Accounting Ethics Theory
Unscrupulous accounting practices may include hiding money to keep from paying taxes, falsely inflating earnings to make a company seem more profitable (and more lucrative to investors) or careless bookkeeping to save the expense of hiring a qualified accountant. Unethical accounting might seem worthwhile in the short term, but long-term consequences involve loss of credibility, government fines and even jail time. Dishonest accounting hurts more than just the company that participated in the deceit; the industry suffers and the economy suffers as investors lose money and employees lose jobs.
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Solving Ethical Problems
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Accountants solve ethical issues by using problem-solving models designed to help with business ethics issues. Some companies or professional groups have ethical codes that accountant can refer to for guidance through accounting ethics dilemmas. Otherwise, accountants must use their instincts and their own moral compass to first determine whether an issue involves ethics and them work through the problem.
Minimizing Harm
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Accountants identify the situational factors and analyze each element. Often, in an accounting ethical problem one person (or party) is being harmed while the other party benefits from the harm. Accountants must consider the consequences for all involved parties. Sometimes the answer to the problem is clear because the situation involves the law; other times accountants must consider which actions produce the least amount of harm to all involved parties.
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Generally Accepted Accounting Principles
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Generally accepted accounting principles (GAAP) are the set of guidelines that ensure that accounting records use the same mathematical standards. GAAP establishes that business and financial professionals can compare financial reports from different companies and know that the numbers and terms mean the same thing. It's considered unethical and often illegal to circumvent GAAP. The principles are stated, regulated and upheld by the Securities and Exchange Commission and Financial Accounting Standards Advisory Board.
Ethics in Financial Reporting
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Investors and creditors use financial reports to determine the financial health of a business. Reports such as balance sheets and income statements offer insight into how much money a business makes and how much money it needs. Business must also file tax paperwork that informs the government how much in taxes the business owes and how much employees have been paid. The government uses these figures to determine whether employees are giving honest tax reports. Any dishonesty in this system causes serious problems for a number of people and institutions.
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