ETHICAL ISSUES IN ACCOUNTING:

Professional practices – Role of

Accountants and Auditors
 IMPORTANCE OF ETHICAL
VALUES
• Ethical values provides the foundation for a
civilized society.
• For any firm to increase its wealth requires
public’s trust that depends on ethical values.
• Ethics is of utmost importance to accounting
professionals and those who rely on their
services.
• Ethical codes calls to maintain a level of self-
discipline that goes beyond the requirement
of laws and regulations.
 ACCOUNTING???
• “The process by which any business
keeps track of its financial activities by
recording its debits and credits and
balance in its accounts.”
 INSTITUTIONS LAYING THE
ETHICAL CODES
AICPA

IMA

IIA
 OBJECTIVES OF ETHICAL AUDIT
• To determine the long-term ownership value and
to achieve distributive justice
• To help in providing a critical assessment by
systematically evaluating its business practices
• To help in scrutinizing the basis and information
on which the accounts are drawn
• Helps business undergoing major alterations like
restructuring
• Helps in determining the type of training
 CONT……
• To help in establishing code of conduct of
business
• To enhance, measure and promote the
quality that increases the business
performance
• to help the stakeholders to evaluate the
performance of the directors and vice
versa.
 STANDARDS OF ETHICAL
CONDUCTS
• Competence

• Confidentiality

• Integrity

• Objectivity
 TYPES AND ROLE OF
ACCONTANTS
 Accountants employed by an organization
• management accountant
• financial accountants
 Accountants in professional practice
• the auditor
• Accountants in related services
 REASONS FOR FRAUD IN
ORGANISATION
• Unduly aggressive financial targets
• Domination by person or group without controls
• Major performance related compensation
• Pressure to reduce tax liabilities
• Aggressive accounting practices to keep stock prices
high.
• Inadequate monitoring of significant controls
• Week corporate ethics
• Non financial personnel involved in accounting
matters.
• High degree of innovation and progress such as in the
technology industry
 FRAUD IN FINANCIAL STATEMENT
• Fictitious revenues
• Fraudulent timing differences
• Concealed liabilities and expenses
• Improper or fraudulent disclosers or omissions
• Fraudulent asset valuations
• Bribery
• Inside trading
 Burning examples:
SATYAM COMPUTERS

ENRON

WorldCom
 Conclusion

“When accountants (including auditors) fail

to provide investors with reliable
information that is relevant to their capital
allocation decisions, investors and all
citizens with stakes in the success of the
economic system suffer.”
Four enduring reasons for “ethics”

1. Accountancy is a profession, which lacks the history,

tradition, and self-understanding of the traditional
profession.
2. Accountants must state the truth in a way adequate
to particular circumstances—they need an inner
orientation to the truth.
3. Accountants must serve as ‘watchdogs’ and thus be
especially able to resist greed and greediness.
4. Accountants (Auditors) are not paid by those whose
interests they are supposed to represent, and
regulation cannot solve this.