Why Accountants Can Find Behaving Ethically Challenging Despite Have a Code of Ethics to Follow?
Essay Question:
Discuss why accountants can find behaving ethically challenging despite have a Code of Ethics to follow.
ID:10594014
Name: Yuan Li
Date: 15th August, 2018
Word count: 1416
1. Introduction
In modern society, ethics refers to the criteria for judging right and wrong by using logic and reason (McPhail & Walters, 2009). As a professional group, accounts are required to take responsibility for the interest of those it serves under their Code of Ethics. However, on occasion, accounts may find it is challenging for them to behave ethically, even if they have a Code of Ethics to follow. This essay will first provide explanation on Code of Ethics and then analyse why accountants can feel challenging to behave ethically while a Code of Ethics is provided.
2. Code of Ethics for Accountants
As a professional group, accountants bear the responsibility for a wide range of users of financial reports, including but not limited to firms, investors and regulators. Therefore, users may have conflicts of interest towards the financial information at times because they need the information for different purpose, such as making an investment and financing. So, it is important for accountants to realize the Code of Ethic in performance of their accounting activities in order to make the financial information clear, accurate and trustworthy (Stuart et al, 1999).
There is no universal-level Code of Ethics that accountants from all over the world have to follow, nevertheless, accountants are expected to follow their own national-level or community-level Code of Ethics. For example, a person who is a member of American Institute of Certified Public Accountants (AICPA) is required to behave ethically in accounting activities and follow AICPA Code of Professional Conduct (AICPA, 2014).
3. Ethical Challenges for Accountants
According to the Institute of Chartered Accountants of England and Wales (ICAEW), its code of ethics is based on five fundamental principles, which are, integrity, objectivity, professional competence and due care, confidentiality and professional behaviour (ICAEW, 2011). Accountants are taught about ethical standards and are obliged to act ethically when engaging in a profession. However, accountant may stop behaving ethically in some ethical dilemmas, in which accountants are faced with a decision that tests their code of ethics. Two Ethical Dilemmas will be explained with cases as below, furthermore, other ethical dilemmas will also be mentioned.
3.1 Ethical Dilemma One: Pressure from Management
The first kind of ethical dilemma mainly revolve around pressure of management. For example, WorldCom was fined $750 million and used to be the largest accounting fraud in the US. WorldCom extremely focused on the teamwork and there were regular teambuilding exercises. Hence the ethical dilemma incurred when the accountants need to retain a job as an employee while he or she also got huge pressure from management as the management hoped a healthy balance sheet, favourable profits and solid cash flow. As a result, the mid-level accountant in WorldCom had to manipulate financial information by altering the financial records of WorldCom as well as manoeuvre figures to paint a fake financial picture of the company. In that situation, the middle-level accountant failed to behave ethically (McPhail & Walters, 2009).
According to article 220.5 of ICAEW Code of Ethics, the pressure of management relates to a threat to an accountant’s objectivity and professional behaviour and the accountant is not supposed to accept the unethical engagement or resign (ICAEW, 2011). However, it is particularly challenging for an accountant as he or she needs to retain a job as an employee. Chances are that the accountant associated would breach the Code of Ethics for the job.
3.2 Ethical Dilemma Two: Conflicts of interests
The second kind of ethical dilemma could incur because of conflicts of interests. According to Black’s Law Dictionary (Garner, 2004), there are two definitions of conflict, first, conflict of interest can be a real or seeming incompatibility between a person’s own interests and the person’s public or fiduciary duties, for instance, an accountant of a company may take a window-dressing; second, conflict of interest can also be a real or seeming incompatibility between the interest of two of a professional’s clients, for example, there is a conflict of interest when an accountant is serving two clients which are both eager to reach an acquisition deal on the same targeted company.