by Accounting rules and regulations exist to ensure that financial statements are useful to their end users in their financial decision-making. For financial statements to be useful, the information presented therein must be accurate, faithful to the financial circumstances and be produced in time to help the decision-making process. Poor ethics in accounting result not only in increased incidences of criminal activities, but also hurt the business through harming its reputation and rendering their financial statements untrustworthy and thus useless.
Due to a series of recent corporate collapses, attention has been drawn to ethical standards within the accounting profession. These collapses have caused a widespread disregard for the reputation of the accounting profession. To combat the criticism and prevent unethical and fraudulent accounting practices, various accounting organizations and governments have developed regulations and guidelines aimed at improved ethics within the accounting profession.
Personal Consequences
Once caught and tried, accountants so unethical as to commit crimes related to their profession are punished. Depending on the specific circumstances of the case, this can result in prison time, financial costs and other legal punishments to the accountants found guilty. Not only is this devastating for said accountant, it is also devastating on both friends and family, particularly the family.
Criminal Activities
Poor ethics amongst a business’ accountants means that those persons are more willing to break the rules to benefit either themselves or their business illegally. For example, an unethical accountant granted too much control and too little oversight from superiors can embezzle from the business and conceal the evidence. In contrast and comparison, an unethical accountant working at the behest of the business can manipulate the data to commit a number of crimes including fraud and tax evasion.
Business Reputation
Poor ethics can also inflict damages on the business’ reputation and trustworthiness of its stakeholders, such as customers and business partners. The absence of trust ensures that the business finds it difficult to conduct business with others. This damage to a business’ reputation is particularly devastating to accounting firms who rely heavily on that reputation to remain in business. Arthur Andersen LLP effectively perished as a business because of its poor conduct in the Enron scandal.
Usefulness of Financial Statements
Each time that an unethical accountant deliberately breaks the rules and regulations to manipulate the information presented on the financial statements to illegal advantage, those financial statements become less and less useful. Since financial statements must remain accurate and truthful to help end users in making their financial decisions, financial statements tainted deter the decision-making process. Erroneous figures cast all other figures into doubt and end users simply become unable to trust the information presented.
Guidance to help CPAs solve ethical dilemmas not explicitly addressed in the code. Even though this guidance is for CPAs, it makes sense for anyone facing an ethical dilemma:
- Recognize and consider all relevant facts and circumstances, including applicable rules, laws or regulations,
- Consider the ethical issues involved,
- Consider established internal procedures, and then
- Formulate alternative courses of action.
- After weighing the consequences of each course of action, you select the best course of action based on your own judgment.
