Ethical Values In Accounting

ETHICAL ISSUES IN ACCOUNTING: Professional practices – Role of Accountants and Auditors

IMPORTANCE OF ETHICAL VALUES • Ethical values provides the foundation for a civilized society. • For any firm to increase its wealth requires public’s trust that depends on ethical values. • Ethics is of utmost importance to accounting professionals and those who rely on their services. • Ethical codes calls to maintain a level of selfdiscipline that goes beyond the requirement of laws and regulations.

ACCOUNTING??? • “The process by which any business keeps track of its financial activities by recording its debits and credits and balance in its accounts.”

INSTITUTIONS LAYING THE ETHICAL CODES AICPA IMA IIA

OBJECTIVES OF ETHICAL AUDIT • To determine the long-term ownership value and to achieve distributive justice • To help in providing a critical assessment by systematically evaluating its business practices • To help in scrutinizing the basis and information on which the accounts are drawn • Helps business undergoing major alterations like restructuring • Helps in determining the type of training

CONT…… • To help in establishing code of conduct of business • To enhance, measure and promote the quality that increases the business performance • to help the stakeholders to evaluate the performance of the directors and vice versa.

STANDARDS OF ETHICAL CONDUCTS • Competence • Confidentiality • Integrity • Objectivity

TYPES AND ROLE OF ACCONTANTS  Accountants employed by an organization • management accountant • financial accountants  Accountants in professional practice • the auditor • Accountants in related services

REASONS FOR FRAUD IN ORGANISATION • • • • • • • • •

Unduly aggressive financial targets Domination by person or group without controls Major performance related compensation Pressure to reduce tax liabilities Aggressive accounting practices to keep stock prices high. Inadequate monitoring of significant controls Week corporate ethics Non financial personnel involved in accounting matters. High degree of innovation and progress such as in the technology industry

FRAUD IN FINANCIAL STATEMENT • • • • • • •

Fictitious revenues Fraudulent timing differences Concealed liabilities and expenses Improper or fraudulent disclosers or omissions Fraudulent asset valuations Bribery Inside trading

Burning examples: SATYAM COMPUTERS ENRON WorldCom

Conclusion “When accountants (including auditors) fail to provide investors with reliable information that is relevant to their capital allocation decisions, investors and all citizens with stakes in the success of the economic system suffer.”

Four enduring reasons for “ethics” 1. Accountancy is a profession, which lacks the history, tradition, and self-understanding of the traditional profession. 2. Accountants must state the truth in a way adequate to particular circumstances—they need an inner orientation to the truth. 3. Accountants must serve as ‘watchdogs’ and thus be especially able to resist greed and greediness. 4. Accountants (Auditors) are not paid by those whose interests they are supposed to represent, and regulation cannot solve this.