Accounting Ethics and Integrity Standards

by Kimberlee Leonard; Reviewed by Michelle Seidel, B.Sc., LL.B., MBA; Updated February 01, 2019

No business is exempt from ethical behavior and practices. However, those dealing with money and
sensitive personal and company information must adhere to strict ethics and integrity standards.
This is imperative to gain and retain the trust of clients, co-workers and business partners. Integrity
is generally considered one component in the ethical standards of accounting practices

https://smallbusiness.chron.com/accounting-ethics-integrity-standards-24246.html

What is Accounting Ethics?

Accounting ethics is an important topic because, as accountants, we are the
key personnel who access the financial information of individuals and entities.
Such power also involves the potential and possibilities for abuse of
information, or manipulation of numbers to enhance company perceptions or
enforce earningsmanagement. Ethics is also absolutely required in the course
of an audit. Without meeting the requirements of auditing and accounting
ethics, an audit must instantly be paused.
Ethics and the Code of the Conduct
Ethics and ethical behavior refer more to general principles such as honesty,
integrity, and morals. The code of professional conduct, however, is a specific
set of rules set by the governing bodies of chartered accountants. Although
the rules set out by different bodies around the world are each unique, some
rules are universal. Let’s take a closer look at some of these important rules.

Rules and Guidance

One of the key rules set out by professional accounting bodies in North
America is the idea of independence. This is the idea that, as an auditor, you
must be totally objective and must be without ties to or relationships with the
client since that could potentially impair your judgment and impair the overall
course of the audit work.

There are two forms of independence:

 Independent in fact
  Independent in appearance

Independence in fact refers to any factual information such as whether you,

as an auditor, own any shares or other investments in the client firm. These
facts are usually easy to determine.

Independence in appearance, however, is more subjective. Let’s say, for

example, that as an auditor you were invited to a year-end party at the client
firm. The party turns out to be extremely luxurious and you also receive a nice
watch as a gift. In appearance, would the auditor, who was invited to the party
and who also received a gift, be able to maintain independence in the audit?
In order to solve a potential conflict of interest, a reasonable observer’s test is
used – i.e., what would a reasonable observer say about the situation?

Threats to Independence
There are always threats and situations that can reduce the level of
independence. Let’s take a look at some of these threats:
https://corporatefinanceinstitute.com/resources/knowledge/accounting/accounting-ethics/

ACCOUNTING
PROFESSIONAL AND
ETHICAL STANDARDS
CPA Australia members have a responsibility to act in the public interest and comply
with the fundamental principles of integrity, objectivity, professional competence and
due care, confidentiality and professional behaviour in all their dealings.

https://www.cpaaustralia.com.au/professional-resources/ethics/apes

Definition of Ethics in Accounting

By: Devra Gartenstein
Updated October 29, 2018

Accounting concerns itself with truth in the form of faithful numerical

descriptions of business activities. The ethical principles that drive the
profession speak to the importance of providing accurate and unbiased
information. This allows business owners to glean the information they
need, and auditing agencies can make useful assessments. Ethics in
accounting is a matter of both guidelines and principles. Specific
standards are set by governing bodies and trade organizations who craft
the rules of accounting, but personal values and professional ethics must
guide accountants. This extra layer of ethical judgment helps in making
decisions in the face of ambiguities and gray areas.

Ethics in Audits

Auditing is one of the most important tasks that accountants perform. It involves
verifying information to assess the truth and accuracy of accounting information,
whether for internal purposes or external evaluations for tax and lending institutions.
To act ethically during an audit, an accountant should evaluate numbers with the
primary objective of getting to the truth. There should be no conflicts of interest, such
as owning stock in the business and standing to gain if the numbers portray
operations in an advantageous light.
 When a company hires an outside auditor to review its accounting data, it is the job of
that accountant to be thorough and fair and to search for inconsistencies even if these
red flags will add additional work or create other problems for the company. An
auditing accountant who works for a bank or government agency should not be
swayed by personal feelings such as greed or even sympathy but should be
concerned only with making sure that the numbers line up and accurately express the
company's financial activity.

Code of Ethics in Accounting

The International Ethics Standards Board for Accountants, itself an independent

agency, has created a code outlining the principles at play in ethical accounting.
These principles cover many facets of ethical behavior for accountants, although
unique situations may call for judgment calls that aren't explicitly reflected in these
principles.

 Integrity: Integrity isn't a set of rules or a course of action, but rather a state of mind oriented
towards honesty, straightforwardness and a commitment to acting following principle rather
than for the sake of personal gain.
 Objectivity: To the extent that it is humanly possible, accountants shouldn't be influenced by
the interests or perspectives of the individuals or businesses who hire them. An accountant
also shouldn't let personal biases or interests influence either the numbers that go into an
accounting system or the results that come out of it. Figures and results should be taken at
face value and should drive conclusions and decisions.
 Professional Competence and Due Care: The field of accounting isn't a static body of
knowledge but rather an evolving frame of reference that changes as legislation and best
practices are redefined over time. It is the responsibility of an ethical accountant to stay
abreast of these developments and provide clients with up-to-date information and the highest
quality service.
 Confidentiality: Accountants handle sensitive information, and it is an accountant's ethical
responsibility to refrain from disclosing any of this information to outside parties who may
stand to gain from it. Similarly, an accountant shouldn't use any information obtained while
performing professional services for the sake of personal gain, such as selling stock in a
business whose books appear questionable.
 Professional Behavior: As with any profession, an accountant should perform tasks and
responsibilities with an eye to the highest personal and professional standards. These include
completing tasks thoroughly and on time, following through on commitments and only
accepting payments for services that have been rendered.

Ethical Dilemmas in Accounting

Although governing bodies and rules of accounting use a clearly stated code of ethics
in accounting, it may create the impression that there are clear and consistent rules for
every accounting situation. However, the situation can be much murkier when you
begin working in real cases. An accountant may be working for two different
businesses and may have access to one company's privileged information that could
affect the well-being of the other company. Company A may be considering investing
in Company B, but the accountant may know from working with both businesses that
Company B is struggling. In this case, the most ethical course of action would be for
the accountant to step back and avoid providing inside information to either company.

Accountants can also face ethical dilemmas when deciding how to report accounting
information; a process that allows for some discretion and judgment calls. Deciding
whether to expense or depreciate a piece of equipment can affect net profit on an
income statement, which may affect the value of the company that investors evaluate.
It may not be illegal to report the expenditure in a way that adds to the company's
value, but it does skew information in ways that aren't entirely transparent. Similarly,
the decision to allocate an item of expenditure to one department rather than another
can create an imbalance in the success metrics of the departments in question even if
the expenditure was beneficial to both.

There are no clear and easy answers for these dilemmas, but an ethical accountant
can follow guidelines that may make these decisions somewhat simpler. It's important
to think of the spirit behind both the accounting code of conduct and the law, as well
as their specifics. Even if an accountant can't discuss the details of a situation with an
outsider, even just imagining such a conversation can provide him with a valuable
perspective. And although they hardly provide rigorous or objective criteria, intuition
and gut feelings can be helpful ethical guides.

Training Programs and History

Because ethics in accounting is such an important aspect of the field, many

universities and training programs have begun offering and even requiring courses
that provide training in accounting ethics and explore ethical questions. This
development was spurred in part by high-profile cases such as the collapse of Enron,
which was notorious for questionable accounting practices. The availability of classes
in accounting ethics serves in part to address perceptions that professional accounting
practices can be shady, and also to discourage people who are entering the field from
engaging in any ethically questionable activity.

Although the requirement to take classes in accounting ethics may be a recent

development, ethical principles were built into the very core of modern accounting.
Luca Pacioli, commonly known as the father of accounting, lived and wrote during the
Italian Renaissance. Rather than being a mathematician or businessman as you might
expect, Pacioli was a theologian who believed that accounting was a moral science.

Pacioli believed that the purpose of accounting was to express a business owner's
financial relationship to vendors, customers and creditors. The accounting equation,
which is at the heart of accounting activity, states that assets minus liabilities equals
the owner's equity. In other words, a business owner only owns whatever is left over
after accounting for sums that are owed to creditors. A business may seem to have a
surplus if it has money in the bank, but if that money is owed to outsiders, then it isn't
really an asset. This emphasis differs from the principles of ethical accounting laid out
by modern trade organizations and accounting professors, but it speaks to a profound
truth that is as old and relevant as the profession itself.

https://bizfluent.com/about-6502717-definition-ethics-accounting.html