Ethics and Accounting

Ethics and Accounting

What's ethics got to do with accounting? Everything! Believe me,

everything. When

the word ethics is mentioned, what readily comes to mind is the question

of deciding

between doing what is right and doing what is wrong. But doing what is

right versus

doing what is wrong within what context? The idealist will say that

decisions of ethics

should not be conditional. But it is not as simple as it sounds, for

what constitutes "right"

to one person, may be "wrong" to another person. What bridges the gap,

guides, and

clearly distinguishes the line between right and wrong in political,

economic and social

systems are traditions, culture, laws and regulations. Even then, what

is unethical may not

necessarily be illegal, even though there exists a close relationship

between the two.

These dynamics apply to almost every legal profession, accounting not

exempted. This

paper examines the issues of ethics in accounting. It also looks at the

differences and

similarities between financial accounting to managerial accounting.

Introduction

According to Marshall et al, (What the numbers mean, 2003)

accounting involves

"identifying, measuring, and communicating economic information about an

organization

for the purpose of making decisions and informed judgments." This

definition clearly

shows that there are stakeholders in the information generated by

accountants. These

include managers, shareholders, oversight and law enforcement agencies,

and the general

public. Since these entities rely on the reports generated by

accountants for critical

decision making, it is important that the information be reliable,

objective, and presented

in an easy to understand format. Ignoring or circumventing these values

renders the

information generated unreliable. It can lead to devastating

consequences as evidenced

by events which led to recent legislation such as the Sarbanes-Oxley Act

which seeks to

make top management of organizations accountable for the financial

statement produced

by their organizations through the internal controls they develop and

enhance, and to

oversee auditors who hitherto could have business interests other than

auditing in the

organizations they were responsible for auditing.

Financial versus Managerial accounting

Managerial accounting refers to the management of company resources

while

applying management accounting principles in decision making. One

important

characteristic of management accounting is that, it is internal to the

organization even

though external information such as financial accounting reports will

have some amount of influence.

Financial accounting refers to the identification, recording,

computation, and reporting of financial information to users who may have a stake in the

information reported. An important characteristic of this information is that it is geared

towards users external to the company.

A financial accountant generates information for external

consumption. These products include the income statement, the balance sheet, the statement