Stime defines accounting as the process of providing financial information for making informed decisions relating to the future of a business. Accounting is necessary to any economic entity whether a business or an individual (Stime, 2009). In today’s corporate world where fraud and corruption seem to be rampant, it is important for the accountants to observe basic ethical standards. Accounting like other fields has been experiencing increasing cases of different types of frauds especially by the major corporations. This has led to the generation of many legal and ethical issues in the field. The fraud is increasingly becoming egregious with the increase in complexity of business transactions and financial reporting. Various governments and organizations have therefore set and are enforcing accounting standards, principles, laws, and ethics to guide accounting and financial reporting in public and private traded companies .
Various bodies have been set up at various levels to formulate and enforce auditing, attestation, quality control, and ethics. Various organizations and governments have also set out disciplinary sanctions to be imposed on accounting practitioners who violate the set out rules, security laws and professional auditing standards. The primary ethical principles that apply to accountants are integrity, objectivity, independence, and competence. Integrity requires an accountant to be honest and forthright in dealing and communicating with others. Objectivity requires the accountants to practice impartiality and freedom from the conflict of interest. On the other hand, the ethical obligation requires the accountants to be independent of the organizations which they are serving. Stime noted the tendency by the senior managements to influence the work of their accountants as an attempt to make the company seem more financially sound than it actually is. He therefore warned that the accountants should not give in to such kind of pressure to manipulate financial data (Stime, 2009).
Importance of accounting ethics to the society
Stime noted that the accountant’s duty is fundamental to the ability of the managers to make intelligent and informed decisions which will affect the society as a whole (Stime, 2009). It therefore follows that any misleading or incorrect information from the accountants about the financial health of the company will make the whole society to suffer from poor decisions of the managers. The accounting ethics also guides the financial reporting system which is the primary means by which an organization communicates its financial reports. The ethics guide the manner in which the organization can communicate its activities and transactions to the outsiders. The system includes communicating financial information through various forms such as prospectus, forecasts, annual reports and other financial releases. Observing ethics in this line enables an organization to increase the trust of its investors, lenders and other relevant bodies (Stime, 2009).
Basic accounting principles and laws
According to Anola Love, there are four basic accounting principles which form the basis of the legal issues of accounting. These include the historical cost, the recognition principle, the matching principle, and the full disclosure principle. The historical cost requires companies to prepare their reports based on acquisition costs rather than the fair market value from most assets and liabilities. The revenue recognition principle requires recording of revenue when it is realized and earned and not when cash is received. The matching principle states that the organization’s expenses have to match with its revenues. The Full Disclosure principle compels the organization to disclose any financial information that is necessary to the process of decision making. This disclosed information must also be sufficient to allow one to make judgments concerning the costs of products and services offered by the organization. All these laws place an obligation upon the organizations’ auditors.
Business accounting and technology issues
Today’s accounting professionals use technological knowledge to perform even the basic everyday’s task. Noting the changes in the trend of the use of technology in accounting, various organizations have formulated rules and regulation guiding the way the accountants can collect and analyze the organizational financial data. There are also regulations on how this data is handled. The major concern of the organization here is to prevent any scrupulous dealers from getting access of their financial data through the internet.
Organizations have also set out standards on the level of IT qualifications required of there accountants. The accountants must be able to create data bases to collect and analyze meaningful data. They should be able to interpret financial data and statements using business intelligence tools, enterprise resource planning application and data integration technologies. With such qualifications, the accountants can help their organizations to minimize legal risks by ensuring proper management of the organization’s accounting information. The organizational IT accounting professionals and those from a consulting firm outside the company must therefore seek to comply with both the internal and external set standards and rules. The audit firms have also begun to explore ways of monitoring their clients’ IT risk assessment procedures. Most of the audit firms assess the information systems audit work that is done by the clients’ internal IT audit staff.
In conclusion, because of the higher expectation of the society on the accountants, they require professional values and ethics that allow them to operate successfully and with integrity. With so many people both externally and internally relying on financial statements for decision making, accountants must seek to conduct themselves in line with the set ethical standards. Practitioners of accounting have a duty to the public, their own profession, and the organization they serve. Accounting is thus an integral part of human society in which rules, principles and ethics must be observed.