Ethics in Accounting: Building Trust and Accuracy in Financial Reporting

As an accounting professor, I always enjoyed introducing my students to ethics and examining ethical dilemmas using short cases. I also liked the challenge of connecting ethical practices to producing good financial reports.

In their book: Accounting Ethics, authors Duska, Duska, and Kury write that “ethics is an overarching concern that covers all area of life.” Ethics refers to a set of moral principles that guide individuals behavior and decision-making, distinguishing between what is right and wrong. These principles are meant to foster fairness, honesty, and integrity in various aspects of life.

Accounting ethics applies these moral principles specifically to the field of accounting. It guides the conduct of accountants, auditors, and financial professionals to ensure the integrity, objectivity, and trustworthiness of financial reporting and related activities. Adhering to accounting ethics is crucial for maintaining public confidence and ensuring the accuracy and reliability of financial information. These ethical standards are designed to ensure the integrity, objectivity, and trustworthiness of financial reporting and related activities.

Accounting ethics applies these moral principles specifically to the field of accounting. It guides the conduct of accountants, auditors, and financial professionals to ensure the integrity, objectivity, and trustworthiness of financial reporting and related activities. Adhering to accounting ethics is crucial for maintaining public confidence and ensuring the accuracy and reliability of financial information. These ethical standards are designed to ensure the integrity, objectivity, and trustworthiness of financial reporting and related activities.

The American Institute of Public Accountants have ethical standards that guide CPAs. The AICPA's ethical standards encompass principles of integrity, objectivity, professional competence, confidentiality, and professional behavior to ensure the highest level of ethical conduct among accounting professionals. These standards promote trustworthiness and accountability in financial reporting and business practices. 

Due to the extensive nature of the AICPA ethical principles, the detailed standards have not been included in this article but I have provided details on the ethical standards of the Institute of Management Accounting (IMA). Those standards are more concise and frankly, are about a page and a half; more manageable for the business and accounting students to digest and apply to the ethical issues that I would introduce in my accounting classes. 

The Institute of Management Accountants (IMA) also has a set of ethical standards outlined in its Statement of Ethical Professional Practice. This statement provides guidance to management accountants and financial professionals on maintaining high ethical standards in their practice. The IMA's ethical principles are as follows:

• Honesty: Management accountants are expected to be straightforward and truthful in all professional and business matters. This includes providing accurate and complete information and not engaging in any form of deception.

• Fairness: Professionals should be fair and impartial, avoiding conflicts of interest and refraining from unethical practices that could compromise objectivity.

• Objectivity: Objectivity is crucial in decision-making and reporting. Accountants must be free from bias and must not allow personal feelings or conflicts of interest to influence their professional judgment.

• Confidentiality: Management accountants should respect the confidentiality of sensitive information obtained through their work. This includes safeguarding confidential data and not disclosing it without proper authorization.

• Professional Competence: Professionals must maintain their competence by continuing education and professional development to provide high-quality services. They should also provide relevant information, disclose limitations, and consult experts when necessary.

• Integrity: Integrity requires management accountants to avoid situations or activities that could compromise their integrity. They should not engage in behavior that reflects adversely on the profession.

Ethical principles are closely related to the proper functioning of the accounting information system in several ways:

• Data Accuracy: The principle of honesty and objectivity ensures that financial data and information entered into the accounting system are accurate and unbiased. This accuracy is essential for the integrity of financial reports and decision-making.

• Conflict of Interest: The principle of fairness and avoiding conflicts of interest helps prevent situations where accounting information could be manipulated to benefit a particular stakeholder or party. Ensuring impartiality is crucial for the reliability of financial data.

• Protection of Sensitive Data: The confidentiality principle emphasizes the protection of sensitive financial information, which is fundamental for data security within the accounting information system. Maintaining data confidentiality prevents unauthorized access and data breaches.

• Professionalism and Competence: The principles of professional competence and integrity highlight the importance of professionals' skills and ethical behavior in maintaining the integrity of the accounting information system. Competent professionals are less likely to make errors, and their ethical behavior contributes to data reliability.

• Trust and Reputation: Adhering to these ethical standards helps build trust and maintain the reputation of the accounting profession. Trust is vital in financial reporting, as stakeholders rely on the information provided by the accounting system to make investment and business decisions.

Ethics plays a critical role in ensuring the proper functioning of the accounting information system by promoting accuracy, integrity, confidentiality, and objectivity. These ethical standards are essential for maintaining the credibility of financial reporting and the trust of stakeholders in the information provided by the accounting system.

---

Author: Michael P. Griffin CPA is author of MBA Fundamentals Accounting and Finance. He was an Associate Teaching Professor of Accounting and Finance at the Charlton College of Business, University of Massachusetts Dartmouth.