Ethical Issues In Accounting

Ethical Issues In Accounting

Contents

TOC o “1-3” h z u HYPERLINK l “_Toc377059264” Ethics in accounting PAGEREF _Toc377059264 h 1

HYPERLINK l “_Toc377059265” Legal issues in accounting PAGEREF _Toc377059265 h 2

HYPERLINK l “_Toc377059266” Technological concern in accounting PAGEREF _Toc377059266 h 4

HYPERLINK l “_Toc377059267” References PAGEREF _Toc377059267 h 5

Ethics in accountingEthics in accounting is of great importance to both accounting professionals and those who receive services from them. Accountants are expected to be highly competent, objective and reliable. Thus an accountant must possess high level of integrity. The general ethical standards apply to people in professionals such as accounting and medicine and not just anyone. People place high expectation on professionals and so due to these expectations, professionals have developed codes of ethics referred to as codes of professional conduct. These ethical codes sets pace in which members must maintain and enhance self discipline to the highest standards possible. The codes of ethics specify what should or should not be done. One of the distinguishing features of accounting profession is their responsibility to the public. The internal auditors, financial managers and management accountants are mostly employees of organizations that provide services to the public and so they must adhere to their obligation to the public. Responsibility placed on accounting professionals requires them to uphold confidentiality, integrity, objectivity and professional competence. Accountants should take tasks that they can complete with professional competence and must carry out their work with utmost care and diligence (Herbert, 2007) .Confidential information held by accountants should not be disclosed to outsiders. Maintaining objectivity and integrity involves an accountant desisting from both apparent and actual conflict of interest. Conflict of interest may occur when an accountant has personal interest in the organization he is serving and may thus provide services that satisfies his own end. As such, an accountant should work with honesty to avoid conflict of interest. Furthermore they should take voluntary step in avoiding improper personal benefit as a result of the position he holds within the organization. For instance insider trading should be avoided at all cost as it provides unfair ground for trading among investors and is one of the ethical issues that have been experienced by large companies such as Enron. Accountants should actively promote behaviors in the work place. They should encourage and reward integrity in every aspect of the organization by eradicating obstacles to responsible conducts. They should display personal support for the principles that define the codes of ethics and so they should act in good faith, diligence, due care, responsibly and must not allow compromise in independent judgment. Accountants should employ responsibilities In order to provide fair, accurate, full, understandable and timely information (Hoffman, Judith &Edward, 1996).

Legal issues in accountingAccountants must comply with all the rules, laws and regulation of federal, state and local government .They must also adhere to rules and regulations of bodies that govern the practice of accountants within that organization. Accountants must avoid malpractices such as negligence and so professional accounting institutes must establish a set of rules that enhance standard of care among accountants. One of the major law that govern the profession of accountancy is called the Sarbanes-Oxley act of 2002 also referred to as public company accounting reform and investor protection act. This act was highly influenced by the collapse of Enron, one of the largest energy companies in USA that raised both legal and ethical questions on how public companies are run (Steven, 2007). The Sarbanes-Oxley act of 2002 has 11 guidelines that stipulate the specific requirements and mandates to be maintained during financial reporting. These are in forms of titles. The first title establishes the public company accounting Oversight board whose role is to register auditors, define procedure and process to be complied with during auditing, quality control and inspection and policing conduct of auditors. The act plays a role in minimizing the occurrence of conflict of interest by accountants. An auditing firm is prohibited from carrying out other consulting services for the firm to avoid conflict of interest. The second title define the independence of auditors whose aim is to limit conflict of interest and addresses the requirement of approval for new auditor, the requirements of auditor reporting and auditor partner rotation for a given company. The third title under the law gives the senior executives individual responsibility for completeness and accuracy of financial reports. The fourth title of the act offers description of enhanced reporting requirement for financial transactions. Title five of the act defines the measure put in place to restore investor’s confidence. The sixth title describes the processes involved in instilling confidence among the investors by defining the authority of security and exchange commission in barring security professionals from practice. Title seven of the law requires the security and exchange commission and the comptroller general to study financial reports of public companies and reports them. Title eight of the act consists of the corporate and criminal fraud act of 2002 which describes specific penalty for corporate and criminal fraud such as alteration or destruction of financial records, interference with investigations and also provides protection to whistle blowers. Title nine is called the white collar crime penalty enhancement act of 2002 that increases penalty related to conspiracies and white collar crimes. Title ten makes it a law for the chief executive officer to sign company tax returns. The eleventh title of the act identifies corporate fraud and criminalizes tampering with records thus making the offender liable to specific penalties. Sarbanes-Oxley act of 2002 played a key role in coming up with strict rules and laws that control the practice of accountancy thus enhancing professionalism. Although the act has tried to reduce the level in accounting based crimes, much need to be done in ensuring that all accountants adhere to the law. This can be done by raising awareness to both the accountants and the public, tightening penalties against accounting related crimes and coming up with policies that enhance transparency and accountability in the profession (Mallor, Bowers &Langvardt, 2010).

Technological concern in accountingWith the invention of computer and accounting software, the practice of accounting has changed. Accounting and computer software have allowed many accounting applications to be conducted accurately and urgently. Although information technology has increased urgency and accuracy in recording financial statements and preparing financial reports, new risks have emerged. There is high chance of sabotage occurring when using accounting software which leads to leak of accounting information to outsiders. For instance, virus may distort information and lead to loss of data stored in computer systems. Highly computer literate accountants may engage in fraud which may take long to detect and so they may use loopholes within the information system to defraud the organization (Terry &Elaine, 2008). Despite the risks and ethical issues that have confronted application of information technology in accounting profession, there are measures that have been taken to address the issues. There are federal laws governing technology such as those governing patents, copyrights and trademarks. Due to public exposure over the internet, there has been need for ethical control and review where businesses are required to monitor the activities of their employees to safeguard trade secrets and other intellectual properties that the company has developed and used to expand their competitive edge in the market (Mallor, Bowers &Langvardt, 2010).

In conclusion, it is imperative that accountants maintain high level of ethical standards and law when conducting their work especially in the contemporary work environment that is characterized by information technology. When accountants maintain the stipulated ethics and maintain the laws and regulations that govern the profession, there are high chances that crimes related to accounting profession are going to reduce and the profession is going to be regarded highly.

ReferencesMallor, J. P., Bowers, T. L., & Langvardt, A. W. (2010). Business law: The ethical, global ande-commerce environment (14th ed.). Boston: McGraw-Hill.

Hoffman,M.,Judith,K. & Edward,P.(1996).The Ethics of Accounting and Finance: Trust,Responsibility and Control. Boston: Quorum books.

Steven,B.(2007).Accounting best practices. Boston:McGraw.

Terry,H & Elaine,I. (2008).Law and Ethics in Business Environment. Chicago: Chicago

university press.

Herbert,B.(2007). Legal, Ethical and International Environment of Business.New York:Routlege

Publishers.