Ethics in Accounting - Written by Dipti Gupta

Ethics in Accounting is a set of principles of right conduct of accountant or professional accountant. It deals with code of ethics in accounting. Before describing ethics in accounting in detail we must understand what are ethics and what is accounting, first .

Let us start from the earlier that is what are ethics:

In simple words we can say that ethics are the set of rules and principles of right conduct which develop understanding in the mind of one to make right decisions. It includes analysis of universal values such as the equality of all men and women, human or natural rights, obedience to the law of land, concern for health and safety and increasingly, also for the natural environment. In simple words we can say ethics are nothing but the system of moral values.

Now we understand what is accounting:

Accounting is the process of recording, classifying, summarizing and analyzing the all financial transactions of business .

Functions of accounting includes:

keeping systematic records, communicating the results, meeting legal requirements and protecting properties of the business .We can say that accounting is mainly concern with the financial transactions and decisions. Accounting allows analyzing the financial performance of business and look at statistics such as net profit .The person in charge of accounting is known as an accountant, who performs all the functions of accounting.

After understanding the meaning of ethics and accounting separately, we can understand ethics in accounting more easily. As we have understood that ethics are rules or principles of right conduct and accounting is the function of accountant.

So now; in simple words we can say that ethics in accounting are those set of principles and rules which accountant has to follow to perform his functions rightly. Typically these set of principles and rules are known as codes of ethics. For example GAAP, known as generally accepted accounting principles. GAAP is a collection of commonly followed accounting rules and standards for financial reporting; it ensures that financial reporting is transparent and consistent from one organization to another.

Ethic in accounting depend upon the codes of ethics. These codes of ethics are important for certified public accountant (CPAs), professional accountants and for those who depend on services of accountants because decisions are made on the basis of reports and analysis which are prepared by accountants. It is very important for accountants that they understand the importance of ethics in accounting and also follows it when recording, classifying, summarizing, analyzing and preparing financial results out of financial transactions. Not only this ethics in accounting also includes the financial decisions such as investment.

Codes of ethics are generally decided by the associations of professionals to uphold the high ethical values of their professions .Such as American Institute of Certified Public Accountants sets the codes of professional conduct for accountants, The Institute of Management Accountant (IMA) standards of ethical conducts applies to practitioner of management accounting and financial management, and the Institute of Internal Auditors (IIA) code of ethics are applies to its members and certified internal auditors (CIA).

Thus we can say that Ethics in Accounting is the use of codes of ethics by professional accountant or accountants in performing their functions and in making financial decisions, which ensure transparency and consistency to business as well as to parties interested in it.

About Guest Teacher 

Above lecture has been given by  Dipti Gupta. She has completed her Post-Graduation in Commerce. Teaching is her  passion and have teaching experience too.