Importance of Ethics in Accounting

The International Federation of Accountants (IFAC) was formed with a mission to “strengthen the worldwide accountancy profession and contribute to the development of strong international economies by establishing and promoting adherence to high quality professional standards”.

Ethics in accounting are concerned with how to create good and moral choices regarding the preparation, presentation and disclosure of financial information. During the last two decades, a series of accounting scandals brought the issue of ethics into the forefront. Regulators have made it clear that blatant corporate greed and the pursuit of money at all costs is not acceptable. Ethics have always been, and will always be, fundamental to proper accounting practice.

In their daily tasks, accountants handle a wide range of privileged and sensitive information of their clients. This includes social security or bank account numbers, extent of wealth and available cash. This gives accountants a good deal of power in regard to their clients and it is important that the trust among them not to be abused. In the same way it is important that the industry itself does not become stigmatized as being unethical, something that could potentially harm business for all accounting firms. As they work with numbers that can have repercussions on bonuses and stock prices, they may face ethical issues in accounting more often than, say, actuaries or budget analysts.

The ethical dilemmas that accountants sometimes face include conflicts of interest, requests to breach payroll confidentiality, pressure from clients to inflate earnings and clients who request manipulation of financial statements.

As an accountant you need to ensure that you always put the interests of your clients ahead of your own, that you safeguard client information doggedly and never behave in a way that could be, or be perceived to be, unethical. In many firms, training in ethical behaviour is now central to the professional developments of accountants.

There can be a range of adverse consequences which will result from poor ethics in accounting practices. Ranging from the most innocuous to the most serious. Accounting firms heavily rely on word of mouth for promotion and reputation, therefore it’s all too easy for a few bad stories about unethical behavior to sway prospective clients away from a particular firm. There can also be serious legal repercussions for those who are found to be violating legal codes and standards for their jurisdiction.

While a person’s professional ethics are certainly important, organizations should also have their own code of ethics and make sure all employees are familiar with it. Not only are more organizations providing ethics training to their employees, but they’re also collecting and reporting ethical information.

If your employer does not have a code of ethics and standards, you and your team should advocate for one. An effective protocol will not provide a solution for every scenario, but it will act as a guide for the decision-making process. When creating a code of ethics from scratch, include guidelines on acceptable behavior, examples of ethical dilemmas and solutions, implementation and cost details, and the consequences for misconduct.

It can be tempting to ignore ethical issues in accounting practice. However, you owe it to your career, your profession and your firm to consider your business ethics in all aspects of your career.

Persefoni Shiakallis