An Article for,64

th
AICC, 2011 Pondicherry University, Puducherry on 13-15 Dec, 2011
ASHOK KUMAR JHA
Associate Professor
Department of Account
Faculty of Management
Mahendra Multiple Campus, Dharan, Nepal
Tribhuvan University, Kathmandu, NPA!
0097798404!0! Nepal
009!99"!7007 #ndia
a$%ha&tu008'yahoo(com
a$%ha(tu008'gmail(com
Accountin" # Re$ortin" Practices% thica& 'imensions
() Abstract
!thics is " to#ic th"t is t"$en very seriously in the %orld of "ccountin& 'o%ever, even
thou&h ethic"l (eh"viour is stron&ly encour"&ed not everyone in the "ccountin& field
"cts in "n ethic"l )"nner It is i)#ort"nt for #eo#le to (e educ"ted "nd encour"&ed "t
"n e"rly st"&e in their c"reers in order to )"$e the ri&ht c"ll %hen f"ced %ith "n
ethic"l issue l"ter in life !thics in its (ro"der sense, de"ls %ith hu)"n conduct in rel"tion to
%h"t is )or"lly &ood "nd ("d, ri&ht "nd %ron& It is the "##lic"tion of v"lues to decision
)"$in& *hese v"lues include honesty, f"irness, res#onsi(ility, res#ect "nd co)#"ssion *his
#"#er focuses the ethics educ"tion in "ccountin& re#ortin& "nd #r"ctices Profession"l
"ccount"nts "re ordered in so)e #oint in their life to t"$e cert"in decisions th"t "re ethic"l or
not Accountin& ethics is "n i)#ort"nt "s#ect of "n "ccount"nt+s %or$ In the l"st dec"des, it
h"s incre"sed so )uch interest in "ccountin& ethics so th"t the fin"nci"l st"te)ents should (e
#re#"red to co)e to include " descri#tive re#ort of "ccountin& #rofession"ls %ho h"ve cre"ted
"nd filled these situ"tions !thics "re " #"rt of everyd"y life Peo#le "re "l%"ys )"$in& "n
ethic"l decision Underst"ndin& the h"r)ful effects of #oor ethic"l decisions is vit"l for the
21st century *od"y, "s in the #"st, )"ny #eo#le suffer for " le"der+s #oor ethic"l choices *his
re#ort should include "ny infor)"tion considered relev"nt "(out f"ctors th"t influence ethic"l
(eh"viour *he #resent rese"rch "i)s to sho% %h"t is "ccountin& ethics, %h"t is the #ur#ose of
!thics for Profession"l Account"nts, %h"t is cre"tive "ccountin& "nd ethic"l (eh"viour th"t
de#ends on "n "ccount"nt, %h"t "re the re"sons for the use of cre"tive "ccountin& "nd "lso
%h"t "re its )"in #r"ctices
!
K* +OR'S% accounting ethics, responsi)ility, creati*e accounting, ethical )eha*iour, code
of ethics
,) -ntroduction
Accounting is important specifically to the le*el the accountant can reno*ate the +orld, can
manipulate the li*ed occurrence of others in +ays +hich reason that $no+ledge to fluctuate
from +hat it +ould )e in the nonattendance of accounting, or in the presence of an su)stitute
manner of accounting( Accounting ethics is primarily a field of applied ethics, the study of
moral *alues and %udgments as they apply to accountancy( #t is an e,ample of professional
ethics( Accounting ethics +ere first introduced )y -uca .acioli and later e,panded )y
go*ernment groups, professional organi/ations, and independent companies( 0thics are taught
in accounting courses at higher education institutions as +ell as )y companies training
accountants and auditors(
1he +ord 2thics3 has its root in the 4ree$ +ord 5ethos,, +hich means character, spirit and
attitude of a group of people or culture( 0thics is defined in the Concise 6,ford Dictionary as
" syste) of )or"l #rinci#les, (y %hich hu)"n "ctions )"y (e -ud&ed &ood or ("d or ri&ht or
%ron& "s %ell "s the rules of conduct reco&ni.ed in res#ect of " #"rticul"r cl"ss of hu)"n
"ctions
0thics in the accounting prospectus is a fundamental part of financial career training(
Accounting curriculum, +hich emphasi/e ethics playing an essential role, are *ital to $eep
the financial organisms of the country floating( 1his +ill ensure that the ground targets and
maintains employees +ith the needed ethical and moral )alance to ha*e a long and successful
career( 0thics in the )usiness )ac$ground is essential to success, ho+e*er some stipulate to
the more deceitful approach of accomplishing their goals at any moral or ethical cost( 7hen
de*eloping an accounting curriculum, it is solution to connect )oth students and professionals
+ith situations that re8uire ethical responses( #t is sometimes not enough to rely on the 9if:
then9 sym)ol of 9if you steal, you go to %ail(9 Money is )et+een the most tempting of desires,
and those +ho +or$ +ith it often possess such emotions( ;ut, the typical and most po+erful
people in the field are ethically solid and morally )ound( An accountant must )e a)le to treat
finances as produce on )ehalf of a client in a completely o)%ecti*e manner(
.eople and indi*iduals li*e in cultures that include *alues such as honesty, truth, and com)ine
these *alues into a generally accepta)le code of social conduct( .ro)lems, difficulties, issues
may arise +here indi*iduals or organi/ations attempt to transfer their original culture to
another culture or su) culture( ;usiness )eing a system co*ers economic, social, legal and
political issues( ;usiness ethics concentrate on such matters as the fair distri)ution of
economic )enefits, %ustice, etc( Accountancy is a profession +ithin the )usiness system
traditionally self:regulating in common la+ countries and has a code of ethics that has
de*eloped o*er more than decades( .rofessional *alues, ethics and attitudes are integral parts
of today<s professions( #n engineering, in la+, in nursing, in medicine, and in some other
areas, professional *alues, ethics and attitudes co*erage ha*e )een getting important(
According to -eung and Cooper =!994>, /Account"nts, li$e )"ny other #rofessions, o#er"te
%ithin " %orld of ch"n&e in %hich cor#or"te coll"#ses, (usiness i)#ro#riety, re&ul"tory

f"ilure "nd environ)ent"l dis"sters "re #rev"lent It c"n (e "r&ued th"t "ccount"nts need to
h"ve " thorou&h "##reci"tion of the #otenti"l i)#lic"tions of #rofession"l "nd )"n"&e)ent
decisions, "nd "n "%"reness of the #ressures in o(servin& "nd u#holdin& ethic"l st"nd"rds,
%hich )"y confront individu"ls involved in " decision )"$in& #rocess0
1hus 0thics and the importance of ethical decision ma$ing ha*e ta$en on increasing
significance )ecause of the pressures placed on )usiness managers )y stoc$holders, creditors,
and other parties affected )y financial performance( #t is not surprising therefore that a recent
sur*ey of in*estment management firms re*ealed that nearly three:8uarters of the
respondents felt that unethical )eha*ior, such as personal trading, insider trading, and
fraudulent financial reporting are areas of high concern( Another sur*ey indicated that nearly
half of o*er 700 human resource professionals said they feel pressure to compromise their
organi/ations? standards of ethical )usiness conduct
,)() thics in the Accountin" +or&d
1he +orld of accounting is strongly dependent on ethical )eha*iour( Accounting ethics is
)ased upon the morals and %udgments one ma$es and ho+ they may apply to accountancy(
7ithout ethical )eha*ior in this field, there +ould )e scandals of all se*erity le*els constantly
going on( For years people ha*e gone to accountants depending on them to prepare their
financial records( 1hese people did this in the )elief that their accountant had all the
$no+ledge necessary to prepare their records accurately( @o+e*er, the 8uestion is if ethics is
so highly encouraged in the accounting field then +hy are scandals and unethical )eha*iour
still occurringA 1he 8uestion that al+ays comes to mind is, after all one?s training in the
accounting fields, +hy +ould an accountant choose an unethical pathA 1he ans+er?s simple
really, greed( Accountants that choose to commit an act of unethical )eha*ior usually )elie*e
that the gains +ill )e greater for them than the conse8uences +ould )e(
7ith many corporations either collapsing or going )an$rupt, people tend to point the figure in
here are constantly 6*er the past years there ha*e )een a num)er of scandals reported around
the glo)e( Needless to say, these scandals ha*e directed a tremendous amount of criticism
to+ards the profession( As a result there has )een a rapid increase in the standards of
professionalism set for accountants(
Accountants ha*e one of the most demanding %o)s +hen it comes to ethical )eha*ior( 0*ery
day they are faced +ith decisions +here companies may as$ them to hide financial de)t,
ma$e income loo$ lo+er so they don?t ha*e to pay as much ta,, or deal +ith )ri)ery on
se*eral other le*els( 7hen one doesn?t ha*e the +ill po+er to say 9no9 and pic$ the ethical
path, many people may )e affected )y this( Depending on the si/e of the company,
shareholders could lose money( 1he company committing fraud may )e shut do+n as +ell as
the firm +ho failed to notice resulting in a potential loss of thousands of %o)s( 1C"#istr"no,
20042
,).) /&assification of thics
1he 0thics can )e classified as .ersonal 0thics, Accounting 0thics, and ;usiness 0thicsB
Persona& thics% 1he rule )y +hich an indi*idual li*es his or her personal life is called as
personal ethics(=e(gB Most of the international schools are gi*ing more importance on
imparting 1a)le Manners to the students +hile they sit for their )rea$fast,lunch and dinner>
"
Accountin" thics% #t pertains to the code that guides the professional conduct of the
accounts(=e(g( 7e cannot put the machinery in the profit and loss account , instead +e ha*e to
put it in the asset side and only the depreciation must )e sho+ed in the profit and loss
account>
0usiness thics% #t is concerned +ith the truth and %ustice and has a *ariety of aspects such
as the e,pectations of society =not manufacturing duplicate products>, fair competition,
ad*ertising, pu)lic relations, social responsi)ility and corporate )eha*iour in the o+n country
as +ell as a)road(
,)1) thics in Accountancy%
1he general ethical standards of society apply to people in professions such as medicine, la+,
nursing and accountancy etc %ust as much as to anyone else( @o+e*er society places e*en
higher e,pectations on professionals( Cta$eholders including clients, credit grantors,
go*ernments, ta,ation authorities, employees, in*estors, the )usiness and financial
community etc percei*e them as highly competent, relia)le, o)%ecti*e and neutral people(
.rofessional accountants therefore, must not only )e +ell 8ualified )ut also possess a high
degree of professional integrity( ;ecause of these high e,pectations, professionals ha*e
adopted codes of ethicsD also $no+n as codes of professional conduct( 1hese ethical codes
call for their mem)ers to maintain a le*el of self:discipline that goes )eyond the re8uirements
of la+s and regulations( 0ach of the ma%or professional association for accountants has a code
of ethics(
.) Pur$ose of thics in Accountin"
@istorical records sho+ that accountants played important roles in ancient ci*ili/ations,
including ma$ing ma%or contri)utions to the de*elopment of +riting, currency and )an$ing(
1hough accurate financial record $eeping is the primary purpose of accounting, many people
consider ethics in accounting to )e e8ually important(
The 2acts% 0thics in accounting )ecame a focal point during the 4o*t( financial scandals of
the early t+enty:first century(
Theories% 1he role of ethics in accounting has led to considera)le de)ate and t+o important
theories( 1he most commonly applied theory used in accounting is the Eohl)erg model
of moral de*elopment, created )y -a+rence Eohl)erg in the late !9F0s( Eohl)erg?s
theory di*ides moral de*elopment into a series of si, progressi*e stages that an
accountant can use to measure the ethical correctness of a gi*en situation( Another
theory, formulated )y Games H( Hest and called Hest?s Defining #ssues 1est, also uses
the idea of stages to determine ethical correctness(
Re3uirements: 1here is no set standard for ethics course re8uirements for students pursuing
a degree in accounting, )ut most schools re8uire at least an introductory ethics course for
accounting students( After passing the e,am to )ecome a certified pu)lic accountant =C.A>,
applicants must pass an ethics 0,am( )efore recei*ing their license( 1he re8uirements for this
0,am( are determined )y indi*idual states and may re8uire applicants to complete an ethics
course, ta$e a test in ethics, sign an ethics agreement or some com)ination of the three(
4
#n #FAC report =00F> specific goals of education for professional *alues, ethics and attitudes
are included as follo+sB
I 0nhance $no+ledge of rele*ant standards, including rele*ant principles and concepts,
and e,pectations of ethical and professional conduct(
I De*elop a sense of professional responsi)ility +ith ethical sensiti*ity and an
appreciation of ethical threats in different situations(
I #mpro*e professional %udgment +ith sharpened ethical decision:ma$ing s$ills(
I De*elop a commitment to ethical )eha*iour(
1) Sco$e of thics for Accountin" Re$ortin" and Practices
1he 0thical Dimension for Accounting Heporting and .ractices can )e conceptually di*ided
into t+o partsB
I Approaches to de*eloping professional *alues, ethics and attitudes for prospecti*e,
I Approaches to maintaining professional *alues, ethics and attitudes(
De*eloping part of the su)%ect +ould )e certainly first stage of +hole education program in
accountancy( #n order maintain the professional *alues, ethics and attitudes, they should )e
de*eloped and gained first( 6ther+ise, affords for maintaining +ould )e useless(
#FAC report =00F> concluded that indi*iduals and accounting institutions +orld+ide in
agreement regarding the follo+ing aspects of professional *alues, ethics and attitudes
education particularly at the pre:8ualifying le*el that is 8uite di*erse from post:8ualifying
le*elB
I Ctandards of indi*iduals in regarding professional *alues, ethics and attitudes can )e
changed and are su)%ect to influences including educational inter*ention(
I 1he fear of upsetting religious and cultural sensiti*ities should not )e an appropriate
reason to a*oid teaching ethics in accounting education program(
I 0ducation for professional *alues, ethics and attitudes should )e a life:long learning
e,ercise( 1his education should )e introduced as a mandatory part of a )roader
education program to de*elop prospecti*e professional accountants< professional
*alues, ethics and attitudes(
I 4ood education for professional *alues, ethics and attitudes re8uires learners to thin$
critically )efore ma$ing decisions +ith ethical implications(
I .rofessional *alues, ethics and attitudes should )e learned as a part of the pre:8ualifying
program of accounting education( .rofessional *alues, ethics and attitudes should )e
dedicated unit and also integrated +ithin other parts of learning(
I .rofessional accounting institutions should )e a significant role in education for
professional *alues, ethics and attitudes( 1he nature of such education should )e
prescri)ed +ithin the pre:8ualifying program(
4) -m$ortance of thica& 'imension on Accountin" # Re$ortin" Practices
4)( -m$ortance of thics in Accountin" # 2inancia& 'ecision Ma5in"
0thics are important to any )usiness, creating trust and customer confidence( 7hen
)usinesspeople ma$e unethical decisions, )enefiting themsel*es only, it can lead to the $ind
of scandal and outrage that destroy careers and e*en companies( No)ody +ants to deal +ith
shady, unethical indi*iduals, gi*ing preference to those they can trust to )eha*e in an ethical
+ay(
J
a) 0thical )eha*ior creates a comfort /one +here people $no+ that they +ill )e treated fairly(
0thics means transparency in accounting and financial matters, )uilding trust +ithin a
community and among in*estors and customers( 6nce trust is lost, it is *ery hard to gain it
)ac$(
b) A $ey ethical concept dealing +ith accounting and financial matters is to $eep these
matters confidential( An ethical person +ill not disclose pri*ate financial matters to people
+ho should not ha*e the information( A lot of damage can )e done )y an employee or
consultant spilling the )eans a)out a firm?s or an indi*idual?s financial situation or decisions(
c) An ethical en*ironment fosters colla)oration, the sharing of ideas( Colla)oration re8uires a
sense of honesty and ethics( #f you $no+ that your idea +ill )e stolen )y a colleague or that it
+ill )e misused, you +ill not colla)orate( 0ach person )rings a set of $no+ledge and s$ills to
a finance committee or group, and if people refuse to colla)orate and share information, good
decisions are harder to ma$e(
4),) Reasons for thics Are -m$ortant to Professiona& Accountants
.rofessional accountants ha*e access to sensiti*e financial information +hile )eing e,posed
to influences that may compromise their o)%ecti*ity( #n this situation, it is only the personal
ethics of the accountant that ensure an ethical performance of the +or$ in compliance +ith
the ethical guidelines pu)lished )y the profession( 7hen an accountant does not perform his
+or$ in accordance to professional ethical standards, the operation of the financial system in
+hich he participates may )e compromised1I3A,20102
Self-Interest: An accountant may )e e,posed to a conflict of interest +here his professional
ethics re8uire action that may )e detrimental to his o+n financial or personal interests(
@e may, for e,ample, ha*e to +ithdra+ from an account that in*ol*es 8uestiona)le
financial practices and lose the fees associated +ith the account( @is ethical position,
reinforced )y the ethical guidelines of his profession, must al+ays )e on the side of
correct financial practices, e*en +hen that in*ol*es personal financial loss(Self-
Review: An accountant may ma$e e*aluations and decisions that are later found to )e
fla+ed as ne+ information )ecomes a*aila)le( #n all such cases, he must re*ie+ his past
decisions o)%ecti*ely( @is ethics and professional ethical guidelines may re8uire a
re*ie+ of past decisions and he may come to the conclusion that certain decisions +ere
not %ustified or are no longer %ustified( 1he accountant must follo+ ethical guidelines to
re*ise his positions as necessary(
F
Advocacy: An accountant may hold strong personal or political )eliefs )ut must refrain from
letting those )eliefs influence his professional decisions( 7hen he senses a conflict or a
threat to his professionalism, he must rely on his ethics and professional ethical
guidelines to return to )asic principles and ensure an o)%ecti*e approach to the
8uestions he has identified as )eing at ris$(
Familiariy: Cuccessful accountants retain clients o*er many years and )ecome familiar +ith
their )usinesses, financial positions and economic prospects, +hile also )ecoming
familiar +ith their personal li*es( Cuch familiarity may gi*e root to personal feelings
+hen difficult financial decisions must )e made( 0thical )eha*ior on the part of the
accountant ensures that such a close, personal relationship +ill not influence the
accountant?s +or$(
Intimidation: An accountant may e,perience pressure or may )elie*e he is )eing pressured in
connection +ith some e*aluations he must ma$e in the course of a particular mandate(
Cuch pressures may )e financial or personal and may see$ to influence the accountant?s
decisions( 1he accountant must act ethically in the face of such pressures:::or percei*ed
pressures:::and continue to complete his +or$ o)%ecti*ely, re%ecting such outside
influence(
5.3. Why are Ethics Important in Accontin!"
.roper ethics and ethical )eha*ior are e,tremely important in accounting for a *ariety of
reasons( 1o )egin +ith, accountants are often pri*y to sensiti*e information regarding their
clients, such as Cocial Cecurity or )an$ account num)ers( 1his gi*es accountants a good deal
of po+er in regard to their clients and it is important that the trust )et+een an accountant and
their clients not )e a)used( #n the same +ay it is important that the industry itself does not
)ecome stigmati/ed as an unethical one, something that could potentially harm )usiness for
all accounting firms(
4)1) -m$act on Society
@o+ much does the society get influenced )y the actions of the accountants and auditors in a
firmA Cociety is *ulnera)le to a great deal +hen there is financial misconduct in ethical terms
in an entity( #n*estors, suppliers, customers etc +ho are ma%or sta$eholders of an entity are
also an integral part of the society in +hich the )usinesses run( #n certain cases depending on
the degree to +hich the financial data is manipulated in a )usiness, the negati*e impacts of
this action can reach the entire nation as a +hole( #t must )e also noted that most often +hen
the conduct of certain accountants or auditors is not ethically appropriate, the specific people
in*ol*ed in these actions alone should )e )lamed and not all the people in the profession( #t is
also possi)le that the accounting figures are manipulated )y the financial accountants or the
auditors due to the constraints laid )y the C06s +ho +ould +ant to see the figures in a
certain +ay to ma$e their )usinesses loo$ good( #n these cases the unethical actions are not
primarily carried out )y the accountants )ut are instead dri*en from the top management(
0thical standards in accounting can )e created and re*ised from time to time( 1hey can )e
enforced )y la+ and code of conduct( 1o a)ide )y it and to act +ith a right moti*e that is
7
superior to one?s o+n interest, is in the hands of indi*iduals +ho are in the accounting
profession(
#. $ow can %rofessional Ethics in Accontin! &e Improved"
Accounting ethics are the principles indi*iduals must follo+ +hen +or$ing in this
professional en*ironment( 1he American #nstitute of Certified .u)lic Accountants =A#C.A> is
a professional organi/ational that currently de*elops a professional code of conduct for
accountants( 1his represents a good start to understanding professional accounting ethics( 1he
A#C.A code of professional conduct includes integrity, o)%ecti*ity, independence and due
care( Although code of conduct is re8uired for indi*iduals holding professional certification,
all accountants should understand and follo+ these principles regarding their professional
stature( Accountants holding professional certification:::such as the certified pu)lic
accountant =C.A> license:::are typically re8uire to complete a certain amount of continuing
professional education( Although the A#C.A allo+s state accountancy )oards to set these
standards, re8uiring accountants to include ethics refreshers could impro*e the accounting
profession(
.rofessional ethics help accountants a*oid situations that +ill compromise their professional
independence( #n addition, accountants ha*e a responsi)ility to the general pu)lic )y
reporting all financial information from a company( Heporting false information damages the
trust indi*iduals ha*e in professional accountants(
6) /ode of thics
#n the conte,t of a code adopted )y a profession or )y a go*ernmental organi/ation to
regulate that profession, an ethical code may )e styled as a code of professional
responsi)ility, +hich may dispense +ith difficult issues of +hat )eha*ior is ?ethical?( A code
of ethics is often a formal statement of the organi/ation?s *alues on certain ethical and social
issues relating to the profession and practice of the professional $no+ledge( 1his also
includes the principles and procedures for specific ethical situations(
Ethics can prevent ntold le!al costs.
Although state and federal regulations re8uire )usinesses to maintain ethical principles in
certain industries and professions including la+, finance and medicine, many companies ha*e
no legal o)ligation to de*ise a code of ethics( Despite that, many )usiness o+ners and leaders
)elie*e a code of ethics is imperati*e to a company?s success )ecause )ecause it instills trust
from customers and )usiness partners, and reduces legal e,posure( 6ften, they simply +ant
their companies to )eha*e in a respecta)le, honora)le manner( 14#rin&,20052
'e!al (osts
-a+ suits and legal actions can drain a company?s profit margins( 6ften, legal threats are
)eyond a company?s control and e*en +hen a la+suit isn?t *alid, a settlement may )e less
e,pensi*e than fighting( 1hat?s +hy smart )usiness leaders do e*erything in their po+er to
reduce their organi/ations? legal e,posure(
8
(onsmer %erceptions
Customers and clients ma$e their choices largely )ecause of their impression of a company(
0thical conduct and operation is part of ho+ consumers percei*e *alue( A company that
ensures its products are high 8uality or that resol*es complaints 8uic$ly and respectfully +ill
earn a good reputation(
Acconta&ility
Fe+ companies promote unethical )eha*ior( 6+ners and )usiness leaders may assume that
)ecause they ha*e corporate cultures that emphasi/e 8uality +or$ and ethical )eha*ior, a
formal code of ethics isn?t necessary( @o+e*er, despite the )est candidate screening and
ethical direction, there +ill al+ays )e people +ho )eha*e unethically( Codes of ethics gi*e
)usiness leaders grounds to enforce ethical )eha*ior and discipline or terminate +or$ers +ho
don?t a)ide )y their employers? standards( 6f course, this only +or$s if employees are gi*en
copies of a code of ethics and as$ed to familiari/e themsel*es +ith it(
7) 8overnment Res$onsibi&ity
Most often +hen ethics is fading in society it )ecomes una*oida)le for the go*ernment to
play an important part in handling the situation( As a result of this, regulatory )odies li$e
Cecurities and 0,change Centre, the Financial Accounting Ctandards ;oard =FAC;>, and the
.u)lic Company Accounting ;oard ha*e )een created +hich ensure that financial
accounting is honest and relia)le(
#CA#, +ho are in pu)lic practice, ser*e firms that pro*ide accounting, auditing and other
ser*ices to general pu)lic( 1hese #CA#?s are su)%ect to securities la+s and regulations,
including Cecurities 0,change Act ( Cince the state la+s include the important parts of the
#CA# code, the code ac8uires legal enforcea)ility(
9) thics in Mana"ement
0thics is the discipline dealing +ith that +hich is good and )ad and +ith moral duty and
o)ligation( ;usiness ethics is concerned +ith the )eha*iour of a )usinessman in doing a
)usiness(;usiness ethics are de*eloped )y the passage of time and custom( A custom differs
from one )usiness to another(1he ethics is )eneficial for different classes such as customers,
employees, industry, )usiness,society and go*ernment(
2or customers% 1hey +ill )e recei*ing 8uality goods,they +ill )e paying reasona)le price
for the product +hich they are purchasing and they +ill not find any difficulty in o)taining
the goods, and there is no price discrimination and price fluctuation for the customers(
2or m$&oyees% 1he employees +ill )e getting fair +ages for their +or$ and also they +ill
)e re+arded for their efficiency sho+n in the +or$ and they +ill )e encouraged to participate
in the acti*ities of the management
9
2or -ndustryB 1here arises a healthy competition )et+een the industries or companies and
there e,ists a )etter co:operation and co:ordination )et+een the +or$ers of the factory(
2or 0usiness% #f the ethics follo+ed is good then the company naturally +ill )e getting the
ade8uate profit at e*ery sales they are ma$ing and there is a high chance of di*ersification of
the )usiness and the most important one is that there is a less num)er of la)our turno*er in
the factory(
2or Society% 1here +ill )e a )etter utili/ation of resources )y the employees +ho is +or$ing
in the industry,and naturally there +ill )e an impro*ement in the standard of li*ing of the
employees and there is /ero percent pollution pro)lem in the factory(
2or 8overnment% 1he 1a,es are collected )y prompt time and there is a high chance for
the de*elopment of nation and it leads to easy implementation of legislation(
What can reslt from poor Ethics in Accontin!"
Many negati*e conse8uences can result from poor ethics in accounting practices( 1he first
result is generally a lag in )usiness( Accounting firms rely hea*ily on +ord:of:mouth for
promotion, and it?s all too easy for a fe+ )ad stories a)out unethical )eha*ior to s+ay
prospecti*e clients a+ay from a particular firm( 1here can also )e serious legal repercussions
for those +ho are found to )e *iolating legal codes and standards for their %urisdiction
What can one do to &e an Ethical Accontant"
1o )egin +ith, study your area?s legal statutes regarding accounting practices( 7hile it is true
that +hat is legal and +hat is ethical can )e t+o different things, the legal code is a good
)asic guide to help you understand the pre*ailing feeling to+ards +hat is right( -i$e+ise,
ma$e sure that you al+ays put the interests of your clients ahead of your o+n, that you
safeguard client information doggedly and ne*er )eha*e in a fashion that you $no+ to )e
+rong +hile handling accounting +or$(
9)() thica& $rob&ems :ith Mana"ement Accountants
Management accountants +or$ inside a company, handling all internal accounting data(
1hese indi*idual often allocate production costs, create management reports and pro*ide
support for managerial decisions( 0thical issues can result from managerial accounting
acti*ities( -i$e all professionals, management accountants must )e sure to )e ethical +hen
+or$ing for a company( 1Arnold 4, 20042
)verprodction
6*erproduction occurs +hen management accountants +or$ in tandem +ith
operational managers( Accountants can select a method that impro*es operating
profits through recording more e,penditures as production costs( 1his lo+ers
period e,penses and increases finished goods in*entory( A)sorption costing is the
common method a)used during o*erproduction( 6perating managers and
management accountants report higher profits )y using a)sorption costing to
record fi,ed costs in final in*entory accounts(
!0
(ost Allocation
Cost:plus contracts are common areas +here management accountants can shift
o*erhead costs from the income statement to contracts( 1his forces a client to pay
higher prices for the same amount of goods or ser*ices( Accountants again +or$ in
tandem +ith operational managers to shift these costs to contracts( 1his incorrect
allocation distorts the company?s accounting statements and potentially damages
client relationships due to inappropriate contract )illing(
(onflictin! Interests
Accountants typically +or$ for the )est interest of the company, not indi*idual
managers or e,ecuti*es( A conflict of interest arises +hen a management
accountant can )etter his personal position )y *iolating this principle( For
e,ample, a management accountant +ho helps operational managers fudge
num)ers can )etter his personal position rather than ensuring the )est operational
capacity for the )usiness( 6ffering suggestions to impro*e the company rather
than one segment helps reduce conflicts of interest(
Asset Replacements
Companies often need to replace assets at some point during )usiness operations(
Management accountants often re*ie+ e8uipment and ma$e suggestions as to
+hich assets need replacing( 0thical issues arise, ho+e*er, since ne+ asset +ill
often lo+er the return on in*estment a company recei*es from certain )usiness
pro%ects( 1his occurs )ecause the ne+ asset has a higher cost, automatically
reducing the H6#( Management accountants +ho do not ma$e recommendations
)ased on H6# impact often acts unethically(
!0( /ontribution of thics to:ards Professiona& Accountants
.rofessional accountants are e,pected to practice a high le*el of ethics in their )usiness( 1hey
o+e transparency to clients, )usiness partners, go*ernment regulators and other people +hose
)usiness interests are impacted )y their acti*ities( .rofessional ethics for accountants are
essential to maintaining society?s respect for this occupation1 5ich"el A, 20062
%rofessional (ode of (ondct
Accountant organi/ations such as the American #nstitute of Certified .u)lic Accountants
=A#C.A> maintain a professional code of conduct for their mem)ers( ;y pu)lishing a
professional code of conduct and e,pecting mem)ers to follo+ it, an accounting organi/ation
sets a standard for the profession( 1his is important for esta)lishing and maintaining
credi)ility, or other+ise accountants +ould not ha*e an incenti*e to %oin the professional
association(
!!
Impact on (orporations and Shareholders
1he importance of ethics to professional accountants is in the role they play in financial
mar$ets( Accountants must use a professional code of ethics to a*oid any )iased reporting of
the finances of pu)licly traded corporations( 7ithout independence and )ias:free reporting,
accountants +ould create reports a)out these large corporations that ha*e many negati*e
spillo*er effects for shareholders(
Impact on Federal *overnment and +a,payers
1he #nternal He*enue Cer*ice relies in part on accounting professionals to pro*ide o)%ecti*e
and independent ser*ices so that ta,payers +ill pay their appropriate amount of ta,( 7ithout
accountants and other professional ta, preparers, some consumers +ould not )e a)le to
compute their ta,es correctly( From a )usiness standpoint, the go*ernment needs to continue
to rely on accountants to accurately report client earnings, )oth )usinesses and indi*iduals,
and to collect ta,es on those earnings(
(() A Mode& for thica& 'ecision Ma5in"
1o reform in undergraduate accounting education, accounting education needs to e,plore the
moral dilemmas posed )y certain financial transactions and )y disputes o*er ho+ to report
particular )usiness decisions( 1he follo+ing section presents a decision:ma$ing model to help
one identify the mora& as$ects of financia& transactions and the ethica& $rob&ems that
emer"e as you :or5 to re$resent fair&y the financia& $osition of the firms :ith :hich you
dea&%
Hecognition of the ethical dilemma is the first step in deciding ho+ to resol*e the dilemma(
7hen 4AA. procedures do not tell ho+ to resol*e the accounting issue =either )ecause there
are se*eral conflicting rules or )ecause there are no 4AA. rules>, the accountant faces a
moral dilemma( #n such circumstances, you must )e alert to pressures on the reporting
process that may )e due to the self:interested )eha*iour of the sta$eholders =a sta$eholder is a
party that is affected )y the financial transaction or its disclosure in the financial statement>(
#n all cases, you can prepare a financial statement that reports the financial position of the
firm fairly only )y resol*ing the moral dilemma through an orderly process of in8uiry and
rational analysis( @ere are some specific steps that can follo+ed for accounting and
reporting decision ma$ing in*ol*ing ethical dilemmasB
!( Hecogni/e an ethical situation or ethical dilemma( 1he first step is to $no+ +hen
you ha*e a pro)lem( ;eing sensiti*e to and a+are of the effects =the potential harm or
)enefit> on ones? actions on the indi*iduals in*ol*ed in the decision process is the first
step in resol*ing ethical dilemmas(
( Mo*e to+ard an ethical resolution )y identifying and analy/ing the principal
elements in the situation( Cee$ ans+ers to the follo+ing 8uestions in this se8uenceB
a( 7hat parties =sta$eholders> may )e harmed or )enefitedA
)( 7hose rights or claims may )e *iolatedA
!
c( 7hich specific interests are in conflictA
d( 7hat are my responsi)ilities and o)ligationsA
Come ethical issues lead to one right ans+er( 6ther ethical issues in*ol*e more than one right
ans+erD these re8uire an e*aluation of each and a selection of the )est or most ethical
alternati*e( Note that the process of posing 8uestions is intended to identify all the significant
facts of the )usiness situation, including the interests of the immediate parties =sometime
referred to as the sta$eholders>, and to re*ie+ the 4AA. principles that may )e rele*ant for
resol*ing the situation(
#nstead of focusing only on shareholders and ma,imi/ing shareholder +ealth, the accountant
is encouraged to consider )oth the moral and social implications of their decisions in terms of
ho+ the decisions affect all sta$eholders of the company( 1his )roader set of interested
parties includes shareholders, de)tholders, as +ell as employees, suppliers, customers, the
local community, and any other party that might )e affected )y the decision( 7hy +orry
a)out these additional sta$eholdersA For one reason, it +ill help you de*elop a more complete
analysis of the decision, not %ust the impact on the immediate parties(
(,) /onc&usion
0thics and *alues ha*e )een *ery significant for professional accounting education programs(
Accounting offers a formida)le challenge to the accounting profession( .rofessional
accountants need an education that +ould ensure the specific application $no+ledge
necessary to practice accounting ethics and morals( 1he process of )eing ethical has to
include the process of interpreting the underlying moti*es and theories(
#n order to )e a)le to do that, it is essential to de*elop *alues and *irtues( Cince *alues
pro*ide a stimulus to act in a certain manner, and *irtues are permanent dispositions
promoting ethical )eha*iour, com)ined together can shape characters( 1his allo+s
accountants to resist negati*e pressures of the en*ironment, and permits them to ma$e moral
decisions( 1he fundamental challenge for faculty of financial reporting and managerial
accounting is to communicate the degree to +hich accounting truth is constructed, +ithout
undermining the student<s sense of responsi)ility for their role in that process(
0ibi&io"ra$hy
A)eric"n Institute of Certified Pu(lic Account"nts7 AICPA Code of Profession"l Conduct
8el$"oui, Ah)ed 119692 *he Co)in& Crisis in Accountin& :e% ;or$7 <uoru) 8oo$s
8runs, =illi") > "nd 5erch"nt, ?enneth A 119902 *he D"n&erous 5or"lity of 5"n"&in&
!"rnin&s
C"#istr"no, 3r"ncis ; , 2004, @=ee$enderA !duc"tion"l syste) res#onds to ch"llen&es@
!"
Cl"y#ool, BA, 3ety$o, D3, C Pe"rson, 5A 119902 De"ctions to !thic"l Dile))"s7 A 4tudy
Pert"inin& to Certified Pu(lic Account"nts
Cottell, Phili# B, C Perlin, *erry 5 119902 Accountin& !thics :e% ;or$7 <uoru) 8oo$s
Cov"les$i, 5"r$, C Ai$en, 5ich"el 119662 Accountin& "nd *heories of
Er&"ni."tions7 4o)e Preli)in"ry Consider"tions Accountin&, Er&"ni."tions, "nd 4ociety
Ch"rles ' C"lhoun, et "lA 1999, @!thics "nd the CPA@A
D"vis, >")es D, C =elton, D"l#h !, 119912, Profession"l !thics
!thic"l Arnold, 2004, Decision 5"$in& on F"rious 5"n"&eri"l Accountin& Issues
3r"ttini, Dou&, 200G, @Accountin&7 fro) P"cioli to !nron@ *he D"ily 'er"ld-*ri(une
Briffiths, 1992 ,3eder"l Accountin& 4t"nd"rds Advisory 8o"rd7 Bener"lly Acce#ted
Accountin& Princi#les I. Cre"tive Accountin&
I5A7 I5A 4t"te)ent of !thic"l Profession"l Pr"ctice
Intern"tion"l 3eder"tion of Account"nts, 2010, '"nd(oo$ of the Code of !thics for
Profession"l Account"nts
>erry > =ey&"ndt et "l, 2006,@3in"nci"l Accountin&, 4iHth !dition@A
4)ith ?"therine *, Dr C 4)ith I 5ur#hy, 2010, 8usiness "nd Accountin& !thicsA *eH"s
A C 5 University
!4