Assignment #8 - Accounting Ethics 1 Running Head Accounting...

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Unformatted text preview: Accounting Ethics 1 Running Head: Accounting Ethics Allen Brown Ethical and Legal Issues in Business BUS-340 Module Eight Exercise June 18th 2010 Accounting Ethics With the growth and development of personal computers, or PC’s, and software the fields of accounting and financial Accounting Ethics 2 reporting also grew. With such developments and vast expansion it would be very tempting and also very easy for accountants to cheat the system, the company, and their clients. “CPAs must comply with ethical standards regardless of the task they are performing. It is to the sincere advantage of the accounting profession if in all fields of activities it exercises care to maintain scrupulously all professional and ethical standards— competence, independence, integrity, and a professional attitude.” (Costello, p. 5) These standards are enforceable to an extent under state laws; the idea that CPA’s have such standards and responsibilities lends confidence to the public for the hire of their service. CPA’s must avoid conflicts of interest; they must also avoid the appearance of conflicts. SEC director of enforcement stated, “Forces of change such as escalating competition to obtain and hold on to auditing clients, and potential conflicts of interest as accountants offer a literal supermarket of nonaudit services, present new challenges to auditor independence.” (Costello, p. 7) The principles of professional conduct are meant as guides when offering trades services and when conducting any service for their clients. “The CPA's responsibility to the public is not only stated in their professional code, but is an inherent component of their existence and, most importantly, what differentiates public Accounting Ethics 3 accounting as a profession from merely a business or occupation.” (Costello, p. 9) Public interest has been described as the collective well-being of the community; this community includes the government, employers, investors, creditors, and general businesses. The CPA's must take it upon themselves to own the principle concern for the public interest. “The cornerstones of the guidance provided by these early bodies remain as today's foundation of ethical behavior: objectivity, integrity, trust, and, most importantly, independence. Independence is a condition of the mind; it is A professional CPA cannot also a condition of character. “subordinate his professional judgment to the views of his client and must not have any interest in the outcome. Additionally, he must be free of any bias. This principle is so important that the independence in question must not only be independence in fact but also in appearance.” (Costello, p. 15) Having unrelenting objectivity is necessary in the environments where clients have vested interest, specific opinion, and consistent analysis. A CPA must have the ability to maintain objectivity in the midst of any and all engagements to provide assurance for all clients. Today’s environment is over populated with issues that are complicated. Public interest wants appropriate Accounting Ethics 4 action; the UAA, or Uniform Accountancy Act, addresses many of the significant issues of today’s accounting world. The Uniform Accountancy Act (UAA) has been subtitled "Real World Regulation" to reflect that it very much takes into account not only what is occurring in today's environment but also puts forth a realistic set of responsibilities. The goals of the new Uniform Accountancy Act are to create an equal playing field in the delivery of services to the public, facilitate the mobility of the professional among states, respond to the marketplace, and, of course, protect the public The UAA also strives to create equality interest. among CPAs so that the public is no confused as to whether a CPA's conduct and practice all CPA's are under are regulatory authority. Therefore, that licensed and regulated, regardless of their field or place of employment, are equal before state boards of accountancy as long as they meet the basic criteria. (Costello, pp. 30,34) Ethics accounting corporations are a very important and have part a to great the foundation on can of all have profession in impact America. “Unethical activity devastating consequences--such as the junk bond debacle and the savings and loan catastrophes. Traditionally, the accountant has Accounting Ethics 5 been placed in the role of watchdog; however, in today's business environment a trusted accountant can provide more by guiding business to live up to its own ethical standards and leading the way to increased profits, cost savings, and new business.” (Costello, p. 21) public interest points for There are four main ethical and today; auditor independence, “John Carey, commissions, business structure, and ownership. long-time executive secretary of the AICPA and respected author, suggests independence has three meanings. of not being subordinate," and he wrote, "First, in the sense "it means Second, honesty, in the integrity, objectivity, responsibility. narrower sense in which it is used in connection with auditing and expression of opinions on financial statements, independence means avoidance of any relationship which would be likely, even subconsciously, to impair the CPAs objective as auditor. Third, it means avoidance of relationships which to a reasonable observer would suggest a conflict of interest." (Costello, p. 39) For accounting principles to be meaningful, the top auditors in the accounting world have to practice firm ethical principles. There is no coincidence that the large controlled frauds are always through the top firms; they want a clean audit opinion by a firm who is respectable, thus the top firms. There are three main reasons the top audit firms have been venerable to manipulation. “First, it only takes one bad audit partner to Accounting Ethics 6 create a disaster. In the S&L debacle, one office, Arthur Young and Company's Dallas office, produced clean opinions for many of the worst control frauds in Texas. Second, there is an "agency" problem. outweighs While any the gain audit the firm's firm interest make in its reputation overlooking might from securities fraud by its client, the same may not be true of individual audit partners. They are under enormous pressure from their firms to bring in clients. Firms want to see their top audit partners as heroes, not villains. Third, there is a variant of "Gresham's law" at work. Gresham's law deals with hyperinflation. It observes that "bad money drives good money out of circulation." Bad accounting can drive good accounting out of circulation.” (Black) In the world of accounting it is easy to be steered the wrong way, to go down the path of quick riches; fudge a number one way or another once, twice, three times, and you eventually lose count. measure The American dream is to be successful, many people by bank accounts, houses, and materialistic success possessions; for those people taking a bribe or changing a few numbers may be a little easier or perhaps justifiable. The need for ethics in accounting is huge, it goes for all businesses, but in accounting it is so easy to pull off and possibly get away with. For the major accounting firms to have ethical bases is not enough anymore; these firms are so venerable a system of Accounting Ethics 7 checks and balances such as our governments may be needed so that the accounting firms are accounted for. Accounting Ethics 8 Works Cited Black, W. (n.d.). Santa Clara University. Retrieved Junr 15, 2010, from Link Between Moral and Market Values: accountingethics.html Costello, D. A. (n.d.). ACCOUNTING, ETHICS AND THE PUBLIC INTEREST. Retrieved June 15, 2010, from Saxe Lectures in Accounting: lo_1999.htm ...
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