Ethical Use of Information in Accounting
Accounting is a professional industry built on the principles of independence, integrity and honesty. Companies use management accounting and financial accounting to accurately record and report its financial information to internal and external business users. Management accounting deals with specific information from the company's production or cost accounting process for management decisions. Financial accounting is the function of preparing financial statements for release to outside users of the company's financial information.
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Facts
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The American Institute of Certified Public Accountants (AICPA) has created a code of professional conduct to be followed by its members and other accountants. This code of professional conduct gives accountants insight and guidelines for properly handling sensitive financial information in the best ethical manner possible. The AICPA's framework applies to the entire business society and should be applied by all licensed accountants and AICPA members.
Expert Insight
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Public accounting firms and certified public accountants (CPA) provide a variety of accounting services to companies. As professional accountants work with a company on accounting tasks, they are required to present all information in a truthful and accurate manner, regardless of what happens to the company. Public companies have direct relationships with equity investment firms and private investors; these individuals rely on public accounting reports when making sound investment decisions.
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Considerations
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Managers and employees are the primary internal users of accounting information. They use accounting information to make business decisions and advance the company's operations for earning more profits. Misleading managers or employees through tainted accounting information can lead to poor business decisions and lower profits. This can limit the company's ability to pay its employees for their hard work or to remain in business, causing employees to eventually lose their jobs.
Significance
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Companies that choose to act ethically on positive or negative accounting information can create high levels of goodwill with its clients and customers. If a company learns about a defect or error in its product, it will usually review how much it will cost to correct the problem. Offering to correct the issue regardless of cost indicates a company that is willing to act ethically when producing and selling consumer goods and services. Consumers may also be impressed by the company's willingness to put customer satisfaction ahead of profits when conducting business in the economic marketplace.
Warning
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Hiding poor accounting information can open major legal or financial liabilities for a company. If a company chooses to hide financial information that reflects poorly on the company and it comes out at a later date, it can have significant negative repercussions. Consumers may choose to stop buying the company's goods and services, lender or investors may file lawsuits, and employees may seek out new employment opportunities, leaving the company in a lurch to complete its business processes.
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