What is the role of a Code of professional conduct and standards of ethical behavior for accountants and auditors?
Code of professional conduct Show
What is Accounting Ethics?Accounting ethics is an important topic because, as accountants, we are the key personnel who access the financial information of individuals and entities. Such power also involves the potential and possibilities for abuse of information or manipulation of numbers to enhance company perceptions or enforce earnings management. Ethics is also absolutely required in the course of an audit. Without meeting the requirements of auditing and accounting ethics, an audit must instantly be paused. Ethics and the Code of the ConductEthics and ethical behavior refer more to general principles such as honesty, integrity, and morals. The code of professional conduct, however, is a specific set of rules set by the governing bodies of certified public accountants. Although the rules set out by different bodies around the world are unique, some rules are universal. Let’s take a closer look at some of these important rules. Rules and GuidanceOne of the key rules set out by professional accounting bodies in North America is the idea of independence. This is the idea that, as an auditor, you must be totally objective and must be without ties to or relationships with the client since that could potentially impair your judgment and impair the overall course of the audit work. There are two forms of independence:
Independence in fact refers to any factual information such as whether you, as an auditor, own any shares or other investments in the client firm. These facts are usually easy to determine. Independence in appearance, however, is more subjective. Let’s say, for example, that as an auditor you were invited to a year-end party at the client firm. The party turns out to be extremely luxurious and you also receive a nice watch as a gift. In appearance, would the auditor, who was invited to the party and who also received a gift, be able to maintain independence in the audit? In order to solve a potential conflict of interest, a reasonable observer’s test is used – i.e., what would a reasonable observer say about the situation? Threats to IndependenceThere are always threats and situations that can reduce the level of independence. Let’s take a look at some of these threats:
Other Important RulesSome other rules outlined by professional accounting bodies include the following:
Related ResourcesThank you for reading CFI’s explanation of Accounting Ethics. To keep advancing your career, the additional resources below will be useful:
What is the importance of professional conduct and ethical standards?Professional ethics is important because it dictates to professionals a series of rules related to the way professional acts towards the people with whom he/she relates professionally. From a philosophical point of view, ethics has to do with morality and with the way people act in the sense of goodness or badness.
What is the importance of establishing the code of ethics for professional accountants?This Code provides a framework to assist a professional accountant to identify, evaluate and respond to threats to compliance with the fundamental principles.
What are fundamental principles of the Code of Ethics for Professional Accountants?The fundamental principles within the Code – integrity, objectivity, professional competence and due care, confidentiality and professional behavior – establish the standard of behavior expected of a professional accountant (PA) and it reflects the profession's recognition of its public interest responsibility.
What is the purpose of a code of ethics for a professional organization?The purpose of a code of ethics is to inform those acting on behalf of the organization how they should conduct themselves. A code of ethics reiterates the organization's values and morals so that employees and third parties understand the standards they are accountable to uphold.
|