How to Define Accounting Ethics

A business cannot survive without the observation of accounting ethics, particularly if that business is publicly traded and reliant on the evaluation of creditors and investors. Essentially, accounting ethics is a combination of both internal and external guidelines that keep a business from generating inaccurate financial reports or misrepresenting their financial standing. Breaches of accounting ethics can occur from either within or without and are often punishable by courts of law. For example, the executives of Tyco International and Enron were guilty of numerous breaches of accounting ethics.

Things You'll Need

• Accurate financial software
• Regular review of financial statements
• Accounting professionals

Instructions

1. Assemble a group of financial professionals to oversee accounting ethics in your business. Large corporations might require a team of 10 or more people for this purpose, while smaller companies can make do with just one or two people in charge of accounting. This ensures that someone is always watching for mistakes or potential criminal activity.

2. Familiarize yourself with the laws and regulations set forth by the United States Securities and Exchange Commission (SEC). Depending on the size and status of your company, you may be required to submit annual--and sometimes even quarterly--reports for review by the SEC. This aspect of accounting ethics provides third-party scrutiny to the operation of large businesses.

3. Realize that the financial reports you submit to the SEC may be published in their database, the Electronic Data Gathering, Analysis and Retrieval System (EDGAR). This database is available online and serves as an additional layer of protection for consumers who might be interested in dealing with or investing in your business.

4. Understand that the behavior of accountants and other financial professionals should be scrutinized on a regular basis by the businesses that employ them. It is never a good idea to put all of your eggs in one basket, so to speak, and an accountability structure is important for the integrity of a company.

5. Research different ways to ensure the accounting ethics of your business. A regular review of financial reports, double-checking of calculated figures, utilization of accurate software and observation of financial security laws will guard against both innocent human mistakes and intentional financial crimes.

Tips & Warnings

• Hire an accounting consultant who can help you make sure your business is following the rules.

Resources

• How to Develop a Business Ethics Checklist