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Ethics in Accounting

ETHICS IN ACCOUNTING

Accounting is the process by which financial transactions are monitored, tracked and examined. It aims to provide a means of determining the expenditure levels of an institution and it provides a means of maintaining transparency and honesty in the recording of business transactions. As most accounting is completed though the aid of computers, the computer software may be manipulated by humans. Humans are the least reliable part of the process, as they are susceptible to influence from outside sources and defiant personal decisions. Therefore, the major problem facing accounting is the ethics and morals of the individual accountant. This paper will examine the role of specific aspects of ethics in ensuring proper accounting and deterring fraud. These ethical aspects include: professional conduct, autonomy, confidentiality and integrity and will examine how failed ethical standards result in fraud.

Autonomy

According to Kant's moral philosophy, autonomy is the capacity of an individual to act based on objective morality rather than personal desires or other influences. In accounting, managers can make decisions on their own without having to seek the approval of higher authorities. Autonomy is an existing condition in most instances, therefore, provides the individual with the latitude to determine the course of action to take. In some instances, the decisions made may be due to the pressures of the moment rather than the right decisions for the company. The decisions may also be made with the aim of bias in the outcome in favor of either a party involved in the process or the decision maker rather than for the greater good. The outcomes of the decisions would, therefore, be used in determining the ethics of the decision. To ensure the decisions made are with the best intentions of the organization rather than other influences, the integrity of the individual will be a necessary component (Metzger, 2011). By embracing a moral approach to the decision-making process by the autonomous individual, the decisions made would be less susceptible to being unethical (Vig, 2019). The requirement of autonomy in audit processes (CPA, 2018) ensures the results are fair and accurate.

Confidentiality

Confidentiality is the state of maintaining secrecy or privacy on specific issues. In accounting, confidentiality entails the details of the client being protected from the public. The privacy of the details of the client is the foundation that allows the clients to open all of their accounts to scrutiny in audit processes. The outcomes of the audit are also required to be kept in confidence as well as all information gathered during the process. The accountant, being in a position that provides access to information requires discretion as the information they have is not protected by law (Snyder, 2011). For the ethical conduct of the accountant, the information accessed should be protected. Determining whether the information is to be protected is at the discretion of the accountant, unethical behavior would be leveraging the information for personal benefit that may involve sharing or selling the information. The accountant is also responsible for determining whether fraudulent activities have occurred. The fraudulent activities being reported takes priority over maintaining confidence and therefore increases the responsibility of the accountant. The lack of clear professional definitions and protection by the law, therefore, leave the interpretation of what is to be held in confidence and what is to be reported or divulged in the powers of the accountant, thereby increasing the likelihood of unethical conduct. By encouraging ethical decision-making, in the conduct of accountants rather than the use of personal preferences as the operating standards, ethics may be promoted in the accounting processes.

Integrity

Integrity is the notion of being morally upright through the strict observance of moral principles and generally being an honest person. In accounting, the importance of integrity may not be overlooked as it is the quality that allows the accountant to focus on the client without seeking personal gain. An accountant is required to be candid, honest and direct regarding the financial situation of a client. The information from the client should also not be used for personal gain. The lack of integrity in accounting may be a result of factors, both within the organization or from the accountant (Metzger, 2011). The existence of professional standards aids in determining the levels of integrity that may require to be observed by an individual. By disregarding any of the professional standards set, the result in most instances is a fraud scandal (Stephens, Vans, & Pettigrew, 2012). The implications of the failure in integrity are also reflected in society as it results in the decay of the overall morals of accounting as a profession.

Professional conduct

Professional conduct is the regulation of a profession by a regulatory body that guides the members of the body. The role of professional conduct is in the provision of guidelines for the members to ensure the quality of services delivered has a threshold that is required to be meet. The professional conduct of accountants may at times conflict, such as when integrity and confidentiality collide. Instances of fraud may result in the accountant having to debate between maintaining confidentiality, as required by the professional conduct, or report the fraud, which may influence the conduct. The lack of motivation in fully observing professional conduct may be the cause for discord between finance and accounting that has been noted to result in financial crises (Melé, Rosanas, & Fontrodona, 2016). The need to apply ethics in decision making regarding professional conduct (Bobek, Hageman, & Radtke, 2015) points to an individual being more susceptible to disregarding professional conduct when they deem the infringement to be low level. Shawver & Miller (2015) highlight the moral strength of finance students in professional conduct and decision-making. The risk of unethical conduct is therefore based on the morals of a person, and therefore the possibility of disregarding professional conduct is higher.

Fraud

Fraud is the wrongful representation of information or deception with the intent of personal gain, especially in financial terms. Fraud, in accounting, is the deliberate manipulation of financial data with the intent of providing an inaccurate description of an organization's financial status. The cause of fraud, in most instances, is the need to provide information while representing the company in a manner that results in the company or the shareholders benefitting. Fraud, in most companies, begins at higher levels of the organization (Burcham, 2015). The actions of the executives are mirrored throughout the organization with the lower management levels having to adjust their accounts to fit the company narrative. The reason for the manipulation is normally justifiable at an individual level and, in some instances, completed with the aim of being for the greater good (Kirsch, 2018). The explanation that the activity is for the greater good or will result in the greater good by Kant's principles is unethical as the action ought to be ethical in its own right rather than in the grand scheme of things. To prevent fraud, honesty is the most common trait that is required. By encouraging the taking of responsibility, the risk of fraud in accounting will be minimized. Fraud, as an unethical activity, is bound to result in various ramifications on the individual with the accountant and managers bearing most of the blame. Fraud as a major occurrence, has also been noted, (Kirsch, 2018) to be the result in some instances of involuntary activity and therefore the responsibility of reporting is delegated. By being decisive on the reporting of fraud, as required by the professional standards, the accountant may be in a position to observe the ethical approach and result in a reduction of unethical conduct in accounting.

Conclusion

Ethics in accounting is, therefore, an important aspect in the conduct of auditing and accounting. By disregarding integrity, professional conduct, confidentiality, or autonomy, the risk of unethical conduct and fraud increases. The probability of unethical conduct is also highly dependent on the individual and the decisions made by the person. Industry regulations may provide a platform that ensures some amount of ethics is observed, but it is not guaranteed. The problem in accounting, therefore, becomes the role of the individual in ethical accounting rather than the impacts of unethical accounting, as it is a personal choice.

References

Bobek, D., Hageman, A., & Radtke, R. (2015). The Effects of Professional Role, Decision Context, and Gender on the Ethical Decision Making of Public Accounting Professionals. Behavioral Research in Accounting, 27(1), 55-78. doi: 10.2308/bria-51090

Burcham, John. “Business Ethics From the Top Down Can Prevent Fraud.” Fighting Identity Crimes Powered by EZShield, 6 Aug. 2015, www.fightingidentitycrimes.com/business-ethics-from-the-top-down-can-prevent-fraud/

CPA, C. R. (2018, 12 1). A New take on Ethics and Independence. Journal of Accountancy.

Kirsch, L. C. (2018). Why Good People Do Bad Things: How Fraud Can Happen to Any of Us. Benefits Magazine, 55(2), 24. Retrieved from http://proxy.devry.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&AuthType=url,cookie,ip,uid&db=f5h&AN=127638556&site=eds-live

Melé, D., Rosanas, J., & Fontrodona, J. (2016). Ethics in Finance and Accounting: Editorial Introduction. Journal of Business Ethics, 140(4), 609-613. doi: 10.1007/s10551-016-3328-y

Metzger, L. (2011). The Keys to Integrity and a Sense of Well-being for Accounting Professionals. CPA Journal, 81(3), 10–12. Retrieved from http://search.ebscohost.com.proxy.devry.edu:5050/login.aspx?direct=true&db=bth&AN=65030829&site=ehost-live

Shawver, T., & Miller, W. (2015). Moral Intensity Revisited: Measuring the Benefit of Accounting Ethics Interventions. Journal of Business Ethics, 141(3), 587-603. doi: 10.1007/s10551-015-2711-4

Snyder, H. (2011). Client Confidentiality and Fraud. Fraud Magazine. Retrieved from https://www.fraud-magazine.com/article.aspx?id=4294968847

Stephens, W., Vance, C. A., & Pettegrew, L. S. (2012). Embracing Ethics and Morality. CPA Journal, 82(1), 16–21. Retrieved from http://search.ebscohost.com.proxy.devry.edu:5050/login.aspx?direct=true&db=bth&AN=73784983&site=ehost-live

Vig, R. (2019). Automation is the future of fraud risk management. Deloitte. Retrieved 03 13, 2019, from https://www2.deloitte.com/in/en/pages/finance/articles/automation-is-the-future-of-fraud-risk-management.html