An Overview of Ethics Accounting

Ethics Accounting

The purpose of ethics in business is for individuals to abide by a code of conduct that facilitates, if not encourages, public confidence in their products and services. In the accounting field, the AICPA maintains and enforces a code of professional conduct for public accountants. Professional accounting organizations recognize the accounting profession’s responsibility to provide ethical guidelines to its members. The AICPA’s first principle of professional conduct states: “In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.

” A profession is formed based on (1) a generally accepted body of knowledge, (2) a widely recognized standard of attainment, and (3) an enforceable code of ethics. A code of ethics is a crucial element in forming a professional. The three major accounting professional organizations have an ethics code.

FASB

The Financial Accounting Standards Board is a major organization whose primary purpose is to develop Generally Accepted Accounting Principles in the United States (US GAAP), similar to what the Government Accounting Standards Board (GASB) does for local and state governments in the United States.

The federal organization is responsible for maintaining indepenindependentrds in accounting, the powers of which come from congress. The FASB sets out to improve corporate accounting practices by enhancing guidelines set out for accounting reports, identifying and resolving issues promptly, and creat, ing a uniform standard across the financial markets. The mission of the Financial Accounting Standards Board is to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information.

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It is a seven-member independent board consisting of accounting professionals who establish and communicate standards of financial accounting and reporting in the United States. FASB standards, known as generally accepted accounting principles (GAAP), govern the preparation of corporate financial reports and are recognized as authoritative by the Securities and Exchange Commission.

SEC

The U.S. Securities and Exchange Commission in the United States governing body which has primary responsibility for overseeing the regulation of the securities industry. The SEC has five Commissioners who are appointed by the President of the United States with the advice and consent of the United States Senate. Their terms last five years and are staggered so that one Commissioner’s term ends on June 5 of each year. To ensure that the SEC remains non-partisan, no more than three Commissioners may belong to the same political party. The President also designates one of the Commissioners as Chairman, the SEC’s top executive.

The Office of the Chief Accountant is responsible for establishing and enforcing accounting and auditing policy to enhance the transparency and relevancy of financial reporting, and for improving the professional performance of public company auditors to ensure that financial statements are used for investment decisions presented fairly and have credibility.

To accomplish OCA’s stated mission, the office is divided primarily into three major groups; Accounting, Professional Practice, and International Affairs. These three groups work collaboratively to serve as the principal adviser to the Commission on accounting and auditing matters. Sarbanes-Oxley allows firms to stay abreast of the proposed and final rules and regulations issued by the SEC to implement the Sarbanes-Oxley Act (SOX). The U.S. federal Sarbanes-Oxley Act was created to protect investors by improving the accuracy and reliability of corporate disclosures. The act covers issues such as establishing a public company accounting oversight board, auditors such as establishing pond comparison

with cont independence, corporate responsibility, and enhanced financial disclosure. A lot of recent accounting, scandals revealed Sarbanes Oxley is important enforcement in the accounting profession.

In response to the series of accounting scandals, notably those in 2002 involving World Com and Enron, the PCAOB was created.

JACOB

The Public Company Accounting Oversight Board, or PCAOB, is a private sector, non-profit corporation created by the 2002 Sarbanes-Oxley Act to oversee the auditors of public companies. Its stated purpose is to ‘protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports.

Its current chairman is the former New York Federal Reserve president, William J McDonough.

Under Sarbanes Oxley, the Public Company Accounting Oversight Board (PCAOB) has the following key requirements:

• The design of controls over relevant assertions related to all significant accounts and disclosures in the financial statements.
• Information about how significant transactions are initiated, authorized, supported, processed, and reported.
• Enough information about the flow of transactions to identify where material misstatements due to error or fraud could occur.
• Controls designed to prevent or detect fraud, including who performs the controls and the regulated segregation of duties.
• Controls over the period-end financial reporting process.
• Controls over the safeguarding of assets.
• The results of management’s testing and evaluation.
• Accounting Concepts and PrinciplThe goal

The goal of accounting theory provides a set of principles and relationships that explains observed practices and predicts unobserved practice. Such a theory should be verifiable through accounting research.

Accounting theory has a critical role in guiding the use of accounting data to users. That is, accounting theory should be able to explain the usefulness of accounting data to users and th, at users should be verified through accounting research.

An accounting entity refers to the entity for which the financial statements are being prepared (Marshall 2004). The entity can be a proprietorship, partnership, corporation, or even a group of corporations (Marshall 2004). The entity for which the accounting is being done is defined by the accountant, and even though the entities may be related, the accounting is done for the defined entity (Marshall 2004).

The going concern concept refers to the presumption that the entity will continue to operate in the future that hat it is not being liquidated (Marshall 2004). This continuity assumption is necessary because the amounts shown on the balance sheet for various assets do not reflect the liquidation value of those assets (Marshall 2004). In the United States, the dollar is the unit of measurement for all transactions (Marshall 2004). No adjustment is made for changes in the purchasing power of the dollar (Marshall 2004). No attempt is made to reflect qualitative economic factors in the measurement of transactions (Marshall 2004).

The cost principle refers to the fact that transactions are recorded at their original cost to the entity as measured in dollars (Marshall 2004). Objectivity refers to accountants’ desire to have a given transaction recorded the same way in all situations (Marshall 2004). This objective is facilitated by using the dollar as the unit of measurement and by applying the cost principle (Marshall 2004).

Matching revenue and expense is necessary if the results of the firm’s operations are to reflect accurately its economic activities during the period (Marshall 2004). This does not mean that revenue and expenses for a period are equal (Marshall 2004).

Consistency in financial reporting is essential if meaningful trend comparisons are to be made using an entity’s financial statements for several years (Marshall 2004). Accounting practices should not change per transaction just to benefit coa mpany’s financial statement (Marshall 2004). It is in the best interest to stick with the same method of accounting (Marshall 2004). Full disclosure means that the financial statements and notes or explanations should include all necessary information to prevent a reasonably astute user of the financial statements from being misled (Marshall 2004). Materiality means exactness (Marshall 2004). The financial information must be an appropriate representation of the financial condition of the entity. Conservatism in accounting relates to making judgments and estimates that result in lower profits and asset valuation estimates rather than higher profits and asset valuation estimates (Marshall 2004). This simply keeps the accountant from overstating profits.

Role of Ethics in Accounting

Accountants have to make accounting policy choices regularly. Stakeholders rely on the information reported by accountants to make informed decisions about the entity at hand. All decisions engross judgment, and judgment depends on personal values with the decision needing to be made on some basis such as following rules, obeying authority, caring for others, justice, or whether the choice is right. These values and several others compete as the criterion for making a choice. Such personal values incorporate ethical values that dictate whether any accounting value chosen is a good or poor surrogate for economic value. To maintain the faith of the public, both corporate and public accountants must be highly ethical in their work.