Question

Discuss the importance of ethics in accounting. Why is it important for accountants to maintain high ethical standards? What are the potential penalties to the accountant and the accountant’s employer for behaving in an unethical manner?

Answer 1

Importance:

Ethics in accounting make a business reliable or trustworthy, since it becomes corruption-free. A business needs to develop such goodwill in the market in order to do business, expand, and make growth. This is the importance of ethics.

Why important:

This is important because of minimizing “conflict of interest”.

There are so many stakeholders (like owners, suppliers, lenders, tax authorities, and management) involved with the organization; such as lenders want good progress of business so that their dues are paid in time, management wants adequate amount of profits so that shareholders could be kept quiet, etc.

Accountants are protectors of all these interests; therefore they need to have high ethics in order to produce free-and-fair accounting reports (such as financial statements).

Penalties (accountants): their jobs may be terminated by their employers; if it becomes a court case, they may be fined and/or imprisoned in the extreme situation.

Penalties (accountants): employer’s business could be stopped; if it is a court case the employer may be fined, his/her personal property could be taken by the court, or may be imprisoned.