Definition of Ethics in Accounting

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Accounting is a business field in which accuracy and interpretation are both very important. Small discrepancies can displace large sums of money, especially in larger companies. These discrepancies can be either introduced on purpose, or included by accident. Ethics is the practice of behavior that does not allow for intentionally inaccurate or false accounting practices. This pertains not only to following the law, but also to interpreting financial data as clearly and honestly as possible in all situations.

Accounting Ethics

  • In business, people use the information collected by accountants to make very important decisions, including decisions on how to structure the organization's profit system and whether to invest in a particular business or not. The government also uses information provided by accountants to make decisions concerning laws and taxes. Since so much depends on the results given by accountants, ethical concerns are more prominent in the field of accounting than other industries.

Professional Conduct

  • In a system similar to that used for doctors, accountants are expected to adhere to guidelines for professional conduct. This code of professional conduct is created by the American Institute of Certified Public Accountants. The principles focus on privacy of information, honesty in representation of the facts and full disclosure. They are stated in positive terms, but list specific actions that should or should not be followed, no matter the situation.

Public and Private

  • There is a difference between public and private accountants. CPAs are public accountants who offer their services to the general public, and the burden of ethics is heavier for them, since their work is used by many different people and must be upstanding. Accountants who work in management or financial planning adhere to a set of ethical guidelines set up by Institute of Management Accountants, and accountants who work internally for a specific company follow the Institute of Internal Auditors code of ethics. Each of these codes includes different specific instructions for different situations.

Actual and Apparent

  • The integrity of accountants depends on both actual and apparent conflicts of interest. Actual conflicts of interest, when the accountant has an interest (especially a monetary interest) in the company for which they are working, must be avoided. Apparent conflicts occur when the accountant has no personal conflict, but it may appear as if there was one from the outside. These situations must also be avoided.

Enforcement

  • Different accounting codes of ethics are enforced by different organizations. The AICPA, the IMA and the IIA all have various internal means of examination and enforcement. In addition to these nationwide bodies, each state has its own societies, especially CPA societies, that specialize in particular state laws and help enforce ethics.

References

  • Photo Credit business accounts image by Nicemonkey from Fotolia.com
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