Ethics in Accounting

“Ethics in its broader sense, deals with human conduct in relation to what is morally good and bad, right and wrong. It is the application of values to decision making. These values include honesty, fairness, responsibility, respect and compassion.”

-Rushworth Kidder
President, Institute for Global Ethic

While implementing and upholding a code of ethics is becoming increasingly more focused upon by many business organizations, adhering to the highest standards of ethical conduct is especially important in the accounting profession, where the financial decisions of a business are directly based on information and judgments provided by their accountants.

In recent years domestic and international concern over business ethical standards as well as social and corporate responsibility has become increasingly more significant. This is evidenced by the emergence of both government and private organizations whose objectives are to define and/or enforce high ethical standards, and by the willingness of businesses to institute their own ethical codes and value statements. Organizations such as the Corporate Responsibility Officer (CRO) publish corporate responsibility reports and profiles, and have even published the “100 Best Corporate Citizens”. In today’s competitive global economy, being recognized for ethical quality can greatly contribute to profitability.

This increased focus on ethics has extended to the accounting profession. Two business organizations for accounting professionals, the American Institute of Certified Public Accountants (AICPA) and the Institute of Management Accountants (IMA) have published ethics codes for their members. The AICPA’s Code of Professional Conduct includes Principles of Professional Conduct, General Accounting Standards Principles, and a section on Independence, Integrity, and Objectivity. These are recognized as three crucial characteristics for accounting professionals to be successful and ethically responsible. Independence refers to an accountant’s financial relationship with a client, and prohibits certain relationships that may lead to bias or present a conflict of interest in the accountant’s financial reporting. Integrity refers to an accountant’s obligation to be honest in his or her reports and communications with clients. Objectivity is related to independence and refers to an accountant’s responsibility to remain free of conflicts of interest in dealings with his or her clients. The Ethics Center on the IMA’s website includes IMA’s Leadership Strategies and Ethics as well as IMA’s Statement of Ethical Professional Practice, which, like the AICPA, identifies the necessity of integrity and objectivity as necessary characteristics in ethical accounting practice.

If members of either organization are found in violation of these codes, they will be subject to disciplinary action by their organizations, including disbarment from the organization, suspension, and in severe cases, the loss of the license to practice. Accounting professionals are also held to the standards of federal and state legislation regarding accounting principles and practice and are subject to disciplinary action by government organizations.

The microscope on an organization’s ethical standards often highlights it’s financial decisions, and these are a direct result of financial reporting and judgments of accounting professionals. As the focus on ethics in business and the global economy becomes clearer, the ethical codes in accounting become even more significant and necessary to uphold.