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The Importance of Ethics in Accounting:
5 Reasons to Keep in Mind
MARIA TANSKI-PHILLIPS | FEB 06, 2020
Even though you aren’t a professional accountant, you’re still responsible for keeping
your business’s books in order. And if you’re the one handling your small business
books, you need to follow ethics in accounting.
Read on to learn about the importance of ethics in accounting and consequences your
business may be subject to if you use unethical accounting practices.
Why is ethics important in
accounting? 5 Reasons
Accountants are expected to act ethically when they handle clients’ books. They
must:
•
Demonstrate integrity
•
Keep things confidential
•
Stay up-to-date with the latest accounting news
•
Act professionally
Ethics are important in many aspects of business, especially when it comes to your
company’s accounting books. Even though you might not be an accountant, you’re
expected to exhibit the same qualities as them when you handle your books.
Don’t believe that accounting ethics are important? Here are five reasons why you
should keep things legal and follow business ethics in accounting.
1. You’re dealing with sensitive
information
As a business owner, you deal with sensitive information on the daily. When it comes
to your business books, you need to handle your business bank account information,
transaction totals, and other financial data.
In addition to recording your business’s finances, you might also be responsible for
handling sensitive employee data (e.g., SSNs and bank information).
If you’re handling your business’s books and dealing with sensitive company or
employee information, keep that information confidential and secure.
To keep your accounting information secure, don’t email any sensitive data, make
sure your WiFi is secure, have firewalls and other security precautions in place, and
be aware of phishing scams. And, don’t go around sharing sensitive information.
Use your head when you deal with sensitive employee and business information.
Follow best practices to ensure you’re as ethical as possible when you’re managing
confidential accounting information.
2. Your mistakes are on you
Think about this: if you’re caught being unethical in accounting, who will be to
blame? That’s right … you.
When you make accounting mistakes or act unethically because you’re not competent
in accounting, it’s on you.
If you don’t keep up with accounting ethics and stay up-to-date with accounting rules,
you’re bound to make a blunder at some point or another.
Sure, everyone makes mistakes. However, it’s one thing to make an error
accidentally, and another to get lazy and fail to keep up with accounting regulations
and standards.
To avoid consequences down the road, keep up with the latest accounting news, use
your best judgment, and don’t overestimate your skills.
If you find yourself making mistakes time and time again and brushing off accounting
ethics, it may be time to seek help from a professional (e.g., accountant).
3. You’re seen as a professional
Although you’re not an accountant, you’re still seen as a professional and expected to
act like one when you’re running a business and handling your books.
Part of being ethical in accounting is following certain accounting rules and laws, such
as the GAAP (generally accepted accounting principles) set by the Financial
Accounting Standards Board. However, keep in mind that not all businesses are legally
required to follow GAAP.
So if you want to be seen as a professional, you have to be professional. Follow
accounting regulations to avoid any penalties or negative outcomes just like any other
accounting professional would.
If you have questions or aren’t sure about how to record a transaction in your books,
don’t be afraid to consult someone to ensure you’re complying with accounting rules.
4. You’re at less risk for legal trouble
When you’re not compliant with accounting rules, you’re bound to get into some legal
trouble. It may start off with a few unethical accounting practices here or there, but
it can ripple into major problems.
If you don’t follow accounting ethics, you’re asking yourself for trouble. To avoid any
legal problems in the future, familiarize yourself with ethics and accounting. And,
understand what kind of unethical accounting practices put your small business at
risk.
5. Your business is counting on you
As you can tell by now, there are numerous reasons why ethics are essential in
accounting. However, the most important reason of all is this: your business is
counting on you to be ethical.
Just like how your customers and employees expect you to be ethical in your day-today business operations, your business depends on it, too.
If you adopt unethical accounting practices, it will likely come back to bite you later.
Not to mention, if you get too comfortable following unethical accounting practices,
your business could suffer the consequences (discussed next).
Consequences of poor ethics in
accounting
Some unethical accounting practices might seem like a good idea, but sooner or later
your business will suffer from the negative consequences.
If you act unethically or don’t practice good accounting ethics, your business could:
•
Lose customers
•
Have trouble retaining employees
•
Struggle to stay afloat
•
Lose other business relationships (e.g., investors)
•
Have serious legal repercussions
In addition to the above consequences, investors, customers, and employees might
lose faith in your business and brand if you’re unethical in accounting. Plus, being
unethical in accounting could spell doom for your startup and cause you to close up
shop for good.
The moral of the story is this: regardless of whether you’re an accounting professional
(aka CPA) or a bookkeeper for your own business, you need to follow ethics in
accounting.
Introduction to Business Ethics
Ethics
• The principles of right and wrong
that guide an individual in making
decisions
Business Ethics
• The use of personal ethics in
making business decisions
1
Professional
Business
Ethics
Introduction to Business Ethics
Three-step checklist
• Is the action illegal?
• Does the action violate company
or professional standards?
• Who is affected, and how, by the
action?
1
Professional
Business
Ethics
Introduction to Business Ethics
Is the action illegal?
• Obeying the law is in your best
interest and the best interest of
your business.
1
Professional
Business
Ethics
Introduction to Business Ethics
Does the action violate company
or professional standards?
• Public laws often set only minimum
standards of behavior.
• Many businesses and professions set
even higher standards.
• An action may be legal, yet violate
standards of the business or profession.
• Violating these standards may affect job
security and professional certification.
1
Professional
Business
Ethics
Introduction to Business Ethics
Who is affected by the action
and how are they affected?
• Those affected (stakeholders) can
include
• employees
• business owners
• customers
• the local community
• society
1
Professional
Business
Ethics
Introduction to Business Ethics
Who is affected by the action
and how are they affected?
• Determining how the action
affects individuals and groups will
help you decide if an action is
ethical.
1
Professional
Business
Ethics
Business Ethics Examples
Professional
Business
Ethics
Technology Temptations
Background: Situation 1
• Jack Azerrad collects overdue accounts
for a large credit card company.
• He has access to records of all
transactions for any customer.
• Jack sometimes looks up the records of
famous people.
• He sometimes tells his friends about the
buying habits of entertainers and
politicians.
5
Professional
Business
Ethics
Technology Temptations
Is the action illegal?
• No.
5
Professional
Business
Ethics
Technology Temptations
Does the action violate company
or professional standards?
• Yes. Most credit card companies
have company standards related
to information about customers.
Accessing information for fun is
probably a violation of company
policy.
5
Professional
Business
Ethics
Technology Temptations
Who is affected by the action
and how are they affected?
Customers
Negative
• Unable to protect information about their
financial transactions.
5
Professional
Business
Ethics
Technology Temptations
Who is affected by the action
and how are they affected?
Jack Azerrad
Negative
• Could be fired for
violating company
standards.
Positive
• Enjoys popularity
with friends.
5
Professional
Business
Ethics
Technology Temptations
Who is affected by the action
and how are they affected?
Credit card company
Negative
• Could be sued if customer discovers the
privacy invasion.
5
Professional
Business
Ethics
Who Owns My Time?
Background: Situation 1
•
6
Professional
Gabriel Peña is a receptionist for Traylor Business
Ethics
Technologies.
• After the company installed voice mail,
Gabriel’s workload got lighter, so his
supervisor assigned additional
responsibilities.
• Even with additional assignments, Gabriel
is not always busy. To fill the time, Gabriel
plays computer games.
Who Owns My Time?
Is the action illegal?
• No. The receptionist has no legal
obligation to perform tasks not
specifically assigned.
6
Professional
Business
Ethics
Who Owns My Time?
Does the action violate company
or professional standards?
• No. Unless the company has a
policy that prohibits employees
from using idle time for personal
activities, no company standard
had been violated.
6
Professional
Business
Ethics
Who Owns My Time?
6
Who is affected by the action
and how are they affected?
Gabriel Peña
Negative
• Failure to spend time
improving skills may
lead to termination.
• May be resented by
other employees.
Positive
• Enjoys
recreation.
Professional
Business
Ethics
Who Owns My Time?
Who is affected by the action
and how are they affected?
Other employees
Negative
• May resent Gabriel Peña’s light
workload.
6
Professional
Business
Ethics
Who Owns My Time?
Who is affected by the action
and how are they affected?
Traylor Technologies
Negative
• Fails to fully utilize employee.
• Customers and vendors who observe
receptionist might question the quality of
company’s management.
6
Professional
Business
Ethics
Who Owns My Time?
Background: Situation 2
• At the Backyard Gourmet, most
employees work less than 40 hours per
week.
• Only employees who work a minimum
of 40 hours per week are eligible for
health insurance.
6
Professional
Business
Ethics
Who Owns My Time?
6
Is the action illegal?
Professional
• No. Laws generally do not require Business
Ethics
businesses to provide employees
with a minimum number of hours or
health care benefits.
Who Owns My Time?
Does the action violate company
or professional standards?
• No. Company and professional
standards do not apply.
6
Professional
Business
Ethics
Who Owns My Time?
Who is affected by the action
and how are they affected?
Customers
Positive
• Reduced benefit costs may reduce the
cost of merchandise.
6
Professional
Business
Ethics
Who Owns My Time?
Who is affected by the action
and how are they affected?
Part-time employees
6
Professional
Business
Ethics
Negative
Positive
• Part-time
• Reducing total employee
employees
expenses provides more
must buy their
employment
own health
opportunities for typical
insurance
part-time employees
policy.
such as students.
Who Owns My Time?
Who is affected by the action
and how are they affected?
Full-time employees
Positive
• Benefits may be better than would be
available if all employees were insured.
• Company can spend its benefit dollars
to buy better coverage for fewer
employees.
6
Professional
Business
Ethics
Who Owns My Time?
6
Who is affected by the action
and how are they affected?
Backyard Gourmet
Negative
• Employee morale and
commitment to the firm
may be low, resulting in
poor production.
• Employee turnover may
be high, resulting in
higher training costs.
Professional
Business
Ethics
Positive
• Reduces total
employee
expenses.
Who Owns My Time?
Who is affected by the action
and how are they affected?
Local community
Positive
• Provides a good source of employment
for traditional part-time employees.
6
Professional
Business
Ethics
Is This Really a Business Expense?
Background: Situation 1
• Cameron Duermit owns a computer
consulting business.
• Mr. Duermit often makes personal longdistance phone calls from his office. He
charges these calls to the business
account.
7
Professional
Business
Ethics
Is This Really a Business Expense?
Is the action illegal?
•
7
Professional
Yes. The government allows expenses to Business
Ethics
include only those items necessary to
conduct business. Unless Mr. Duermit
could prove a business purpose for the
phone calls, reporting the cost of the
personal calls on the tax return would be
illegal.
Is This Really a Business Expense?
Does the action violate company
or professional standards?
• Because the action is illegal, no
evaluation of this question is
necessary.
7
Professional
Business
Ethics
Is This Really a Business Expense?
Background: Situation 2
• Mr. Duermit hired his teenage son to
work after school as an office assistant.
Tyler comes in to the office every
afternoon and earns $6.00 per hour.
During this time he does homework and
telephones friends.
• Mr. Duermit knows the business does
not really need an assistant, but this is
a good way for Tyler to earn spending
money.
7
Professional
Business
Ethics
Is This Really a Business Expense?
Is the action illegal?
•
7
Professional
Yes. The government allows expenses to Business
Ethics
include only those items necessary to
conduct business. Unless Mr. Duermit
could prove a business purpose for hiring
Tyler, reporting the cost of paying Tyler on
the tax return would be illegal.
Is This Really a Business Expense?
Does the action violate company
or professional standards?
• Because the action is illegal, no
evaluation of this question is
necessary.
7
Professional
Business
Ethics
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