ACC 2214- ACCOUNTING ETHICS

ACCOUNTING ETHICS AND IT’S RELEVANCE

1.0 Accounting Ethics

Weihrich and Koontz (1993) look at accounting ethics as “pertains to the code of conduct that
guides the professional in accounting profession”. The issue of maintaining true and fair
financial statements must be understood as a key part of financial reporting. Maintaining true
and fair view status is actually seen as relating to being ethically sound. In as much as possible,
there is need to put in place ethical sign post in financial statement or even financial reporting
that would enhances public assurance and confidence.
For shareholders to entrust their funds to an organization and even trust the management of such
organizations, they must have a great deal of confidence in the company’s financial reporting.
Such financial reporting should be provided to reflect professional competence and sound ethical
compliance. Those behind the reports should be ethically responsible in the first place. Only
those who are ethically responsible professionals can be ethically sensitive.
The observance of sound ethical principles and codes will inspire, promote and ensure public
and investor confidence in entities. Without a sound code of ethics and adherence to those ethics,
investors may not be sure of safety of their investments. This may lead to corporate collapse if
the trend is not checked at the right time.

2.0 Aims and Objectives of Accounting Ethics

Aims of Accounting Ethics
The primary aim of accounting ethics is to develop knowledge and understanding of the general
accounting ethical framework within which an accountant operates, the awareness of and ability
to recognize and understand common ethical issues and ethical dilemmas in public and non-
public services rendered by the accountants.
The specific aims of accounting ethics is to help establish the ability of students to apply
knowledge gained in accounting ethics in its totality in practice as auditors or industrial
accountants to highly slippery, unethically challenging and tempting situations likely to be
encountered either in public practice or private industry and commerce.
Objectives of Accounting Ethics
The objectives of accounting ethics include;
1. To gain knowledge and understanding of accounting code, definition and scope of
accounting ethics.
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2. To become familiar with the fundamental principles, nature, purpose and concepts of
accounting ethics.
3. To understand the risks, method, techniques and processes of identifying potential ethical
dilemmas.
4. To understand the regulatory and ethical considerations governing professional public
practice and non-public practice.
5. Ability to demonstrate an understanding of the key issues involved in accounting ethics.
6. To be able to identify, analyze and deal with potential areas of conflicts of interests, threats
and safeguards and ethical dilemmas and developing appropriate strategy for resolving
them.
7. To be able to identify and evaluate ethical problems and risks and how to overcome them
and select and justify suitable course(s) of action.
8. To gain knowledge and understanding of the accountancy code of conduct.

3.0 Dimensions of Accounting Ethics.

Specifically, accounting ethics has to do with ethical issues that are involved in the following:
1. Creative accounting, earnings management, misleading financial analysis.
2. Executive compensation and excessive payments to corporate Chief Executive Officers
(CEOs).
3. Bribery, kickbacks, facilitation of payments.

4.0 Development of Accounting Ethics.

There is no doubt that careless work and lack of integrity on the part of an accountants and
auditors may lead to the public to have negative view towards the entire accountancy profession.
In the recent time, they may have been different arguments among scholars on the need to
include ethics course in accounting curriculum of schools. Such inclusion of accounting ethics
course, they claim may definitely lead to development of accounting ethics. It will promote
awareness and bring about resolution in ethical adherence to sound accounting practices.
On a sad note too, there are some persons who still believe that integrating ethical courses within
the curriculum in the process of acquisition of knowledge and skills will make no difference. It
may even lead to overloading the students. Those opposed to adding required ethics course in
accounting program have stated further that there is no proof that such a course would result to
more ethical behavior on the part of those who have received such lectures at schools. We might,
however, conclude that the absence of it could in fact, be more devastating than the inclusion.
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The Enron, worldcom and Adelphia communication cases, apart from being ethical failures in
themselves also represent active and failure of the current, rather than deficient accounting
curriculum in our tertiary institutions. We might add here that the failed audits of Enron and
Worldcom did not only challenge or question the effectiveness of auditing courses and practice,
they also tend to neglect very poorly and deeply too, on what is being taught in current
accounting courses in our universities and polytechnics.

5.0 The Relevance of Accounting Ethics

1. The growing and worrisome trend in financial crimes and fraud in the recent period, led to
collapsed of many businesses demands for the observance of ethical code of conduct.
2. The death of Arthur Anderson and the increasing phenomena of the involvement of
accounting firms in corrupt practices also demands for ethical resolution in professional
ethics.
3. International financial institutions like the World Bank are demanding for a strict ethical
application in accounting.
4. There is also increasing demand for ethical code of conduct by members of accounting
bodies all over the globe.
5. International Federation of Accountants (IFAC) has demonstrated faith in accounting ethics
by having well documented code. Therefore, member countries are expected to follow the
same line.
6. In order for effectiveness in accounting practice to be attained and maintained, there is need
to have a separate accounting code of ethics and should be taught in the tertiary institutions.

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 ACC 2214- ACCOUNTING ETHICS
FORMS AND CAUSES OF UNETHICAL ACCOUNTING PRACTICES.

1.0 Forms of Unethical Accounting Practices.

Some of the noticeable unethical accounting practices are found to include:
1. False Accounting: This is done internally and takes the forms of:-
 Obtaining external financing by falsely improving the results.
 Raising the share price by false means to aid acquisition or to help a new issue of shares
 Obtaining more businesses by appearing more successful or less indebted.
 Obtaining performance bonuses for managers by inflating profits.
 Covering up internal theft by altering, aiding, falsifying or deleting bank/stock/purchase or
other records.
 Hiding losses in the hopes that fortunes may reverse.
2. Theft or Stealing: They include:
 Direct theft of cash, stock or asset.
 Theft of intellectual property.
 Theft of customers lists, contract price and so on.
 False expense claims.
 Payroll fraud; payments to ex-employees.
3. Involvement of Third Part: Some customers ordered goods on credit with no intention of
paying. Some variants of these practices include:
 Credit card fraud.
 Suppliers’ kickbacks for awarding contracts to them.
 Undisclosed financial interests in a transaction taken on at unfavorable terms of the
company or collusion with customers to change lower prices with or raise spurious credit
notes.
 Collusion with suppliers to accept under deliveries of stock items. All those external in a
nature but are often with collusion with internal parties.
4. Computer Fraud: They include:
 Hacking/Unauthorized access to bank accounts to transfer funds.
 Setting up as a legitimate internet business and obtaining payments for goods that are either
never delivered or are lower quality than advertised.

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  Theft of intellectual property, like engineering drawings by unauthorized access to the
computer.
 Publishing malicious claims about the company in anonymous bulletin board, thus
affecting the company’s reputation. These can be internal or external.

2.0 Causes Of Unethical Accounting Practices.

The cause of unethical accounting practices includes:
1. Lack of written corporate policies and standard operating procedures.
2. Lack of interest in or compliance with internal control policies, especially divisions of duties.
3. Disorganized operations in such areas of book keeping, purchasing, receiving and
warehousing.
4. Unrecorded transactions or missing records.
5. Bank accounts not reconciled on timely basis.
6. Fund transfer transfers to off share banks (Enron have more than 880 off share accounts).
7. Reluctance by management to report criminal wrong doings.
8. Employees in close associations with suppliers.
9. Greed: People get involved in unethical practices because they are not satisfied with what
they have. The rich wants to get richer.
10. Poverty: Nigeria is a developing economy is faced with the problem of poverty. No one
wants to be poor and so everyone struggles to get out of poverty either by hook or by crook,
even if it means getting involved in unethical practices.
11. Lack of Patience: Most people especially the youth today do not want to be patient. They
want to get rich quick without hard Work; people want to make ends meet but not willing to
do it the right way. This influences them to get involved in unethical practices such as
stealing, accepting bribes, falsification of records, documents and so on.
12. Weak Law Enforcement System: The weak law enforcement system has encouraged a lot of
people, including accountants to involve themselves in unethical practices, hoping that they
will get the law on their side by paying for it or working for people who can by the law and
rescue them.

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3.0 The Way Forward
1. Ethics and professional code of conduct should receive more emphasis in the accounting
curricula both at the educational and professional level.
2. The accountancy professional bodies in Nigeria should ensure that the basic ethical rules and
principles are strictly adhered to in the accounting practice so as to build the confidence of
the users of the accounting information.
3. The professional bodies should enlighten the public on the need for them to report cases of
professional misconduct to the appropriate authorities.
4. Erring members of the accountancy profession that are indicted should be severely p unished
under the law, no matter their status in the profession.
5. The professional bodies should also endeavor to publish cases of professional misconduct
decided by their investigative and disciplinary tribunals.

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