Accounting Questions and Answers

December 24, 2011

What are accounting ethics?

Accounting ethics were first introduced by Luca Pacioli, who is called the father of accounting. The work carried out by accountants is such that it requires a high level of ethical conduct. This is because shareholders, potential purchasers of the business and other users of the financial statements such as banks and taxation authorities rely on the financial statements of the company. These people rely on the accountants who prepared the statements, as well as the auditors that verified them.

The fundamental principles
There are five fundamental principles that are endorsed by a majority of the accountancy bodies in the world. These principles are binding on all accountants who are a member of that accounting body. The following is has been adapted from the ethical code of conduct established by ACCA (Association of Chartered Certified Accountants):
Integrity – Members shall be ‘straightforward and honest in all professional and business relationships.’ Integrity implies notmerely honesty, but fair dealing and truthfulness

Objectivity – Members shall not allow bias, conflicts of interest or the undue influence of others to compromise their professional or business judgment. For example, an accountant may not use creative accounting techniques to falsely present a healthier picture of the financial statements just because a family member (or he himself) owns shares of the company. • Professional competence and due care – Members have a continuing duty ‘to maintain professional knowledge and skill at a level required to ensure that clients or employers receive competent professional service’. Members shall ‘act diligently in accordance with applicable technical and professional standards when providing professional services’. • Confidentiality – Members shall respect the confidentiality of information ‘acquired as a result of professional and business relationships’, and shall not disclose any such information to third parties ‘without proper and specific authority or unless there is a legal or professional right or duty to disclose’. Similarly, confidential information acquired as a result of professional and business relationships shall not be used to the personal advantage of members or third parties.
Professional behaviour – Members shall comply with relevant laws and regulations and shall avoid any action that may discredit the profession. The ACCA Rulebook goes further, and states that members shall ‘behave with courtesy and consideration’ towards all with whom they come into contact in a professional capacity.