Certified Public Accountant Essay Example for Free

attest Public Accountant EssayNo part of this habitualation whitethorn be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, s hindquartersning or otherwise, except as permitted under Sections 107 or 108 of the 1976 United States right of first commonplaceation Act, with prohibited either the prior written permission of the publishing house, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc. , 222 Rosewood Drive, Danvers, MA 01923, website www. copyright. com.Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley Sons, Inc. , 111 River Street, Hoboken, NJ 070305774, (201)748-6011, fax (201)748-6008, website http//www. wiley. com/go/permissions. To order books or for customer service, please c only 1(800)-CALL-WILEY (225-5945).Printed in the United States of America. ISBN 978-0-470-87810-1 hon orable Decisions in chronicle Learning Objectives After studying this module you should be able to Understand the importance of morality K instantaneously the history of morals in worry coitusship Incorporate estimable motive into your decisiveness accomplish Know honourable standards for history superiors Understand estimable implications of the U. S.transition to IFRS Appreciate lessons learned from recent business s tindals. member 1 THE IMPORTANCE OF ETHICS morals is an important part of your history fostering and it go out play an increasingly important role in all aspects of your professional life. This module is intended to give you an overview of the study of unplayful motive. It is a starting point for the discussion of ethics that get out continue throughout all of your method of explanation studies. We will begin with a definition of ethics and because review somewhat honourable theories that hand over a modeling for developing estimable stan dards for accounting students and professionals.Finally, we will discuss why ethics is important to you as you prep atomic number 18 for a career in accounting. DEFINITION OF ETHICS What exactly is ethics? harmonize to Websters Dictionary ethics is a discipline dealing with good and evil and moral duty, and with moral principles and practice. bill ethics basically involves ease uping moral principles to accounting and business determinations. Business ethics is a more general form of use ethics that relates moral principles to business situations. Business ethics examines behavior toward the foreign world remembering respectable principles and business codes of ethics. honest Decisions in Accounting 1 Simply put, ethics is doing the right thing. It is not easy to define ethics because ethics can be different for different people. You consecrate your own personal values and these values are very important in the decisions you make. When you are in business you will be requi red to catch codes of conduct that are implanted by your company and by any professional associations that you belong to. avocation the good standards of these organizations is important, tho you should al right smarts bring your own personal values into your business model. honourable THEORIES Philosophers have developed some theories to provide a theoretical account for making ethical business decisions. These theories provide a point of advert for developing codes of conduct for companies and professional associations. Most ethical codes in business are based on the following moral theories Rights theory. The moral choice is the choice that top hat protects and respects the moral rights of those involved with a decision. This theory suggests that pityings have a dignity that is based on their human nature and their ability to freely choose what they do with their lives.Therefore they have a right to be treated as ends and not me desire as means to other ends. Utilitaria n theory. The ethical action is the action that provides the nigh good or does the to the lowest degree harm. The ethical business action is the one that produces the greatest good and does the least harm for all who are affected business stakeholders such(prenominal) as customers, employees, shareholders, the community, and the environment. earthy good theory. The relationships of society are the basis of ethical reasoning and respect and compassion for others is the basis for moral decisions.This theory addresses the common conditions that are important to the eudaimonia of everyone. Virtue theory. ethical actions should be consistent with ideal virtues that provide for the full development of humanity. Honesty, courage, compassion, generosity, tolerance, love, fidelity, integrity, fairness, self-control, and prudence are examples of virtues. Fairness theory. Ethical actions treat all human beings fairly based on some standard that is defensible. We might pay people more, bas ed on the difficulty of their work or the greater sum that they contribute to a company.IMPORTANCE OF ETHICS Information provided by accountants and auditors is relied upon by people who make decisions virtually companies and organizations. For example, if you are con positionring buying stock in a company you need accurate and reliable information upon which you can base your decision. Lenders such as banks and financial institutions need reliable information to determine if they will loan money to companies. Government agencies such as the Internal Revenue Service collect taxes based on the financial information provided by companies. multitude rely on the accountants who prepare financial reports. Knowledge of ethics will wait on you to make good decisions that will give proper information to those who rely on you. With proper information, better decisions will be made. 2 Ethical Decisions in Accounting Business decisions can affect many people or stakeholders. For example, w hen you make a decision for your company it can affect the owners and employees of the company, banks who provide resources to the company, customers of the company, and people in the community where the company is located.In addition to the effect of your decision on the profits of the company, your decision may as well as have other non-financial factors that have important effects on stakeholders. What if you were take awaying two alternative projects for your company (1) a project that would make significant profit for your company and also pollute the environment with harmful chemicals (2) another project that would earn less profit but would have no negative effects on the environment and would not harm any stakeholders. Which project would you choose? Should non-pecuniary factors enter into the decision abut?If you consider factors that are not fiscal-only in nature, then how do you measure them? Often, the most important factors in a decision are the ones that cannot be e asily measured. Because some things cannot be measured easily, however, does not mean that we should not consider them in our decisions. That is the main point about the importance of ethics in accountingan sentiency that ethics is an important part of business decisions. We oftentimes use the cost-benefit decision model to evaluate business projects. We list the costs on one side and the benefits on the other side and the greater number often decides the project.If the benefits are greater than the costs we accept the project if the costs exceed the benefits the project is rejected. Where does ethics fit into the process? More Profit Less Profit Ethical issues deserve a place in the costbenefit model. It is really quite simple you consider the possible costs and benefits of ethical issues and place them on the scale along with other costs and benefits. Because ethical issues often are difficult or unattainable to measure does not mean that they are not important or that they sho uld not be considered in the decision.A more ethical decision is apparent to pull up stakes if ethical factors are at least brought into the picture when making business decisions. Again, alertness of the ethical implications of business decisions is the key to good business decisions. non all decisions use the cost benefit model. Some decisions involve choosing different courses of action, such as recording accounting transactions when different alternatives are unattached under generally accepted accounting principles.You will need to choose the correct action according to the circumstances involved, and not based solely on the amount of profit your company can make. As the U. S. moves toward adopting international accounting standards, the accounting guidance will be based more on principles than on specific rules. The use of judgment will likely play a more prominent role in making accounting choices and ethical principles will play an even more important role in business d ecisions.Ethical Decisions in Accounting 3 DISCUSSION QUESTIONS 1. Soon you will potassium alum from college and get a job. What ethical codes of conduct will you have to follow? How will your personal values affect your business decisions? What penalties are there for failure to follow ethical standards? 2.Look at the ethical standards of the AICPA or the IMA implyd in section 4 of this module. What principles will guide you in making accounting choices? SECTION 2 THE HISTORY OF ETHICS IN ACCOUNTING In the wake of recent, high-profile accounting scandals, you might think that ethics is a relatively parvenu topic to the field of accounting. Actually, ethics has been an important part of accounting since methods of keeping financial records gained pulsing in the thirteenth century. A code of ethics now applies to all accounting professionals and ethics has become an integral feature of accounting education.BRIEF HISTORY OF ETHICS IN ACCOUNTING Luca Pacioli, an Italian mathemati cian and Franciscan friar, describe a method of keeping financial accounts in 1494 when he published his first book Summa de Arithmetica, Geometria, Proportioni, et Proportionalita (translated everything about arithmetic, geometry, and proportions). In this book he wrote about many topics, including the first ever double-entry bookkeeping system, cost accounting and accounting ethics. Over the years, ethical standards have been developed by many different professional associations, governing body agencies, and private companies.These organizations created ethical codes of conduct which their members or employees are expected to follow when they perform their professional work. An important organization in the early development of accounting ethical standards was the American Association of Public Accountants (AAPA) which was created in 1887. During that year, accounting became a profession, or a group of people whose members must meet certain standards to contain in the practice of accounting. In 1907, the AAPA incorporated professional ethics into its membership rules.However, membership in the AAPA was voluntary and therefore the ethical standards of the AAPA could not be implemented on a widespread basis. The AAPA was later renamed to the American appoint of Certified Public Accountants (AICPA). The code of ethics of the AICPA is a major force in applied accounting ethics in todays business world. The ethical standards of the AICPA are fully described in Section 4 of this moduleEthical Standards for Accounting passe-partouts. Members of the AICPA are Certified Public Accountants (CPAs) who must comply with the AICPAs ethical standards.Noncompliance could result in losing a license to practice as a CPA. 4 Ethical Decisions in Accounting ETHICS IN THE ACCOUNTING PROFESSION In the middle of the twentieth century the Commission on Standards of statement and Experience for Certified Public Accountants identified seven characteristics of a profession 1. A specialized body of knowledge 2. A formal education process to acquire the specialized body of knowledge 3. A standard of professional qualifications to enter the profession 4. A standard of conduct 5. Recognition of status 6. An betrothal of favorable responsibility7.An organization devoted to the advancement of the social responsibility Characteristic 4requiring a standard of conduct and characteristic 6accepting social responsibility, relate most directly to accounting ethics. What standards of conduct should accountants follow and what is the social responsibility accountants have toward the humans they serve? Standards of conduct and accounting codes of ethics as developed by current professional accounting organizations are more fully addressed in section 4 of this moduleEthical Standards for Accounting Professionals.A professional must accept a moral responsibility to act in the best interests of the habitual. This means that business must look beyond profits to the comm on good and be sure not to harm the public good. The purpose of business is to make a profit, but profit should not be the only motive for business. Adam Smith maintained that business should seek a profit within the ethical principles of justice and fairness. Therefore, a business professional must protect the public interest while pursuing the profit motive. Many would argue that acting in the best interest of the public is also in the best interest of the company.In other words, ethics is good for business and makes the company successful even as the company looks out for the common good. ETHICS IN ACCOUNTING EDUCATION Colleges and universities in the U. S. have included ethics in their curricula since Harvard University was founded as the oldest institution of higher learning in the United States. Many colleges since then have included ethics courses in their liberal arts programs. In the 1980s, however, applied accounting ethics really gained momentum and many colleges in the U . S. started incorporating ethics into accounting and business classes.This incorporation of ethics into business and accounting is called applied ethics because the ethical principles learned in the ism classes is applied to practical accounting situations in accounting classes. With applied ethics, students get to add a new dimension to their business decision process overstuffed ethical issues in addition to the hard numbers traditionally used to evaluate business projects. DISCUSSION QUESTIONS 1. Some argue that ethics cannot be taught in college because students have already formed their values when they come to college.Do you think ethics should be included in the accounting curriculum in colleges and universities? Ethical Decisions in Accounting 5 2. Do you feel that good ethical behavior is good for company profits? Describe a situation in which making a decision in the interest of the public good would increase the profitability of a business in the long run. SECTION 3ETH ICS IN THE DECISION PROCESS While you are in college studying accounting you will need to develop a thinking process that will guide you in making business decisions.When you graduate from college and enter the accounting profession you will use the knowledge you learned in college to help your company be successful and to create a better society. Learning accounting is not just about learning numbers, but also about learning to make good decisions.ETHICS IN ACCOUNTING EDUCATION How can you incorporate ethical decision-making when you study accounting? Many organizations exist that provide guidance to universities regarding how to incorporate ethics into accounting education programs. In addition, there are many tools students can use to solve an ethical dilemma. Some ethics tools with links to good web sites are provided at the end of this section.The main way you can bring ethics into your decision process, however, is simply to be aware of ethical issues in accounting situations and to consider these ethical issues as part of your decision model. The need for ethics in education is apparent in commence of recent high-profile business fraud cases. In the United States, the American Assembly of Collegiate Schools of Business (AACSB) is the accrediting body for business schools. AACSB makes the education standards for business schools, and the AACSB standards do include ethics. Because ethical values differ among countries and cultures, there is no universally accepted code of ethics.Nonetheless, there are basic ethical principles that cross international borders, and multinational Federation of Accountants (IFAC) has attempted to provide some guidance for teaching ethics in all countries. International development Standards (IES) prescribe standards of generally accepted ethical principles in the education of accounting students.The standards express the benchmarks that you are expected to meet in your accounting education program. They establish the essen tial elements of the content and process of education and development at a level that is aimed at gaining international recognition, acceptance and application.The standards cannot licitly override local laws and regulations but will provide an authoritative suggestence for informing and influencing local regulators regarding generally accepted ethical principles. The International Accounting Education Standards Board (IAESB) recognizes the wide diversity of culture, language, and educational, legal, and social systems in the countries of the member bodies and of the categorisation of functions performed by accountants. Therefore, each individual member body will determine the detailed requirements of the education programs.International Education Standards for Professional Accountants are intended to establish only 6 Ethical Decisions in Accounting the essential elements on which ethical principles for all professional accountants and accounting students should be based. The IAE SB has issued eight International Education Standards. These standards cover the entry requirements for accounting education programs, as well as the experience and continuing professional development requirements you will be required to follow when you become an accounting professional INTERNATIONAL EDUCATION STANDARDS (IES).IES 1 Entry Requirements to a Program of Professional Accounting Education IES 2 Content of Professional Accounting Education Programs IES 3 Professional Skills IES 4 Professional Values Ethics and Attitudes IES 5 Practical Experience Requirements IES 6 Assessment of Professional Capabilities and competence IES 7 Continuing Professional Development A Program of Lifelong Learning and Continuing Development of Professional Competence IES 8 Competence Requirements for study Professionals IES 4 prescribes the professional values, ethics and attitudes you should acquire during your education program.The aim of this standard is to ensure that you are equipped with the appropriate professional values, ethics, and attitudes to function as a professional accountant. IFAC recognizes that the accountancy profession throughout the world operates in environments with different cultures and regulatory requirements. IFAC has, nevertheless, established an international Code of Ethics for Professional Accountants. Professional values, ethics and attitudes relate directly to IFACs mission to develop and enhance the profession to enable it to provide services of consistently high quality in the public interest.IES 4 requires that university accounting programs should provide you with a framework of professional values, ethics, and attitudes for exercising professional judgment and for acting in an ethical carriage that is in the best interest of society and the profession. The required values, ethics, and attitudes of professional accountants include a commitment to comply with local codes of ethics which should be in conformity with the IFAC Code of Eth ics.The reporting of ethics in accounting education programs should include the nature of ethics differences of rules-based and principles-based approaches to ethics compliance with fundamental ethical principles professional behavior and compliance with expert standards concepts of independence, accountability, and public expectations social responsibility ethics and law consequences of unethical behavior to the individual, the profession, and to society Ethical Decisions in Accounting 7 ethics in relation to business and good governance whistle blowing, conflicts of interest, ethical dilemmas and their resolution.IES 4 recommends that the presentation of ethics may be treated, at least initially, as a bring out subject in the accounting program. As you progress through your accounting curriculum and gain a wider knowledge of other subjects, your business curriculum will likely integrate the various topics covered in other business courses. This will encourage you to look for t he possible ethical implications of problems being discussed in your accounting classes and in other business classes you are taking.As an accounting professional you will also need to understand relevant codes of ethics. You can study ethical standards for accounting professionals using the AICPA code of ethics and the IMA ethical standards. You also can examine the ethical standards of other professions and discuss other potential approaches for ethical standards in the accountancy profession.You know from your own accounting education program that you often learn best when you are actively involved learning process, using techniques such as case studies role playing discussion of selected readings and videos analysis of real life business situations involving ethical dilemmas discussion of disciplinary pronouncements and findings seminars using speakers with experience in corporate or professional decision making Such active learning strategies give you a greater awareness of the ethical implications and potential conflicts that may arise from having to make difficult accounting decisions.It is important for you to learn from your ethical experiences. You should consider an experience, what went well, what did not work, and what approach may be taken in the proximo in similar circumstances.In this way, you will develop a decision model for ethical accounting choices. All accounting professional associations have codes of ethics that you will be required to follow. Unfortunately, fraud and ethical lapses persist in the business world. What can you do to improve ethical behavior? Awareness of ethical issues and a business decision model that incorporates ethics will help you to apply ethics in your business decisions. Just as you learn to apply financial models in your business decisions, you can also learn ethical models and apply them to business decisions.When you practice ethical situations in your accounting and business classes in college you will be b etter prepared to make good ethical decisions after you graduate and enter the accounting profession. How can accounting professionals incorporate ethical thinking into their business decisions? Accountants are good at working with numbers, but they need to look beyond the numbers when evaluating business projects. Ethical issues often are not easily measureable in dollars but their impact on accounting and business decisions may be significant and very important.The first step in the process is to be aware that there may be some ethical issues that could affect your decision. Again, awareness is the key. When you bring ethical considerations into the decision process then at least you are considering the possible ethical implications for people who may be affected by the decision you make. 8 Ethical Decisions in Accounting Accounting professionals who are CPAs must fulfill continuing education requirements to maintain their CPA license. Continuing education in ethics is required i n most states.Many CPA firms and large companies have ethics specialists to provide training and serve as resources to address ethical issues. ETHICS TOOLS What are some tools that you can use right now as an accounting student to help you solve ethical dilemmas and develop a process for making ethically good decisions? One tool might be to follow a defined set of steps in making an ethical decision. The Markkula Center for Applied Ethics at Santa Clara University suggests the following process for making an ethical decision Recognize an ethical issue Get the factsEvaluate alternative actions Make a decision and test it Act and reflect on the outcome There are also many web sites with resources that will help you learn and apply ethical principles. Here are some websites you can review throughout your accounting career Ethics Toolkit www. ethics. org/page/ethics-toolkit Cyber Students www. scu. edu/ethics-center/cydent Toolbox, Quiz, and More http//cba. lmu. edu/academicprograms/cen ters/ethicsandbusiness/toolbox. htm A Framework for Thinking ethically http//www. scu. edu/ethics/practicing/decision/framework. html Ethics Cases.www. scu. edu/ethics/practicing/focusareas/cases. cfm? fam=BUSI DISCUSSION QUESTIONS 1. As an accounting student, how are ethical issues addressed in your accounting curriculum? How can you include ethical issues in a cost-benefit decision model? 2. How should ethical issues be considered in making business decisions? In other words, because ethical factors often cannot be measured, how would you evaluate the effect of ethical issues when you are making a business decision? Ethical Decisions in Accounting 9 SECTION 4ETHICAL STANDARDS FOR ACCOUNTING PROFESSIONALS.Having discussed the importance and history of ethics in accounting and some ethical theories that form the basis of accounting ethics, we now turn our assist to the ethical standards of professional organizations. These are the rules that you will need to follow as an accountin g professional. We will start with a preview of professional associations of public accountants and worry accountants. Then we will look at the American Institute of Certified Professional Accountants Code of Professional Ethics and the Institute of Management Accountants statement of ethical professional practice. PROFESSIONAL ASSOCIATIONS.As an accounting professional you will belong to a professional accounting association such as the American Institute of Certified Professional Accountants (AICPA) or the Institute of Management Accountants (IMA). Professional accounting organizations have codes of ethics that you will be required to follow as a member of that organization. Violations of ethical codes can result in disciplinary action, loss of your professional license, and possible legal prosecution. In addition to the national accounting organizations, states also have licensing bodies and professional associations that have codes of ethical conduct.The National Association of State Boards of Accountancy (NASBA) promotes ethical standards through its Center for Public Trust, www. centerforpublictrust. org. Of course, in addition to the ethical standards of professional associations, you also will be required to follow your companys code of ethics and your personal value system. AICPA CODE OF PROFESSIONAL trade It is important to know that following ethical standards does not mean simply following the law. You need to distinguish between ethical standards and legal rules.As a CPA when you accept membership in the AICPA you assume an obligation of self-discipline above and beyond the requirements of laws and regulations. The Code of Professional Conduct of the AICPA consists of two sections(1) the Principles and (2) the governs. The Principles provide the framework for the Rules, which govern the performance of professional services by members. Principles The six principles of the AICPA code express the professions recognition of its responsibilities to the public, to clients, and to colleagues. 1.Responsibilities In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities. 10 Ethical Decisions in Accounting 2. The public interest Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism. 3. oneness To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense datum of integrity.4. Objectivity and independence A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services. 5. Due care A member should observe the professions technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the members ability. 6.Scope and nature of services A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided. Rules The bylaws of the American Institute of Certified Public Accountants require its members to adhere to the Rules of the Code of Professional Conduct. Members must be prepared to justify departures from these Rules. Rule 101Independence. A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by the AICPA. Rule 102Integrity and objectivity.In the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or qualified his or her judgment to others. Rule 201General standards. A me mber shall comply with the general standards of professional competence, due professional care, planning and supervision, and sufficient relevant data. Rule 202Compliance with standards. A member who performs auditing, review, compilation, management consulting, tax, or other professional services shall comply with standards promulgated by bodies designated by the AICPA.Rule 203Accounting principles. Prohibits a member from expressing an unqualified opinion on financial statements that contain a material departure from GAAP. Rule 301Confidential client information. A member in public practice shall not disclose any confidential client information without the specific consent of the client. Rule 302Contingent fees. A member shall not charge a fee on condition that no fee will be charged unless a specific finding or result is attained. Ethical Decisions in Accounting 11 Rule 501Acts discreditable.A member shall not commit an act discreditable to the profession. Rule 502Advertising an d other forms of solicitation. A member in public practice shall not seek to obtain clients by advertising or other forms of solicitation in a manner that is false, misleading, or deceptive. Solicitation by the use of coercion, over-reaching, or harassing conduct is prohibited. Rule 503Commissions and referral fees. A member shall not for a commission recommend or refer to a client any product or service when the member also performs an audit for that client. Rule 505Form of organization and name.A member may practice public accounting only in a form of organization permitted by law or regulation whose characteristics conform to resolutions of the AICPA. IMA STATEMENT OF ETHICAL PROFESSIONAL PRACTICE The IMA ethical standards are based on the overall principles of honesty, fairness, objectivity, and responsibility. Members must act in accordance with these principles and encourage others in their organization to do so. Based on these principles the IMA requires its members to adhere to the following ethical standards Competence 1. Maintain an appropriate level of professional expertise by continually developing knowledge and skills.2. Perform professional duties in accordance with relevant laws, regulations, and technical standards. 3. Provide decision support information and recommendations that are accurate, clear, concise, and timely. 4. Recognize and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity. Confidentiality 1. Keep information confidential except when disclosure is authorized or legally required. 2. Inform all relevant parties regarding appropriate use of confidential information. Monitor subordinates activities to ensure compliance.