6 Reasons why Ethics is important in Business and Accounting

Ethics in Business and Accounting

Business ethics refers to moral rules that govern how businesses operate, how people (i.e. customers, shareholders & clients) are treated, and how business decisions are made. It covers topics such as corporate governance, bribery, insider trading, and discrimination, fiduciary and corporate responsibility. Either law guides business ethics or basic guidelines that businesses can choose to follow to gain public approval.

Importance of Ethics in business 

Our ethical beliefs guide our moral judgment calls in our personal and professional lives. We acquire ethical beliefs early in life through environments of home, religion, school and social gatherings.

The choices you make can affect the success your business. If your choices are questionable, the businesses’ products and services will suffer, even if they are of the highest quality.

Therefore,business ethics help ensure your company maintains a good reputation. If your company acquires a great reputation for consistently being ethical, it will:

  1. Attract investors who will contribute to its growth.
  2. Be sought by other businesses who want to merge or partner with it.
  3. Have the support of its customer and clients.
  4. Promote good ethical practices in other companies, as it will work with similar companies.
  5. Receive appreciation from the community, further promoting its products and services.
  6. Maintain a high employee retention rate, hence low recruitment & training costs

The practice of good ethics should not be limited to one section of the business, but from the top downwards. Junior employees emulate their seniors, and so the seniors should lead by example. When top management makes ethical decisions, employees know they will do right by them, and this boosts their morale.

Overall, good business ethics contributes to a company’s growth, thus improving its bottom line.

Importance of ethics in accounting

Accountants have access to confidential financial information of individuals and entities. This gives them a lot of power, hence the potential for manipulating figures to improve a company’s perception. Ethics is therefore very important in ensuring a company’s books are kept in order.

Different professional bodies around the world have set out rules that accountants should follow.The Institute of Certified Public Accountants Kenya (ICPAK) follows the guidelines set out by the International Federation of Accountants (IFAC, 2018).

The International Code of Ethics for Professional Accountants set out fundamental principles of ethics for professional accountants, reflecting the profession’s recognition of its public interest responsibility. These principles establish the standard of behavior expected of a professional accountant.

There are five fundamental principles for professional accountants. These include :

  1. Integrity,
  2. Professional competence & due care,
  3. Objectivity,
  4. Confidentiality, and
  5. Professionalism.

Integrity

This principle requires a professional accountant to be straightforward and honest in all professional and business relationships. As a professional Accountant, you should be fair and truthful in all your dealings. You should not knowingly be associated with information (reports, returns or other communication) that you believe:

  • Contains a materially false or misleading statement.
  • Includes statements or information provided recklessly.
  • Omits or obscures required information where such omissions or obscurity would be misleading.

Professional competence & due care

If you are a professional Accountant, this principle imposes the following obligations:

  1. You should attain and maintain professional knowledge and skill at the level required to ensure that your client  receives competent professional service, based on current technical & professional standards, and relevant legislation. Therefore ,you are expected to :
      • Exercise sound judgments in applying professional knowledge and skills when undertaking professional activities.
      • Develop and maintain the capabilities required to perform competently within the professional environment.
      • Take reasonable steps to ensure that those working in a professional capacity under your authority have appropriate training and supervision.
  2. You must act diligently and in accordance with applicable technical and professional standards. You have the responsibility to act in accordance with the requirements of an assignment, carefully, thoroughly and on a timely basis.

Objectivity

The objectivity principle imposes you with following obligations:

  1. You should not to compromise professional or business judgments because of bias, conflict of interest or undue influence of others.
  2. You should not undertake a professional activity if a circumstance or relationship unduly influences your professional judgement regarding the activity.

Confidentiality

Under this principle, you are obligated to respect the confidentiality of information acquired as a result of your  professional and business relations. This includes information from your employer,client,business associates,etc.

When is it appropriate for an accountant disclose confidential information?

Confidentiality serves the public interest because it facilitates the free flow of information from the professional accountant’s client or employer to the accountant in the knowledge that the information will not be disclosed to a third party.

However, as a professional accountant,you are allowed to disclose confidential information under the following circumstances:

    • The disclosure is required by law (for example , in legal proceedings ).
    • The client or employer authorizes the disclosure, that is permitted by law.
    • There is a professional duty or right to disclose, when not prohibited by law.

Professional behavior

Professional behavior requires a professional accountant to comply with relevant laws and regulations. Therefore,you are expected to avoid any conduct that you know might discredit the profession.

As a professional accountant, you must comply with each of the fundamental principles.

What should you do if complying with one fundamentals principle conflicts with complying with one or more other fundamentals principles?

The standards recommends that the accountant might consider consulting, on an anonymous basis if necessary, with any of the following:

    • Those changed with governance.
    • Others within the firm or employing organization.
    • A regulatory body.
    • Legal counsel.
    • A professional body

However, such consultation does not relieve you from the responsibility to exercise professional judgment to resolve the conflict.

 

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