Ethics for Accountants

Ethics in Accounting

Integrity – Integrity in accounting refers to being straightforward and honest in all professional and business relationships. An accountant must not involve in any unfair event that would defy the company standards. An accountant should relevantly communicate as and when required with other key / non key members of the organisation. He should avoid any sort of gift or attractions from people within / outside the organisation that may influence his actions and decisions. 

Objectivity – Accountants should not compromise professional or business judgments because of bias, conflict of interest or undue influence of others. They should indulge in clear, effective, relevant, reasonable, objective and un-biased communication.

Professional Competence and Due Care – Accountants must

(i)  Attain and maintain professional knowledge and skill at the level required to ensure that a client or employing organization receives competent professional service, based on current technical and professional standards and relevant legislation; and

(ii)  Act diligently and in accordance with applicable technical and professional standards.

Confidentiality – Its the responsibility of Accountants to respect and value the confidentiality of information acquired as a result of professional and business relationships. Corporate information stands very crucial and critical, which is not supposed to be disclosed to employees as well as other third parties to the organisation. 

Professional Behavior – Professional Accountants should comply with relevant laws and regulations and avoid any conduct that the professional accountant knows or should know might discredit the profession.

Unethical Behaviour in Accounting

1. Omission of Transactions: Transactions that have been not entered in the books intentionally is treated as an unethical accounting activity as the principle of integrity gets violated. A company not recording income may likely to show less profits thereby cheating the promoters as well as the Income Tax authorities. 

2. Recording Dummy / Fake Transactions: Fake or dummy transactions are recorded by book keepers to manipulate funds within the organisation. Fake transactions can be with respect to non incurred expenses which would likely raise the company's expenses, thereby lowering profits, once again cheating the promoters and the Tax authorities.

3. Misapplication of Accounting Policies: Due to lack of knowledge or negligence or even urgency, there may be wrong application of accounting policies on various transactions. Such intentional malpractice can arise at the time of valuing inventory, investments, fixed assets and depreciation. It can also arise while determining capital and revenue expenses. 

4. Misappropriation of Funds: Funds can be temporarily diverted by accountants / cashiers for their personal gains today and may be adjusted tomorrow. This can happen without the knowledge of the person in chief, mainly to temporarily fill pockets.

5. Window Dressing: Window dressing is an activity of showing a better financial status of an organisation through intense manipulation. A company may be underperforming, but it may not seem to be due. All thanks to Window Dressing. This happens when corporates overstate their assets and understate the liabilities. 

6. Secret Reserves: Opposite to that of Window Dressing, Secret reserve is a scenario where a company tries to hide its existing performance by claiming an unfavourable financial position. Such reserves are not shown in the financials but is an outcome of understatement of assets and overstatement of liabilities. 

Reasons for Unethical Behaviour

1. Focus on Short Term Goals: Goals should be SMART and not short. Short term goals generally adds pressure to the professionals which motivates them to commit unethical practice. In order to close a transaction, a professional may forge a signature and pass the final entry in the books which may stand inappropriate for the company. This would lead to cheating and mistrust along with causing harm.

2. Ignorance: At times, professionals may ignore petty transactions that would be immaterial which can create a financial confusion at a later stage. Similarly, professionals may fail to follow proper information systems or internal control which can create a severe repercussion in the working of the organisation.

3. Personal Gains: Out of personal gains, professionals may deal manipulatively thereby causing financial harm to the organisation. This is one of the most popular reasons why people perform unethical practices at workplace.

4. Unforseen Events / Exceptional Events: A sudden event may create a lot of twist and twirls for an organisation inducing its professionals to rely on unfair means. A company having a GST penalty may try to sough out with corrupt GST officers by offering them bribe, which would save a huge liability for the company.

5. Complicated Accounting / Tax Policies and Compliances: Every Act has a humungous number of regulations making it tedious for professionals to remember and apply. This can also be one of the reasons for unethical behaviour.

6. Crave for Funding: Companies tend to avail huge funding upon better credit scores. Hence, managers may manipulate their financials and submit to financers for capital / project funding. The sole purpose here is to show a glowing remark to the financers and convince them for funding.