accounting profession and ethics essay

• Ethics in Accounting: Why They Are ...

Ethics in Accounting: Why They Are Important and 6 Principles You Need to Know

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Key Takeaways

• Accounting ethics encompasses guiding principles and values guiding ethical actions in the accounting field.
• Ethics play a critical role in accounting by guaranteeing accurate financial reports, ensuring legal compliance, and building credibility among stakeholders.
• The key principles — integrity, objectivity, competence, confidentiality, professional behavior, and skepticism — guide ethical accounting, ensuring trust and credibility in financial practices.

Introduction

Accounting ethics is a multifaceted concept that encompasses various perspectives on what constitutes ethical conduct in financial practices.

While the mention of accounting ethics often conjures thoughts of integrity in financial reporting or the avoidance of fraudulent activities, its scope extends beyond these facets.

Embracing ethical principles in accounting holds the potential to elevate your organization’s integrity. By instilling a culture of ethical conduct in financial management, you lay the groundwork for trust, transparency in financial disclosures, improved employee morale, and sustainable financial growth.

So, What is accounting ethics?

Ethics in accounting embodies the fundamental principles and values that direct the actions of professionals within the accounting domain. It revolves around making principled choices, upholding transparency, and showcasing a commitment to maintain integrity.

Ethical behavior remains pivotal in the accounting landscape as it fosters credibility, cultivates enduring sustainability, and fosters a foundation of trust in financial practices and reporting.

Why Is Ethics Important in Accounting?

Ethics plays a vital role in accounting by preventing harmful financial practices that could affect businesses negatively. Following ethical principles not only helps in short-term success but also supports long-term achievements, earning trust from consumers and meeting stakeholders’ needs.

Ethics in accounting also benefits employees by fostering a better work environment, leading to increased employee satisfaction.

Below are some crucial benefits of ethics in accounting:

1. Mitigating legal risks and ensuring compliance

Ethical accounting practices serve as a shield against legal risks and non-compliance. Upholding ethical standards helps accountants adhere to regulatory frameworks and industry guidelines. 

Maintaining precise financial records, following standardized accounting procedures, and ensuring transparency minimizes the risk of legal repercussions, fostering a culture of lawful and responsible financial management.

Recommended Reading: The Ultimate Guide to Achieving Day Zero Financial Close

2. Preserving financial integrity and building trust

Ethics in accounting forms the bedrock of financial integrity and trust. Accountants play a crucial role in presenting accurate and reliable financial statements. Adhering to ethical principles like honesty, objectivity, and transparency strengthens the credibility of financial information. Investors and stakeholders depend on these reports for informed decisions. 

Upholding ethical standards builds trust and confidence in financial data, strengthening relationships and market trust.

Recommended Reading: 6 Best Practices for Maintaining Accounting Accuracy

3. Preventing fraud and unethical practices

Ethical accounting practices act as a deterrent to fraudulent activities and unethical practices. Accountants committed to ethical conduct are less likely to engage in fraudulent activities such as embezzlement or manipulation of financial data. 

A dedication to honesty and integrity discourages unethical behaviors, safeguarding the interests of the company, shareholders, and stakeholders from financial malpractice.

4. Enhancing corporate reputation and image

Ethics in accounting significantly contributes to enhancing the corporate reputation and image of an organization. Commitment to ethical accounting practices fosters a positive perception among stakeholders, clients, investors, and the public.

Companies consistently adhering to ethical standards are perceived as trustworthy and responsible, enhancing brand value and nurturing long-term relationships.

5. Supporting long-term sustainability

Ethical accounting practices are integral to sustaining long-term viability. Adherence to ethical standards ensures sound resource management, promotes financial stability, and reinforces business operations’ sustainability. 

By avoiding unethical financial maneuvers, accountants contribute to a stable financial environment conducive to sustained growth and prosperity. Ethical accounting practices lay the groundwork for enduring success and longevity within an organization.

6 Principles of Ethics for Accountants

Now that we understand the significance of ethics in accounting — and the pivotal role accountants play in managing financial information and making impactful decisions affecting individuals, organizations, and society at large — it’s crucial to comprehend how to act ethically. This is where accounting principles come into play.

Established to ensure the integrity and trustworthiness of the profession, ethical principles in accounting serve as guiding beacons. They steer accountants in their daily practices, upholding the highest standards of professionalism. Within this section, we’ll delve into six fundamental principles every accountant should grasp.

Remember, adherence to these principles is integral for sustainable success.

Let’s dive right in.

1. Integrity

Integrity is the foundation of ethical behavior in accounting. Accountants must be honest, truthful, and transparent in all their professional dealings. They should adhere to the highest moral and ethical standards, even when faced with difficult situations.

By maintaining integrity, accountants build trust with their clients, colleagues, and the public.

2. Objectivity

Objectivity is essential for accountants to provide unbiased and impartial financial information. They must exercise professional judgment without being influenced by personal interests or external pressures.

Accountants should base their decisions on factual evidence and avoid any conflicts of interest that could compromise their objectivity.

3. Professional competence

Accountants are expected to possess the necessary knowledge, skills, and expertise to perform their duties competently. Continuous professional development is crucial to stay updated with the latest accounting standards and regulations.

By enhancing their professional competence, accountants can provide accurate and reliable financial information to stakeholders.

4. Confidentiality

Confidentiality is a fundamental principle in accounting that ensures the privacy and security of sensitive financial information. Accountants must respect the confidentiality of client data and refrain from disclosing it without proper authorization.

Upholding confidentiality builds trust between accountants and their clients, fostering a strong professional relationship.

5. Professional behavior

Accountants should conduct themselves in a manner that upholds the dignity and reputation of the profession. They should avoid engaging in any activities that could bring disrepute to the accounting profession.

Professional behavior includes being respectful, courteous, and maintaining professional boundaries with clients and colleagues.

6. Professional skepticism

Professional skepticism is the mindset of questioning and critically evaluating financial information. Accountants should exercise professional skepticism to detect potential errors, fraud, or misstatements in financial records.

By adopting a skeptical approach, accountants can ensure the accuracy and reliability of financial information, thereby protecting the interests of stakeholders.

Adhering to these ethical principles in accounting is not only essential for individual accountants but also for the overall credibility and trustworthiness of the profession. By upholding these principles, accountants contribute to the integrity of financial reporting and decision-making processes.

Example of Ethics in Accounting

Ethics in accounting might seem straightforward, but in reality, making the right decisions often presents complex challenges. Ethical dilemmas in this field are rarely clear-cut; they often encompass various perspectives and shades of gray. Here’s an example to illustrate this complexity:

Imagine Company XYZ, a mid-sized enterprise, hires an accounting firm to conduct an audit of its financial statements for the fiscal year 2022-2023. During the negotiation of the audit fees, the company subtly implies that if the audit results align positively with the company’s internal forecasts, they might consider offering the auditing firm an additional project involving consultancy services in the upcoming year.

This subtle hint at a potential future business opportunity poses an ethical challenge. While not explicitly stated, this implied offer creates a scenario where the accounting firm might feel pressured to deliver an audit report that mirrors the company’s desired outcomes.

Accepting such undisclosed future benefits may influence the auditing firm’s objectivity and independence. It could potentially sway the audit findings to favor the company’s expectations rather than providing an unbiased assessment based purely on financial merit.

Consequently, any undisclosed arrangement or subtle promise of future business engagements contradicts ethical standards in accounting. Upholding ethical integrity mandates that auditors maintain complete impartiality and independence in their assessments, devoid of any undisclosed influences or inducements.

This example highlights the ethical complexity within the accounting profession, emphasizing the need for auditors to uphold objectivity, impartiality, and ethical standards, steering clear of any undisclosed incentives that might compromise their professional judgment.

Ways to Improve Ethics in Accounting

Ethics in accounting play a crucial role in maintaining the integrity and trustworthiness of financial information. Accountants need to adhere to ethical principles to ensure accurate reporting and transparency. Here are six key ways to improve ethics in accounting:

1. Establish a code of conduct

A well-defined code of conduct serves as a guiding framework for ethical behavior in accounting. It outlines the expected standards and behaviors that accountants should follow. By clearly communicating these expectations, organizations can foster a culture of integrity and accountability.

2. Promote ethical training

Continuous education and training on ethical practices are vital for accountants. By providing regular workshops and seminars, organizations can enhance their employees’ understanding of ethical dilemmas and equip them with the necessary skills to make ethical decisions.

3. Encourage whistleblowing

Creating a safe environment for employees to report unethical behavior is crucial. Whistleblowing mechanisms, such as anonymous hotlines or reporting channels, allow individuals to raise concerns without fear of retaliation. This promotes accountability and helps identify and address unethical practices promptly.

4. Implement internal controls

Robust internal controls are essential for preventing fraud and ensuring accurate financial reporting. By implementing segregation of duties, regular audits, and thorough review processes, organizations can minimize the risk of unethical behavior and detect any irregularities early on.

Recommended Reading: Are Your Financial Reports Accurate? The Importance of the Matching Principle for Accounting

5. Lead by example

Ethical behavior starts at the top. Leaders should demonstrate integrity and ethical decision-making in their actions and decisions. When employees see their superiors upholding ethical standards, they are more likely to follow suit.

6. Encourage ethical discussions

Creating an open dialogue about ethics within the organization encourages employees to voice their concerns and seek guidance when faced with ethical dilemmas. Regular discussions or forums can help clarify ethical expectations and provide a platform for sharing experiences and best practices.

7. Leverage AI-powered solutions 

Integrating AI into accounting practices marks a pivotal step towards bolstering ethical standards. AI acts as a formidable ally, addressing issues that often plague manual processes, such as data mismanagement, human errors, and inadvertent accounting omissions.

Through AI-powered solutions , businesses can transcend traditional limitations, ensuring data accuracy, completeness, and precision in financial records. This not only cultivates a heightened sense of trust in the reported information but also fortifies compliance measures by minimizing the potential for errors or misinterpretations.

Furthermore, AI-driven systems operate consistently, providing a level of reliability that’s often challenging to achieve through manual methods alone. This consistency contributes significantly to maintaining ethical standards in accounting, offering a robust framework for accurate and dependable financial reporting.

By implementing these ways to improve ethics in accounting, organizations can foster a culture of integrity, trust, and transparency. Ethical accountants play a vital role in upholding the profession’s reputation and ensuring the accuracy and reliability of financial information.

Remember, ethics in accounting is not just about following rules and regulations; it is about doing what is right even when no one is watching. 

How HighRadius Drives Ethical Accounting Practices

While adhering to accounting principles is vital for ethical accounting, relying solely on manual processes, from reconciliation to financial closure, often results in inefficiencies, errors, and potential fraudulent activities. Enter HighRadius—an extensive suite of AI-powered solutions equipped with features like account reconciliation , financial close management , and anomaly management .

These tools empower businesses to rigorously adhere to ethical accounting standards. By seamlessly integrating these advanced solutions, businesses enhance their ability to maintain ethical accounting practices, ensuring data integrity, compliance with accounting standards, and fostering trust in the financial reporting process.

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The Importance of Ethics in Accounting: Why It Matters

Imagine a world where financial statements can't be trusted. The collapse of major corporations and the subsequent financial crises remind us of the dire consequences of unethical behavior in accounting. Ethics in accounting ensures accuracy, transparency, and trust, making it the backbone of financial integrity.

Accounting is an integral part of any business because it involves keeping track of and making sense of financial information to help make decisions. However, the credibility of financial information depends heavily on the ethical conduct of accountants. The importance of ethics in accounting is critical for the success of any business. This article will explore why ethics matter in accounting and their significance.

Ensuring Accurate Financial Reports

One of the main reasons ethics are essential in accounting is to ensure financial reports are accurate and precise. Financial statements are the backbone of any business, and they must be correct to understand and track money. Ethical accountants will not manipulate data to make their clients' financial situation look better than it is. Instead, they will provide accurate financial reports reflecting the company's true financial situation.

Promoting Accountability and Trust

Ethical accounting practices promote accountability and trust. Investors, shareholders, and the public can trust a company's financial reports if they are transparent and accurate. This trust is essential for the success of any business as it provides a solid foundation for long-term relationships. Conversely, if a company is known to manipulate its financial data, it will not only lose the trust of its stakeholders but will also face legal consequences.

Preventing Fraud and Financial Crimes

Properly trained accountants can spot suspicious financial activities and report them to the proper authorities. This helps protect the company from losing money and keeps the public safe from fraud. Ethical accounting practices help prevent fraudulent activities, such as embezzlement, misappropriation of funds, and other financial crimes.

Promoting Integrity and Professionalism

Ethical accounting practices promote a culture of integrity and professionalism. Companies that prioritize ethical behavior in their accounting practices are more likely to attract and retain skilled and honest accountants. Such professionals are motivated to work for companies that share their values and are more likely to stay with the company for the long term. This stability promotes efficiency, reduces employee turnover, and improves financial outcomes.

Defining Ethics in Accounting

Ethics in accounting refers to the principles and standards that guide accountants in conducting their duties. These principles include integrity, objectivity, professional competence, confidentiality, professional behavior, and respect for the law.

Top Core Values

Like all other professionals, accountants follow moral and ethical rules and values. Here are some of the top core values in ethics that are relevant to accountants:

Integrity : Accountants must be honest, transparent, and ethical. They should act with integrity at all times and maintain high ethical standards.

Objectivity : Accountants should remain objective and unbiased in their work. They should not allow personal interests or relationships to influence their professional judgment.

Professional competence and due care : Accountants should possess the necessary knowledge, skills, and expertise to perform their duties competently. They should also exercise due care and diligence when performing their work.

Confidentiality : Accountants should maintain the confidentiality of their client's information and not disclose it without their consent, except when required by law.

Professional behavior : Accountants should always behave professionally and not engage in any conduct that would damage their reputation or the profession.

Respect for the law : Accountants should comply with all laws and regulations governing their profession and clients' business.

These core values are the foundation of ethical behavior in the accounting profession. They help ensure that accountants act with integrity and maintain the trust of their clients and the public.

Real-World Implications

Unethical behavior in accounting can lead to severe consequences, such as financial scandals, loss of investor trust, and legal penalties. The Enron scandal and the collapse of Arthur Andersen are prime examples of how unethical practices can devastate companies and economies.

Practical Advice

Continuing Education : Regularly participate in ethics training and stay updated with changes in laws and regulations.

Mentorship : Seek guidance from experienced professionals to navigate ethical dilemmas.

Whistleblower Policies : Support and adhere to policies that encourage reporting unethical behavior without fear of retribution.

Ethics in accounting is not just about following rules but about fostering a culture of honesty and integrity. Continuous ethical education and awareness are crucial for maintaining trust and credibility in the profession. By adhering to ethical principles, accountants play a vital role in ensuring the stability and reliability of financial systems.

Additional Articles on Accounting Ethics

Accounting Superheroes: Defenders of Integrity and Company Secrets This article explores the crucial role accountants play as defenders of integrity and confidentiality within organizations. It highlights how they ensure financial accuracy, detect fraud, and uphold ethical standards. Accountants are seen as modern-day superheroes who protect sensitive financial information and help navigate complex ethical dilemmas. Real-life examples illustrate their importance in maintaining trust and transparency. Read the full article for a comprehensive look at how accountants contribute to business success through their ethical conduct.

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The Importance of Ethics and Professional Standards in the Accounting Industry

The accounting profession forms the backbone of our economy and individual businesses, maintaining financial stability and fostering growth. It functions as the custodian of economic health and sustainability. Yet, its efficacy depends on adherence to ethics and professional standards as much as on technical proficiency. Integrity, transparency, and accountability are the guiding principles of accounting, serving as pillars for accountants worldwide. Their presence or absence can make or break the trust vested in this critical profession. Read on to learn more about the profound importance of accounting ethics and standards.

Accounting Ethics

Ethics holds immense importance in accounting for multiple reasons. It builds trust and credibility among stakeholders–investors, creditors, and customers rely on ethical practices for fair and accurate financial reporting. For instance, when accountants uphold honesty and objectivity, they ensure that the financial reports they create reflect the true financial health of a business. Additionally, ethical behavior safeguards businesses from legal ramifications. Accountants adhering to the ethics of confidentiality protect sensitive financial information from unauthorized disclosure. 1

However, ignoring these ethical norms can lead to disastrous consequences. For instance, the infamous Enron scandal of 2001 exemplifies the catastrophic fallout of unethical accounting practices. Manipulated financial records and misleading audit reports created a facade of profitability, eventually leading to Enron's bankruptcy and causing severe losses to shareholders. 2 Similarly, the WorldCom scandal of 2002, in which $3.8 billion was falsely reported as capital expenses instead of operating costs, underscores the potential harm of disregarding ethical conduct in accounting. 3 Both instances not only resulted in immense financial losses but also eroded public trust in corporate governance. Thus, accounting ethics are not just a matter of professional conduct but a prerequisite for proper understanding of the overall health of businesses and economies.

Key Pillars of Ethical Conduct

Transparency, accountability.

Together, integrity, transparency, and accountability form the bedrock of ethical business conduct in accounting. Their absence not only causes financial loss but also erodes the trust on which the entire economic system is based. Upholding these principles is critical to maintaining public trust and ensuring financial stability.

Role of Professional Standards in Upholding Ethics

Professional standards play a vital role in upholding ethics in accounting. They outline the behaviors expected of professional accountants, providing a benchmark for ethical conduct. For example, the AICPA's Code of Professional Conduct includes principles like integrity, objectivity, and confidentiality, guiding accountants toward ethical decision-making. Additionally, the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) set rules for transparent, fair and accurate reporting, reinforcing ethical practices among accounting professionals.

However, when accountants disregard these professional standards, the legal repercussions often can be severe. Violations of accounting standards not only compromise an accountant's professional reputation and career but also can lead to legal penalties. For instance, Arthur Andersen, once among the "Big Five" accounting firms, was convicted for obstruction of justice for its role in the Enron scandal, which ultimately led to its downfall. This illustrates the critical role professional standards play in maintaining the credibility and ethics of the accounting profession.

Become a Leading Ethical Accounting Professional With William & Mary

• Retrieved on June 19, 2023, from ethicsboard.org/consultations-projects/revised-code-ethics-completed
• Retrieved on June 19, 2023, from wsj.com/articles/arthur-andersens-legacy-20-years-after-its-demise-is-complicated-11661938200
• Retrieved on June 19, 2023, from sec.gov/Archives/edgar/data/723527/000093176303001862/dex991.htm
• Retrieved on June 19, 2023, from pcaobus.org/oversight/standards/ethics-independence-rules/details/ET102
• Retrieved on June 19, 2023, from researchgate.net/publication/314802660_The_Lehman_Brothers_Bankruptcy_D_The_Role_of_Ernst_Young
• Retrieved on June 19, 2023, from econcrises.org/2016/11/29/parmalat/
• Retrieved on June 19, 2023, from tradebrains.in/satyam-scam/
• Retrieved on June 19, 2023, from cpajournal.com/2020/03/30/codifying-the-fundamental-principles-of-professional-behavior/

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Ethics in Accountancy, Essay Example

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Ethics and principles deal with the expected behavior and accountability of the accounting profession. Ethics in accounting is of great importance to both accounting professionals and their clients. In addition to the high academic qualifications accountants must also have a high degree of professional integrity.  Certified Public Accountants (CPAs) and other accounting professionals are aware that people who rely on their services, especially those who use financial statements to make decisions expect high reliability, competentence and objectiveness from them.  The society highly expects professionals to adhere to the society’s general ethical standards for People to be confident with the quality of the services offered by professionals. Due to the high expectations, professions have adopted codes of professional conduct or codes of ethics which call for their members to adhere to a certain level of self-discipline which goes beyond the law and regulations requirements. The professional organizations in the field of ethics are not exempted in adopting these ethical codes. Each accountant’s major professional association has a code of ethics which are upheld by employees in the field of accounting.

This is an emphasis on the overriding fact that most of the decisions made by accountants and other related professional occupations are judgment calls that can go either way and which call for high degree of integrity and prudence upon the people making these decisions. There are many stakeholders both general and connected who rely on the information from accountants to make crucial decisions concerning the business entities that these accountants serve (BPP 2009). The shareholders need accurate accounting information to enable them discern whether the money they have invested is being put into good use by the management. The creditors also need to know whether the organization is able to meet its financial obligations. The suppliers as well as the customers need to know whether the organization is a going concern or it is faced by insolvency issues. Finally the regulatory authorities use the information to determine how much tax they are to levy on the organization. This wide dependency on account information therefore calls for regulation of the accounting profession to avoid the accountants duping the users of the information at their hands

There are three organizations which provide accountants with a code of ethics. These are the Institute of Internal Auditors (IA), the American Institute of Certified Public Accountants (AICPA) and the Institute of Management Accountants (IMA).each group plays a different role in the process of accounting but adhere to the same ethical code. They provide the CPAs with a set of positive guidelines and statements. The rules of conduct give specifications of what a professional accountant should or should not do and therefore accountants agree to principles which guide their profession by enrolling with one of these professional organizations. The three groups have a goal of defining the professional accountant’s responsibilities and standards to which he or she is held. The standards comprise the ability to maintain confidentiality, objectivity and  integrity  as well as professional competence. The national professional association for CPAs, The Code of Professional Conduct of the American Institute of CPAs (AICPA) sets forth rules of conduct and ethical principles for its members. The rules of conduct are more explicit as to specific actions that should or should not be taken .The principles are stated positively and give general guidelines that CPAs or any professionals should strive to adhere to.  Code of Ethics of the Institute of Internal Auditors (IIA) applies to Certified Internal Auditors (CIA’s) and its members while the Standards of Ethical conduct of The Institute of Management Accountants (IMA) apply to financial management and practitioners of management accounting (AICPA Code of Professional Conduct 1988).

Many, CPAs but not all are in public practice because they work in firms that offer   auditing, accounting among other services to public in general. The AICPA Code applies to CPAs professional conduct regardless of the organization they work for with exception of those in public practice who have some special provisions. Management accountant’s financial managers and internal auditors in most cases offer their services to their employer organizations but as professionals they too must consider their obligations to the public.

The three codes of ethics and the related professional standards place similar responsibilities on the accounting professionals. All three demand professional confidentiality competence, objectivity and integrity. The IMA, IIA and AICPA codes of ethics require that accounting professionals should not disclose confidential information to outsiders with the exception of the work papers of the professionals which are subject to subpoena by court. The ethics also requires that the accounting professionals should only perform task s that they can do to completion with professional competence and maximum care and diligence.

Another important ethical standard required for accounting professionals is independence; this means that one is and is also by others to be impartial, unbiased and objective .this applies to all accounting professionals and especially the CPAs in public practice. The AICPA’s has set detailed and technical rules concerning independence for CPAs doing audits. For example, due to lack of independence a CPA may not audit a company if he or she or dependents or the spouse has certain employment or other financial relationships with the client and or owns stock in that company (AICPA Code of Professional Conduct 1988).

Ethics Enforcement

The accounting profession is self-regulated to a large extend. Self regulation is achieved via various professional associations not the government. The IIA, IMA and AICPA utilize internal means to enforce ethical. In addition, the CPAs professional organizations in every state (state societies of CPAs ) , have ways of enforcing their ethical codes, which similar to the AICPA Code. The state government plays the role of issuing a CPA license to practice which is usually done through an organization called the state board of accountancy. The state laws governing the practice of accountancy encompass vital parts code of ethics of the AICPA and hence the Code is legally enforced. The penalty for violating the ethical standards is a strong disciplinary measure involving the person’s expulsion publicly from the professional organization. State and federal laws make ethical violations to have more adverse consequences for CPAs.Ethical violations for example can result in the state revoking a CPA’s license to practice on a permanent or temporary basis. A licensed CPA has likelihood of belonging to the state society of CPAs and AICPA and therefore ethics violation investigations may be done jointly by the state society, the state board of accountancy and AICPA.

Public practice CPAs who audit public corporations financial statements are subject to laws and regulations of the federal securities. The Securities and Exchange Commission (SEC), administering these laws, can regulate corporations which sell their stock to the public.  SEC requires that auditing of these corporations’ financial statements be done by a CPA who is independent. The SEC has the capabilities of establishing and enforcing auditing procedures and standards, including the rules of independence for a CPA. However, SEC has greatly delegated the role of setting standards to the private sector and retained enforcement and oversight responsibilities (IIA Code of Ethics 1988). A good example of accounting ethics and their impact on business performance is the enron scandal.

The Enron Scandal

The Enron scandal was a corporate scandal revealed in October 2001 and which involved both Enron Corporation and their auditors Arthur Andersen which was an auditing, accounting and consultancy firm. By the time of its collapse, Arthur Andersen was among the list of the top five biggest audit firms in the world. The price of Enron’s stock had taken a nosedive from a previous high of $90 for each share in 2000 to a rather dismal $0.12 by January 2002. According to Elkid and Mclean in their book Smartest Guys in the Room, the scandal grew gradually from habits values and actions which spiralled out of control after many years went and eventually led to bankruptcy. The fraudulent actions were perpetrated through direct knowledge as well as indirect actions by the management of the corporation. The major factor that destroyed the market confidence in Enron’s share and eventually occasioned their downfall was the misuse of the off balance sheet financing and their efforts to correct the misreporting of the previous periods (Konzelman & Deakin 2003 ).

To meet the market expectations Enron misrepresented its financial statements to the extent that they cast an image of a successful and well off company. This misrepresentation failed to recognize the fact that Enron was highly indebted to the loaning institutions through the structured finance plans. The other factor that led to this financial failure was the rather astronomical paychecks that made their chief executives so highly paid that the executives of the opposition looked pale in comparison. This was also heightened by the fact the companies executives were being granted hefty share options. The decline in investor confidence is what condemned Enrons shares to the sudden decline. The sudden decline in the share prices made the business operation unsustainable which eventually pushed them to file for bankruptcy in December 2001 leading to what has become the most famous business scandal as well as the biggest liquidation case so far. It was noted that Enron’s senior executives motive of keeping the company looking profitable was driven by the fact that they had huge stock options out of which they stood to benefit if the stock price was high (Konzelman & Deakin 2003 ).

Enron’s Auditors Arthur Anderson has been accused of not only being complacent in their review of the financial figures presented by their clients but of being party to the collapse. First Arthur Andersen’s Risk management standards in as far as client engagement is concerned were brought into question. The key question that was being asked of how Arthur Andersen had sought to address the issue of self review. This is where an audit firm subjects its own decisions to a review during audit (BPP Media). This was especially in appreciation of the fact that the auditors used to rake in colossal amounts of money in consultancy fees besides the audit fees. This was seen to have compromised the independence of the auditors especially since the money they made from Enron alone accounted for close to 27% of their total revenue from audit fees. Also of importance to note is the fact that the auditors failed to point out the credit risk that Enron was running due to the financing arrangements as well as that they moved to shred all the evidence they had when the scandal was eventually unearthed led to the downfall of the audit firm. They were accused by Enron’s board of malpractice leading to their eventual closure.

From these past experiences the accounting as well as the audit environment has been seriously regulated. This is in the form of strict risk management standards being imposed upon the practitioners. The international accounting standards board (IASB) as has issued standards that are to be applied in accountancy practice. Similarly the combined code of corporate governance defines clearly the specific responsibilities of the directors as well as the various stakeholders of the corporation. The combined code of corporate governance was revised to give a regulatory framework within which all public corporations are to be governed. The Public Company Accounting Oversight Board (PCAOB) is charged with the responsibility of regulating the auditors of public companies to ensure that the accounts they give are true and fair representation of the companies in question. This has ensured that the investors and the general public as well as the employees are not given erroneous information concerning the financial situation of the companies. The Enron scandal was not only a moment that led to major changes in the corporate governance code but also a eye opener to the investors and other big audit companies on the risks they are exposed to in their normal course of business.

AICPA Code of Professional Conduct. (1988). Jersey City, NJ: American Institute of Certified Public Accountants.

BPP Learning Media (2009). Corporate and Business Law .  London: BPP Publications.

Deakin, P.  Simon, H. Suzanne, J. Konzelmann, P. (2003). “Learning from Enron” ESRC Centre for Business Research University of Cambridge (Working Paper No 274) Retrieved on 05 August 2009. From: http://www.cbr.cam.ac.uk/pdf/wp274.pdf..

IMA. (1997). Statements on Management Accounting: Objectives of Management Accounting , Statement No. 1B. New York: Institute of Management Accountants.

IIA Code of Ethics. (1988). Altamonte Springs, FL: Institute of Internal Auditors.

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What is Accounting Ethics?

Ethics and the code of the conduct, rules and guidance, threats to independence, other important rules, related resources, accounting ethics.

Code of professional conduct

Accounting ethics is an important topic because, as accountants, we are the key personnel who access the financial information of individuals and entities. Such power also involves the potential and possibilities for abuse of information or manipulation of numbers to enhance company perceptions or enforce earnings management. Ethics is also absolutely required in the course of an audit. Without meeting the requirements of auditing and accounting ethics, an audit must instantly be paused.

Ethics and ethical behavior refer more to general principles such as honesty, integrity, and morals. The code of professional conduct, however, is a specific set of rules set by the governing bodies of  certified public accountants . Although the rules set out by different bodies around the world are unique, some rules are universal. Let’s take a closer look at some of these important rules.

One of the key rules set out by professional accounting bodies in North America is the idea of independence. This is the idea that, as an auditor, you must be totally objective and must be without ties to or relationships with the client since that could potentially impair your judgment and impair the overall course of the audit work.

There are two forms of independence:

• Independent in fact
• Independent in appearance

Independence in fact refers to any factual information such as whether you, as an auditor, own any shares or other investments in the client firm. These facts are usually easy to determine.

Independence in appearance , however, is more subjective. Let’s say, for example, that as an auditor you were invited to a year-end party at the client firm. The party turns out to be extremely luxurious and you also receive a nice watch as a gift. In appearance, would the auditor, who was invited to the party and who also received a gift, be able to maintain independence in the audit? In order to solve a potential conflict of interest, a reasonable observer’s test is used  – i.e., what would a reasonable observer say about the situation?

There are always threats and situations that can reduce the level of independence. Let’s take a look at some of these threats:

• Familiarity Threat : If the auditor has a long relationship with the client or they are close friends/relatives
• Intimidation Threat : If the auditor changes the financial statements, the client threatens to switch auditors
• Self-Interest Threat : If the auditor has a direct financial interest through shares or a large fee outstanding from the client
• Self-Review Threat : If the auditor performs both audit and bookkeeping services, it is a review of the auditor’s own work

Some other rules outlined by professional accounting bodies include the following:

• Contingent fees are not allowed – For example, audit fees that are based on a percentage of the net income figure or a percentage of a bank loan received
• Integrity and due care – Audit work must be done thoroughly, diligently, and in a timely manner.
• Professional competence – Auditors must be competent, which means he/she must have both the necessary academic knowledge and experience in the relevant industry.
• Duty to report a breach of rules – This rule is commonly referred to as the whistleblower rule. If a CPA observes a fellow CPA violating any of these rules, he/she has a responsibility to report it.
• Confidentiality – Auditors must not disclose any information regarding the client to outsiders.

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Digital Commons @ USF > College of Arts and Sciences > Department of Communication > Faculty Publications > 411

Communication Faculty Publications

Embracing ethics and morality: an analytic essay for the accounting profession.

William Stephens Carol A. Vance Loyd S. Pettegrew , University of South Florida Follow

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In this era after the financial and accounting failures of Enron, WorldCom, AOL, Global Crossing, Tyco, Lehman Brothers, Washington Mutual, and AIG, the discusion concerning the root causes of such failures must be redoubled—and the accounting profession stands at the center of this discourse. Were the failures due to incompetent accounting and auditing practices? Did the profession provide inadequate accounting and auditing rules for a complex business environment? Was there too much emphasis on short-term results and performance rewards at the expense of sound accounting principles? Could the failures have resulted from the profession's reluctance to take responsibility for detecting fraud? Or was it simply what baseball philosopher Yogi Berra once said when asked to explain his team's lack of success, “We made too many wrong mistakes” (Yogi—It Ain't Over, McGraw-Hill, 1989)? In this article, the authors join analysts like Paul F. Williams and submit that the underlying explanation for these accounting failures was a moral and ethical problem and that to ignore this underlying issue is to seriously miss the point (“You Reap What You Sow: The Ethical Discourse of Professional Accounting,” Critical Perspectives on Accounting, vol. 5, no. 1, pp. 995-1001, 2004). If the accounting profession is willing to settle for a rules-based approach of legislative fixes, without looking at a failed moral and ethical underpinning, any efforts to regain a preeminent professional status will fail. The authors offer a prescription that the accounting profession can use to regain its moral foundation and reestablish ethical practices.

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The CPA Journal , v. 82, issue 1, p. 16-36

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Stephens, William; Vance, Carol A.; and Pettegrew, Loyd S., "Embracing Ethics and Morality: An Analytic Essay for the Accounting Profession" (2012). Communication Faculty Publications . 411. https://digitalcommons.usf.edu/spe_facpub/411

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Accounting Ethics Essay

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Introduction

Financial reporting practices, ethical requirements in financial reporting.

Accounting information is vital to internal and external users of financial accounts; accountants are expected to present accounting facts in logical and genuine manner to facilitate their relevance in decision making. Such information is required by managers, shareholders, government, potential investors, investors, capital lenders among others.

Hospitals are no exemption to the need of quality accounting data and information; the accounting department in medical facilities is a support department thus when it offers quality information it facilitates provision of quality and affordable medical services (Cleverly & Cameron, 2007). This paper discusses financial reporting practices and ethical standards in health care finance.

The accounting field is regulated by international and national accounting and auditing bodies that require organisation to make their books in a particular manner that can allow comparison and flow of information. The finance department of a medical facility needs to be equipped with qualified accountants to keep books of records and produce financial statements as required by regulators.

The main required accounting statements are Consolidated Balance sheet, consolidated Cash flow statement, and Consolidated Income statements, Consolidated statements of stockholders’ equity and comprehensive income, and changes in assets ownership.

For decision-making, accounting information required in a hospital set up is revenue and costs information, incurred when providing services; there should be effective internal control to ensure that there is transparency in use of finances.

The main source of revenue for a hospital is fees charged to patients when they receive various services from the hospital; the information of revenue is with the accountants thus they should offer the information for decision-making. There are other sources of revenue which include grants and government funding, they should be considered when making decisions.

Disclosures made to external and internal accounting information users should be vetted to ensure there is transparency and the right, adequate and acceptable information flows to the right people. Accountants should thus be guided by acceptable code of conduct as far as reporting is concerned (Duska & Duska, 2003).

International accounting standards have ethical expectations that they have for accountants; accountants should uphold integrity in all their processes; medical facilities finance department has the role of complying with the set accounting ethics. They should ensure that they perform their duties with honesty and for the interest of all parties to the accounts.

It is understandable that this situation may have been a one time and thus deserves some consideration. The dependence on accounting information in hospitals raises the need for accountants to act with high level of professionalism and uphold acceptable accounting ethics.

When accounting reports are produced, they should reflect the actual situation of a company so that they can be used for strategic decision-making. Resources in an organization are scarce; thus, they need to be well allocated to various programs.

For efficiency, financial managers prioritise the project to be undertaken in a particular time and how. This may involve a day-to-day allocation of available resources in different programs.

Financial management information is used for decision making. They assist management in making current and future decision regarding the operations in a business. Information is crucial for decision-making since it offers a number of alternatives to choose.

Many are the times that management accountants have information that can injure a company or one that can be of great assistance to the public. When faced with such a challenge, accountants should always act in the best interest of stakeholders contained. This calls for independence and need not to bow to pressure from the management company or the public.

They should make high standard decisions and should not knowingly cause a company trade whilst insolvent. when it comes to statutory requirements like making tax returns, its ethical for accountants to ensure that the legal requirement of the nation are complied with; compliance is in terms of giving correct information without being late, correct reporting and making due payments.

There are changes in accounting field initiated by local policies like finance bills (mostly on matters relating to taxation) and international bodies like International accounting bodies (IFRS and ISA). For competency, which is an element of ethical behaviour, an accountant is expected to be up to date with such changes.

An example of a change in international accounting standards is the change in new ways of accounting for SMEs in 2008 and change in accounting for leases (ISA 17) in 2010. A member of these bodies must be up to date with such changes (Baker & Baker, 2011).

Financial management is important to medical facilities; it offers quality information that can assist to improve the quality, cost, and gains in medical facilities.

To have high compliance, health facilities finance department should observe rules and regulations of national and international bodies; when these rules and regulations are complied with, then the accounting disclosures made will be in accordance to the law, acceptable, complete, and offers a true and fair view of their medical facility.

Financial managers assume the duty of care to internal and external users thus should perform their duties with integrity; they should follow code of ethics required for the profession.

Baker, J. J., & Baker, R. W. (2011). Health Care Finance Basic tools for Nonfinancial Managers . Sudbury: Jones and Bartlett Publishers.

Cleverly, W. O., & Cameron, A. E. (2007). Essentials of health care finance (6th ed.). Sudbury, MA: Jones and Bartlett.

Duska, F., & Duska, S. (2003). Accounting ethics. Massachusetts: Wiley-Blackwell.

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IvyPanda. (2018, June 4). Accounting Ethics. https://ivypanda.com/essays/accounting-ethics/

"Accounting Ethics." IvyPanda , 4 June 2018, ivypanda.com/essays/accounting-ethics/.

IvyPanda . (2018) 'Accounting Ethics'. 4 June.

IvyPanda . 2018. "Accounting Ethics." June 4, 2018. https://ivypanda.com/essays/accounting-ethics/.

1. IvyPanda . "Accounting Ethics." June 4, 2018. https://ivypanda.com/essays/accounting-ethics/.

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IvyPanda . "Accounting Ethics." June 4, 2018. https://ivypanda.com/essays/accounting-ethics/.

Ethics in Accounting: Analysis of Current Financial Failures and Role of Accountants

International Journal of Management (IJM), 11 (2), pp. 241–247, 2020

7 Pages Posted: 15 Apr 2020

Giriraj Kiradoo

Department of Management & Technology, Government Engineering College Bikaner, Bikaner Area, India

Date Written: 2020

Purpose: The main purpose of this research is to contribute towards enhancing the knowledge regarding importance of ethics in accounting profession. Accounting profession is required to uphold the principles of trustworthiness, transparency, and accuracy in financial reporting. This research informs about the importance of effective ethical behavior among professional accountants to reduce ethical issues in practice. Methodology: This research adopted qualitative systematic review methodology. The careful selection of the studies and evidences was done, which enhanced the quality of findings. This study includes peer reviewed papers and accounting and management books for ensuring the quality of evidences. Critical appraisal of all evidences further helped in collection and synthesis of most relevant evidences. Findings: Findings of this research informs that there are various moral and ethical dilemmas that can result in affecting the quality of accounting. Therefore, compliance to ethical principles and ethical standards is necessary for ensuring the quality, fairness and trustworthiness of accounting statements. It has been identified that financial crisis in the last decade was the result of various financial misstatements and financial frauds. Therefore, analyzing the role of accountants in financial frauds and scandals becomes imperative. This study conducted the systematic review that specifically seeks to answer the research question. This study informs regarding the importance of ethical principles that are important for reducing ethical dilemmas of various forms. Conclusion: This research concludes that professional and personal ethical values are very important for reducing ethical issues in accounting that can result in diminishing the reputation and values of accounting profession.

Keywords: Accounting and Ethics, Ethics of Accounting, Ethical Accounting, Financial Misstatements and Accounting, Accounting and Public Interest

Suggested Citation: Suggested Citation

Giriraj Kiradoo (Contact Author)

Department of management & technology, government engineering college bikaner, bikaner area, india ( email ).

Bikaner Area India

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Professional Ethics in Accounting

Introduction

According to the Institute of Management Accountants (IMA), professional ethics in accounting refers to the adherence to the strict code of conduct in the practice of accounting. The IMA in the ethical code of conduct requires managerial accountants to adhere to professional ethics. This means that in the practice of accounting, managerial accountants have to depict high levels of integrity, objectivity, confidentiality and competence (IMA 1983).

To curb unethical practices in accounting, Fisher and Rosenzweig (1995) sharply criticized the narrow focus of academics towards teaching professional code of conduct in the practice of accounting. He suggested the accounting academia should mobilize enough resources in an effort to identify approaches towards teaching. In line with their argument, they suggested that when students lack ethical academic basics, it serves as a draw back as they cannot apply critical thinking skills to face professional ethical dilemmas. Such ethical dilemmas can be solved when accounting programs gain the recognition of the importance of ethics and offer quality ethics courses (Fisher and Rosenzweig 1995).

Recent times have seen widely publicized accounting scandals. This puts the point straight that the ethical conduct of accounting managers lacks the standards which are inherent in quotations which are foregoing. The wall street journal, in its article named “scandal scorecard” derives a description of accounting frauds (12 egregious frauds) in which public owned business enterprises were involved. In this article, a larger percentage of the fraud involved the financial officer, chief accounting officer, controller and many other accountants who worked at the enterprise. These, among other scandals have established the need for controls. The federal Sarbanes-Oxley Act (SOX) of 2002 was therefore enacted. Through this act, the Public Company Accounting Oversight Board was established in an attempt to regulate the conduct of public-practice managing accountants and those in business enterprises which are publicly owned. Despite the above measures, it has been suggested that there is still need for a much clearer focus towards streamlining professional ethics in accounting (Schipper 2009, Hamilton 2007, Schneider 1995).

Ethical Challenges Facing the Profession

The ethical challenges which the accounting profession faces involve fraud which may take the form of intentional fraud and fraudulent financial reports, deception of users of financial statements through intentional misstatements or omissions of amounts or disclosures in financial statements (Corner 1986). Fraudulent financial reports may take the form of manipulation, falsification, changing support documents or account documents which are used to prepare financial statements (Leung and Cooper 1995, Healy and Whalen 1999, Chow et al. 1988). It may also involve misrepresentation of information, intentional omission from financial statements of events or transactions or misapplication of accounting principles with relation to amount, disclosure or the manner of presentation (Nouri 1994, Sayre et al. 1998).

Usually, fraud involves undue pressure or incentives and a perceived opportunity to engage in fraud. For example fraudulent financial reports may occur as a result of the management being under pressure to achieve a target of earnings which are unrealistic for the organization (Sayre et al. 1998, Schneider and Sollenberger 2003). Other cases may take the form of falsified documentation including forgery and concealing misstatements by making fictitious invoices. This can be done in collusion or through being driven by personal interests (Fox 1997, Schilt 1997, Hepworth 2009).

Professional Accountancy Bodies & Action Taken to Address Challenges and Enforcement of Codes of Ethics

The International Federation of Accountants (IFAC), American Institute of Certified Public Accountants (AICPA), Institute of Internal Auditors (IIA) and Institute of Management Accountants (IMA) are some of the major professional accountancy bodies which strive to enforce the code of ethics in managerial accounting (Schipper 2009). In this section of the paper, the professional accountancy bodies & actions taken to address challenges and enforcement of codes of ethics is addressed from a global perspective.

The Chartered Institute of Management Accountants (CIMA) which was formed in 1919 is the largest body for professional management accountants. Its core operations entail businesses in sectors such as industry, commerce, non-profit organizations and the public sector. CIMA partners directly with employers and is engaged in activities like sponsorship of high level research. While undertaking the its mandate, the Chartered Institute of Management Accountants engages in constant updates of its qualifications, needs of professional experience and sustained professional development which places it in a firm position as a choice of employers during the recruitment of business leaders who are professionally trained.

In aspects of management accountancy, the CIMA commits itself to uphold standards which are high, ethical and professional and sustain the confidence of the public in managerial accounting practices. Its operations are underpinned in the belief that sustainability is a core factor to many organizations in the world and its activities are geared towards supporting its members, both professional and students to combat ethical challenges during their practice (Schneider and Sollenberger 2003).

The Prince’s Accounting for Sustainability and International Integrated Reporting Committee (IIRC) is a body which engages and focuses on management information as a basic requirement to develop better reporting mechanisms in the corporate arena. Its operations are guided by the notion that conventional accounting records and reports are likely to focus on the short-term performance of a company. Their concern may broaden to the extent of concern over factors like the sustainability of the business model or the social or environmental impacts of the organization (Horngren etal. 2002). Another initiative, The Accounting for Sustainability (A4S) initiative, is an initiative where CIMA plays a seeking role in an attempt to create a model which is widely connected and integrated with regard to aspects of reporting. The CIMA (Chartered Institute of Management Accountants) are better placed in terms of collection and presentation of vital data, most of which is core to activities of information management which is a routine activity in CIMA. Thus the ethical code of CIMA calls for objective, responsible and independent presentation of accounting information, regardless of the intra-organizational or extra-organizational challenges which may attempt to distort accounting facts or information deemed unpalatable to them (Schneider and Sollenberger 2003, Zimmerman 2000).

The International Integrated Reporting Committee (IIRC) was established with a global network agenda. It is an initiative which composes a collaboration of accountancy institutions, corporate governance leaders and standard setters who focus on business sustainability and ethical accounting practices. However, there is no established global standard where aspects of environmental, governance and social performance can be determined. The IIRC attempts to address ethical concerns and ensure the code of ethics is enforced through activities which may include response to concise, clear comparable and comprehensive frameworks of reporting which are integrated and structured in line with the strategic objectives, business model and governance of the organization through managing material which is financial or non-financial (Schneider and Sollenberger 2003). Other measures for addressing ethical challenges include initiatives such as: The Global Reporting Initiative (GRI) which is an organization that is network oriented and is credited with the pioneering of a sustainability reporting framework which is globally used. In addition, the GRI’s operations are entrenched by a commitment of continuous world wide application and improvement..GRI framework sustainability reports have been widely used in areas which require a demonstration of organizational commitment towards sustainable development, periodic comparison of organizational performance and areas where codes, norms or laws exist (Schneider and Sollenberger 2003).

Organization for Economic Co-operation and Development Guidelines for Multinational Enterprises : These are recommendations to multinational corporations by governments which stipulate voluntary principles and standards for ethical conduct in areas of the environment, human rights, bribery, consumer interests, information disclosure, competition, taxation and science and technology. These have proven to be more comprehensive guidelines especially in modern-day corporate responsibility which multilaterally protect governments from unethical practices (Schneider and Sollenberger 2003).

. United Nations Principles for Responsible Investment (PRI) : Environmental, Social and Corporate governance (ESG) concerns have implications on the returns on investment and this has caused increasing concerns within the investment profession. To address this issue, the portfolio of the PRI lays down a framework that assists investors to consider the above mentioned factors which concern them. Though the principles are not prescriptive, they enlist possible actions which can oversee the incorporation of ESG concerns into major investment, decision making and ownership. Application of the above principles reduce unethical practices as they lead to a closer alignment of societal objectives and those of institutional investors, thus leading to long-term financial returns which benefit all stakeholders (Schipper 2009, Dechow 2000).

Ethical Issues Faced by Accounting Managers and Monitoring Behavior

Replacement of Existing Assets- like estimation of equivalent units, replacement of existing assets entails investment decisions in which the return on investment is used as a measure of performance. Under such circumstances the organizations’ volume of assets are defined in terms of the book value and in the denominator of the return on investment. For example a proposal for a company to invest in machinery is a benefit in the long-term. However, this would reduce the current rate of investment of the participant since the acquisition of the new machinery is more costly than the costs incurred for maintaining the current machinery and state of technology (Merchant 1990, Rogerson 1992)..

According to Horngren et al. (2002), managers tend to maximize the return on investment or the residual income since they “want a low-investment base. Managers in firms using net book value tend to keep old assets with their low book value.” (Horngren et al. 2002, p. 415-6). In addition, the likelihood for net book value to instill an increasing trend which is misleading on the return on investment has timely and serious ramifications on investment centered managers and their investments (Hilton et al. 2000). The centers of investment which have low assets depict a higher return on investment in comparison to those which have relatively new assets. In turn, this is a likely cause of discouragement for investment center accounting managers as they are blocked from investments in new equipment (Hilton et al. 2000, p. 844). This is in line with Kaplan and Atkinson’s argument that many accounting managers cannot be expected to manipulate their return on investment in a very transparent manner. However they can improve on their return on investment measures by sustaining operations with almost or nearly fully value-depreciated assets and by pushing ahead new opportunities for investment in assets (Kaplan and Atkinson 1998, p. 518).

Overproduction: As highlighted in the above examples. Accounting managers’ decisions can be driven by the desire to manipulate the company’s earnings. Advocates of absorption costing (full costing) have suggested that there is a higher susceptibility of the net income being manipulated by managers as unit costs can be decreased by increasing production, due to the fact that fixed overhead is a product of the cost (Kaplan and Atkinson 1998). In addition, Zimmerman (2000, p. 496) points out that “Managers rewarded on total profits calculated using absorption costing can increase reported profits by increasing production (if sales are held constant). The major criticism leveled against absorption costing is that it creates incentives for managers to overproduce, thereby building inventories” (Zimmerman 2000, p. 496).

According to Horngren et al. (2002, p. 609) “if the company uses the absorption costing approach, a manager might be tempted to produce unneeded units just to increase reported operating income.” This is best explained by Kaplan and Atkinson (1998, p. 504) by citing a situation where “the division manager had greatly increased production in quarters 2 and 3, with excess production accumulating as finished goods inventory. The much higher rates of production enabled period costs to be absorbed into inventory.” Therefore issues emanating from overproduction may have ethical ramifications for the corporation and its accounting managers either directly and indirectly (Kaplan and Atkinson 1998, p. 504).

Conflict of Interest: This arises when parties with selfish interests use their official capacity to acquire inappropriate benefits. For example, a management accountant might engage in unethical practices like overstating pretax incomes of the corporation in an attempt to gain performance bonuses which are higher. Similarly, he may engage in insider trading activities in an attempt to reduce losses or purchases or sales of securities of the organization. For instance, in the Accounting and Auditing Enforcement Release (AAER) 344 (December 10, 1991), a managerial accountant was denied practice of accountancy in a public owned corporation due to alleged insider trading thus loss evasion of $73,000 on the sale of the corporations common stock. The victim had allegedly colluded with senior management of the company and they overstated the company’s earnings by over $38,000,000 in three years (Nouri 1994).

Cost Allocation: According to Rogerson (1992), companies which engage in contracts with revenues that are cost based are likely to engage in unethical behavior when overhead cost allocations are done. Cost allocation therefore involves the practice of changing allocations of cost in an arbitrary manner so as to obtain higher amounts of revenue on a cost-plus sale of products. In Schneider and Sollenberger (2003, p. 4-19): it has been pointed out that cost-basing and market-basing the prices of goods or services tempts managers to shift overhead costs to those goods or services which are cost based. According to Hilton et al. (2000) “cost-plus contracts give incentives to the supplier of the goods or services to seek as much reimbursement as possible and, therefore, to allocate as much cost as possible to the product for which reimbursement is possible.” “(Hilton et al. 2000, p. 375).This is best explained by the example in industry where manufacturers produce standard goods for commercial customers on a fixed-price contract basis, while producing specialized goods for other customers under cost-plus basis/contracts, thus such industries have heightened revenues (Horngren et al. 2003, p. 535).

Effects of Ethics on Companies

In a study by Schneider and Sollenberger (2003, p. 1-50), five sub-samples of respondents were involved in a study on the probability of engaging in unethical behavior. Of the five sub-samples, four ethical issues were addressed and the probability of engaging in unethical behavior was reported in 38% to 51% of the respondents. In this study, the ethical issue of estimation of units was the only ethical issue which lacked overt conflict of interest. Ethical issues such as overproduction, replacing existing assets and investment and conflicting interests basically portrayed the likelihood of accounting managers decisions to conflict with those of the organization. The ethical issue which involved cost allocation portrayed a conflict of interest of the company with the interests of stakeholders for example the cost plus contractor. On the other hand, ethical issues which entailed estimation of equivalent units would result in occurrences such as overestimation which will likely increase the current earnings of the organization without posing serious ramifications to the organization’s production and investment, a scenario which would be similar for ethical issues which entailed overproduction, replacement of existing assets and investment and conflicting interests (Schneider and Sollenberger 2003, p. 1-50).

The training of accountants plays a crucial role in terms of instilling ethical values in their career. According to Jennings (2004), ethics courses should be included in training accounting students because of the rise in unethical practices portrayed by accounting professionals, for example recent scandals such as Arthur Andersen, Enron and WorldCom. In line with Schipper’s recommendations, on-job training can be included as part of the solution of the rising trends in unethical practice (Schipper 2009).

List of References

Chow, C.W., Cooper, J.C. and Waller, W.S (1988) “Participative Budgeting: Effects of a Truth-Inducing Pay Scheme and Information Asymmetry on Slack and Performance”, The Accounting Review, 63(1): 111-122

Conner, I.E. (1986) “Enhancing public confidence in the accounting profession”, Journal of Accountancy, July, p.7683

Dechow, P.M. and Skinner, D.J. (2000) “Creative accounting: reconciling the views of accounting academics, practitioners and regulators”, Accounting Horizons , 14(2), pp. 235-51

Fischer, M. and Rosenzweig. K. (1995) “Attitudes of students and accounting practitioners concerning the ethical acceptability of creative accounting”, Journal of Business Ethics , 14, pp. 433-44

Fox, J. (1997) “Learn to Play the Earnings Game”, Fortune, p. 5-8

Hamilton, J. (2007) “Blowing the Whistle without Paying the Piper”, Business Week,  p.138

Healy, P.M. (1985) “The Effect of Bonus Schemes on Accounting Decisions”, Journal of Accounting and Economics , 7, p. 85-107.

Healy, P.M. and Wahlen, J.M. (1999) “A Review of the Creative Accounting Literature and its Implications for Standard Setting”, Accounting Horizons , 13(4), 365- 83

Hepworth, S.R. (2009) “Smoothing Periodic Income”, The Accounting Review , January: p. 32-39

Hilton, R.W., Maher, M.W. and Selto, F.H. (2000) Cost Management: Strategies for Business Decisions , Irwin: McGraw-Hill

Horngren, C.T., Sundem, G.L. and Stratton, W.O. (2002) Introduction to Management Accounting , Upper Saddle River: Prentice-Hall

IMA, (1983) Standards of Ethical Conduct for Management Accountants : Institute of Management Accountants, Montvale,NJ

Jennings, M. (2004) “Incorporating Ethics and Professionalism into Accounting Education and Research: A Discussion of the Voids and Advocacy for Training in Seminal Works in Business Ethics”’ Issues in Accounting Education , 19 (1), 7-26

Kaplan, R.S. and Atkinson, A.A. (1998) Advanced Management Accounting , Upper Saddle River Prentice-Hall

Leung, F and Cooper, B. (1995) “Ethical Dilemmas in Accountancy Practice”, Australian Accountant, May, p.28-33

Merchant, K.A. (1990) “The Effects of Financial Controls on Data Manipulation and Management Myopia”, Accounting, Organizations and Society , 15 (4), 297- 313

Nouri, H. (1994) “Using Organizational Commitment and Job Involvement to Predict Budgetary Slack: A Research Note”, Accounting, Organizations and Society, 19(3): 89-295

Rogerson, W.P. (1992) “Overhead Allocation and Incentives for Cost Minimization in Defense Procurement”, The Accounting Review, 67(4): 671

Sayre, T.L., Rankin, F.W. and Fargher,N.L. (1998), “The Effects of Promotion Incentives on Delegated Investment Decisions: A Note”, Journal of Management Accounting Research, 10: 313-324

Schilt, H.M. (1997) “Is it Fraud or Just Slick Accounting?” CEO Magazine.

Schipper, K. (2009) “Commentary on Creative Accounting”, Accounting Horizons , p. 91-102

Schneider, A. (1995) “Incidence of Accounting Irregularities: An Experiment to Compare Audit, Review, and Compilation Services”, Journal of Accounting and Public Policy, 14(4): 293-310

Schneider, A. and Sollenberger, H. (2003) Managerial Accounting: Manufacturing and Service Applications , Tampa: Thomson Publishing Company

Zimmerman, J.L. (2000) Accounting for Decision Making and Control , Irwin McGraw-Hill

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• Ethical Issues Facing Managerial Accountants
• Accounting Only Has One Role That Is to Satisfy User’s Needs
• Reporting of Non-financial Information
• Management Accountancy Issues and Professional Ethics
• Generally Accepted Auditing Standards
• Disclosure of Non-Financial Information by Companies
• Forensic Auditing: the Case of Clive Peeters Limited
• Global Standards in Non-financial Reporting
• Auditing Construction Companies
• Financial Statements’ Analysis and Interpretation

2024 Handbook of the International Code of Ethics for Professional Accountants

  This handbook replaces the 2023 edition and incorporates the following:

• The revised public interest entity definition and related provisions will be effective for audits of financial statements for periods beginning on or after December 15, 2024.
• The revised definitions will be effective for audits of financial statements and group financial statements for periods beginning on or after December 15, 2024.
• The technology-related revisions to Parts 1 to 3 will be effective as of December 15, 2024.
• The technology-related revisions to Part 4A will be effective for audits and reviews of financial statements for periods beginning on or after December 15, 2024.  

Early adoption of the revisions is encouraged.

The back of the 2024 Handbook contains the IESBA-approved revisions to the Code which are not yet effective. These revisions will become effective after June 2025 and include:

• Revisions to the Code addressing Tax Planning and Related Services .

Click  here   to learn more about the IESBA Code.

Reproducing and Translating the IESBA Handbook To help adoption and implementation of the IESBA standards, stakeholders are invited to submit requests for permission to reproduce or translate the IESBA Handbook online via the  Online Permissions Requests or Inquiries system on the IFAC website .

I was fired from Deloitte after 18 months. Here are the mistakes I made as a new grad.

• Eddy Gramajo landed a job at Deloitte as a first-gen college graduate with a low-income background.
• At Deloitte, he was too focused on grasping corporate culture rather than his actual work.
• Gramajo was fired after 1 ½ years but has since built a successful accounting career in tech.

This as-told-to essay is based on a conversation with Eddy Gramajo, a 32-year-old accountant in San Diego. Business Insider has verified his employment history and salary details. The following has been edited for length and clarity.

I wasn't a great student in high school — I had a 2.4 GPA. Even my guidance counselor told me that community college would probably be my best option.

Yet I managed to land a job at Deloitte after college. Eighteen months later, though, I was fired.

I studied accounting in college to make a better life for myself

When I was growing up in California, my mom didn't make much money as a hairstylist, and she raised my brother and me as a single mother . I remember coming home from school and not knowing where we'd be sleeping because we'd been evicted.

Despite not being a great student, I got into the University of Redlands, a small school in Southern California, with generous financial aid and multiple need-based scholarships from local nonprofits.

I decided to double-major in business and accounting because the people I knew who made money and lived in nice houses were accountants or in finance or business. I wanted to help my mom out, do better for myself, and not worry about the lights being turned off or how to afford meals.

I was told I didn't look professional enough

Throughout college, I tried hard to make money — I resold my classmates used textbooks and worked multiple part-time retail and service jobs .

I knew other people who got internships, but I didn't manage to land any despite going to many Meet the Firms events , attending presentations, doing mock interviews, and submitting applications.

I remember thinking I crushed my first Meet the Firms event since I'd met many people and had gotten a stack of business cards. I was excited to follow up. Then my professor, the head of accounting, pulled me aside and told me that one of the Big Four firm's employees had mentioned that I needed to clean up, shave my beard, and be more presentable.

At another event, I remember one of the Big Four recruiters telling me, "I'm not even going to take a look at your résumé because your GPA isn't high enough."

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It was harsh feedback, but I started working to fix those things. In my junior year, I became the president of the Accounting Society and started a chapter of ALPFA, an association for Latino professionals, with a classmate. I also improved my GPA, even graduating with honors.

In my senior year, a Deloitte employee gave a presentation on campus. Afterward, we hit it off by talking about baseball, and I later reached out to him. He helped forward my résumé to a recruiter.

That fall, I landed a job offer from Deloitte. I knew that working at a Big Four firm would offer many opportunities and set me up for quick career progression, so I took the job.

At Deloitte, I focused on looks and personality instead of work

I thought for hours about what to wear on my first day . I chose a tie, dress shirt, and slacks, and I remember walking in and realizing I was the only one wearing a tie. After being told in the past that I didn't look presentable enough, I overbenchmarked my presentation.

In my starting class of 13 people, I was one of only two people of color. I didn't want people to think I didn't know what I was doing or draw attention to the fact that I was different.

I felt like the others in my starting class knew how to move in the corporate world better than I did, so I just tried to observe and learn.

I was so focused on grasping corporate culture that I didn't focus as much on the actual accounting work — that was my mistake. I focused on becoming buddy-buddy with the higher-ups because that was what I thought I needed to do to get ahead and accelerate my career.

When I got to Deloitte, I was surrounded by people from Yale, the University of California, San Diego, and all of these schools I didn't get into, so I clung to what I thought my strength was — my relationship-building skills — because they had always gotten me to places where my smarts couldn't.

I had some performance issues and was fired

I was promoted about 12 months in. But between then and the next review cycle, it became clear that it wasn't working out.

I missed a deadline or two and received more review notes on the Excel workbooks I turned in than expected. I wasn't submitting projects quickly enough because I was afraid to ask questions.

My senior manager asked me what was happening a few months before I was let go. I told her generally about some personal stuff I had going on because I thought I could be candid with her. She basically was like, "Hey, I know you're going through a lot, but everybody goes through stuff in their life, but they all end up figuring out how to get things done on time."

I started getting assigned lower-level work, and by my 18th month there, I stopped seeing stuff on my calendar. I took the lighter schedule as an opportunity to study for the CPA exam.

One day, I went into the office and had something scheduled on my calendar that morning. I went into the meeting, which was with the lead partner at the San Diego office and the human-resources person. They told me I was being let go because of performance issues.

I took it on the chin. I'm never one to make excuses. I could see how I hadn't been producing good-quality work, so I understood.

Even when I was getting fired, I was just super thankful for the opportunity. I knew how important it was to have Deloitte on my résumé, even just that 18-month experience.

I've made a career for myself

After Deloitte, I created an app with a former colleague from the firm to teach financial literacy to low-income families and students. The project ended up not working out, but at one point, we reached 5,000 monthly active users.

I moved back up to the Bay Area and slept on my brother's couch for a few months while I applied for jobs at tech companies, partly because I knew that was where the money was. I interviewed at 25 places and got an offer at Pandora in revenue accounting.

After Pandora, I worked at Glassdoor, started my consulting firm, Gramajo Consulting, joined Calm as its first hire on the revenue team, and have been at Dropbox since June 2022.

This is the longest I've ever been at a company, and Dropbox is one of the best places I've ever worked. The culture is great, and it's fully remote . My total compensation is nearly $300,000, and Dropbox offers great benefits — they provide six months of paid parental leave, so I got to spend six months straight with my child when he was born.

I don't look back and think about things I wish I had done differently. I feel like everything happens for a reason. Maybe if I hadn't gotten let go, I wouldn't have started the financial-literacy app or gotten a job at Pandora.

Now, 10 years later, I'm focused on making sure my team is  clear on the goals  we set. I don't want anybody to feel the way I felt at Deloitte, so I always provide a lot of transparency to my team in terms of giving feedback and discussing career growth.

I really focus on psychological safety for my team because I think that's important for groups such as first-generation white-collar employees, women, and people of color in the workplace. Two of my team of three are women of color, and I try to elevate them and give them recognition.

Mentors along the way supported me, and I want to pay it forward

I wouldn't have gotten here without the support of some great mentors along the way, including Nancy, the woman who ran a program called the College Dream Team and was the first person to tell me that I could go to college; Becky Mangiardi, my high-school librarian who would always be a listening ear and paid for one of my $75 college-application fees when I was trying to brainstorm ways to come up with the money; and Laurie Mitchell, my accounting professor who lent me $1,200 to be able to move to San Diego for Deloitte because she knew how important that was to get my career started.

I  share my story on TikTok  and try to be more transparent with my team because I want to pay forward the knowledge I've gained throughout my career to others.

I want others not to struggle the way I did and to learn from my mistakes so they don't have to make the same ones.

Deloitte representatives did not respond to requests for comment.

If you worked in a Big Four firm and would like to share your story, email Jane Zhang at [email protected] .

Watch: SAP's CMO Julia White learned early in her career about the challenge of leading teams through change, and earning respect by owning up to mistakes

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