ETHICS AND ACCOUNTING

Ethics and Accounting

Ethics and Accounting

Context of Problem

In today's business world, many organizations place a tremendous emphasis on ethics and the financial decision making process within organizations. All organizations are expected to behave in an ethical manner in the current economy. There are many factors that influence organizations to ensure and enforce ethical policies. The objective of this paper is to discuss ethics in accounting and financial decision making.

The Code of Professional Ethics for public accountants was developed by the American Institute of Public Accountant and includes four different categories (Matasar, 1999). The first, Concepts of Professional Ethics, establishes major requirements for CPAs in different areas of their day-to-day professional activities. The main parts of the Code are: Independence, Integrity and Objectivity in the practice of public accounting, Competence and technical standards, Responsibilities to clients, Responsibilities to colleagues and other responsibilities and Practices.

Independence has always been the fundamental concept to the accounting profession. In fact it is the most essential to the practice of all professions. The financial reports produced by CPAs would be of little value to the public unless CPAs maintain their independence. Independence has always been associated with integrity and objectivity. Since faults on financial statements may be the result of either an honest mistake or a lack of integrity it is imperative to associate the notion of independence with the objectivity and integrity (Arnold, 2008).

As part of the requirements by the Code of ethics, CPA should avoid any relationships that may result in the CPA's becoming dependent on the particular client. Such relationships include financial interests and client management. It is very important that the opinion of the CPA reflects the results of operating decisions taken by the client and not any underlying ideas which may be the case if a CPA takes part in the decision making process of the company.

Another important issue discussed in the Code of ethics is competence and responsibility of CPAs. It establishes a basic ethical obligation that a CPA shall not render any services, which he is not competent to render. Within this topic, the code mentions continuing improvement of the competence of CPAs in all areas in which they engage. The code of ethics assumes that in situations where CPAs face a problem he/she is not familiar with; they may ask other practitioners for help. A CPA may drop the case only when his/her efforts prove to be futile. From the other standpoint, there are always unknowns in every profession. Thus, to assume that every practitioner is completely knowledgeable would be inaccurate.

Responsibilities to Clients include CPAs' maintaining their independence, integrity and objectivity regardless of any personal interest that previously exists. CPAs should hold in confidence, all the information about their clients that they acquire during engagements. However the Code states that CPAs should insist on disclosing in financial reports, all information necessary for the fair presentation of the clients' affairs.

Purpose of the Study

Ethics in accounting and everyday business is something that needs to be taken as a very ...