Role of Ethics in Accounting
Ethics is a set of principles that guide a person’s behaviours and decisions and puts boundaries on such matters. Values such as fairness, responsibility and honesty form the basis of ethics in business as well as accounting. The recent scams and scandals in business world related to the financial practices have further enhanced the role of ethics in accounting transactions.
Why are Ethics important in Accounting?
Cases such as the Enron Corporation blunder have put focus on the increasing need of maintaining good financial practises. This is because investors and other stakeholders rely heavily on the financial statements of a company and their decisions are influenced by such statements. In cases like Enron, where bad financial results were camouflaged by various means, the investors were cheated and their money was misused. Ethics have been introduced to reduce the occurrence of such instances.
Who is Responsible for Enforcing Ethics?
In case of professional organizations that give certifications and degrees in accounting matters, each member is supposed to abide by a code of ethics as specified by such organizations. For example, chartered accountants are enrolled as members of accounting institutions and they need to follow the rules and principles set by such organizations.
These codes ensure that accountants keep the financial matters, of the organizations or clients they work with, confidential. Such information is not disclosed to outsiders who can potentially benefit by early or unwarranted disclosures. The financial transactions are also carried out as per the law of the land and no regulations are broken. Failure to abide by such rules will lead to suspension of membership for erring professionals.
Most companies also make it mandatory for its employees to abide by the code of ethics put down by the company. This ensures fair practices in dealing with customers, suppliers and vendors. The financial experts employed by the company are also required to abide by these codes of ethics. They are supposed to ensure fairness in maintaining balance sheets, profit and loss statements and income statements of the company. Confidentiality is also an important part of such agreements.
In most countries, the government and stock exchanges along with other central financial institutions like the central bank also ensure that good accounting standards are maintained by individuals and companies. Frequent internal and external audits are mandatory to complete transactions with the government and other financial institutions as well.