Ethics in Accounting: How to Handle Common Dilemmas

By Robert Half July 25, 2018 at 3:30pm

Numbers don’t lie. It’s a cliché you’ve likely heard before. It's also one 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 accounting ethics.

Unfortunately, there's no shortage of business headlines about companies manipulating data in unethical ways involving fraud, embezzlement or falsifying information.

But this blog post isn’t about monetary malfeasance and accounting’s bad apples. It’s about professionals who want to do the right thing as they handle a wide range of privileged and sensitive data in their daily tasks.

Here’s a quick guide to some of the most common dilemmas involving accounting ethics, along with steps to help you navigate them.

Accounting ethics involving conflicts of interest

Suppose you are providing services to both a vendor and a purchaser. Or maybe you are consulting a client looking to acquire another client. Or, perhaps, you are faced with two clients, both eager to take over the same company. When it comes to conflicts of interest, or even the appearance of one, you have 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.

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Predicaments with client confidentiality

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 quandary, your best bet would probably be to recuse yourself from involvement in the takeover.

Impacts of 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?

When confronted with such dilemmas, an accountant needs to have the wherewithal to make difficult yet principled decisions. If you find you’re struggling with ethics in accounting or if you question the ethical implications of something in your job, here are four steps you can take:

1. Identify potential legal issues

Explore whether the issue is regulated by law or policy. The source for information could be your employer, your professional association, a governmental regulatory body such as the U.S. Securities and Exchange Commission — or all of the above. The American Institute for Certified Public Accountants (AICPA) has a Code of Professional Conduct, and Financial Executives International has a Code of Ethics. Both are excellent resources if you’re uncertain about the ethics of a situation you’re confronting.

Also, the International Ethics Standards Board for Accountants has a rewritten global Code of Ethics expected to take effect by June 2019. It's described as easier to navigate, use and enforce as it underscores the importance of the fundamental principles of ethics for professional accountants.

2. Take an outsider’s view

Think about, as a student, what you learned about ethics in your accounting studies. Or consider how you would feel if you were an outsider who read about the issue online or heard about it from a friend or family member. Sometimes, separating the issue from your personal and professional feelings can help you see it in a different light.

3. Identify the parties affected​

Think about the people, companies or stakeholders who could be affected by the issue — or by your decision to take or not take action. Remember that the failure to do something, such as not reporting fraud, can have just as much of an effect as if you yourself were the perpetrator.

4. Get professional advice

If you need to report the unethical or illegal behavior of your accounting colleague or employer, seek legal counsel — either in-house or from an independent firm — or access your company’s whistleblowing resources.

While a person’s professional ethics are certainly important, organizations should also have their own code of ethics and make sure all employees are familiar with it. Not only are more organizations providing ethics training to their employees, but they're also collecting and reporting ethical information.

If your employer does not have a code of ethics and standards, you and your team should advocate for one. An effective protocol will not provide a solution for every scenario, but it will act as a guide for the decision-making process. When creating a code of ethics from scratch, include guidelines on acceptable behavior, examples of ethical dilemmas and solutions, implementation and cost details, and the consequences for misconduct.

It can be tempting to lie low and not make waves when confronted with ethical issues in accounting. However, you owe it to your career, your profession and to society to act on violations you may discover instead of being complicit in fraudulent activities.

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