, whereas the AICPA and CIMA have long, detailed guidelines requiring an accountant to submit to periodic ethical checkups.

However, some states and companies may enforce their own version of a code of ethics in the accounting profession.

Take a closer look at the importance of accounting ethics with these five reasons.

Why Are Ethics In Accounting Important?

Ethical codes are defined as “principals designed to help professionals conduct business honestly and with integrity.

Accounting ethics help to ensure that the accountants represent the profession to the highest degree while protecting the clients.

An accountant is a key person dealing with the intimate financial details of an individual or organization. Some have access to million-dollar deals, while others are securing the comfortable retirement of a hard-working blue-collar family.

When the ethics of accountants are compromised, the trustworthiness and judgment of a professional come into question. The sensitive information that accountants are privy to makes the possibility for the abuse or manipulation of information higher.

1. Concept of Integrity

The concept of integrity is key in the code of ethics for professional accountants. Integrity in accounting is an honest approach in all aspects of professional relationships.

Integrity means there is a specific set of guidelines that everyone is following. When accountants follow set principles, individuals and organizations are more likely to trust the information they are being given.

Guidelines are put into place to ensure that all parties read the information in the same way. These basic principles provide a structure for gathering, tracking, and reporting financial information. These principles make it simple for ethics auditors to check.

Unbiased reporting allows financial decision-makers to make appropriate judgments regarding investments, payroll, cash flow management, and more.

Clients need to trust that the numbers are telling the truth. If the integrity of financial statements comes into question, clients may choose to do their business elsewhere.

2. Idea of Independence

The idea of independence in accounting means that an accountant is completely objective without any relationships or ties to the client. This means the accountant will be better positioned to make unbiased decisions.

Independence, or objectivity, is important in ethical conduct because it prevents “conflicts of interest,” such as an accountant benefitting from the sale of a specific financial offer.

There are two forms of independence in accounting. There is independence in fact and independence in appearance.

Independence in fact is easy to prove. This is factual data that can be tracked, such as shares in a client’s company or having other forms of formal business deals.

Independence in appearance is harder to prove and judge. This form of independence considers what a “reasonable observer” would concur from a situation.

An example would be that the accountant’s son plays baseball for his client’s junior baseball team. At the team’s annual barbeque, the coach names the son captain. Would the accountant still have the ability to remain unbiased when making decisions for that client?

From an unbiased viewpoint, the “reasonable observer” would determine if this is an ethical issue in accounting.

3. Maintaining Confidentiality

Confidentiality ensures that all information received by the accountant is kept secret. Unless obligated by law or instructed by the client, an accountant should never disclose the private financial information of a client.

Confidentiality builds trust within the professional relationship. When clients know an accountant maintains confidentiality, they will be more open and transparent.

Confidentiality also builds on integrity. By maintaining confidentiality, clients can trust that their financial details are secure.

Accountants are less likely to find themselves in a conflict of interest or abusing information if they are not sharing client details with others.

Confidentiality is a great cornerstone for building customer loyalty!

4. Professional and Private Behavior

One might assume that behavior outside of the office does not impact a professional’s ability to perform, but this is incorrect.

Professional behavior in and outside of the office is a key factor in ethics for accountants.

Ethics in accounting states that the principle of professional behavior requires an accountant to adhere to common law and regulations. An accountant should avoid any behavior that could discredit the profession.

An accountant that is consistently coming into negative circumstances surrounding the law will lose trust within the community. It isn’t easy to trust the integrity of a person who does not adhere to public law.

5. Approach to Competence

Professional competence is, in short, staying on top of developments. Accountants should know about developments that could affect an outcome.

It is also staying on top of what is happening within the industry. An accountant should know the latest programs and changes in laws and be able to access when it is necessary for additional training adequately.

An approach to competence requires that an accountant is honest about their skill level. An accountant should never make claims to be experienced or qualified in an area they are not.

Conclusion

Blatant theft, corruption, or fraud are obvious ethical issues in accounting. However, there will be situations that are slightly more subtle.

Most accounting ethical issues can be accurately depicted within these five reasons. Ethics in accounting help maintain professionalism, aid in accurate reporting, and protect the clients from discrimination, bias, or unfair decisions.

Sherry Borshoff takes ethics in accounting as seriously as the numbers themselves. Ensure you find a tax expert that operates with integrity, independence, and confidentiality like Sherry Borshoff at Borshoff Consulting! Book a free consultation today and learn why you can trust Indiana’s tax expert!

LinkedIn
Facebook
Twitter

More to explorer

Reasons to Hire a Bookkeeper

Top 10 Reasons to Hire a Bookkeeper

Bookkeeping is an important part of any business. However, it is easy to overlook this integral part to focus on other priorities

7 Things the IRS Doesn't Want You To Know cover

7 THINGS THE IRS DOESN'T WANT YOU TO KNOW

Download our guide to ensure you know everything you need to and are prepared to deal with the IRS.