Accounting ethics and professional responsibility

¶ … Accounting Code of Conduct. The writer explores the Code of Conduct and discusses its value and merit with regards to the accounting profession. There were three sources used to complete this paper.

At first glance the average laymen would be hard pressed to explain why accountants need a code of conduct in the profession. People are aware of the doctor and attorney professional vows or promises to follow certain ethical rules because of the severe damage they can do if they become unethical. Once one begins to explore the accounting profession, however, one will quickly discover that accountants have the ability to do great harm as well (Demski, 2000). Accountants have the financial survival, future, and life of their clients in their hands. If an accountant decides to become unethical he or she could easily destroy an individual, a family, a corporation or a government entity. Every year society hears about someone being financially destroyed because of the unethical dealings by their accountant. While the majority of accountants in the world are honest and fair and provide a valuable service the code of conduct is in place to provide a blueprint tangible standard of measurement to guide accountants in their practice.

For more than a century, the accounting profession in the United States has provided these valuable services to public and private organizations. The best CPAs ensure they are performing their responsibilities with technical competence and the highest ethical standards by adhering to a strict code of conduct Actually, there are several codes, each comprised of numerous technical and ethical guidelines (Badawi, 2002)."

The first measure of responsibility for an accountant, (CPA) is to be sure he or she is complying with the standards set out in the Generally Accepted Accounting Principles. This standard provides a foundation for practice across the board. In addition they are expected to conform with the Generally Accepted Auditing Standards which is set out to protect the client in the event of an audit (Badawi, 2002).

They are also expected to follow tax rules promulgated by private and government standard-setting and regulatory bodies, such as the Financial Accounting Standards Board (FASB), American Institute of Certified Public Accountants (AICPA), Securities and Exchange Commission (SEC) and Internal Revenue Service (IRS). And, they are counted on to conduct themselves according to the ethical rules prescribed in the bylaws or codes of any accounting groups they have joined (Badawi, 2002)."

While this may initially appear to narrowly define the profession and remove any freedom or creative aspect of it, it really only provides a professional guideline for setting up a professional practice.

HISTORY

The code of conduct was originally designed for the purpose of influencing the practice and judgment of professional accountants. The code has been amended and altered by various accounting organizations in the quest to better the ethical responsibility and to fit it to the tailored needs of that organization or outfit.

The most recent adaptation of the code was done in 1988. Prior to that adoption different organizations made up and followed their own set of rules. This created obviously issues when several organizations would handle one entity's accounting needs and the rules for that handling would fluctuate depending on the stage or step being performed (Badawi, 2002).

Historically however, there has been a set of rules in place for more than 100 years in America (Carey, 1965).

By 1909, the AAPA Constitution and Bylaws outlined five prohibited activities, describing the procedures for adjudicating complaints and imposing penalties. And in 1917, the American Institute of Accountants adopted its set of Rules of Professional Conduct, which numbered 13 by 1938 and 16 by 1948(Badawi, 2002). "

In 1962 the first actual Code of Professional Ethics was established and that standard was revised in 1987 and adopted in 1988(Badawi, 2002).

To assist accountants in following the code of conduct the body publishes periodic changes and amendments. It also publishes interpretations about certain rules.

WHEN AN ACCOUNTANT FAILS

The AICPA's Code of Professional Conduct is considered to be a binding agreement for every CPA in America.

As with other professions most accountants are ethical and honest in their dealings with their clients, however every so often a problem arises that must be disciplined. This can happen in a purposeful attempt to be deceitful, or it can happen by an error in judgment or an error in practice. Regardless of how or why it happened a review is called for and a sanction or discipline course of action is decided upon (Badawi, 2002).

Most of the violations that occur are ethical dilemmas that are relatively easy to solve but some of the problems become quite in depth and resolution is more difficult to reach.

A study of conduct violations in a ten-year period produced the following result.

The most violations -- 41 -- were in the area of technical standards (Rules 202-203)

37 related to a failure to cooperate with the investigation or comply with its requirements

28 were for "acts discreditable" (Rule 501)

21 were violations of "general standards" (Rule 201), and seven were for "independence" violations (Rule 101) (Badawi, 2002). "

Anothger study was conducted in 1995 that located 171 ethics cases across more than 30 states in America. They were then classified into the type of rule that they broke for the purpose of the study. The results were as follows:

Rule 202 -- Compliance with Standards (57 cases, 34%)

Rule 203 -- Accounting Principles (32 cases, 19%)

Rule 501 -- Acts Discreditable (24 cases, 14%)

Rule 201 B -- Due Professional Care (18 cases, 11%);

Rule 201 A -- Professional Competence (14 cases, 8%) (Badawi, 2002)."

Out of the above cases it was determined that 38 of them were crime based. They ranged from mail fraud violations to bank fraud violations. Theft, bribery, and concealed funds as well as laundering were also discovered during the study (Badawi, 2002).

According to experts charged with studying the code of professional conduct and the violations of the code, the most frequently seen code violations involve income tax issues such as filing false returns and filing to file returns at all. Next in line is misappropriation of funds, bribery, and securities transactions.

When an accountant is found to have violated the code of professional conduct he or she not only faces possible criminal fines and incarceration but he is also faced with the possibility of being fined by the AICPA. The organization holds its own trial using a trial board to determine guilt or innocence and intent. There are several actions that the board can take including: