Ethics in accounting: 6 principles to follow
Accounting ethics set the standards of behaviour expected from accounting professionals.
In recent years, ethics in accounting has assumed greater prominence following high-profile cases involving poor practice.
In this guide, we’ll cover what ethics in accounting is, why it’s essential and the six fundamental ethical principles every accounting professional should practise.
What is ethics in accounting?
Accounting ethics is the collective standards and guidelines that accounting professionals must follow to prevent fraudulent practices and maintain public confidence in their profession.
Ethics in accounting aren't new. Even Luca Pacioli, regarded as the “Father of Accounting”, included ethics in his first book in 1494 and it remains a core component of formal accountancy training today.
Over time, professional organisations, companies and governments have developed and extended these ethical standards.
For instance, members of Chartered Accountants Australia and New Zealand (CA ANZ), CPA Australia, and the Institute of Public Accountants (IPA) must comply with the accounting code of ethics and professional standards defined by the Accounting Professional and Ethical Standards Board (APESB).
Accountants and auditors are privy to sensitive financial information and should provide honest and accurate records to company directors and shareholders. Accounting ethics ensure they make the right choices when preparing these financial statements, especially regarding anything the organisation perceives as “bad news.”
What is the importance of ethics in accounting?
After infamous accounting scandals like the collapse of Big Un and charges against its auditor, maintaining ethics in accounting has never been more critical. Accounting professionals have a duty to maintain integrity, confidentiality and professional standards at all times.
Ethics must remain top-of-mind in accountancy because:
Accountants deal with sensitive information
Accountants handle sensitive data daily. Whether working for a client or in-house, you see business finances and banking information, plus employee tax file numbers and bank account details.
You’ve an ethical duty to keep this confidential information secure, display integrity and act professionally. For example, you can make sure you don’t email any sensitive data and only use a secure network or private Wi-Fi to transmit information.
Accountants need to be knowledgeable
Accounting rules and tax regulations change frequently and accountants must stay up to date on the latest developments and practices.
In some cases, you may need additional training to update your skills, and some professional organisations may stipulate a specific amount of CPD (continuing professional development) to maintain your membership.
If you don't have the necessary skills or expertise for a particular assignment, it's your ethical duty to say so. Likewise, if you're supervising junior staff, you should only assign tasks for which they’re qualified.
Ethical accounting minimises legal risk
Accounting ethics ensure you follow the correct rules and procedures, thereby minimising legal risk. You only have to make one unethical decision, and before you know it you're in serious trouble.
Remind yourself that you have a duty to your clients, fellow professionals and the general public to practise ethical accounting at all times.
6 ethical principles in accounting
Here are 6 fundamental ethics that every accounting professional should practise:
Work in the public interest
Accountants must work in the public interest and maintain trust in the profession. As such, they should work for the welfare of individuals, organisations and in the interests of society more broadly.
Act with integrity
Accounting professionals must act with integrity. Reports should be as complete and accurate as possible, and you must be careful not to issue any false or misleading information.
In whatever scenario, you should use your best judgement and act within the standard ethical codes.
Avoid conflicts of interest
Accounting professionals must always avoid conflicts of interest. You need to make unbiased decisions and recommendations for your clients and remain within your area of expertise.
For example, unless you have an AFSL, you cannot provide advice about financial products. Equally, with an AFSL, it would be improper to recommend one financial product over another because of a commission or incentive you received from the vendor.
It's also vital that you remain objective and not let any external factors influence your decisions or cloud your judgement. Your job is to exercise uncompromised professional or business judgement, as stated in APES 110 by the APESB.
Respect client confidentiality
Accounting professionals must respect client confidentiality and not disclose any information to third parties without specific authority to do so.
For example, it'd be wrong to reveal details of a proposed merger without your client's permission. Similarly, you shouldn't share any confidential information internally.
The only exception to disclosing confidential information is where you believe you have a legal or professional duty to do so.
Build professional competence
Accounting professionals must remain up to date with best practice, current legislation and new technologies to perform their jobs effectively. Failing to do so could result in you providing poor service or outdated advice.
Acting ethically may mean seeking advice from colleagues or other professionals if you’re unsure about a particular situation. Similarly, you must supervise junior team members and train them properly to perform their roles.
Also, remember to continue your professional development to provide a high-quality service.
The consequences of unethical accounting practices
Firstly, it can hurt your reputation and damage your or your client’s business. Fellow professionals and other companies will steer clear once you have a tarnished reputation.
Customers want to work with bona fide accountants who comply with the law and are ethical. Accountants or accounting firms facing scrutiny for their questionable ethics are likely to lose customers.
In addition to losing customers, accountants with dubious ethics are likely to lose employees, as employment relationships are built on trust. If workers know their employer may be mismanaging finances, they have no reason to believe they’ll continue receiving a pay cheque.
Business owners and accounting professionals found guilty of fraudulent accounting activities, tax evasion and other crimes face imprisonment.
Less serious offences may lead to heavy fines and disqualification by a professional organisation. For example, CPA Australia investigates any complaints against its members and takes necessary disciplinary action, such as issuing penalties and membership suspensions.
Help your customers succeed with MYOB
Accounting professionals deal with sensitive information every day. They have to remain vigilant and act professionally to minimise risk.
Ethics in accounting keeps accountants and bookkeepers on the straight and narrow, ensuring they:
Act with integrity.
Avoid conflicts of interest.
Work in the public interest.
Respect client confidentiality.
Develop their professional competence.
Whether working solo or as part of a team, MYOB solutions for accountants and bookkeepers can help you and your customers succeed.