What is Ethical Accounting?

Ethical AccountingIn the wake of corporate misdeeds and greed that brought about the governmental bailout of several banks, there is more stress than ever on ethical accounting. You may not have given much thought to the subject, but if you take your taxes to a professional to have them done, you rely on the ethics of an accountant. You depend upon his honesty and accuracy to ensure not only that you pay only the taxes that you owe, but that your data is secure and treated confidentially.

What is Meant by Ethics?

The term ethics comes from the Greek ethos, or morals. Our morals are the values that guide us as we interact with others. According to an article on clmaglobal.org, these values are seen at an individual level, a societal level and on a professional level, according to Chartered Institute of Management Accountants. We cannot count on an individual’s ethics to always guide him in making the right choices, however, and most professions have adopted a code of ethics, or a written statement of accepted behaviors. This is especially true when we move to societal ethics when we have input from different cultures. On a professional level, a code of ethics provides a framework for decision making. It does not always give the solution to a dilemma.

How Does this Apply to Accounting?

Accounting, by its nature, involves clients placing trust in an individual. That trust involves the sense that the accountant does not misrepresent his skill, that he works in the best interest of his clients and that there is a privilege of information. People make financial decisions based on the guidance given them by their accountants, and those decisions affect businesses that interface with larger corporations and that eventually interact on a global scale. In other words, decisions made on the advice of an accountant could impact the global economy. An accountant’s lack of ethics may ruin many people financially.

Is Ethics a Problem in Accounting?

Ethics may not be a problem, but it is an issue. The Enron event that sent people to prison over lax ethics is one example. Again, ethical problems arise from the nature of the profession. There will always be greed. Some people see financial fraud as a white collar “victimless” crime, according to the Houston Chronicle. No one has to break into a home or business; no one is robbed at gunpoint. Accountants with poor ethics can “cook the books” to skim a bit off the top for themselves. Another possible reason for ethics violations may be ignorance. Regulations are complex and laws change frequently; those that govern things like insider trading may be misunderstood.

How is a Code of Ethics Ensured for Accountants?

First, there is a professional code that accountants must observe. Deviation from that code can result in sanctions from licensing organizations. In addition, many corporations are requesting their accountants take ethics classes.

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In a profession where trust is vital, there must be ethical practice. You depend upon your accountant’s discretion in handling your sensitive financial information and in his honesty in dealing with your funds. Ethical accounting is at the hub of your personal finance and of the global economy.