International Journal of Ethics & Society (IJES)

Journal homepage: www.ijethics.com

(Review Article)
Accounting Ethics
Sahar Sepasi
Dept. of Accounting, Faculty of Management & Economics, Tarbiat Modares University, Tehran, Iran

Abstract
Background: Accounting information has many users, which comprise business holders, managers, inves-
tors, creditors and the government for tax and regulatory resolves. A businessman use financial statements to
define particular information that will guide him in making vital business decisions. Accounting impacts a
wide range of parties in society. From this point of view, accounting’s codes of ethics are important.
Conclusion: Ethical codes are the essential principles that accounting professionals choose to abide by to
enhance their profession, preserve public trust, and reveal honesty and fairness. Proper ethics and ethical
behavior are tremendously important in accounting for a variety of motives. In the same way it is important
that the industry itself does not become pilloried as an unethical one, something that could potentially de-
struction business for all accounting firms. Ethics and integrity are valued features in an accountant. They
must know right from wrong and always parade integrity in his or her accounting and bookkeeping deeds.

Keywords: Ethics, Accounting, Ethical cods

Introduction
What is Accounting Ethics? is the study of moral values and judgments as
Accounting ethics is among important topic be- they apply to accountancy: an example of profes-
[ Downloaded from ijethics.com on 2024-05-27 ]

cause accountants are the key personnel who can sional ethics. Accounting introduced by Luca
reach the information of three Financial State- Pacioli, and later developed different groups, pro-
ments (the income statement, the balance sheet, fessional organizations, and independent associa-
and the statement of cash flows). These three tions (1). Ethics is taught in accounting courses at
statements are linked to each other. Accounting higher education institutions as well as by com-
ethics is primarily a field of applied ethics and is panies training accountants and auditors. The
part of business ethics and human ethics, which nature of the duty carried out by accountants and


Corresponding Author: Email: [email protected]
Received: 10 Oct 2018,
Accepted: 7 Jan 2019

1
Available at: www.ijethics.com
 Sepasi S.
International Journal of Ethics & Society (IJES), (2019) Vol. 1, No. 2

auditors requires a high level of ethics. Share- petence and technical standards"; "responsibilities
holders, investors, and other users of the finan- to clients"; "responsibilities to colleagues"; as well
cial statements rely heavily on the annual finan- as "other responsibilities and practices". Each of
cial statements of a company to use this infor- these divisions gave guidelines on how a Certified
mation to make an informed decision. They rely Public Accountant (CPA) should react as a pro-
on the opinion of the accountants who prepared fessional. Failure to fulfill with the guidelines
the statements, as well as the auditors that vali- could have caused an accountant to be pent from
date it, to present a true and fair view of the practicing. When developing the ethical princi-
company (2). Having knowledge of ethics can ples, the AICPA also considered how the profes-
help accountants and auditors to prevail; ethical sion would be viewed by those outside of the ac-
dilemmas, allowing for the right choice that will counting industry (4).
benefit the public who focus on the account-
ant/auditor's reporting. Accounting Scandals
Accounting ethics has been considered tough to
History resistor as accountants and auditors must consid-
Luca Pacioli, the "Father of Accounting", has er the interest of the public (which relies on the
written on in his first book Summa de arithmetica, information gathered in audits) while ensuring
geometria, proportioni, et proportionalita, published in that they endured active by the syndicate they are
1494 about accounting ethics. Ethical codes and auditing. They requisite contemplate how to best
standards from since have been developed smear accounting standards even when faced
through different groups, professional and inde- with issues that could cause a company to face a
pendent organizations. These various groups had significant loss or even be discontinued (5). Due
lead accountants to follow several rules and to several accounting scandals within the profes-
codes of ethics to perform their duties in a pro- sion, critics of accountants have stated that when
fessional way and in a professional work envi- asked by a client "what does two plus two equal?"
ronment (3). Accountants must follow these rules the accountant possible to respond "what you
named the code of ethics set out by the profes- alike it to be?" This thought course along with
sional. other criticisms of the profession's issues with
In United States, in 1887, the American Associa- conflict of interest, have led to various increased
tion of Public Accountants (AAPA) was created; standards of competence while stressing ethics in
it was the first step in developing professionalism the work situation.
in the United States accounting. By 1905, the The role of accountants is grave to society. Ac-
AAPA's first ethical codes were derived to edu- countants serve as financial reporters and media-
cate its members. During its twentieth bicenten- tors in the capital markets and owe their primary
nial assembly in October 1907, ethics was a major compulsion to the public interest. The infor-
topic of the conference among its members. As a mation they provide is crucial in assisting manag-
[ Downloaded from ijethics.com on 2024-05-27 ]

result, a list of professional ethics was used into ers, investors and others in making critical eco-
the organization's bylaws. However, because nomic decisions. Therefore, ethical indecorums
membership to the organization was voluntary, by accountants can be detrimental to society, re-
the association could not put a must on individu- sulting in distrust by the public and disruption of
als to conform to the suggested behaviors. The efficient capital market operations.
AAPA was retitled several times throughout its From the 1980s to the existing there have been
history, before becoming the American Institute numerous accounting scandals that were widely
of Certified Public Accountants (AICPA) as it's reported on by the media and resulted in fraud
named today. They extended five divisions of charges, bankruptcy protection requests, and the
ethical principles that its members should follow: closure of companies and accounting firms. The
"independence, integrity, and objectivity"; "com- disgraces were the result of creative accounting,
2
Available at: www.ijethics.com
 Sepasi S.
International Journal of Ethics & Society (IJES), (2019) Vol. 1, No. 2

misleading financial analysis, as well as corrup- Ethics and the Code of the Conduct
tion. Numerous companies had matters with dis- Ethics and ethical behavior advert more to gen-
honest accounting practices, including Nugan eral principles such as honesty, integrity, and
Hand Bank, Phar-Mor, WorldCom, and AIG. morals. However, the code of professional con-
One of the most widely reported violation of ac- duct, is a specific set of rules set by the governing
counting ethics involved Enron, a multinational bodies. Although the rules set out by diverse
company, which for several years had not shown bodies around the world are each unique, some
a true or fair view of their financial statements. rules are universal (8). One of the key rules set
Their auditor Arthur Andersen, an accounting out by professional accounting bodies is the in-
firm considered one of the "Big Five", signed off dependence. This is auditors must be totally ob-
on the rationality of the accounts despite the in- jective and must be without concerns to or rela-
accuracies in the financial statements. When the tionships with the client since that could poten-
unprincipled activities were described, not only tially impair their judgment and impair the overall
did Enron disband but Arthur Andersen also course of the audit work.
went out of business. Enron's shareholders lost There are two forms of independence:
$25 billion as a result of the company's bankrupt- Independence in fact recourses to any factual in-
cy (6). Although only a fraction of Arthur Ander- formation such as whether auditors own any
son's employees were involved with the scandal, shares or other investments in the client firm,
the closure of the firm resulted in the loss of which is usually easy to determine.
85,000 jobs. Independence in attendance is more subjective.
Following these scandals a rule named Sarbanes– In order to solve a potential conflict of interest, a
Oxley act was set. Sarbanes–Oxley was named reasonable observer’s test is used – i.e., what
after U.S. Senator Paul Sarbanes and U.S. Repre- would a reasonable observer say about the situa-
sentative Michael G. Oxley. As a result of this tion that the auditors may have benefit form rela-
act, top management must by discrete affirm the tion with client (9).
accuracy of financial information. Additionally, Some other rules themed by professional ac-
penalties for fraudulent financial acts are much counting bodies include the following:
harsher (7). In addition, this act has increased the  Contingent fees are not allowed: e.g., audit
omission role of boards of directors and the in- fees that are based on a percentage of the net
dependence of the outside auditors that review income figure or a percentage of a bank loan
the validity of financial statements. received
This act, which contains eleven parts, was depict  Integrity and due care: work must be done
as a reaction to a number of major corporate and thoroughly, diligently, and in a timely manner.
accounting scandals, including Enron, Tyco In-  Professional competence: must be compe-
ternational, Adelphia, Peregrine Systems, and tent, which means he/she must have both
WorldCom. Not to mention that these scandals the necessary academic knowledge and expe-
[ Downloaded from ijethics.com on 2024-05-27 ]

cost investors billions of dollars, since the share rience in the relevant industry.
prices’ of affected companies crashed and tremor  Duty to report a breach of rules: the whistle-
public confidence in the US securities markets. blower rule. If a CPA detects a associated
The act contains eleven titles, ranging from addi- CPA disrespectful any of these rules, he/she
tional corporate board responsibilities to criminal has a responsibility to report it.
penalties, which requires the Securities and Ex-  Confidentiality: must not reveal any infor-
change Commission (SEC) to comply rulings on mation regarding the client to outsiders.
requirements to act with the law. Since it is dis-
tinct that: the mission of the SEC is to protect Code of Ethics in Accounting
investors, preserve fair orderly, and efficient mar- The International Ethics Standards Board for Ac-
kets, and facilitate capital formation. countants, itself an independent agency, has devel-
3
Available at: www.ijethics.com
 Sepasi S.
International Journal of Ethics & Society (IJES), (2019) Vol. 1, No. 2

oped a code scheming the principles at play in ethi- time, subsequent through on commit-
cal accounting (10). These principles cover many ments and only compliant expenditures
facets of ethical behavior for accountants, although for services that have been condensed.
unique situations may need judgment calls that In Iran, Iranian Association of Certified Public
aren't explicitly evoked in these principles. Accountants (IACPA) is regulating and promot-
 Integrity: Integrity isn't a set of guidelines ing accounting and auditing profession and over-
or a development of achievement, but ra- sight of the work of members by:
ther a state of awareness oriented near  Organizing CPAs
honesty, honesty and a obligation to act-  Enhancement and development of pro-
ing succeeding principle rather than for fessional services through preparation,
the sake of personal gain. compilation, publication and promotion
 Objectivity: To the degree that it is physi- of accounting, financial services and eth-
cally possible, accountants shouldn't be ics standards;
prejudiced by the interests or outlooks of  Enhancement of professional knowledge
the individuals or companies who hire of certified public accountants through
them. An accountant also shouldn't let development and improvement of train-
individual biases or benefits influence ei- ing, research and issuance of specialized
ther the numbers that go into an and professional publications
bookkeeping system or the fallouts that  Safeguarding the professional interests of
come out of it. Facts and results should members.
be taken at face value and should deter-  Communication with regional and interna-
mination assumptions and decisions. tional professional bodies and becoming a
 Professional Competence and Due Care: member thereof with the goal of ad-
The arena of accounting isn't a still body vancement of professional connections.
of gen but rather an evolving frame of
situation that changes as regulation and History of Iranian Association of Certified
best practices are redefined over period. Public Accountants
It is the duty of an ethical accountant to Audit of profit and non-profit entities, a system
stay well-informed of these expansions of professional accounting, establishment and
and provide clients with up-to-date mate- domain of non-governmental auditing were left
rial and the highest eminence service. undecided for the first 10-15 years after the revo-
 Confidentiality: Accountants switch sensi- lution. The 'Use of Specialized and Professional
tive information, and it is an accountant's Services of Qualified Accountants as certified
ethical charge to exhortation from dis- Public Accountant Act' (the Act), enacted in
closing any of this information to outside 1993, was a desirable response to this need. Ac-
parties who may stand to advance from it. cording to the Act, government may utilize the
[ Downloaded from ijethics.com on 2024-05-27 ]

Likewise, an accountant shouldn't use any specialized and professional service of Certified
information gotten while acting profes- Public Accountants (CPAs) as it thinks proper
sional services for the sake of individual and fit, to monitor financial affairs of manufac-
gain, such as vending stock in a business turing, trading and service entities and also, to
whose books appear doubtful. ensure the reliability of their financial statements
 Professional Behavior: As with any living, in order to maintain investors, other interested
an accountant should achieve tasks and parties and the public interests. According to
tasks with an eye to the highest personal sub-section 1 to the Act, the "Recognition of
and specialized standards. These include Qualification of Certified Public Accountants"
completing tasks methodically and on procedural manual was ratified in 1995 by the

4
Available at: www.ijethics.com
 Sepasi S.
International Journal of Ethics & Society (IJES), (2019) Vol. 1, No. 2

Council of Ministers and in early 1996, Minister fixed and variable membership fees; and prepara-
of Economic Affairs and Finance introduced the tion of directives necessary for execution of duties.
first group of CPAs as founders of Iranian Asso-
ciation of Certified Public Accountants to devel- Supreme Oversight Board
op the association's Articles of Association. The Supreme Oversight Board comprises one chief
Articles of Association was ratified by the Coun- and two members, all CPAs, appointed from
cil of Ministers in September 1998. The first gen- within the members of the Association by the
eral assembly of CPAs was convened on August Minister of Economic Affairs and Finance for a
24, 2001, to elect High Council members. High tow year term. The Board has the duties of exam-
Council members were duly elected by direct ining and expressing an opinion on the fairness
vote of CPA members and the Association was of information reported by the Board of Direc-
duly established. tors, annual financial statements of IACPA, per-
The governing bodies of IACPA are as follows: formance of the Association and its members,
and also to render regular reports of its activities
High Council to the Minister of Economic Affairs and finance,
High Council comprises 11 experienced and ex- High Council and the Board of Directors as nec-
pert CPAs elected from within the members by essary.
the members for a three year term. One delegate
appointed by the Minister of Economic Affairs Conclusion
and Finance, one by the Stock Exchange Council,
and one by the High Council of Banks also attend Ethical codes are the fundamental principles that
the meeting without voting right. High Council is accounting professionals have chosen to abide by
the highest governing body, and is responsible for to increase their profession, maintain public trust,
matters such as setting the strategy and approval and demonstrate honesty and fairness. . Sadly,
of plans, manuals, annual budget, financial state- not everyone whose task is in the accounting
ments of IACPA, appointment of the board of field is trustworthy. Accounting ethics is original-
directors and disciplinary board members. Ap- ly a field of applied ethics and is part of business
proval of specialized committee members compe- ethics and human ethics, studying the moral val-
tency, determining entry fees and performance of ues and judgments as they apply to accounting.
professional oversight through specialized com- Accounting first introduced by Luca Pacioli, and
mittees are part of High Council duties. later prolonged by government groups, profes-
sional administrations, and independent firms. It
Board of Directors interconnects a lot of the information that own-
Board of Directors comprises 3 or 5 CPAs select- ers, managers, and investors requisite to appraise
ed from within the members and appointed by the a company's financial enactment. In fact, the res-
president for three years. The High Council ap- olution of accounting is to help investors make
[ Downloaded from ijethics.com on 2024-05-27 ]

points one of the members of the board as Chief better business resolutions by providing them
Executive Officer and Secretary General who will with financial information. Many negative signifi-
handle the Association's affairs on a fulltime basis. cances can result from poor ethics in accounting
Implementation of High Council directives; plan- applies. The first result is generally a holdup in
ning; organizing; preparation of manuals, annual business. Accounting corporations rely seriously
budget, financial statements and execution of on word-of-mouth for campaign, and it's all too
plans are among the duties of Secretary General easy for a few bad stories about unethical per-
and the Board. Each member of the board is re- formance to expert prospective clients away from
sponsible for part of the activities of the Associa- a precise firm. There can also be serious legal
tion. Other duties of the board include establish- outcomes for those who are found to be disre-
ing specialized committees; recommending entry, spectful legal codes and standards for their au-
5
Available at: www.ijethics.com
 Sepasi S.
International Journal of Ethics & Society (IJES), (2019) Vol. 1, No. 2

thority. Generally speaking, all accountants are to 2. Johnsson H, Kihlstedt PK (2015). Performance-based re-
deed in the public interest. In this regard, ac- porting. John Wiley & Sons, New Jersey. P. 17.
countants are to evade exclusively sustaining the 3. Blake J, Gowthorpe C (2005). Ethical issues in accounting.
needs of an individual employer or individual cli- Rutledge Publication, New Jersey. P. 154.
ent, but rather to comply with the ethical re- 4. Wikipedia. (2016). Accounting ethics. Available at:
https://en.wikipedia.org/wiki/Accounting_eth
quirements in upholding respect for public inter-
ics. Accessed: 12 Jun 2017
est. The essential principles include integrity, ob- 5. Etherington L, Schulting L (1995). Ethical devel-
jectivity, professional competence and due care, opment of accountants: The case of Canadian
confidentiality, and professional behavior. These certified management accountants. Research on
fundamentals are acute to sustaining the high eth- Accounting Ethics, 1: 235-251.
ical standards of the accounting industry as a 6. Hill N, Stevens K, Clark P (1998). Factors that af-
whole. To sum up, the reputation of ethics in fect ethical reasoning abilities of US and Irish
accounting cannot be stressed adequate, as ethical small-firm accountancy practitioners. Research
standards lay the substance for which the entire on Accounting Ethics, 4:145-165.
industry must be held answerable to and blossom 7. Moriarty S (2000). Trends in ethical sanctions with-
upon. in the accounting profession. Accounting Ho-
rizons, 14(4): 427–439.
Ethical Consideration 8. Cowton CJ (2008). On setting the agenda for business
ethics research. In: C. Cowton & M. Haase (Eds.),
I am very grateful to colleagues, who gave me so Trends in business and economic ethics. Hei-
delberg: Springer Publication. Pp. 11–30.
generously of their time to provide feedback on
9. Cameron RB (2015). Improving ethical attitudes or
this article. simply teaching ethical codes? The reality of
accounting ethics education. Accounting Educa-
References tion, 24(4): 275-290.
10. Duska RF, Duska BS, Kury KW. (2018). Accounting
1. Bennett B, Bradbury M, Pragnell H (2017). Rules,
principles and judgments in accounting stand- ethics. 3rd Ed. Wiley Publication, New Jersey. Pp.
ards. Abacus, 42 (2): 189–203. 25-46.
[ Downloaded from ijethics.com on 2024-05-27 ]

6
Available at: www.ijethics.com

Powered by TCPDF (www.tcpdf.org)