An Analysis of Accounting Ethics
Ethics refers to the discipline that deals with the bad and the good and also with the moral duties as well as moral obligations (Stolowy and Breton 2004). As Weidmann and Lenzen (2006) points out, ethics entails doing the right thing. Accounting ethics is mainly in the area of applied ethics and at the same time, it is also a part of business ethics as well as human ethics. It is worth pointing out that the kind of work that is always carried out by the auditors, as well as the accountants generally needs very huge ethics levels (Stolowy and Breton, 2000). The shareholders of the firms, the potential ...view middle of the document...
Various professional organizations like the American Institute of Certified Public Accountants, as well as Institute of Management Accountants have various codes of ethical conduct that the members have to adhere to (Matis, Vladu and Negrea, 2009; Weidmann and Lenzen, 2006).
Accounting ethics play a major role in the maintaining the faith of the public. There have been several accounting scandals in the recent past and therefore, transparency concerning the accounting methods, as well as the practices of firms has generally been increasingly significant to the public in general. A firm which offers very clear explanation of the methods of accounting that are employed in the preparation of the financial statements generally appears to be highly ethical, as well as trustworthy in comparison to the firms which do not offer information like such. In most cases, the more trustworthy and ethical a firm appears, the more likely that the firm will attract newer investors (Balaciu, Bogdan and Vladu, 2009; Balaciu, Bogdan and Vladu, 2009). Datar and Foster (2006) stated, engagement in accounting ethics also plays a major role in making the firms to avoid various regulatory investigations, as well as sanctions. When the financial reports of a firm has suspicious accounting techniques, it may result into regulatory investigation by various regulatory bodies, and when the regulatory bodies establish any kind of accounting malfeasance on the company’s part, or on the accountant’s part, they may result into costly fines, as well as sanctions against the firm and the CPA may lose the license (Balaciu, Bogdan and Vladu, 2009; Labardin and Marc, 2009; Weidmann and Lenzen, 2006; James, Van & John, 2005; Charles, Horngren and Sudem, 2001).
Oler, Mitchell and Christopher (2010) stated that, through the engagement in ethical accounting practices, companies are in a good position to avoid volatility of the stock price. When firms become accused of engaging in accounting practices that are unethical, the investors always commence selling off shares so as to shun a total loss on their investments. This brings about a reduction in price for every share. On the contrary, as certain investors sell their shares, the market speculators, as well as the high-risk investors might be buying shares at prices that are very low and this may result into temporary rise in the price of the shares (Asish, 2007). It is worth pointing out that constant share price volatility may bring about investor panic besides inducing a big selloff of the shares of the firm. When the price for every share drops to a level that is very low for a long time, the firm becomes delisted from the respective stock exchange. The credit rating may go down and the firm will have a difficult time getting the money that it requires to continue with its operation (Uşurelu, Marin, Danailă and Loghin, 2010).
The benefits that are gained by firms as a result of engaging in ethical accounting...