Accounting Ethics

Accounting Ethics
Accounting Finance

Accounting Ethics

Definition of Accounting Ethics

Accounting Ethics are the rules and regulations which is set by regulatory bodies, that should be followed by each accountant while doing accounting and while reviewing the financial statements of the companies to avoid any misuse from the management positions.

What is Accounting Ethics?

Accounting ethics is an important point for accountants. It is the duty of the accounting personal to follow the accounting ethics because they are having access to the company’s financial statements. They should be having full transparency in reviewing these statements.

5 Areas of Accounting Ethics

There are 5 fundamental areas of accounting ethics:

  1. Integrity: A professional accountant should be straightforward and truthful to the management. If an accountant believes that a financial statement contains false information, then he should not associate himself with these reports and straightaway should call out this wrong information.
  2. Objectivity: A professional accountant should be objective in his profession that means while reviewing the statements he should not be having any bias or conflict of interest.
  3. Professional competence and due care: A professional accountant should be having thorough knowledge and skills of accounting rules. While reviewing the accounting statements, he should comply with all the rules and regulations. He should apply strong judgmental skills while applying accounting knowledge and skills.
  4. Confidentiality: A professional accountant should comply with the full confidentiality agreement with the clients. He should not disclose any of the accounting information of the company to any outsider. He should not disclose any information to his relatives and friends also.
  5. Professional behavior: A professional accountant should comply with professional behavior while performing his duties. He should comply with the relevant rules set by governing bodies and should not indulge in any conduct that will harm the reputation of the profession.

Accounting Ethics Rules and Guidelines

  • The rules and guidelines set by accounting top bodies ensure that the accounting firms should remain independent. Below can be the form of independence:
  • One form of independence is that the accountant should not hold any shares in the client firm and should disclose the same fact.
  • The auditor or accountant should not receive any gift from the client firm. Any form of a gift can affect the independence of the working of the auditor.

 Below are some other rules and guidance:

  • The auditor should perform his work in a diligent way and in a given time.
  • The auditor should not disclose any confidential information to an unauthorized person.
  • The auditor should ensure that he is complying with all rules and regulations while performing his duties.

Importance of Ethics in Accounting

 Below can be the importance of ethics in accounting: 

  • With the rules of accounting ethics, the misuse of accounting information of any client or company can be prevented. 
  • The rules of accounting ethics ensure and create better professional environments across the board. If an accountant or person doesn’t follow the rules, then he will be liable for the harsh punishment by government bodies. 
  • It will help to ensure belief in the system and the public can easily believe the reports which are audited by accounting firms.
  • It will help in reducing legal liabilities for the firms. Because with the given rules and guidance, companies are prepared well in advance to deal with potential liabilities.

Accounting Ethics Example

There can be few examples of accounting ethics:

Suppose an accountant is auditing the financial information of a company. If he is sharing any confidential information about the company with his family and friends, then this is a breach of accounting ethics.

Assume a company is appointing an accountant for conducting a financial audit of the company. The company has proposed to the auditor that if the auditor gives a clean chit to the company then it will offer him $10,000. In this case, if the auditor accepts the offer then it is a breach of ‘Integrity’ areas of accounting ethics. 

Conclusion

Accounting Ethics is one of the important concepts which is set by top governing bodies for accounting professionals which they should follow diligently. Because of these rules and guidance, any misuse of power can be prevented. With proper accounting ethics, the cost of legal liability for the firms also can be reduced. Accounting ethics helps in creating better professional environments and also helps in creating belief in the system for the general public. 

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