International Journal of Ethics & Society (IJES) Journal homepage: www.ijethics.com Vol. 1, No. 2 (2019) (Review Article) Accounting Ethics Sahar Sepasi Dept. of Accounting, Faculty of Management & Economics, Tarbiat Modares University, Tehran, Iran Abstract Background: Accounting information has many users, which comprise business holders, managers, inves- tors, creditors and the government for tax and regulatory resolves. A businessman use financial statements to define particular information that will guide him in making vital business decisions. Accounting impacts a wide range of parties in society. From this point of view, accounting’s codes of ethics are important. Conclusion: Ethical codes are the essential principles that accounting professionals choose to abide by to enhance their profession, preserve public trust, and reveal honesty and fairness. Proper ethics and ethical behavior are tremendously important in accounting for a variety of motives. In the same way it is important that the industry itself does not become pilloried as an unethical one, something that could potentially de- struction business for all accounting firms. Ethics and integrity are valued features in an accountant. They must know right from wrong and always parade integrity in his or her accounting and bookkeeping deeds. Keywords: Ethics, Accounting, Ethical cods Downloaded from ijethics.com at 2:13 +0330 on Saturday October 2nd 2021 Introduction What is Accounting Ethics? is the study of moral values and judgments as Accounting ethics is among important topic be- they apply to accountancy: an example of profes- cause accountants are the key personnel who can sional ethics. Accounting introduced by Luca reach the information of three Financial State- Pacioli, and later developed different groups, pro- ments (the income statement, the balance sheet, fessional organizations, and independent associa- and the statement of cash flows). These three tions (1). Ethics is taught in accounting courses at statements are linked to each other. Accounting higher education institutions as well as by com- ethics is primarily a field of applied ethics and is panies training accountants and auditors. The part of business ethics and human ethics, which nature of the duty carried out by accountants and Corresponding Author: Email: [email protected] Received: 10 Oct 2018, Accepted: 7 Jan 2019 1 Available at: www.ijethics.com Sepasi S. International Journal of Ethics & Society (IJES), (2019) Vol. 1, No. 2 auditors requires a high level of ethics. Share- petence and technical standards"; "responsibilities holders, investors, and other users of the finan- to clients"; "responsibilities to colleagues"; as well cial statements rely heavily on the annual finan- as "other responsibilities and practices". Each of cial statements of a company to use this infor- these divisions gave guidelines on how a Certified mation to make an informed decision. They rely Public Accountant (CPA) should react as a pro- on the opinion of the accountants who prepared fessional. Failure to fulfill with the guidelines the statements, as well as the auditors that vali- could have caused an accountant to be pent from date it, to present a true and fair view of the practicing. When developing the ethical princi- company (2). Having knowledge of ethics can ples, the AICPA also considered how the profes- help accountants and auditors to prevail; ethical sion would be viewed by those outside of the ac- dilemmas, allowing for the right choice that will counting industry (4). benefit the public who focus on the account- ant/auditor's reporting. Accounting Scandals Accounting ethics has been considered tough to History resistor as accountants and auditors must consid- Luca Pacioli, the "Father of Accounting", has er the interest of the public (which relies on the written on in his first book Summa de arithmetica, information gathered in audits) while ensuring geometria, proportioni, et proportionalita, published in that they endured active by the syndicate they are 1494 about accounting ethics. Ethical codes and auditing. They requisite contemplate how to best standards from since have been developed smear accounting standards even when faced through different groups, professional and inde- with issues that could cause a company to face a pendent organizations. These various groups had significant loss or even be discontinued (5). Due lead accountants to follow several rules and to several accounting scandals within the profes- codes of ethics to perform their duties in a pro- sion, critics of accountants have stated that when fessional way and in a professional work envi- asked by a client "what does two plus two equal?" ronment (3). Accountants must follow these rules the accountant possible to respond "what you named the code of ethics set out by the profes- alike it to be?" This thought course along with sional. other criticisms of the profession's issues with In United States, in 1887, the American Associa- conflict of interest, have led to various increased tion of Public Accountants (AAPA) was created; standards of competence while stressing ethics in it was the first step in developing professionalism the work situation. Downloaded from ijethics.com at 2:13 +0330 on Saturday October 2nd 2021 in the United States accounting. By 1905, the The role of accountants is grave to society. Ac- AAPA's first ethical codes were derived to edu- countants serve as financial reporters and media- cate its members. During its twentieth bicenten- tors in the capital markets and owe their primary nial assembly in October 1907, ethics was a major compulsion to the public interest. The infor- topic of the conference among its members. As a mation they provide is crucial in assisting manag- result, a list of professional ethics was used into ers, investors and others in making critical eco- the organization's bylaws. However, because nomic decisions. Therefore, ethical indecorums membership to the organization was voluntary, by accountants can be detrimental to society, re- the association could not put a must on individu- sulting in distrust by the public and disruption of als to conform to the suggested behaviors. The efficient capital market operations. AAPA was retitled several times throughout its From the 1980s to the existing there have been history, before becoming the American Institute numerous accounting scandals that were widely of Certified Public Accountants (AICPA) as it's reported on by the media and resulted in fraud named today. They extended five divisions of charges, bankruptcy protection requests, and the ethical principles that its members should follow: closure of companies and accounting firms. The "independence, integrity, and objectivity"; "com- disgraces were the result of creative accounting, 2 Available at: www.ijethics.com Sepasi S. International Journal of Ethics & Society (IJES), (2019) Vol. 1, No. 2 misleading financial analysis, as well as corrup- Ethics and the Code of the Conduct tion. Numerous companies had matters with dis- Ethics and ethical behavior advert more to gen- honest accounting practices, including Nugan eral principles such as honesty, integrity, and Hand Bank, Phar-Mor, WorldCom, and AIG. morals. However, the code of professional con- One of the most widely reported violation of ac- duct, is a specific set of rules set by the governing counting ethics involved Enron, a multinational bodies. Although the rules set out by diverse company, which for several years had not shown bodies around the world are each unique, some a true or fair view of their financial statements. rules are universal (8). One of the key rules set Their auditor Arthur Andersen, an accounting out by professional accounting bodies is the in- firm considered one of the "Big Five", signed off dependence. This is auditors must be totally ob- on the rationality of the accounts despite the in- jective and must be without concerns to or rela- accuracies in the financial statements. When the tionships with the client since that could poten- unprincipled activities were described, not only tially impair their judgment and impair the overall did Enron disband but Arthur Andersen also course of the audit work. went out of business. Enron's shareholders lost There are two forms of independence: $25 billion as a result of the company's bankrupt- Independence in fact recourses to any factual in- cy (6). Although only a fraction of Arthur Ander- formation such as whether auditors own any son's employees were involved with the scandal, shares or other investments in the client firm, the closure of the firm resulted in the loss of which is usually easy to determine. 85,000 jobs. Independence in attendance is more subjective. Following these scandals a rule named Sarbanes– In order to solve a potential conflict of interest, a Oxley act was set. Sarbanes–Oxley was named reasonable observer’s test is used – i.e., what after U.S. Senator Paul Sarbanes and U.S. Repre- would a reasonable observer say about the situa- sentative Michael G. Oxley. As a result of this tion that the auditors may have benefit form rela- act, top management must by discrete affirm the tion with client (9). accuracy of financial information. Additionally, Some other rules themed by professional ac- penalties for fraudulent financial acts are much counting bodies include the following: harsher (7). In addition, this act has increased the Contingent fees are not allowed: e.g., audit omission role of boards of directors and the in- fees that are based on a percentage of the net dependence of the outside auditors that review income figure or a percentage of a bank loan the validity of financial statements. received Downloaded from ijethics.com at 2:13 +0330 on Saturday October 2nd 2021 This act, which contains eleven parts, was depict Integrity and due care: work must be done as a reaction to a number of major corporate and thoroughly, diligently, and in a timely manner. accounting scandals, including Enron, Tyco In- Professional competence: must be compe- ternational, Adelphia, Peregrine Systems, and tent, which means he/she must have both WorldCom.