Ethics in Accounting and Auditing

Accounting is a professional business industry where accountants offer several types of financial services to individuals and organizations. Accounting is the business process responsible for recording, reporting and analyzing financial information from business operations. Auditing is the internal or external function responsible for reviewing the accuracy and validity of a company’s prepared financial statements. Ethics is an important part of the accounting and auditing function.

Facts

The American Institute of Certified Public Accountants (AICPA) is a private organization that sets out ethics for professional accountants and auditors. The AICPA has developed a code of professional conduct, which includes several ethical values for accountants and auditors. While the AICPA governs licensed accountants, accountants not holding professional certification may also use this code of professional conduct. Public accounting firms and private businesses may also implement the code of professional conduct in their accounting policies.

Types

The AICPA outlines three types of ethical values: integrity, objectivity and independence, and due care. Integrity is defined as a fundamental character element requiring accountants to be honest and candid with clients. Objectivity and independence require accountants to avoid conflicts of interest and limit the number of accounting services offered to clients. Due care requires accountants act responsibly and apply accounting principles with competency and consistency.

Accounting Ethics

Accounting ethics require individuals to record and report all information, regardless of the impact it may have on a company. Ethical values should apply to company accountants and all professional accountants hired to conduct various accounting services. Accountants must also avoid using the company’s financial information for their personal gain or advantage. Certified financial officers, controllers and accounting managers are typically responsible for developing the company’s internal accounting ethics.

Auditing Ethics

Auditing ethics usually apply to professional accountants. Professional accountants provide external audit services to verify that the company’s financial information represents a true picture of the firm’s financial health. Auditors usually have a greater responsibility to the general public rather than individual clients. The general public relies on auditing reports to make investment decisions regarding companies in the business environment. Professional organizations and government agencies may also use audit reports to ensure a company is following all applicable laws.

Warning

Accountants who violate the AICPA code of professional conduct may be subject to severe punishment or penalties. Loss of professional certification, banishment from the accounting profession and payment of monetary fees are a few penalties, depending on the severity of the accountant’s violation. Accountants may also be subject to federal, state or local laws regarding inappropriate professional behavior and the manipulation of financial or accounting information.

References

• "Accounting;" Charles T. Horngren, Walter T. Harrison, Jr.; 2007