Updated July 18, 2023
Definition of Accounting Ethics
Accounting Ethics are basically the rules and laws followed while doing accounting. There are certain recommendations for the particular accounting methods used in any organization since each organization’s work is different, so their accounting also varies. The accountant should clearly understand the laws of the organization, the basic accounting rules and norms, and some very basic principles before accounting for the organization.
Accounting Ethics is the basic requirement that is to be followed by the accountant while doing accounts of an entity. It is like guidelines by government-authorized bodies. The accountant should follow accounting ethics to take precautions against any misuse of the financial statements. Accounting ethics are mandatory for every accountant, and if they fail to follow them, they may attract financial punishments.
History of Accounting Ethics
The history of accounting ethics began in the year 1494. The government used to form a body of persons to look after the same for the companies, but it has become difficult for them to do so. Therefore some private organizations were qualified to perform the task for the companies but under the wings of the government. These private organizations must follow the norms and rules set by the government. Government officials should pass any new rule.
In the United States of America, the accounting system has been reformed by 1905. The government started taking accounting bodies seriously and formed the Association of Government Accountants. These accountants were learned and had a hold on the subject then after that Institute of Internal Auditors was formed. The Institute of Internal Auditors was formed to check whether the companies are maintaining proper books of accounts. The government later published the report. Therefore by these changes today, we are getting a proper system of accounting designed.
Examples of Accounting Ethics
The XYZ Company Limited is a renowned Steel company that manufactures steel and its by-products. They manufacture steel and its by-products and export it to other countries. The company’s accountant should maintain the stock checklist of the company and make some price arrangements accordingly. One of the company’s accountants leaked the news of the stock’s price fall by observing the demand and supply of steel products in that year to a group of people. They eventually bought a good number of Shares in that company by forming a group, and after an investigation, that accountant was caught. This is absolutely against accounting as well as the professional ethics of the accountant, which he should follow.
In an organization, the reimbursement of all employees is done by an accountant. Now the accountant cleverly does the settlement for only his favorite employee, an act of a biased accountant. The other employees’ settlement remains due several times when the senior officer objects, then the intention of that accountant is exposed, and he is penalized. Therefore this is also a classic example of accounting ethics and therefore if the accountant would have followed the accounting ethics of clearly the reimbursement dues of the employees based on either a first come, first serve basis or either by the period within which this should get resolved he would not have fallen under such bad circumstances.
Therefore it is an important requirement for any accountant to follow accounting ethics.
Importance of Accounting Ethics
- The implication of accounting ethics is the key to managing the working of the organization.
- Accountants receive advice to follow accounting ethics to minimize the risks associated with their tasks.
- Accounting ethics plays a vital role in settling an accurate and systematic accounting approach in the organization.
- Companies that follow accounting ethics ensure the well-maintenance of client confidentiality.
- Accounting ethics are very common for the entire company; therefore, it is very easy to maintain the same rules and regulations for each item treated for accounting.
Advantages of Accounting Ethics
- Accounting ethics makes a clear idea of the accounting norms, which is very helpful for anyone to continue accounting in the organization.
- Accounting ethics maintain the integrity by providing a detailed method for performing tasks, which accountants must follow.
- If, in any organization, the accounting ethics are sound and are in place, then the work becomes very easy because everything has got its own system.
- Accounting ethics plays an important role in managing the organization as per its moral and social backgrounds.
- Accounting is an art and should be done by someone with professional experience. The accountant’s expertise should also be there to make things easy and available because they can easily understand the accounting ethics and implement them most effectively.
Disadvantages of Accounting Ethics
- Accountants may find it challenging to understand and implement accounting ethics.
- Accounting Ethics can sometimes be very difficult to impose on an organization.
- An organization will require a knowledgeable person to make this accounting ethics work.
- Implementing accounting ethics can be cumbersome and time-consuming for some organizations that are not organized in doing their accounting activity.
Accounting Ethics is useful and the best way to process accounting in any organization. The accountant should get proper training and exposure to certain accounting techniques to understand and implement accounting easily. Any organization should seriously follow and implement accounting ethics to achieve its goals.
This is a guide to Accounting Ethics. Here we also discuss the definition and history of accounting ethics, its advantages, and disadvantages. You may also have a look at the following articles to learn more –