Question

Effective Writing, A handbook for Accountants, 10th Edition

Exercise 1-5 [Ethics]

Do you believe ethical considerations are an important part of an accountant's professional responsibilities? Why or why not? Think about this question, and then write notes according to the following outline. Use only the sections of the outline that are relevant to your position on this issue.

1. Ethical considerations are important to accountants because: (list your reasons)

2. Ethical considerations are not very important to accountants because: (list your reasons)

3. Accountants find guidance in making ethical decisions from the following sources: (list the sources you find)

Answer 1

Ethical considerations are important to accountants because Unlike other general business positions in a company, accountants are bound both by the rules of their organization and by the professional standards of the accounting industry. Accountants have ethical responsibilities to many different parties, both internal and external to the company. Understanding some of the ethical responsibilities of accountants can help you understand what information is appropriate to share with those working in your company's finance function.

Clients

Accountants are privy to confidential information regarding their clients and their clients' businesses. Disclosure of this information to unauthorized third parties could put clients at a competitive disadvantage. Accountants are ethically obligated to treat client information as confidential and refrain from unauthorized disclosure. Clients and accountants should realize that there is no accountant-client privilege, as exists between an attorney and a client, and that accountants may be required to disclose business information about a client upon order of a subpoena.

Shareholders

Accountants working in public practice have an ethical duty to be able to objectively render an opinion on a company's financial statements. This requires the accountant to be independent from the company under audit in both "fact and appearance." Independence in fact requires that the accountant does not have any kind of financial interest in the client, and implies that the auditor is absolutely able to conduct the audit without any bias in attitude. Independence in appearance concerns an outsider's observation of the auditor-client relationship. Being independent in appearance requires that a neutral third-party observer would not consider independence to be impaired.

Firm

Accountants working in public accounting firms have an ethical obligation to perform their work with due diligence, and to only document and record work that has actually been completed. Documenting audit procedures that have not been completed, known as "ghost-ticking," is ethically wrong and may place an accountant or the accounting firm at risk. In addition, some auditors may feel pressured to meet time budgets by recording fewer hours than they actually worked. This phenomenon, called "eating time," is prohibited by nearly every major accounting firm. Accountants should recall that this practice is tantamount to falsifying records and is ethically questionable, at best.

Company

Accountants working in businesses are often subject to information that the rest of the company is not privy to. For example, payroll accountants may have information about salaries in different departments, revenue accountants may learn of new products before others, and cost accountants may have inside information about profit margins. In some cases, accountants are some of the first to know about potential layoffs. Accountants should remember that they are bound by both their own ethics and professional standards to not disclose this information to anyone. This responsibility extends to disclosure to individuals within the company as well.

The following are five areas that deserve the attention of anyone considering working in the accounting profession.

1. Independence and Objectivity

Ethics and independence go hand in hand in the accounting profession. A critical component of trust is making unbiased decisions and recommendations that benefit the client. Conflicts of interest, for example, demand exposure under independence guidelines. Benefiting from the sale of one financial product over another could lead to a bias that skews financial advice to a client.

To remain objective and independent, it is also necessary to ensure that recommendations are not subject to outside influence. An accountant’s professional judgment is compromised if they subordinate their judgment to someone else’s.

2. Integrity

Demonstrating integrity means being straightforward and honest in all business and professional relationships. Upholding integrity requires that accountants do not associate themselves with information that they suspect is materially false or misleading — or that misleads by omission.

3. Confidentiality

Disclosure of financial information or revealing the disposition of a potential merger by an accounting professional without express permission violates the trust that is the foundation of a professional relationship — unless there is a legal or professional reason to do so.

4. Professional Competence

As technology, legislation and best practices change, a professional accountant must remain up to date. To exercise sound judgment, an accountant must stay abreast of developments that could affect a decision’s outcome.

Practicing due care means recognizing your skill level and not suggesting that you have expertise in an area where you do not. Consulting with other professionals is a standard practice that helps to bond a network of individuals and generate respect.

Similar guidelines also apply to accounting professionals who supervise others. These accountants must ensure that the subordinates receive proper training and guidance as they carry out their responsibilities.

5. Professional Behavior

Ethics require accounting professionals to comply with the laws and regulations that govern their jurisdictions and their bodies of work. Avoiding actions that could negatively affect the reputation of the profession is a reasonable commitment that business partners and others should expect.