Ethics in Accounting and Finance
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Ethics in Accounting
Article · November 2017
CITATIONS
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Paul Jaijairam
City University of New York - Bronx Community College
5 PUBLICATIONS 44 CITATIONS
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Ethics in Accounting
Article · November 2017
CITATIONS
9
READS
81,023
1 author:
Some of the authors of this publication are also working on these related projects:
Ethics in Accounting View project
Paul Jaijairam
City University of New York - Bronx Community College
5 PUBLICATIONS 44 CITATIONS
SEE PROFILE
All content following this page was uploaded by Paul Jaijairam on 20 November 2017.
The user has requested enhancement of the downloaded file.
172705 – Journal of Finance and Accountancy
Ethics in accounting, Page 1
Ethics in Accounting
Paul Jaijairam
Bronx Community College
ABSTRACT
The current information age and business world requires the accounting profession to
uphold transparency and provide accurate financial reporting. Accountants therefore, who are
responsible for producing accurate, concise, and timely financial reports, must uphold the highest
standards of ethical responsibility. However, ethical behavior among accounting professionals is
not always assured. The current research examines whether there is a strong mutual
interdependence between the accounting profession and the role of the accountant. The study
also examines the role of professional accounting bodies’ in promoting and enhancing ethics in
the global accounting profession. Results indicate that the accountant’s role is dependent of the
accounting profession ethics.
Keywords: Ethics, Accounting, Sarbanes-Oxley Act, Earnings Management, Ethical Accounting
Copyright statement: Authors retain the copyright to the manuscripts published in AABRI
journals. Please see the AABRI Copyright Policy at http://www.aabri.com/copyright.html
Ethics in accounting, Page 1
Ethics in Accounting
Paul Jaijairam
Bronx Community College
ABSTRACT
The current information age and business world requires the accounting profession to
uphold transparency and provide accurate financial reporting. Accountants therefore, who are
responsible for producing accurate, concise, and timely financial reports, must uphold the highest
standards of ethical responsibility. However, ethical behavior among accounting professionals is
not always assured. The current research examines whether there is a strong mutual
interdependence between the accounting profession and the role of the accountant. The study
also examines the role of professional accounting bodies’ in promoting and enhancing ethics in
the global accounting profession. Results indicate that the accountant’s role is dependent of the
accounting profession ethics.
Keywords: Ethics, Accounting, Sarbanes-Oxley Act, Earnings Management, Ethical Accounting
Copyright statement: Authors retain the copyright to the manuscripts published in AABRI
journals. Please see the AABRI Copyright Policy at http://www.aabri.com/copyright.html
172705 – Journal of Finance and Accountancy
Ethics in accounting, Page 2
INTRODUCTION
Background
The Twenty-First Century has witnessed a surprising and disheartening number of
accounting scandals, implying a significant failure in the management oversight and reporting
process, despite the existence of the professional ethics standards developed by the Institute of
Management Accountants (IMA). In response to those failures, it became apparent to
organizations that a critical review of the relationship between the accounting role and
accounting professional was required. Organizations are now re-examining ethics in the
accounting profession with a renewed interest in training and developing individuals to reinforce
strong ethical principles and behavior.
Due to the sensitivity around a company’s financials, a study of accounting ethics is
required as it is an essential aspect of the roles of auditors and accountants in preparation of
financial statements. Generally, the term ethics refers to morals or a code system that strongly
offers the criteria for distinguishing between wrong and right (Banerjee & Ercetin, 2014).
Ethical dilemmas are common occurrence in the workplace and originate from a situation where
a group or an individual must make a decision between two options, where the answer is not
always black or white. For managers, investors and even small-business owners, it is imperative
to learn accounting ethics and their functions to avoid financial and legal dilemmas due to the
misrepresentation of financial statements.
Financial statements, created with the element of independence and upholding the
required ethical attributes, minimize errors and generate suitable information for the users of
financial statements (Stice & Stice, 2012). Users of financial statements rely on the accuracy,
fair, and truthful representation of financial statements and auditors’ opinions regarding whether
the statements represent the fair value of the organization (Ronen, 2008). Even auditors and
accountants, who are responsible for the integrity of a company’s financials, can utilize their
ethics knowledge to overcome the ethical dilemmas that they face as they perform their roles.
Ultimately, the role of accountants and their relationship to the production of clean and accurate
financial statements enhances the reputation of the company in relation to investors, creditors,
and other users (Mukarushem & Kule, 2016).
Statement of the Problem
Scholars have not been able to make clear assertions regarding the two most important
variables that impact ethics amongst accounting professionals: organizational codes of ethics and
individual personal values. Currently, a problem exists in establishing whether it is the
organizational culture that influences ethical practices among accounting professionals most or
whether it is the individual accountants’ or auditors’ outlook on ethics. It is difficult to ascertain
the real determinant of accounting ethics among professionals and to understand what pushes
them to practice and uphold ethical behavior in their roles. Further, it is important to note that
ethics in the accounting profession is not a mere compliance requirement. It must either be
embedded within an organization’s culture or in an individual’s attitude. The current study seeks
to resolve the problem through opinion research in the form of a survey.
Ethics in accounting, Page 2
INTRODUCTION
Background
The Twenty-First Century has witnessed a surprising and disheartening number of
accounting scandals, implying a significant failure in the management oversight and reporting
process, despite the existence of the professional ethics standards developed by the Institute of
Management Accountants (IMA). In response to those failures, it became apparent to
organizations that a critical review of the relationship between the accounting role and
accounting professional was required. Organizations are now re-examining ethics in the
accounting profession with a renewed interest in training and developing individuals to reinforce
strong ethical principles and behavior.
Due to the sensitivity around a company’s financials, a study of accounting ethics is
required as it is an essential aspect of the roles of auditors and accountants in preparation of
financial statements. Generally, the term ethics refers to morals or a code system that strongly
offers the criteria for distinguishing between wrong and right (Banerjee & Ercetin, 2014).
Ethical dilemmas are common occurrence in the workplace and originate from a situation where
a group or an individual must make a decision between two options, where the answer is not
always black or white. For managers, investors and even small-business owners, it is imperative
to learn accounting ethics and their functions to avoid financial and legal dilemmas due to the
misrepresentation of financial statements.
Financial statements, created with the element of independence and upholding the
required ethical attributes, minimize errors and generate suitable information for the users of
financial statements (Stice & Stice, 2012). Users of financial statements rely on the accuracy,
fair, and truthful representation of financial statements and auditors’ opinions regarding whether
the statements represent the fair value of the organization (Ronen, 2008). Even auditors and
accountants, who are responsible for the integrity of a company’s financials, can utilize their
ethics knowledge to overcome the ethical dilemmas that they face as they perform their roles.
Ultimately, the role of accountants and their relationship to the production of clean and accurate
financial statements enhances the reputation of the company in relation to investors, creditors,
and other users (Mukarushem & Kule, 2016).
Statement of the Problem
Scholars have not been able to make clear assertions regarding the two most important
variables that impact ethics amongst accounting professionals: organizational codes of ethics and
individual personal values. Currently, a problem exists in establishing whether it is the
organizational culture that influences ethical practices among accounting professionals most or
whether it is the individual accountants’ or auditors’ outlook on ethics. It is difficult to ascertain
the real determinant of accounting ethics among professionals and to understand what pushes
them to practice and uphold ethical behavior in their roles. Further, it is important to note that
ethics in the accounting profession is not a mere compliance requirement. It must either be
embedded within an organization’s culture or in an individual’s attitude. The current study seeks
to resolve the problem through opinion research in the form of a survey.
172705 – Journal of Finance and Accountancy
Ethics in accounting, Page 3
Objectives of the Study
The study explores how ethics entrenched in organizational cultures impacts the conduct
of accounting professionals in the execution of their roles. The research also reviews the
influence of personal attitudes towards the adherence to ethical codes by accounting
professionals. By utilizing the Rest Model or the “Four Component Model of Moral Sensitivity,”
the study aims to recognize the influential and significant factors that motivate accountants.
Developed in 1994 by Narvaez and Rest, the model is comprised of four components of
ethical decision-making: moral sensitivity, moral judgement, moral motivation, and moral
character (Schwartz, 2013). The first step relates to moral sensitivity and involves ethical
evaluation which is determined by a professional’s ethical sensitivity to review a situation at
hand based on their perception and interpretation (Jeffrey, 2015). In this case, an accounting
professional will have to review a decision to be made in consideration of whom his or her
decision affects and how it will affect themselves. It requires a careful evaluation of whether
their decision will include fairness. The second step of the model includes the moral judgment
component which is influenced by a professional's moral motivation. The third step relates to the
moral motivation of an individual and involves the decision-making process. Here, a professional
decides the right course of action to take but in consideration of ethics and morals (Cooper,
2001). The decision made however, is influenced by a professional’s intention and moral
motivation. Finally, in the last step of the model, a professional must execute or implement their
judgment or intention as determined by their moral character. Moral behavior requires proper
functioning of all the components of Rest’s Model.
Consequently, in consideration of the model’s components, the research also examines
the undeniable role of ethical motivation combined with the emergence of ethical conduct that
originates within one’s self. Furthermore, the research re-examines the importance of adherence
to professional ethics in the accounting role and its relevance to the well-being of corporate
accounting procedures.
Scope of the Study
The research focuses on the responses and views of accountants in relation to their
dependency or independency on the accounting profession’s ethics as embedded in the
organizational culture. The study also evaluates the impact of accounting professionals’ attitude
towards ethics on their decision making, judgment, and adherence to professional conduct
requirements. Other aspects that may influence an accounting professional’s ethical conducts is
not included in the study. Further, the study only focuses on the views of financial professionals
such as accountants, financial managers, auditors, financial consultants, and other professionals
who are directly engage in the accounting role on a frequent basis. Thus, views from other
professionals who do not actively and directly play a role in the accounting field are not included
in the study. The survey purposely focuses on professionals within the financial services
industry, and does not consider those who are working in other industries.
Significance of the Study
The study supplements the existing literature on ethics in accounting by contributing new
information regarding the role of organizational culture in imparting ethical conduct among
Ethics in accounting, Page 3
Objectives of the Study
The study explores how ethics entrenched in organizational cultures impacts the conduct
of accounting professionals in the execution of their roles. The research also reviews the
influence of personal attitudes towards the adherence to ethical codes by accounting
professionals. By utilizing the Rest Model or the “Four Component Model of Moral Sensitivity,”
the study aims to recognize the influential and significant factors that motivate accountants.
Developed in 1994 by Narvaez and Rest, the model is comprised of four components of
ethical decision-making: moral sensitivity, moral judgement, moral motivation, and moral
character (Schwartz, 2013). The first step relates to moral sensitivity and involves ethical
evaluation which is determined by a professional’s ethical sensitivity to review a situation at
hand based on their perception and interpretation (Jeffrey, 2015). In this case, an accounting
professional will have to review a decision to be made in consideration of whom his or her
decision affects and how it will affect themselves. It requires a careful evaluation of whether
their decision will include fairness. The second step of the model includes the moral judgment
component which is influenced by a professional's moral motivation. The third step relates to the
moral motivation of an individual and involves the decision-making process. Here, a professional
decides the right course of action to take but in consideration of ethics and morals (Cooper,
2001). The decision made however, is influenced by a professional’s intention and moral
motivation. Finally, in the last step of the model, a professional must execute or implement their
judgment or intention as determined by their moral character. Moral behavior requires proper
functioning of all the components of Rest’s Model.
Consequently, in consideration of the model’s components, the research also examines
the undeniable role of ethical motivation combined with the emergence of ethical conduct that
originates within one’s self. Furthermore, the research re-examines the importance of adherence
to professional ethics in the accounting role and its relevance to the well-being of corporate
accounting procedures.
Scope of the Study
The research focuses on the responses and views of accountants in relation to their
dependency or independency on the accounting profession’s ethics as embedded in the
organizational culture. The study also evaluates the impact of accounting professionals’ attitude
towards ethics on their decision making, judgment, and adherence to professional conduct
requirements. Other aspects that may influence an accounting professional’s ethical conducts is
not included in the study. Further, the study only focuses on the views of financial professionals
such as accountants, financial managers, auditors, financial consultants, and other professionals
who are directly engage in the accounting role on a frequent basis. Thus, views from other
professionals who do not actively and directly play a role in the accounting field are not included
in the study. The survey purposely focuses on professionals within the financial services
industry, and does not consider those who are working in other industries.
Significance of the Study
The study supplements the existing literature on ethics in accounting by contributing new
information regarding the role of organizational culture in imparting ethical conduct among
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