Ethics in Accounting: Standards, Codes, and Professional Conduct

Introduction: Ethics and Corporate Accountability

Companies are influential bodies whose actions, for better or worse, make a major impression on individuals, entire communities, and society as a whole. Their influence is of such magnitude that many believe they should display greater accountability for their business policies and practices, for the betterment of both companies and society. The latest scandals in accounting and auditing, combined with mounting concern about corporate responsibility for social and environmental impact, have led to promising new research and deliberation regarding the manner in which companies can maintain increased legal, social, and ethical standards in the spheres of accounting and auditing.

Universal Values and Ethical Foundations

Ethical values provide the foundation on which every civilized society stands. Without that foundation, society falls apart. The objective of ethics in business is to persuade businessmen and women to follow a code of conduct that supports, if not motivates, public trust in their products and services. Whether an individual derives ethical values from religious belief, history and literature, or personal observation and experience, certain fundamental ethical principles exist to which everyone can agree.

James Brackner, a member of the IMA Committee on Ethics, wrote in the July edition of Management Accounting: "Universities are taking action with an enhanced emphasis on ethical training for purposes of decision making. For the most part, nevertheless, they overlook the purpose of educating values. For moral or ethical education to bear any significance, there must be consensus on the values believed to be appropriate." In Chapter 1 of Ethical Issues in the Practice of Accounting (1992), Michael Josephson defined the "Ten Universal Values": honesty, integrity, keeping promises, loyalty, fairness, caring, respect for others, responsible citizenship, pursuit of excellence, and accountability.

Professional Codes of Ethics in Accounting

In the accounting discipline, the AICPA maintains and enforces a code of professional conduct for public accountants. The Institute of Management Accountants (IMA) and the Institute of Internal Auditors (IIA) also maintain codes of ethics. Professional accounting organizations recognize the responsibility of the accounting profession to supply ethical standards to their members.

The AICPA's foremost rule of professional conduct declares: "In discharging their duties as professionals, members must exercise responsive professional and moral judgment in all their activities." A profession is built upon a widely acknowledged body of knowledge, accepted standards of achievement, and an enforceable code of ethics. A code of ethics is the most vital component in establishing a profession. The primary purpose of holding ethical guidelines is not to provide a solution to all profession-related difficulties, but to assist in the decision-making process for circumstances that involve ethical issues. Professionals will face new situations throughout their careers and will require ethical frameworks to address them effectively. Ethics codes are indispensable in providing such direction.

Research on models of ethical reasoning encompasses identifying ethical problems, rendering moral judgments, and building the motivation to act on those judgments. Such research finds that ethical problem identification is a function of the individual's ethical sensitivity and the moral intensity of the problem. Interactions grounded in stakeholder theory enhanced subjects' ability to identify ethical problems but did not alter their degree of moral reasoning.