Question

Discuss why ethics is important and how it can change or impact accounting.

Answer 1

Why ethics is important

Ethics is very much important because if accountant or auditor is not ethical he can be biased and prepare or audit finacial statements in fraudlent manner and his independence will be in question.

Some of the ethics for accounting are,

Integrity:-Integrity is an important fundamental element of the accounting profession. Integrity requires accountants to be honest, candid and forthright with a client's financial information. Accountants should restrict themselves from personal gain or advantage using confidential information. While errors or differences in opinion regarding the applicability of accounting laws do exist, professional accountants should avoid the intentional opportunity to deceive and manipulate financial information.

Public accounting firms or private companies often develop a code of ethics or conduct for accountants. These ethics and conduct rules ensure all accountants act in a consistent manner. In the absence of specific rules or standards, accountants should review their actions to ensure they are following commonly accepted principles.

Objectivity and Independence:-Objectivity and independence are important ethical values in the accounting profession. Accountants must remain free from conflicts of interest and other questionable business relationships when conducting accounting services. Failure to remain objective and independent may hamper an accountant ability to provide an honest opinion about a company financial information. Objectivity and independence are also important ethical values for auditors.

The accounting industry usually limits the number of services public accounting firms or individual certified public accountants (CPA) can offer clients. Accounting services include general accounting, auditing, tax and management advisory services. Accountants who perform more than one of these services for a client may compromise their objectivity and independence. For example, individuals who handle general accounting functions and then audit this information are essentially reviewing their own work. This situation may allow an accountant to hide a company negative financial information.

Due Care:- Due care is the ethical value requiring accountants to observe all technical or ethical accounting standards. Professional accountants are often required to review generally accepted accounting principles (GAAP) and apply this framework to a company specific financial information. Due care requires accountants to exercise competence, diligence and a proper understanding of financial information. Competence is usually based on individual education and experience. Thus, due care may require senior accountants to supervise and direct other accountants with less experience in the accounting profession.

How ethics chances impact on Accounting

1) Criminal activities related to Financial reporting and accounting will be reduce as accountant will be independent in his working and will not allow any fraudlent intention to be entered in books

2) Users reliance on Financial statement will be increased.