ETHICS IN FINANCIAL ACCOUNTING

05.21.2012

Contents:
No 1. 2. 3. 4. 5. 6. Content Introduction Ethics Accounting Ethics
Why ethics is important in accounting are What Can Result without or from Poor Ethics in Accounting

Page 03 04 04 04 05 05

Conclusion

Introduction:
Accounting is the mechanism that offers information regarding the financial position of the organization or business. This type of information is critical to investors as it provides them with important and detailed information that could turn out to be the determining factor as to their decisions to invest or not to invest in a particular organization. Accounting in business is one of the most important departments. Ethical and professional accounting forms a clear financial image of a business, and allows managers to make informed decisions, keeps investors abreast of developments in the business, and keeps the business profitable.

ETHICS:
Ethics is a branch of philosophy that judge human beings on wrongs and rights concerned with the nature of value and the standards by which human actions can be judged .The term is also applied to any system or theory of moral values or principles.

Accounting Ethics:
Accounting ethics in the field of accounting refers to the guidelines (consisting of judgments and moral values) that a professional needs to follow while practicing accounting. Just like the professionals in the field of medicine or law, an accounting professional also needs to strictly adhere to the ethics that have become a norm in accounting. The people who receive the services of an accounting professional not only rely on his skill and ability, but also on his professional integrity. People using the service of accounting professionals rely on their professional competency to take decisions and in the process also relies on the ethics followed by them.In todays generation, the

accountancy profession is place under the ethical responsibilities and practices

Why ethics is important in accounting are:

Proper ethics and ethical behavior are extremely important in accounting for a variety of reasons. To begin with, accountants are often privy to sensitive information regarding their clients, such as Social Security or bank account numbers. This gives accountants a good deal of power in regard to their clients Confidentiality: People need to have confidence in accountants and the services they provide. Failure to do so leads to uncertainty in investors, shareholders and the work force in the organization. If the quality of the accounting is unprofessional this leads to low confidence with the stakeholders of the organization.

Professional Competence:

Ethics in accounting ensures that the accountants maintain professional knowledge and skills at the level required to ensure that a client or employer receives competent professional service. This is exhibited by acting diligently and in accordance with applicable technical and professional standards when providing professional services.

Trust:

Ethics play a vital role in accounting because of the trust a client places with an accountant. Clients hiring an accountant rely on the accountant knowing

and understanding all the laws and legal aspects involved with accounting issues.

Ethical Value:

Clients hiring accountants often give them personal information such as social security numbers. Accountants must possess good ethics because of this. If this type of information is compromised, the clients may suffer. Identity theft often results from leaky information through professionals lacking ethical values.

Ethics in Accounting Decision-Making:

Accountants must make ethical decisions because company stakeholders, such as management and investors rely on accurate information to make their own decisions. Accuracy is necessary regardless of whether it relates to finances or other business information.

What Can Result from Poor Ethics or Without Ethics in Accounting:

Many negative consequences can result from poor ethics in accounting practices.

Lag in business:

The first result is generally a lag in business. Accounting firms rely heavily on word-of-mouth for promotion, and it's all too easy for a few bad stories about unethical behavior to sway prospective clients away from a particular firm. There can also be serious legal repercussions for those who are found to be violating legal codes and standards for their jurisdiction

Fraud:

Fraud is the act of misrepresenting information, and in accounting it usually means misrepresenting financial data. This does not usually mean replacing one number with another--these mistakes are often easy to catch-but rather showing certain types of financial data in more positive categories where the data do not belong. This type of fraud is easy for accountants to commit, which is why there are such strict laws regarding ethical behavior and fraud.

Create repercussion:

An accountant with poor ethics can create legal repercussions for his clients. If an accountant divulges client information, legal action can be taken. Legal action can also be taken if accountants are found to be violating laws and regulations. Accountants must possess good ethics to avoid things like this.

Conclusion:

The biggest question that the accounting profession faces is whether it is possible to teach ethics or not.It has to be incalculated at some of time in ones life because there is nobody in this world who comes with an inbuilt ethics mind and soul. The codes of conduct that the professional organization expects their members build a sense of ethics in a professional.

Mijan Uddin Ahmed B.B.A Leading University