Question

Why are ethics and professional conduct so important in the accounting professions?

Answer 1

Financial Statement of an entity is not used only internally but it is also used externally. There are several users of the financial statement including government authorities, employees, suppliers, investors etc. Hence, financial statement should give true and fair view of financial position and results. To give financial statement true and fair view entity need to follow applicable financial reporting framework.

It is the responsibility of management of the entity to prepare financial statement. Such financial statement should incorporate all transaction and it should be measured and disclosed properly. Also, such financial statement shall disclose all accounting policies used during the preparation of such financial statement in notes to accounts.

Management need to disclose any departure from the accounting policies.

In history, it has been seen that management was engaged in window dressing of the financial statement i.e.. overstating assets and/or income and understating liabilities and/or expense.

Hence, role of accounting profession is very crucial in preparation of financial statement to give true and fair view. Such accounting professional need to follow ethics and professional conduct while performing his/her professional duties. In case such professional comes to know about any material misstatement then s/he needs to report to relevant authorities as per financial reporting framework and applicable statute.