Why ethics and integrity are crucial in accounting and wheat they are.
Ethics and Integrity in the Accounting Profession
Integrity is one of the main traits that all professional accountants must follow. Failure to create honest and truthful accounts of your company’s cash flow will lead to widescale issues.
Accountants in the UK must also adhere to the ethics defined by the Generally Accepted Accounting Practice (GAAP) and the Financial Reporting Standards (FRSs).
Professional accountants should always follow the accounting ethics set out for the company they work for. They should also follow the general rules expected from the accounting profession at large.
However, there are instances where personal judgement and interpretation need to come into play. In such instances, accountants need to deliver the utmost care and transparency.
A professional accountant should never view such instances as a chance to manipulate data for personal gain.
The Five Principles of Ethical Accounting
The five principles listed below make up what is referred to as the Generally Accepted Accounting Principles (GAAP). They serve as the foundation of ethics and integrity in accounting.
The principle of integrity
Accountants should only record data that is 100% accurate and verifiable. There should be no conscious attempt to use data that is misleading or erroneous.
An accountant needs to also be straightforward and honest when providing professional services. Accountancy has a public interest responsibility, so integrity and frankness are a must.
The principle of objectivity
Certified public accountants must always remain impartial. They cannot show bias or be influenced by a particular party, as this could result in data being altered for a specific gain.
If you’re performing accountancy work for a client, they must not interfere with your judgement. Codes of ethics and your own professional judgement must be adhered to.
The principle of due care
This refers to the high level of professional care that accountants need to deliver. Sensitive data cannot be altered or manipulated in any way, and due care must be given to all data pieces.
Additionally, those in the accounting profession must also keep on top of any developments in legislation and practice, and update their conduct as necessary.
The principle of confidentiality
A lot of the time, accountants deal with confidential information. Restrictive measures must be put in place and supported to prevent sensitive financial information from being accessed.
Accountants are responsible for keeping data private – they should not give it out to third parties (unless given clear instructions to do so).
The principle of professional behaviour
Strict adherence to both ethical accounting and your company’s own code of ethics is required.
You need to act professionally at all times and ensure your complying with legal accounting practices. You should also strive to maintain strong business relationships and never discredit the accounting profession.
Other Key Principles
To further ensure professional conduct in the accounting profession, you should also adhere to the other key principles listed below. In doing so, your professional integrity will be maintained.
Other principles certified public accountants should follow include:
- The accrual principle is the act of recognising expenses as they’re incurred, rather than when you pay for them. Similarly, public accounting firms recognize income when it’s earned, not when it’s received.
- The sincerity principle refers to showing a true picture of a company’s current financial situation, rather than an altered one. This provides transparency and establishes trust with investors and shareholders.
- The principle of prudence is the act of never relying on speculation to predict future financial information. Public accounting firms need to always refer to reliable and verifiable data to improve integrity.
- The principle of materiality dictates that accountants must not withhold essential information when creating financial reports. Unless financial information is private, it should be shown in reports for review.
Final Thoughts
Both public and private companies need to conduct accountancy with integrity and follow set ethics. Failure to do so results in transparency, consistency, and client and investor relationship issues.
Accountants must remain objective, keep documents confidential, and conduct professional behaviour.
To maintain integrity in your financial statements, you should hire a professional accountant.
Sources:
https://www.netsuite.com/portal/resource/articles/accounting/integrity-in-accounting.shtml
https://www.indeed.com/career-advice/career-development/integrity-in-accounting
https://smallbusiness.chron.com/ethics-accounting-profession-3738.html
https://smallbusiness.chron.com/accounting-ethics-integrity-standards-24246.html
https://www.icaew.com/for-current-aca-students/applying-for-membership/code-of-ethics
https://www.investopedia.com/terms/g/gaap.asp
https://www.auditox-accountancy.uk/code-of-ethics-for-accountants/