Accounting Ethics
Professional standards and integrity
Ethics is the choice to do the right thing even when you could get away with the wrong thing. It's what separates a professional from a mere technician.
Why This Matters
You now understand:
But none of it matters without ethics. A person can know every accounting rule. They can implement perfect controls. And then they can choose to manipulate anyway.
Accounting ethics is what separates the profession from mere technical practice.
Why Ethics Matter in Accounting
1. Trust is Everything
Financial statements are only useful if users trust them.
One fraudulent financial statement destroys years of credibility.
2. Real Consequences
Unlike many professions, accounting fraud affects real people:
- Employees: Lose retirement savings and jobs
- Suppliers: Lose payments when company fails
- Investors: Lose savings when stock crashes
Accounting fraud isn't victimless.
3. Professional Responsibility
As an accountant, you're trusted to:
- ✓Tell the truth about financial position
- ✓Resist pressure to manipulate
- ✓Report problems, not hide them
- ✓Put users' interests ahead of your own
This is a privilege, not a right.
The AICPA Code of Professional Conduct
The American Institute of CPAs (AICPA) sets the standard for professional ethics. The Code has five pillars:
Integrity
Be honest and truthful, even when inconvenient.
Objectivity
Be unbiased, even when it costs you.
Professional Competence
Know your stuff, and know what you don't know.
Confidentiality
Protect client/employer secrets unless there's a legal obligation to disclose.
Professional Behavior
Act in a way that upholds the profession's reputation.
Common Ethical Dilemmas
Dilemma 1: Pressure to Manipulate Numbers
Dilemma 2: Conflict of Interest
Dilemma 3: Whistleblower Pressure
Professional Certifications
Focus: Comprehensive accounting, auditing, tax, and business law
Requirements:
- •Bachelor's degree + 30 hours accounting/auditing
- •Pass CPA exam (4 sections)
- •1-2 years public accounting experience
- •Pass ethics exam
- •Maintain continuing education
Focus: Internal auditing and fraud detection
Requirements:
- •Pass CIA exam (3 sections)
- •Internal auditing experience
- •Ethics requirement
Focus: Management accounting and strategic planning
Requirements:
- •Pass CMA exam (2 sections)
- •Accounting role experience
- •Ethics requirement
Real-World Case Studies: What Happens When Ethics Fail
Enron
Collapse of 2001
WorldCom
Collapse of 2002
Building a Professional Reputation
Reputation is earned through consistent ethical behavior:
Doing the Hard Right Thing
- •Reporting problems even when inconvenient
- •Refusing to manipulate numbers
- •Standing up for what's right
Being Competent
- •Knowing your material deeply
- •Staying current with standards
- •Admitting what you don't know
Being Reliable
- •Following through on commitments
- •Delivering quality work
- •Being consistent
Being Trustworthy
- •Keeping confidences
- •Not gossiping
- •Being honest even when it costs
Your reputation is your most valuable asset.
One fraud, one manipulation, one ethical breach can destroy it forever. And it's not coming back.
Key Takeaway
Accounting ethics is the professional foundation that makes financial statements trustworthy. Based on the AICPA Code of Professional Conduct (integrity, objectivity, competence, confidentiality, professional behavior), ethics require choosing to do the right thing even when it's inconvenient. Real cases like Enron and WorldCom show that fraud has real victims and real consequences. Professional certifications (CPA, CIA, CMA) require ethical standards. Building a professional reputation through ethical behavior is more valuable than any short-term gain from cutting corners.
Test Your Understanding
1. Which AICPA ethical principle is violated when an accountant has a personal interest in the audit outcome?
2. According to Sarbanes-Oxley, whistleblowers who report fraud are:
3. In the Enron case, the primary ethical failure was:
4. Which certification requires the most comprehensive accounting knowledge?
5. True or False: If you discover fraud but stay silent to protect your job, you've maintained professional ethics.