Running head: INFORMATION ON ETHICS IN ACCOUNTING 1

Information on Ethics in Accounting

Abigail Padilla

University of Texas at El Paso

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Abstract

This literature review discusses the importance of ethics, especially in accounting,

because ethics plays a big role in the lives of people in the economy since they can be widely

affected by any unethical choices. Ethics is the practice of moral principles and the perceptions

of right versus wrong whereas unethical is an idea or action that is not morally correct based off

a person’s own values and beliefs or someone else’s values. Ethics in accounting is said to be

more important as years go by. This is because the rules of accounting change over time and so

do values and beliefs of people and companies. Accountants must be educated in ethics in order

to perform and serve the public in such a way that is helpful, and ethics must be understood to

prevent future unethical practices that can ultimately affect the public in a negative way. In

simple terms, ethics is important in the lives of people in the economy because somebody’s life

can be affected by the work of an accountant who may have acted unethically.
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Introduction

Making ethical decisions is the top priority of a firm and crucial for the people of the

company to make because the lives of the people in the economy can be widely affected based

on decisions that are made in the workplace. Furthermore, ethics is the practice of moral

principles and the perceptions of right versus wrong. Whereas unethical is an idea or action that

is not morally correct. According to Mele (2017), “ethics includes action, foreseeable

consequences and people, with their virtues or lack of virtues, involved in any human activity”

(p. 609). As more people gain jobs that impact the economy, others should be able to understand

how whatever they do can affect the public and must be examined through the following

questions:

• How and why does a company assess an interviewee’s values regarding

ethics?

• What are the potential penalties to the accountant for behaving in an unethical

manner?

• What can trigger an accountant to commit an unethical action?

• How can firms prevent unethical behavior?

These questions aim to examine ethics in accounting, how a person’s own values can

relate to a firm’s values, what the penalties are for unethical practices, what can be the cause of

unethical behavior and how a firm can prevent unethical actions in the workplace.

How and why does a company assess an interviewee’s values regarding ethics?

Values define a company as well as its core. These values help employees follow ethical

standards to keep the company in good shape for the economy. During most interview processes,
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the interviewer will ask simple questions regarding the interviewee’s values and beliefs. Given,

the interviewer wants to compare the values of the future employee to the company’s values to

see if the employee would fit well in the company’s environment under decision making

processes or if they’re able to make ethical decisions that can keep other employees safe.

According to The United CPA Association (2019), a YouTube channel, “an individual’s ethical

code is definitely significant here; every company should have a specific code of ethical conduct

for employees to follow. The company should also ensure that everyone who works for them,

understands what’s expected of them in ethical terms;” (time 3:36- 4:03). Strong beliefs help

build a strong foundation and a strong culture in a company. Strong beliefs can also make life

easier on employees that measure and manage the company’s standards. That being said,

accountants should relate their own values to the following ethical standards that are placed on

accountants according to Ionescu (2019) which are, “a professional accountant should be

straightforward and honest, a professional accountant should not allow bias, conflict of interest

or undue influence of others, a professional accountant should act diligently and in accordance

with applicable technical and professional standards, a professional accountant should respect the

confidentiality of information and should not disclose any information to third parties without

proper and specific authority, a professional accountant should comply with relevant laws and

regulations and should avoid any action that discredits the profession;” (p. 54). These standards

imply that the accountant has related self-beliefs which, if is true, make it easier for the

accountant to measure the values and manage the standards that are set. It’s important to

understand what “acting diligently” means. Ultimately speaking, acting with diligence means to

be persistent and to put as much effort as there possibly can be to accomplish a plan or

assignment. There are many ways in which an accountant does not act with diligence and this
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may lead to unethical actions that can discredit the accountant and the business. Some simple and

easy actions accountants should avoid is seeking out personal financial gain, making any data

entry errors that may make the data dishonest, not following the accounting procedures, and

lastly to avoid procrastinating. All of these actions are unethical and should be avoided as an

accountant and can have a consequence.

What are the potential penalties for behaving in an unethical manner?

Depending on what unethical action took place, the consequences of the accountant can differ.

The different types of penalties might be a warning, a fine of some amount of money, getting

fired, and in worst terms, serving jail time. With that, people must understand how these

penalties come about and according to The United CPA Association (2019), which says,

“anticipate any possible legal concerns,… seek out expert advice and reach out for legal help;”

(time 1:45- 3:45). Behaving in an unethical manner that can discredit an accountant or a

company is ultimately not good and should be reviewed properly to avoid any misconceptions

and to fix the problem. Now, no matter what unethical action occurred, the company will always

be affected. According to Ionescu (2019), “fraudulent financial reporting can lead to

consequences for the business and its employees, as well as for the economy” (p. 56). This

implies that the reputation of the business will lower if affected and if the business is affected,

then the employees are affected. The same goes for the public, if the company is affected, then so

is the economy because ultimately, the economy relies on business’s and the work of an

accountant. An example of a company whose reputation was affected is Enron (in 2001) and

Toshiba (in 2015). According to Mele (2017), Toshiba was one of the top 10 largest firms in

Japan, but “they fostered unethical practices (lying to obtain an economic advantage) and

damaged the whole company;” (p. 611). This implies that if a company gets caught or admits
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committing unethical practices, then the company itself is damaged. Making unethical decisions

is not smart and accountants should be asking themselves questions regarding ethics and legality

before ultimately making the decision. Bringing damage to a company can also harm the

economy. Any person, who say has a share of stock invested in the company, will be affected

and may lose a certain amount of money from just one mistake from an accountant. The

company itself may also discontinue, meaning it will be shut down and all the employees within

the company are to be unemployed which can raise the unemployment rate for the economy.

What can trigger an accountant to commit an unethical action?

There are many factors that can lead to an accountant making an unethical decision. The two

main important ones that almost every person believes is for financial purposes, whether it be for

personal gain or for the company, and pressure from bosses, or upstairs. The United CPA

Association (2019), states that “there are many reasons that accountants are tempted to break the

rules of ethical accounting practices. Needless to say, these temptations are usually of a financial

nature…” (time 2:54- 3:05). Pressure from the executives can lead the lower level of the

company to foster unethical practices because of any numbers involved, such as a reward system

and measurements regarding money (Mele, 2017). Mastracchio, Jiménez-Angueira, and Toth

(2015), mention that “such a trend seems to be driven from the top down by people with

managerial authority (from supervisors to top managers), with workers reporting 60% of

observed misconduct involving someone in management. Indeed, the report indicates that 24%

of observed misconduct involved senior managers.” (p. 49). In simple terms, this implies that the

employees in the higher level of the company feel as if they have the obligation to make

unethical actions that can involve the lower level of the company. We can also mention that time

can play a factor, since people don’t have all the time in the world, and we can argue that trying
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to make the company look as if it’s performing better can play a factor too since it is considered

false information. There are many people that face conflict of interest which means that

employees become bored with their job and choose to do some other activity other than their job

during their work hours. According to The United CPA Association (2019), “the ethical

conundrums accountants face includes things like fraudulent or illegal activity, possible conflicts

of interest, the confidentiality of payroll data, intense pressure from upstairs, or dishonest clients

asking for distorted financial statements” (time 1:04- 1:25). It’s easy to assume that unethical

decisions made by firms can be tied with the executives of the company since that seems to be

the main reason that accountants behave in an unethical manner. This can also lead to using

company property for other purposes other than the job, such as a computer. Going back to

conflict of interest, some people choose to use the computer to shop on the web or watch videos

or maybe even play some type of video game rather than doing their job. This type of behavior is

unethical since the company is affected by the person’s actions in the long run.

How can firms prevent unethical behavior?

It’s not easy to prevent

unethical practices and

whatever firms try to do to

fix it, has no guarantee that

it’ll completely stop

Figure 1: Business ethics and the factors that impact the business. unethical behavior, but it
Ethics Resource Group (2016). Pinterest. Retrieved March 29, 2020 from
https://www.pinterest.com/pin/150307706294038692/?d=t&mt=login. does help to try and do something
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about it. In figure 1, all the factors that affect the business’s ethical standards is trust, behavior,

principle, relationship, choice, reliability, morality, and responsibility. According to Mastracchio,

Jiménez-Angueira, and Toth (2015), businesspeople must act ethically in all areas of business

and for them to know how to act ethically, they must understand what the meaning of ethics is

(p. 50). Furthermore, public accountants must be educated on ethics for the reason of

trust because a public firm’s trust is critical to accountants and therefore, understanding ethics

can strengthen the trust (p. 48). This implies that certified public accountants must be educated

on ethics. Ionescu (2019), stated that “communicating accounting ethics could prevent fraud,

corruption and errors in financial reporting for public and private sectors” (p. 53). In simple

terms of the two sources, accountants must be educated in ethics and must be able to

communicate ethics in the workplace to build trust and to prevent unethical behavior. In Ethics in

finance and accounting: Editorial Introduction, Mele (2017) provides suggestions as potential

solutions for preventing unethical practices in accounting by encouraging firms to have a strong

sense of both internal and external missions and suggests attempting to satisfy the needs of

employees and customers while not harming stakeholders. He also proposed to make decisions in

accordance with the two previous missions as well as integrating ethics into any management

decision (p. 611). To sum up, preventing unethical practices can be done by being educated in

ethics,- which can also build trust within companies- communicating accounting ethics in the

workspace, and suggesting missions as well as satisfying the needs of employees and customers

while bringing no harm to the stakeholders and lastly, making decisions based off of what is

ethical.
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Primary Research

Getting ideas from other people can widely impact your perspective on an idea. For this reason,

the idea of asking a friend, who is an accountant, is a good idea in seeking primary research. In

conducting the interview over the phone, questions will be asked to the interviewee. Erika

Sianez, who is an accountant at Border City Insurance Services, was the interviewee and was

asked the questions shown above. She graduated with a master's in accounting at the University

of Texas at El Paso meaning her words and ideas are credible. In asking the first question, “How

important is ethics in the workplace?” Sianez says that in her workplace, “It is very important. I

strongly believe when employees practice ethically, the company has an opportunity to succeed

at a higher level.” This implies that ethics is important in the workplace as practicing being

ethical can help the firm reach goals and succeed without having to behave unethically. The

second question, “What are the penalties in your company if an employee behaves unethically?”

Sianez states that, “I work in a smaller company so this may be different than if I worked in a

larger company. When someone makes unethical decisions at our company, they are required to

write a statement. They are then investigated internally. Our CEO is then in contact with out

President on how to proceed. The individual is either suspended, pay is reduced, and/or if the

situation is too serious, fired.” Accountants should take note on how to avoid making any

unethical decisions as it is a long process to finalize and decide on what will happen to the

unethical employee. Furthermore, the third question, “What do you think is the main factor that

causes unethical practices?” Sianez says, “I strongly believe the main factor of practicing

unethically are because of the goals set before them. In my company, the producer's goals are to

bring in business wanting insurance for commercial vehicles. One way our producer acted

unethically was forcing the insured to add a vehicle (that causes an increase in premium which
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gives the producer a bonus) rather than substituting it out (substitutions don’t give the producer a

bonus).” With what Sianez says, it implies that the goals set before them are created and

managed by the higher levels of the company, therefore, we can conclude that the executives or

pressure from the upstairs can cause pressure to make an unethical action. The fourth question,

“What does your company enforce to prevent these unethical actions in the future?” Sianez states

that, “The company I work for sets goals for their employees to follow in order to keep

practicing being ethical. They also enforce strict rules to follow in the workplace and outside the

workplace so that anything we do, can impact the company.” In simple terms, firms can set forth

goals and rules for their employees to follow to avoid any unethical practices and to avoid any

consequences that may follow unethical actions. Lastly, the fifth question is, “What questions do

you ask yourself when making an ethical decision?” Sianez is very specific in answering this

question, as she says, “What is the ethical issue at stake? Who will this decision affect? What is

the right thing to do? Who is my decision going to benefit? Who will it hurt?” Everyone’s lives

are in the hands of the accountant, meaning that every decision the accountant will make will

have an effect to some and it’s important to think about those things before finalizing the

decision to avoid any negative impact from an unethical decision. After conducting the

interview, the ideas and information portrayed throughout the essay had a connection with the

interviewee’s words.

Conclusion

This literature review aims to examine ethics in accounting, specifically how a person’s

own values can relate to a company’s values, what the consequences are for unethical practices,

what can trigger unethical behavior and how a firm can prevent unethical actions in the

workplace. Ethics should be a necessity because it widely impacts the public and any person
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living in it can be affected as well. Ethics in accounting is important and the information given

regarding ethics must be understood for the economy to prevent future unethical actions to avoid

effecting the public.

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References

Ethics Resource Group (2016). Pinterest. Retrieved March 29, 2020 from

https://www.pinterest.com/pin/150307706294038692/?d=t&mt=login.

Ionescu, L. (2019). Communicating accounting ethics Annals of Spiru Haret University,

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e=eds-live&scope=site.

Langenderfer, H. Q., & Rockness, J. W. (1989). Integrating ethics into the accounting

curriculum: Issues, problems, and solutions American Accounting Association. Retrieved

from http://0-

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eds-live&scope=site.

Mastracchio Jr., N. J., Jiménez-Angueira, C., & Toth, I. (2015). The state of ethics in business

and the accounting profession. CPA Journal, 85(3), 48-52. Retrieved from http://0-

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e=eds-live&scope=site.

Melé, D., Rosanas, J., & Fontrodona, J. (2017). Ethics in finance and accounting:

Editorial Introduction. Springer Nature. doi:10.1007/s10551-016-3328-y. 

[The United CPA Association]. (2019, April 26). Ethical Issues in Accounting: 4 Pieces of

Advice. Retrieved fromhttps://www.youtube.com/watch?v=c7IHlDHtwtI.

[The United CPA Association]. (2019, April 28). Why are Accounting Ethics

Important? Retrieved from https://www.youtube.com/watch?v=CjkgwUP0Rf0.