Definition: Ethics, also called corporate or business ethics, is often referred to as a code of conduct or set of beliefs that dictate what is right, wrong, fair, and unfair.
The accounting profession is based on morals and ethics. We as accountants and CPAs are required to uphold strict ethical standards because most of the time we are fiduciaries to third parties. Investors and creditors rely on the financial statements that we produce and certify. Our judgments must be based on facts, reason, and ethical decisions.
What Does Business Ethics Mean?
History has shown us that if we as an profession sway from this foundation of ethical behavior not only our individual firms will fail but the accounting industry and practice will be forced to change.
Since many accounting principles leave actual rules and decisions up to the accountant’s judgment, it’s important to be able to properly reason through a situation. Most psychologists divide any moral decision into three steps.
Example
First, you must identify the ethical concerns of the situation. For example, an auditor might have a business relationship with one of his audit clients. This relationship must be recognized as a possible ethical issue.
Second, you have to analyze the options and outcomes. The auditor might impair his judgment on the client because he wants the client’s business to succeed. The related interest can clearly become a conflict of interest when and if the auditor finds something wrong with the company. He will be torn between performing the audit procedures properly and making the company look like it is doing fine.
Third, a decision has to be made. The auditor has to decide whether to severe ties with the client and stop working as its auditor or hide his business relationship and continue the engagement.
These issues are extremely important to the accounting profession. That is why we have developed ethical standards as well as auditing standards to help guide accountants and prevent unethical behavior.
