The Importance of Ethics in Accounting and Finance: A UK Perspective

Example of Business Accounting Ethics

There is a company, Y Ltd., That appoints some company as its auditor to audit the company’s financial records for the fiscal year 2018-19. When deciding the audit assignment fees, the company offered payments of $ 15,000 if the auditor gave a clean audit opinion about the company. Is it ethically right to accept this offer from the auditor?

• In the given above case, company Y Ltd. Offers a fee of $ 15,000 to the auditor hired by it if the auditor gives a clean audit report about the company’s business.
• These fees, which demand the fulfillment of specific criteria, are the contingent fee the customer offers to the audit guy. This situation is a win-win thing for both client and the accounting and finance professional, as the auditor will get more fees, and the company will get a clean chit from the auditor for its work.
• It is affecting the auditor’s independence with the extra fees, and the auditor will support the company in giving a clean audit report as required.
• However, say the accounting and finance professionals accept such contingent fees. In that case, it is a breach of accounting ethics because the firm entices the auditor to give a clean chit by providing the incentive. Hence the auditor should not go along with the terms and conditions of the client.

Advantages of Business Accounting Ethics

1. The governing bodies set the different rules and guidelines that govern the person’s activities associated with the accounting profession to prevent the misuse of the information at their disposal to the client by the accountant and finance professional, auditor, or any other accounting person.
2. If the person does not follow it, they will be liable for the punishment given by the governing bodies. It creates fear in the accounting and finance professional’s mind and leads to follow-up appropriately.
3. Businesses that pay due attention to accounting ethics always do better than others. It creates the right image in the mind of the consumers and the other parties and thereby helps better the business in the long run.
4. It creates a better Professional space as everyone has the proper mindset of maintaining high ethical standards. Also, respect is given to that accounting and finance professional who follows ethics accurately in the office.
5. There is decreased legal liability. It is so due to the fact that almost all the matters are taken care of well before time by the concerned persons so that they are held liable for any legal actions.

Disadvantages of Business Accounting Ethics

1. As the proper training should be provided to everyone associated with Accounting and finance to provide information on the different laws and guidelines for accounting and finance ethics, such training involves a considerable cost.
2. As the person must know every aspect, he has to follow and edit the information regularly for any changes, it requires lots of work and time.
3. When a person tries to follow Accounting and finance ethics, there is a high chance that they will not be able to attain support from the company’s management. Management will attempt to find and work with the person who obeys the rules and guidelines that benefit the company.

 

PURPOSE of Accounting And Finance

Accountants deal with the intimate business accounting details of individuals and organizations. Some can execute million-dollar transactions, and others assist with safeguarding the retirement funds of taxi drivers and social workers.

Ethical codes are the basic principles that Accounting And Finance professionals choose to adhere to enhance their careers, maintain public trust, and demonstrate honesty and good work. People who join organizations and attain the credentials to show themselves to the public as business accountants or Certified Internal Auditors (CIAs) strive to protect the profession’s reputation.

Sadly, not everyone who is employed in the accounting and finance field is trustworthy. Daily public and private trust violations occur, and resolving ethical issues does not always end well. The following are five areas that demand the attention of anyone thinking of working in accounting and finance.

Independence and Objectivity of accounting and finance professionals

Ethics and independence go hand in glove in the accounting and finance profession. A critical part of trust is making the right decisions and recommendations that profit the client. Conflicts of interest, for instance, demand exposure under independence guidelines. Benefiting from selling one financial good over another could result in a bias that skews financial guidance to a client.

To remain objective and impartial, it is also necessary to make sure that recommendations are not subject to outside influence. For example, an accountant’s professional judgment is compromised if they subordinate it to someone else’s.

The integrity of business and accounting professionals 

Demonstrating integrity is about being straightforward and honest in every business and professional relationship. Upholding integrity demands that accountants do not associate themselves with the information they suspect is materially false or misleading — or misleads by omission.

Confidentiality of accounting and finance professionals

Disclosure of financial information or showing the disposition of a potential acquisition by an accounting professional without real permission violates the trust that is the basis of a professional relationship — unless there is a legal or lawful reason to do so.

Professional Competence of accounting and finance professionals 

The field of accounting and finance is regularly shaken by various evolving factors, requiring that business accounting develop new skills, competencies, and expertise in professional roles. As technology, information security needs evolve, legislation, and best practices change, a professional accountant must remain current. To exercise sound judgment, a finance, and accounting guy must stay abreast of developments that might affect a decision’s outcome.

Practicing due care means valuing your skill level and not suggesting that you have expertise in a niche where you do not, in fact, have skills. Consulting with other people is a standard practice that builds a bond with a network of individuals and earns respect.

Similar guidelines also are for accounting and finance professionals who have risen to top roles and supervise teams. These accountants must ensure that the underlings receive proper training and instructions as they carry out their work.

Professional Behavior of accounting and finance professionals

Ethics require accounting and finance professionals to comply with the laws and rules that govern their jurisdictions and their bodies of work. Therefore, avoiding actions that could negatively affect the profession’s reputation is a reasonable thing that business partners and others should expect.

Dilemmas and Case Studies

Most of the instances that people encounter every day result in clear outcomes that anybody following these five guidelines would expect. However, ethical decision-making is only sometimes cut and dried.

• When a subpoena arrives requesting a client’s financial records, should one surrender them?
• The CEO tells the staff member to apply for a credit for an overpayment from an account to a disputed account. Should you let it?
• If a sale at year-end occurs, however, is not done before the cut-off date, should the revenue be noted down in the current or prior year? What if the goods were in movement? What if there was a verbal agreement but not a written contract?
• If your boss, another business accounting professional, instructs you to record the transaction in the preceding year, what should you do?

Plus, financial considerations, government backing, ongoing uncertainty, and other things surrounding the COVID-19 pandemic have compounded ethics problems and dilemmas faced by accountants and finance professionals. There can be more queries than answers in these situations. Nevertheless, codified ethical principles help guide such challenging decisions — as does ongoing professional development and economic research.

Other Important Rules of Finance and accounting professionals 

Some other rules outlined by professional accountancy bodies include the following:

• Contingent fees are never allowed – For example, audit fees that are based on a share of the net income figure or a percentage of a bank loan amount obtained. 
• Integrity and due care – Audit work has to be done well, diligently, and promptly.
• Professional competence – Auditors must be capable, which means they must have the necessary academic background and experience in the relevant industry.
• Duty to report a breach of laws – This rule is called the whistleblower rule. If an accounting and finance professional observes a fellow business accounting professional violating these rules, they are responsible for reporting it.
• Confidentiality – Auditors must not share any information regarding the client with outsiders.

Conclusion about Accounting And Finance Ethics

Accounting And Finance Ethics is one of the critical ideas according to which every person associated with Accounting And finance must follow certain rules and guidelines set by various governing bodies having the power to craft the same. These rules and laws prevent the misuse of the different powers given to various Business accounting professionals.

Also, in the areas where the proper Business Accounting and finance ethics are followed, there is decreased legal burden as almost all the things are taken care of well in time by the concerned persons, and it makes a better Professional Environment as all Business Accounting has the proper mindset of sustaining the high level of ethical standards.