Codes of Ethics in Accounting

Business and accounting exist in the environment in which many issues and events cannot be interpreted as absolutely right or wrong. Every decision or choice has pros and cons, costs and benefits, and people or institutions who will be affected positively or negatively by the decision. In a setting where many issues and events fall between the extremes of right and wrong, it is very important that accountants and business people maintain high ethical standards. Several groups have established codes of ethics that address ethical behavior to help accountants and their business associates work their way through the complicated ethical issues associated with business issues and events. These groups include the American Institute of Certified Accountants (AICPA), the Institute of Management Accountants (IMA), the International Federation of Accountants (IFAC), and most large companies.

The members of the AICPA adopted a code of professional conduct that guides them in their professional work. It addresses such issues as self-discipline, honorable behavior, moral judgments, the public interest, professionalism, integrity, and technical and ethical standards. The IMA has a code of conduct that is similar to the AICPA’s code. It addresses competence, confidentiality, integrity, objectivity, and resolution of ethical conflict.

The IFAC is an independent worldwide organization. Its stated purpose is to “develop and enhance a coordinated worldwide accountancy profession with harmonized standards.” As part of its efforts it has developed a code of ethics for accountants in each country to use as the basis for founding their own codes of ethics. Because of the wide cultural, language, legal, and social diversity of the nations of the world, the IFAC expects professional accountants in each country to add their own national ethical standards to the code to reflect their national differences or even to delete some items of the code at their national level. The code addresses objectivity, resolution of ethical conflicts, professional competence, confidentiality, tax practice, cross-border activities, and publicity. It also addresses independence, fees and commissions, activities incompatible with the practice of accountancy, clients’ money, relations with other professional accountants, and advertising and solicitation.

2. Answer the following questions.

1) Why is it often hard to decide what is right or wrong in business practice?

2) Why are professional codes of ethics necessary?

3) Is there a universal accountants’ code of conduct?

4) What American professional accountancy organizations have developed ethical standards for accountants?

5) What issues do these codes of conduct address?

6) What organization attempted to introduce international standards of conduct for professional accountants?

7) How do they take into account cultural diversity and national differences?

Text 2

1. Read the information about the developments in the US accounting profession over the previous decade and take notes to be able to answer the following questions.

● What misdeeds of corporate executives were accounting scandals associated with?

● What corporations were involved in the greatest scandals?

● What implications did the scandals have for the US accounting profession?