Definition of Accounting Ethics
Accounting Ethics are basically the rules and laws which are to be followed while doing accounting. There are certain recommendations for the particular accounting methods used in any organization since each and every organization’s work is different and so their accounting also varies. The accountant should clearly understand the laws of the organization, the basic accounting rules, and norms, and also some very basic principle before doing any accounting for the organization.
Accounting Ethics is the basic requirement which is to be followed by the accountant while doing accounts of an entity. It is like guidelines that are to be followed and it has been set by the government authorized bodies. The accountant should follow the accounting ethics to take precaution from any misuse of the financial statements. The accounting ethics are mandatorily to be followed by each and every accountant and if they fail to follow then it may attract financial punishments.
History of Accounting Ethics
The history of accounting ethics began from the year 1494. The government used to form a body of persons to look after the same for the companies but it has became 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 are required to follow the norms and rules set by the government any new rule should be passed by the government officials to get enacted. In the United States of America, the accounting system has taken a reform by the year 1905. The government started taking accounting bodies seriously and formed the Association of Government accountants. These accountants were learned and have a hold on the subject then after that Institute of Internal Auditors were formed. The Institute of Internal Auditors was formed to check that the companies are maintaining proper books of accounts or not? The report was later published to the government. 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 steels and it’s by products. They manufacture steel and its byproducts and export it to other countries. The accountant of that company is required to maintain the stock checklist of the company and make some price arrangements accordingly. One of the accountants of the company leaked the news of the price fall of the stock by observing the demand and supply of the steel products in that year to a group of people they eventually bought a good number of Share in that company by forming a group and after an investigation that accountant was caught. This is absolutely against the Accounting as well as the professional ethics of the accountant which he is required to be followed.
In an organization, the reimbursement of all employees was done by an accountant. Now the accountant very cleverly does the settlement for only his favorite employee which is an act of biased accountant and the other employees’ settlement remains due for several times when the objection is being raised by the senior officer then the intention of that accountant was exposed and he was 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 on the basis of either 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 with accounting ethics.
Importance of Accounting Ethics
- The implication of accounting ethics is the key to manage the working of the organization.
- The accountants are advised to follow the accounting ethics to make their task riskless.
- Accounting ethics plays a vital role in settling an accurate and systematic accounting approach in the organization.
- The client’s confidentiality is well maintained in the case of the companies which are following accounting ethics.
- The accounting ethics are very common for the entire company and 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 and which is very helpful for anyone to continue with accounting in the organization.
- Accounting ethics helps to maintain integrity because while performing the task an elaborated method is given and the accountant is required to follow the same.
- 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 a person who holds professional experience and the expertise of the accountant should also be there to make things easy and available for them because they can easily understand the accounting ethics and can also implement the same in the most effective way.
Disadvantages of Accounting Ethics
- Accounting Ethics may be a little complicated for the accountant to first understand and then implement.
- Accounting Ethics can be sometimes very difficult to impose on an organization to follow.
- An organization will require some expertise knowledgeable person to make this accounting ethics work for the organization.
- The process of implementing accounting ethics can be cumbersome and time taking for some organized which are not organized in doing its accounting activity.
Accounting Ethics is very useful and the best way to process accounting in any organization. The accountant should get proper training and should get exposed to certain accounting techniques to easily understand and implement accounting. Accounting ethics should be very seriously followed and implemented by any organization to achieve its goals.
This is a guide to Accounting Ethics. Here we also discuss the definition and history of accounting ethics along with advantages and disadvantages. You may also have a look at the following articles to learn more –
- Income Tax Accounting
- Prudence Concept in Accounting
- Responsibility Accounting
- Relevance in Accounting