Numbers don’t lie. It’s a cliché you’ve likely heard before. It's also one that you may know to be untrue. Numbers — or rather, financial data — are only as truthful and clear as finance professionals interpret and report them to be. Such is the conundrum of ethics in accounting.
Unfortunately, there's been no shortage of business headlines in recent years about companies manipulating data in unethical ways. Fraud, embezzlement, falsifying information. There’s been a fair share of monetary malfeasance going on.
But this blog post isn’t about accounting’s bad apples. It’s about professionals who want to do the right thing when confronted with ethical dilemmas.
Except, what is the right thing?
When it comes to ethics in accounting, answering that question can be tough, as there are no definitive solutions. Nonetheless, here’s a quick guide — think of it as an ethical GPS — to help you navigate three of the most common dilemmas.
1. Conflicts of interest
Suppose you are providing services to both a vendor and a purchaser. Or maybe you are consulting a client that is looking to acquire another client. Or, perhaps, you are faced with two clients that are both eager to take over the same company. When it comes to conflicts of interest, or even the appearance of one, you’ve got to ensure they will not adversely or inappropriately sway your business judgments. To navigate such situations, you might create distinct accounting teams for different clients and notify all parties of the nature of the conflict.
Read more on this subject: Ethical Issues in Accounting: 4 Pieces of Advice.
Full disclosure might seem like a noble effort, but by offering it, you may run the risk of breaching client confidentiality, e.g., telling Client A that Client B is looking to take over Client A. Should you find yourself in such a thorny predicament, your best bet would probably be to recuse yourself from involvement in the takeover.
3. Financial reporting
This is perhaps the most common area in which ethics in accounting come into play. A common question you may ask yourself is: “Where do I report this expense?” How you record information can reverberate throughout your firm and beyond. It can mean the difference between one department showing a profit, another showing a loss. It can even impact stock prices. Sure, legal statutes are a good guide, but many laws have loopholes. Is it ethical to take advantage of them, say, by moving around numbers to meet certain revenue criteria? After all, you wouldn’t be breaking any rules — but what about the spirit of the rules?
In the end, only you can figure out the best road to take, but to help steer you, consider consulting the ethical codes developed by professional organizations. You don’t have to be a member to benefit from the advice. Check out these terrific resources:
- American Institute of CPAs Code of Professional Conduct
- International Ethics Standards Board of Accountants Code of Ethics for Professional Accountants
- Association for Chartered Certified Accountants Code of Ethics and Conduct
- Chartered Institute of Management Accountants Code of Ethics
Finally, perhaps the main point is that when dealing with ethics in accounting, you’ll never get at the answers unless you raise the questions. When ethical lapses occur, it’s often because employees fail to see ethical dilemmas in the first place. And then the lapses can snowball.
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