In: Accounting
ETHICAL DECISIONS IN ACCOUNTING
SECTION 1 — The Importance of Ethics Ethics is an important part
of your accounting education and it will play an increasingly
important role in all aspects of your professional life. This
module is intended to give you an overview of the study of ethics.
It is a starting point for the discussion of ethics that will
continue throughout all of your accounting studies. We will begin
with a definition of ethics and then review some ethical theories
that provide a framework for developing ethical standards for
accounting students and professionals. Finally, we will
discuss why ethics is important to you as you prepare for a career
in accounting. Definition of Ethics What exactly is
ethics? According to Webster’s Dictionary ethics is “a
discipline dealing with good and evil and moral duty, and with
moral principles and practice.” Accounting ethics
basically involves applying moral principles to accounting and
business decisions. Business ethics is a more general
form of applied ethics that relates moral principles to business
situations. Business ethics examines behavior toward the
outside world considering ethical principles and business codes of
ethics. Simply put, ethics is doing the right thing. It
is not easy to define ethics because ethics can be different for
different people. You have your own personal values and
these values are very important in the decisions you
make. When you are in business you will be required to
follow codes of conduct that are established by your company and by
any professional associations that you belong
to. Following the ethical standards of these
organizations is important, but you should always bring your own
personal values into your business model. Ethical Theories
Philosophers have developed many theories to provide a framework
for making ethical business decisions. These theories
provide a point of reference for developing codes of conduct for
companies and professional associations. Most ethical
codes in business are based on the following moral theories: •
Rights theory. The moral choice is the choice that best
protects and respects the moral rights of those involved with a
decision. This theory suggests that humans have a
dignity that is based on their human nature and their ability to
freely choose what they do with their lives. Therefore
they have a right to be treated as ends and not merely as means to
other ends. • Utilitarian theory. The ethical action is
the action that provides the most good or does the least
harm. The ethical business action is the one that
produces the greatest good and does the least harm for all who are
affected— business stakeholders such as customers, employees,
shareholders, the community, and the environment.
. Common good theory. The relationships of society are
the basis of ethical reasoning and respect and compassion for
others is the basis for moral decisions. This theory
addresses the common conditions that are important to the welfare
of everyone.
• Virtue theory. Ethical actions should be consistent
with ideal virtues that provide for the full development of
humanity. Honesty, courage, compassion, generosity,
tolerance, love, fidelity, integrity, fairness, self‐control, and
prudence are examples of virtues.
• Fairness theory. Ethical actions treat all human
beings fairly based on some standard that is
defensible. We might pay people more, based on the
difficulty of their work or the greater amount that they contribute
to a company.
Importance of Ethics Information provided by accountants and
auditors is relied upon by people who make decisions about
companies and organizations. For example, if you are
considering buying stock in a company you need accurate and
reliable information upon which you can base your
decision. Lenders such as banks and financial
institutions need reliable information to determine if they will
loan money to companies. Government agencies such as the Internal
Revenue Service collect taxes based on the financial information
provided by companies. People rely on the accountants
who prepare financial reports. Knowledge of ethics will
help you to make good decisions that will give proper information
to those who rely on you. With proper information,
better decisions will be made. Business decisions can affect many
people or stakeholders. For example, when you make a
decision for your company it can affect the owners and employees of
the company, banks who provide resources to the company, customers
of the company, and people in the community where the company is
located. In addition to the effect of your decision on
the profits of the company, your decision may also have other
non‐financial factors that have important effects on
stakeholders. What if you were considering two
alternative projects for your company:
(1) a project that would make significant profit for your company and also pollute the environment with harmful chemicals;
(2) another project that would earn less profit but would have
no negative effects on the environment and would not harm any
stakeholders. Which project would you
choose? Should non‐pecuniary factors enter into the
decision process? If you consider factors that are not
fiscal‐only in nature, then how do you measure
them? Often, the most important factors in a decision
are the ones that cannot be easily measured. Because
some things cannot be measured easily, however, does not mean that
we should not consider them in our decisions.
That is the main point about the importance of ethics in
accounting—an awareness that ethics is an important part of
business decisions. We often use the cost‐benefit
decision model to evaluate business projects. We list
the costs on one side and the benefits on the other side and the
greater number often decides the project. If the
benefits are greater than the costs we accept the project; if the
costs exceed the benefits the project is rejected. Where
does ethics fit into the process?
Ethical issues deserve a place in the cost‐benefit
model. It is really quite simple—you consider the
possible costs and benefits of ethical issues and place them on the
scale along with other costs and benefits. Because
ethical issues often are difficult or impossible to measure does
not mean that they are not important or that they should not be
considered in the decision. A more ethical decision is
likely to result if ethical factors are at least brought into the
picture when making business decisions. Again, awareness
of the ethical implications of business decisions is the key to
good business decisions.
Not all decisions use the cost benefit model. Some
decisions involve choosing different courses of action, such as
recording accounting transactions when different alternatives are
available under generally accepted accounting
principles. You will need to choose the correct action
according to the circumstances involved, and not based solely on
the amount of profit your company can make. As the U.S.
moves toward adopting international accounting standards, the
accounting guidance will be based more on principles than on
specific rules. The use of judgment will likely play a
more prominent role in making accounting choices and ethical
principles will play an even more important role in business
decisions.
SECTION 2 — The History of Ethics in Accounting In the wake of
recent, high‐profile accounting scandals, you might think that
ethics is a relatively new topic to the field of
accounting. Actually, ethics has been an important part
of accounting since methods of keeping financial records gained
momentum in the thirteenth
century. A code of ethics now applies to all accounting
professionals and ethics has become an integral feature of
accounting education. Brief History of Ethics in
Accounting Luca Pacioli, an Italian mathematician and Franciscan
friar, described a method of keeping financial accounts in 1494
when he published his first book Summa de Arithmetica, Geometria,
Proportioni, et Proportionalita (translated “everything about
arithmetic, geometry, and proportions”). In this book he
wrote about many topics, including the first ever double‐entry
bookkeeping system, cost accounting – and accounting
ethics. Over the years, ethical standards have been
developed by many different professional associations, government
agencies, and private companies. These organizations
created ethical codes of conduct which their members or employees
are expected to follow when they perform their professional
work. An important organization in the early
development of accounting ethical standards was the American
Association of Public Accountants (AAPA) which was created in
1887. During that year, accounting became a profession,
or a group of people whose members must meet certain standards to
engage in the practice of accounting. In 1907, the AAPA
incorporated professional ethics into its membership
rules. However, membership in the AAPA was voluntary and
therefore the ethical standards of the AAPA could not be enforced
on a widespread basis. The AAPA was later renamed to the
American Institute of Certified Public Accountants
(AICPA). The code of ethics of the AICPA is a major
force in applied accounting ethics in today’s business
world. The ethical standards of the AICPA are fully
described in Section 4 of this module— Ethical Standards for
Accounting Professionals. Members of the AICPA are
Certified Public Accountants (CPAs) who must comply with the AICPAs
ethical standards. Noncompliance could result in losing a license
to practice as a CPA.
Ethics in the Accounting Profession In the middle of the twentieth
century the Commission on Standards of Education and Experience for
Certified Public Accountants identified seven characteristics of a
profession: 1. A specialized body of knowledge 2. A formal
education process to acquire the specialized body of knowledge 3. A
standard of professional qualifications to enter the profession 4.
A standard of conduct 5. Recognition of status 6. An acceptance of
social responsibility 7. An organization devoted to the advancement
of the social responsibility Characteristic 4—requiring a standard
of conduct and characteristic 6—accepting social responsibility,
relate most directly to accounting ethics. What
standards of conduct should accountants follow and what is the
social responsibility accountants have toward the public they
serve? Standards of conduct and accounting codes of
ethics as developed by current professional accounting
organizations are more fully addressed in section 4 of this module—
Ethical Standards for Accounting Professionals. A
professional must accept a moral responsibility to act in the best
interests of the public. This means that business must
look beyond profits to the common good and be sure not to harm the
public good. The purpose of business is to make a profit, but
profit should not be the only motive for business. Adam
Smith maintained that business should seek a profit within the
ethical principles of justice and fairness. Therefore, a
business professional must protect the public interest while
pursuing the profit motive. Many would argue that acting
in the best interest of the public is also in the best interest of
the company. In other words, ethics is good for business
and makes the company successful even as the company looks out for
the common good. Ethics in Accounting Education
Colleges and universities in the U.S. have included ethics in their
curricula since Harvard University was founded as the oldest
institution of higher learning in the United
States. Many colleges since then have included ethics
courses in their liberal arts programs. In the 1980’s,
however, applied accounting ethics really gained momentum and many
colleges in the U.S. started incorporating ethics into accounting
and business classes. This incorporation of ethics into
business and accounting is called applied ethics because the
ethical principles learned in the philosophy classes is applied to
practical accounting situations in accounting
classes. With applied ethics, students get to add a new
dimension to their business decision process—soft ethical issues in
addition to the hard numbers traditionally used to evaluate
business projects.
SECTION 3—Ethics in the Decision Process While you are in college
studying accounting you will need to develop a thinking process
that will guide you in making business decisions. When
you graduate from college and enter the accounting profession you
will use the knowledge you learned in college to help your company
be successful and to create a better society. Learning
accounting is not just about learning numbers, but also about
learning to make good decisions. Ethics in Accounting Education How
can you incorporate ethical decision‐making when you study
accounting? Many organizations exist that provide
guidance to universities regarding how to incorporate ethics into
accounting education programs. In addition, there are
many tools students can use to solve an ethical
dilemma. Some ethics tools with links to good web sites
are provided at the end of this section. The main way
you can bring ethics into your decision process, however, is simply
to be aware of ethical issues in accounting situations and to
consider these ethical issues as part of your decision
model. The need for ethics in education is
apparent in light of recent high‐profile business fraud
cases. In the United States, the American Assembly of
Collegiate Schools of Business (AACSB) is the accrediting body for
business schools. AACSB makes the education standards
for business schools, and the AACSB standards do include
ethics. Because ethical values differ among countries
and cultures, there is no universally accepted code of
ethics. Nonetheless, there are basic ethical principles
that cross international borders, and International Federation of
Accountants (IFAC) has attempted to provide some guidance for
teaching ethics in all countries. International
Education Standards (IES) prescribe standards of generally accepted
ethical principles in the education of accounting
students. The standards express the benchmarks that you
are expected to meet in your accounting education
program. They establish the essential elements of the
content and process of education and development at a level that is
aimed at gaining international recognition, acceptance and
application. The standards cannot legally override local
laws and regulations but will provide an authoritative reference
for informing and influencing local regulators regarding generally
accepted ethical principles. The International Accounting Education
Standards Board (IAESB) recognizes the wide diversity of culture,
language, and educational, legal, and social systems in the
countries of the member bodies and of the variety of functions
performed by accountants. Therefore, each individual
member body will determine the detailed requirements of the
education programs. International Education Standards
for Professional Accountants are intended to establish only the
essential elements on which ethical principles for all professional
accountants and accounting students should be based. The IAESB has
issued eight International Education Standards. These
standards cover the entry requirements for accounting education
programs, as well as the experience and continuing professional
development requirements you will be required to follow when you
become an accounting professional: International Education
Standards (IES) IES 1: Entry Requirements to a Program of
Professional Accounting Education IES 2: Content of Professional
Accounting Education Programs IES 3: Professional Skills IES 4:
Professional Values Ethics and Attitudes IES 5: Practical
Experience Requirements IES 6: Assessment of Professional
Capabilities and Competence IES 7: Continuing Professional
Development: A Program of Lifelong Learning and Continuing
Development of Professional Competence IES 8: Competence
Requirements for Audit Professionals IES 4 prescribes the
professional values, ethics and attitudes you should acquire during
your education program. The aim of this standard is to
ensure that you are equipped with the appropriate professional
values, ethics, and attitudes to function as a professional
accountant. IFAC recognizes that the accountancy
profession throughout the world operates in environments with
different cultures and regulatory requirements. IFAC has,
nevertheless, established an international Code of Ethics for
Professional Accountants. Professional values, ethics
and attitudes relate directly to IFAC’s mission to develop and
enhance the profession to enable it to provide services of
consistently high quality in the public interest.
IES 4 requires that university accounting programs should provide
you with a framework of professional values, ethics, and attitudes
for exercising professional judgment and for acting in an ethical
manner that is in the best interest of society and the
profession. The required values, ethics, and attitudes
of professional accountants include a commitment to comply with
local codes of ethics which should be in conformity with the IFAC
Code of Ethics. The coverage of ethics in accounting
education programs should include: • the nature of ethics •
differences of rules‐based and principles‐based approaches to
ethics • compliance with fundamental ethical principles
• professional behavior and compliance with technical standards •
concepts of independence, accountability, and public expectations •
social responsibility • ethics and law • consequences of unethical
behavior to the individual, the profession, and to society • ethics
in relation to business and good governance • whistle blowing,
conflicts of interest, ethical dilemmas and their resolution IES 4
recommends that the presentation of ethics may be treated, at least
initially, as a separate subject in the accounting
program. As you progress through your accounting
curriculum and gain a wider knowledge of other subjects, your
business curriculum will likely integrate the various topics
covered in other business courses. This will encourage
you to look for the possible ethical implications of problems being
discussed in your accounting classes and in other business classes
you are taking. As an accounting professional you will also need to
understand relevant codes of ethics. You can study
ethical standards for accounting professionals using the AICPA code
of ethics and the IMA ethical standards. You also can
examine the ethical standards of other professions and discuss
other potential approaches for ethical standards in the accountancy
profession. You know from your own accounting education
program that you often learn best when you are actively involved
learning process, using techniques such as: • case studies • role
playing • discussion of selected readings and videos • analysis of
real life business situations involving ethical dilemmas •
discussion of disciplinary pronouncements and findings • seminars
using speakers with experience in corporate or professional
decision making Such active learning strategies give
you a greater awareness of the ethical implications and potential
conflicts that may arise from having to make difficult accounting
decisions. It is important for you to learn from your
ethical experiences. You should consider an
experience,
what went well, what did not work, and what approach may be taken
in the future in similar circumstances. In this way, you
will develop a decision model for ethical accounting choices. All
accounting professional associations have codes of ethics that you
will be required to follow. Unfortunately, fraud and
ethical lapses persist in the business world. What can
you do to improve ethical behavior? Awareness of ethical
issues and a business decision model that incorporates ethics will
help you to apply ethics in your business
decisions. Just as you learn to apply financial models
in your business decisions, you can also learn ethical models and
apply them to business decisions. When you practice
ethical situations in your accounting and business classes in
college you will be better prepared to make good ethical decisions
after you graduate and enter the accounting profession. How can
accounting professionals incorporate ethical thinking into their
business decisions? Accountants are good at working
with numbers, but they need to look beyond the numbers when
evaluating business projects. Ethical issues often are
not easily measureable in dollars but their impact on accounting
and business decisions may be significant and very
important. The first step in the process is to be aware
that there may be some ethical issues that could affect your
decision. Again, awareness is the key. When
you bring ethical considerations into the decision process then at
least you are considering the possible ethical implications for
people who may be affected by the decision you make. Accounting
professionals who are CPAs must fulfill continuing education
requirements to maintain their CPA license. Continuing
education in ethics is required in most states. Many CPA firms and
large companies have ethics specialists to provide training and
serve as resources to address ethical issues.
Ethics Tools What are some tools that you can use right now as an
accounting student to help you solve ethical dilemmas and develop a
process for making ethically good decisions? One tool might be to
follow a defined set of steps in making an ethical
decision. The Markkula Center for Applied Ethics at
Santa Clara University suggests the following process for making an
ethical decision:
• Recognize an ethical issue
• Get the facts
• Evaluate alternative actions
• Make a decision and test it
• Act and reflect on the outcome
There are also many web sites with resources that will help you learn and apply ethical principles. Here are some websites you can review throughout your accounting career:
• Ethics Toolkit www.ethics.org/page/ethics‐toolkit
• Cyber Students www.scu.edu/ethics‐center/cydent
• Toolbox, Quiz, and More
http://cba.lmu.edu/academicprograms/centers/ethicsandbusiness/toolbox.htm
• A Framework for Thinking Ethically
http://www.scu.edu/ethics/practicing/decision/framework.html
SECTION 4—Ethical Standards for Accounting Professionals Having
discussed the importance and history of ethics in accounting and
some ethical theories that form the basis of accounting ethics, we
now turn our attention to the ethical standards of professional
organizations. These are the rules that you will need to follow as
an accounting professional. We will start with a preview
of professional associations of public accountants and management
accountants. Then we will look at the American Institute
of Certified Professional Accountants’ Code of Professional Ethics
and the Institute of Management Accountants’ statement of ethical
professional practice. Professional Associations As an accounting
professional you will belong to a professional accounting
association such as the American Institute of Certified
Professional Accountants (AICPA) or the Institute of Management
Accountants (IMA). Professional accounting organizations
have codes of ethics that you will be required to follow as a
member of that organization. Violations of ethical codes
can result in disciplinary action, loss of your professional
license, and possible legal prosecution. In
addition to the national accounting organizations, states also have
licensing bodies and professional associations that have codes of
ethical conduct. The National Association of State
Boards of Accountancy (NASBA) promotes ethical standards through
its Center for Public Trust,
www.centerforpublictrust.org. Of course, in addition to
the ethical standards of professional associations, you also will
be required to follow your company’s code of ethics and your
personal value system. AICPA Code of Professional Conduct It is
important to know that following ethical standards does not mean
simply following the law. You need to distinguish
between ethical standards and legal rules. As a
CPA when you Ethics Cases
www.scu.edu/ethics/practicing/focusareas/cases.cfm?fam=BUSI
ccept membership in the AICPA you assume an obligation of
self‐discipline above and beyond the requirements of laws and
regulations. The Code of Professional Conduct of the AICPA consists
of two sections—(1) the Principles and (2) the
Rules. The Principles provide the framework for the
Rules, which govern the performance of professional services by
members. Principles The six principles of the AICPA code express
the profession's recognition of its responsibilities to the public,
to clients, and to colleagues. 1. Responsibilities ‐ In
carrying out their responsibilities as professionals, members
should exercise sensitive professional and moral judgments in all
their activities. 2. The public interest ‐ Members
should accept the obligation to act in a way that will serve the
public interest, honor the public trust, and demonstrate commitment
to professionalism. 3. Integrity ‐ To maintain and broaden public
confidence, members should perform all professional
responsibilities with the highest sense of integrity. 4.
Objectivity and independence ‐ A member should maintain
objectivity and be free of conflicts of interest in discharging
professional responsibilities. A member in public practice should
be independent in fact and appearance when providing auditing and
other attestation services. 5. Due care ‐ A member should observe
the profession's technical and ethical standards, strive
continually to improve competence and the quality of services, and
discharge professional responsibility to the best of the member's
ability. 6. Scope and nature of services ‐ A member in public
practice should observe the Principles of the Code of Professional
Conduct in determining the scope and nature of services to be
provided. Rules The bylaws of the American Institute of Certified
Public Accountants require its members to adhere to the Rules of
the Code of Professional Conduct. Members must be
prepared to justify departures from these Rules. • Rule
101—Independence. A member in public practice shall be
independent in the performance of professional services as required
by standards promulgated by bodies designated by the AICPA. • Rule
102—Integrity and objectivity. In the performance of any
professional service, a member shall maintain objectivity and
integrity, shall be free of conflicts of interest, and shall not
knowingly misrepresent facts or subordinate his or her judgment to
others. • Rule 201—General standards. A member shall
comply with the general standards of professional competence, due
professional care, planning and supervision, and sufficient
relevant data. • Rule 202—Compliance with standards. A
member who performs auditing, review, compilation, management
consulting, tax, or other professional services shall comply with
standards promulgated by bodies designated by the AICPA.
• Rule 203—Accounting principles. Prohibits a member from
expressing an unqualified opinion on financial statements that
contain a material departure from GAAP. • Rule 301—Confidential
client information. A member in public practice shall
not disclose any confidential client information without the
specific consent of the client. • Rule 302—Contingent
fees. A member shall not charge a fee on condition that
no fee will be charged unless a specific finding or result is
attained. • Rule 501—Acts discreditable. A member shall
not commit an act discreditable to the profession. • Rule
502—Advertising and other forms of solicitation. A
member in public practice shall not seek to obtain clients by
advertising or other forms of solicitation in a manner that is
false, misleading, or deceptive. Solicitation by the use of
coercion, over‐reaching, or harassing conduct is prohibited. • Rule
503—Commissions and referral fees. A member shall not
for a commission recommend or refer to a client any product or
service when the member also performs an audit for that client. •
Rule 505—Form of organization and name. A member may
practice public accounting only in a form of organization permitted
by law or regulation whose characteristics conform to resolutions
of the AICPA.
IMA Statement of Ethical Professional Practice The IMA ethical
standards are based on the overall principles of honesty, fairness,
objectivity, and responsibility. Members must act in
accordance with these principles and encourage others in their
organization to do so. Based on these principles the IMA
requires its members to adhere to the following ethical standards:
Competence 1. Maintain an appropriate level of professional
expertise by continually developing knowledge and
skills. 2. Perform professional duties in accordance
with relevant laws, regulations, and technical
standards. 3. Provide decision support information and
recommendations that are accurate, clear, concise, and
timely. 4. Recognize and communicate professional
limitations or other constraints that would preclude responsible
judgment or successful performance of an activity.
Confidentiality 1. Keep information confidential except when
disclosure is authorized or legally required. 2. Inform
all relevant parties regarding appropriate use of confidential
information. Monitor subordinates' activities to ensure
compliance. 3. Refrain from using confidential
information for unethical or illegal advantage.
Integrity
1. Mitigate actual conflicts of interest; regularly communicate
with business associates to avoid apparent conflicts of
interest. Advise all parties of any potential
conflicts. 2. Refrain from engaging in any conduct that
would prejudice carrying out duties ethically. 3.
Abstain from engaging in or supporting any activity that might
discredit the profession.
Credibility 1. Communicate information fairly and
objectively. 2. Disclose all relevant information that
could reasonably be expected to influence an intended user's
understanding of the reports, analyses, or
recommendations. 3. Disclose delays or deficiencies in
information, timeliness, processing, or internal controls in
conformance with organization policy and/or applicable
law. When you encounter an ethical dilemma the IMA
recommends the following procedure to resolve the ethical issue: 1.
Discuss the issue with your immediate supervisor except when it
appears that the supervisor is involved. In that case, present the
issue to the next level. If you cannot achieve a satisfactory
resolution, submit the issue to the next management level. If your
immediate superior is the chief executive officer or equivalent,
the acceptable reviewing authority may be a group such as the audit
committee, executive committee, board of directors, board of
trustees, or owners. Contact with levels above the immediate
superior should be initiated only with your superior's knowledge,
assuming he or she is not involved. Communication of such problems
to authorities or individuals not employed or engaged by the
organization is not considered appropriate, unless you believe
there is a clear violation of the law. 2. Clarify
relevant ethical issues by initiating a confidential discussion
with an IMA Ethics Counselor or other impartial advisor to obtain a
better understanding of possible courses of action. 3.
Consult your own attorney as to legal obligations and rights
concerning the ethical conflict.
Ethics on Professional Examinations When you graduate from college
you may take a professional certification exam such as the CPA or
CMA. Ethics is covered on most professional exams
including the CPA exam and the CMA exam. For example,
ethics and professional and legal responsibilities are included in
the Regulation section of the CPA exam, accounting for 15% to 20%
of the exam content. The topics include codes of
professional conduct, independence, ethics in tax practice,
licensing and disciplinary systems, legal responsibilities, and
privileged communications and confidentiality. You will
most likely cover these topics in your accounting and law classes,
and you should consider taking a professional CPA review course to
better prepare you for the CPA exam.
The CMA exam also includes coverage of ethics. The new
two‐part format of the CMA exam includes ethical principles and
practical considerations on both Part 1 and Part 2 of the
exam. In Part 1 of the exam, ethics is tested from the
perspective of the individual, and Part 2 of the exam addresses
ethical issues from the perspective of business and accounting
organizations. Professional ethics makes up 5% of the
exam content in Part 1 and another 5% of the content in Part 2 of
the CMA exam.
Answer these questions in the discussion post:
1. Before reading these sections, were you aware of the accounting profession's emphasis on professional codes of conduct and strict adherence to ethical standards? If so, please provide a brief explanation of your understanding? If not, what impressions about the accounting industry have you drawn over time as it relates to ethical behavior?
2. What are the AICPA's six principles of professional conduct for licensed Certified Public Accountants (CPAs)? Include definitions...
3. Of these six principles, which quality do you most want your CPA to have? Why?
4. Do you think it is reasonable and/or realistic to assume that a licensed CPA will be able to exhibit all of these principles / codes of conduct simultaneous, 24/7, while serving the public? Why or why not?
Question No.1 Answer-
Ethical standards or professional codes of conduct in accounting is always be a part of Accounting profession. As described in the passage accounting industry is the most important on which business stakeholders and even outsiders relies. An accountant prepares and manages financials of the business upon which many people take their decisions like investors decide to invest or not, banks decided to sanction loan or not, even tax authorities calculate and accept taxes on the facts that an accountant produces. However there are many case can be seen of frauds and scandals in which accounts were represented wrong to cheat stakeholders,tax authorities , public and nation. Therefore there is strong need to application of ehtics and professional codes of conduct for accountant to give accurate and right information to the people who relies on their information.
Question No.2 Answer
AICPA's six principles for CPA is as follows-
1- Responsibilities-. In carrying out their responsibilities as a professional, member should exercise sensitive professional and moral judgement in all their activities.
2- The Public Interest- Member should accept the obligation to act in a way that serve to public interest,. honor the public trust and demonstrate commitment to professionalism.
3- Integrity- To maintain and broaden public confidence member should perform all responsibilities with highest Sense of integrity.
4- Objectivity and Independence- A member should maintainn Objectivity and be free from conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.
5- Due Care- A member should observe profession's technical and ethical standards, strive continuly to improve competence and quality of services and discharge professional responsibility to the best of member's ability.
6-Scope and Nature of services- A member in public practice should observe the principles of Code of Professional Conduct in determining scope and nature of services to be provided.
Question No.3 Answer
Out of the six principles of AICPA fourth quality i.e. Objectivity and Independence a CPA must have because practically an accountant have so many pressure to do the things or preare financial according with the benefits of the business not from the public profit point of view. It is often seen that businessman don't want to take in to consideration the public benefits or even nation profit. They want to pay less taxes and be free from more formalities in keeping the financials in accordance with the ethics and professional codes of conduct in accounting. Hence it is very important for an CPA to keep objectivity and independency in their work.
Question No. 4 Answer
Well in a reasonable and realistic way it is not possible to assume that a licensed CPA will be able to exhibit all of these principles or codes of conduct simultaneously 24/7 while serving the public because if a CPA will follow all these principles or codes of conduct simultaneously he will have to do the correct and ethical accounting which in turn results in loss to the businessman and he will loose his client. Every businessman wants to get profit and plans for tax savings he rarely bother for ethics or public interest or professional codes of conduct in practice. therefore when it comes to do ethical accounting or follow professional codes of conduct as decided by AICPA it is really difficult or impossible to exhibit all of these principles or codes of conduct simultaneously 24/7 while serving the public.