Ethics in professional accounting is of paramount importance. Now that the business and financial world is adopting international accounting and auditing standards, it becomes more and more necessary to adhere to a certain Code of Ethics prescribed by international and national accounting bodies. Before arguing for the topic, let’s take a look at some basics:
Profession
A profession is an occupation that requires extensive training and the study and mastery of specialized knowledge, and generally has a professional association, code of ethics and certification or licensing process; for example, engineering, medicine, social work, teaching, law, finance, military, nursing, and accounting, etc. Classically there were only three professions: military, medicine and law. Each of these professions abides by a specific code of ethics and members are almost universally required to take some sort of oath to uphold that ethic, thus ‘professing’ a higher standard of responsibility. Each of these professions also provides and requires extensive training in the meaning, value and importance of their particular oath in the practice of that profession.
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Accounting practitioner is known as Accountant. Qualified accountant, accountant, professional accountant or accounting practitioner is a legally certified expert in accounting and finance. Accountants not only work in public practice, but many of them work in private corporations, in the financial industry, and in various government agencies. Accounting (profession) or accounting (methodology) is the measurement, disclosure, or provision of assurance about financial information that helps managers, investors, tax authorities, lenders, and other stakeholders and decision makers make decisions about the allocation resources and policy formulation.
Like many other professions, there are many professional bodies for accountants around the world. Some of them are legally recognized in their jurisdictions such as British Qualified Accountants including Chartered Certified Accountants (ACCA or FCCA), Chartered Accountants (CA, ACA or FCA), Canadian Qualified Accountants such as Chartered Accountants and Accountants General certified (CA or CGA) and qualified American accountants, such as certified public accountants (CPA), etc. Some other legal and non-legal accounting qualifications are Certified Management Accountant (CMA), Associate Cost and Management Accountant (ACMA), Certified Financial Analyst (CFA), and Certified Fraud Examiner (CFE), etc.
In Pakistan, the Pakistan Institute of Chartered Accountants is the only professional and accounting body entitled to grant the designation of Chartered Accountant. ICAP is a member of IFAC (International Federation of Accountants, IASB (International Accounting Standards Board), Confederation of Asian Pacific Accountants (CAPA) and South Asian Federation of Accountants (SAFA). ICAP members have reached 4,089 as of March 1, 2007 date.
Role of professional accountants:
Accountants are independent business advisers. Accountants can offer a wide range of services. Accountants may be registered auditors, they may set up clients’ accounting systems, they may be tax planning consultants or fraud and embezzlement detectors, they may perform budget and financial statement analysis, advise clients on financial decisions, provide specialized knowledge and They can help maintain an ethical environment.
After discussing the basic concepts and the role of professional accountants, we are in a better position to reflect on what professional ethics is and why it is important in the field of accountability.
Definition of ethics
The word ‘Ethics’ is derived from the ancient Greek word ethikos; means customs and habits. A major branch of philosophy that is the study of the values and customs of a person or group and covers the analysis and use of concepts such as right and wrong, good and bad, and do’s and don’ts.
Ethical code:
In the context of a code adopted by a profession or by a government organization to regulate that profession, a code of ethics can be designed as a code of professional responsibility, which can dispense with difficult questions about what behavior is “ethical.” A code of ethics is often a formal statement of the organization’s values on certain ethical and social issues related to the profession and the practice of professional knowledge. This also includes the principles and procedures for specific ethical situations.
Ethics in Professional Accounting:
The general ethical standards of society apply to people in professions such as medicine, law, nursing, and accounting, etc. as much as anyone else. However, society places even higher expectations on professionals. People need to have confidence in the quality of complex services provided by professionals
Ethics in the accounting profession is invaluable to accounting professionals and those who rely on their services. Stakeholders, including customers, credit grantors, governments, tax authorities, employees, investors, the business and financial community, etc., perceive them as highly competent, trustworthy, objective and neutral. Therefore, professional accountants must not only be well qualified but also possess a high degree of professional integrity. Due to these high expectations, professionals have adopted codes of ethics; also known as professional codes of conduct. These ethical codes require their members to maintain a level of self-discipline that goes beyond the requirements of laws and regulations. Each of the major professional accounting associations has a code of ethics.
As mentioned above, professional accountants can be of two types. Those who work in firms or independently direct those firms that provide accounting, auditing and other advisory services to clients; these are called public doctors. Others are those who are employed by organizations and may serve as internal auditors, management accountants, financial managers, and financial analysts. Regardless of the role of accountants, they adhere to the code of ethics that applies to their professional conduct, although there are some special provisions for those in public practice. [Reference: Code of Ethics for Professional Accountants-International Federation of Accountants (IFAC)].
International Federation of Accountants-IFAC:
The International Federation of Accountants (IFAC) is a federation of all accounting bodies in the world. All major international and national associations such as ACCA, AICPA, ICMA, ICAP, IASB, etc. are all its member organizations. IFAC’s mission, as stated in its constitution, is “the worldwide development and improvement of an accountancy profession with harmonized standards, capable of providing consistently high-quality services in the public interest.” [Ref: Code of Ethics for Professional Accountants-IFAC]. In furtherance of this mission, the IFAC Board has established the IFAC Ethics Committee to develop and issue, under its own authority, high-quality ethical standards and other pronouncements for professional accountants for use throughout the world. The Code of Ethics establishes ethical requirements for professional accountants. A member body or firm may not apply less stringent standards than those set out in this Code.
The objective of establishing this code of conduct is to harmonize these standards and practices in a global perspective. The public can only trust these highly professionals when it is mandatory to observe and follow strict standards and codes throughout the world. A professional accountant is required to comply with the following fundamental principles mentioned in this Code of Ethics:[Ref: Section 100.4 Code of Ethics for Professional Accountants]
Integrity: A professional accountant must be honest and direct in all professional and business relationships.
Objectivity – A professional accountant should not allow the bias, conflict of interest, or undue influence of others to override professional or business judgments.
· Professional Competence and Due Care: A professional accountant has a continuing duty to maintain professional knowledge and skills at the level required to ensure that a client or employer receives competent professional service. A professional accountant must act diligently and in accordance with applicable technical and professional standards when providing professional services.
Confidentiality: A professional accountant must respect the confidentiality of information acquired as a result of professional and business relationships and must not disclose such information to third parties without proper and specific authorization unless there is a legal or professional right or duty to disclose. This information should not be used for personal gain by the professional accountant.
· Professional behavior: A professional accountant must comply with relevant laws and regulations and must avoid any action that brings the profession into disrepute.
The Code of Ethics defined in the ‘Member Handbook’ for members of ICAP Pakistan is in accordance with:
IFAC Code of Ethics and International Auditing Standards
International Accounting Standards
The Institute of Chartered Accountants of Pakistan – ICAP
Relevant legislation
[Ref: Members Handbook-ICAP]
This Code of Ethics has discussed in detail the role of Chartered Accountants in given situations. For example, there are clear policies on the prohibition of accepting gifts, prolonged association with clients, publicity of the company name in excess of prescribed limits, retention of client money without just cause, disclosure of client records (except those allowed), the acceptance of the fees offered by the client that is less than that prevailing in the market, etc.
After discussing in detail the importance of ethics in the accounting profession, we must conclude the topic with this final note that accounting as a profession is acceptable and relied upon only when one has the ability to exercise professional judgment based on ethical basis; Broad yet deep technical excellence and strategic awareness are exercised by a professional accountant. Only then can the general public trust the integrity of this profession.