Why Are Ethics Important In The Accounting Profession?
What does ethics have to do with accounting? Everything, since there have been some recent financial accounting scandals; a few examples being Xerox, WorldCom, Enron, which have generated much unwanted and unfavorable publicity for CPA's, including those working as controllers or chief financial officers for organizations.
When you hear the word "ethics," what is the first thing that comes to mind? Having to make the decision of doing what is right versus doing what is wrong. Some idealists say that decisions of ethics should not be conditional. However, that is not as simple as it may sound. What constitutes "right" to one person may be "wrong" to anther; what clearly distinguishes the line between right and wrong? What some may look at as being unethical does not necessarily make it illegal.
In the predicament of David Duncan, the lead audit partner at Arthur Anderson the Accounting Firm for Enron, underscores the penalty that accountants may face under professional accountability. Duncan had pleaded guilty to obstruction of justice when he was involved in the connection with document shredding.
The scandals have made some big implications on the profession as a whole. One being the decision from the Public Company Accounting Oversight Board (PCAOB), created by the Sarbanes-Oxley Act (SOA) of 2002, in April 2003 they voted to assume the responsibility for establishing auditing standards. The Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) previously played this role.
The PCAOB has the authorization to provide rules governing the following areas; ethics, independence, and quality control for any registered accounting firm...
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Websites Visited
http://www.aicpa.org
http://www.aicpa.org/members/div/ethics/index.htm
http://www.aicpa.org/members/div/acctstd/index.htm
http://cpcaf.aicpa.org/Resources/Ethics+and+Independence
http://www.imanet.org/about_ethics_articles.asp
Brooks, L.J. (2007) Business & Professional Ethics for Directors, Executives & Accountants. Mason, OH: Thomson South-Western.
Trevino, L. K., & Nelson, K. A. (2011). Managing business ethics: Straight talk about how to do it right. New York: John Wiley.
Trevino, L., & Nelson, K. (2011). Managing business ethics - straight talk about how to
...urvey of ethical behavior in the accounting profession. Journal of Accounting Research, 9 (2), pp. 287-306.
Brooks, L., Dunn, P. (2012) Business & Professional Ethics for Directors, Executives & Accountants. 6th Edition. Thompson South-West.
With every business activity come opportunities for fraudulent behavior which leads to a greater demand for auditors with unscathed ethics. Nowadays, auditors are faced with a multitude of ethical issues, and it is even more problematic when the auditors fail to adhere to the standards of professional conducts as prescribed by the American Institute of Certified Public Accountants (AICPA). The objective of this paper is to analyze the auditors’ compliance with the code of professional conduct in the way it relates to the effectiveness of their audits.
Brooks, Leonard J. Business & Professional Ethics for Directors, Executives, & Accountants. Mason: Thompson South-Western, 2004. p227.
Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2013). Business ethics: Ethical decision making and cases: 2011 custom edition (9th ed.). Mason, OH: South-Western Cengage Learning.
Between the years 2000 and 2002 there were over a dozen corporate scandals involving unethical corporate governance practices. The allegations ranged from faulty revenue reporting and falsifying financial records, to the shredding and destruction of financial documents (Patsuris, 2002). Most notably, are the cases involving Enron and Arthur Andersen. The allegations of the Enron scandal went public in October 2001. They included, hiding debt and boosting profits to the tune of more than one billion dollars. They were also accused of bribing foreign governments to win contacts and manipulating both the California and Texas power markets (Patsuris, 2002). Following these allegations, Arthur Andersen was investigated for, allegedly, shredding
Ethics is a word that can be used loosely, so it’s important to understand the meaning of this question by first discussing what is meant by personal ethics or professional ethics.
Abdolmohammadi, M., Fedorowicz, J. and Davis, O. (2009) findings indicate that despite the attention in recent years to the importance of ethics and social responsibility in the accounting curriculum and the profession, the ethical reasoning scores of those attracted to public accounting seems to have actually deteriorated over the past 15 years. This outcome suggests that there is a need for improved training and education of public accountants in ethical reasoning and decision making. The report concluded that ethical reasoning increases with age and education, but education is the primary factor in this relationship. Ethical attitudes should be developed early i.e. from early on in education and should be re-emphasised throughout ones career.
Treviño, L. K., & Nelson, K. A. (2007). Managing business ethics: Straight talk about how to do it right Fourth ed., Retrieved on July 30, 2010 from www.ecampus.phoenix.edu
In the past decade, concern with the ethical accountability of companies has continued to grow. Consumers increasingly look to support and buy from companies that make ethical decisions. The government has also created new legislation that requires a certain level of ethics and creates encouragement for companies to go as far as to create ethics programs. The idea of “business ethics” is not new, but there is more pressure now than ever before on companies to prove they are making an honest effort to be ethical. This additional pressure on companies can be largely attributed to a change in the neoclassical view of a company as only needing to take care of stockholder interests by creating profits (Wines & Hamilton III, 2009). Today, people view the organization as a complex unit made of up many different groups that must be considered. This new definition of an “ethical corporation” requires not only compliance with the law, but also consideration of the ethical implications of all actions (Epstein & Hanson, 2006; Thornton, 2009). “Ethics are a system of moral principles and behavioral norms intended to express and support an underlying set of values” (Post, Lee, & Sachs, 2002). Following the meanings given by several professional sources, business ethics is defined as the study of moral standards in the context of all business situations (Columbia University, 2008; Knapp, 2001; Crane & Matten, 2007). Because of this change in consumer and regulator concerns, a corporation cannot survive unless it takes care of and strives to respect the interests of all of its stakeholders by applying ethical standards to actions (Post, Lee, & Sachs, 2002).
This paper discusses the role of ethics in corporate governance. I seek to show the application of moral and ethical principles in corporate governance. Ethics is a topic that has generated a lot of interest in the last decade especially after high profile scandals. The failures of prominent companies such as WorldCom, Enron, Merrill lynch and Martha Stewart portrays the lack of corporate ethics. The failure of such business has seen an increased pressure to incorporate ethics in corporate governance. The result of corporate scandals has been eroding investor and public confidence. The entire economic system has experienced some form of stress from loss of capital, a falling stock market and business failures.
...mpany Accounting Oversight Board (PCAOB) tasked with the oversight of audit of publicly traded companies under the authority of the SEC. The report card is still out on the new law as to whether it will cause change in the corporate office and the corporate governance.