Topics, 100 Accounting Resources, 100 Reading List
Ethics plays a huge role in accounting as it does in most professions, in part, because ethics deals with trust and trust is an essential component of any business transaction. The concept of ethics is very broad, has been studied intensely since ancient times, and is an area which still has many open questions, but ethics related to accounting can be narrowed from the broader discussion in some ways.
One way to think of ethics as it relates to a profession is by implementing a kind of categorical imperative, acting in a way that we would wish to be universal for the entire profession. For example, stealing could benefit an individual but if everyone steals everyone is worse off and therefore stealing would be wrong.
Similarly acting in a way that is misleading could lead to gains for an individual but doing so harms the profession and is therefore wrong. Most professions can apply a concept like this. two of the oldest professions are law and medicine. The reason professions are needed in areas like law, medicine, and accounting is because they deal with specialized knowledge, knowledge most people do not have and that many are dependent on at some point in their lives. An uneven distribution of knowledge can cause incentives for individuals to seek short term gains through deceit.
For example, somebody claiming to know medicine could administer medicine that is not effective and the patient would not know, a patient having no choice but to trust the expertise of the doctor. If a physician abuses trust by administering remedies that are not effective, they are profiting off the name of the profession, from the brand of the occupation, and if this practice is done enough, it will result in a lack of trust in medicine.
A similar scenario can be painted for many areas of accounting, accounting having advanced to a specialized field, one that most do not understand, but are forced to deal in at some point or another. The need for trust drives and incentivizes a profession to self-regulate, to build a brand. One way the accounting profession self-regulates is by requiring different certifications to practice in different areas, certifications like a certified public accountant CPA license. A certification process helps provide the public with a level of trust that an individual has some basic understanding of concepts they are dealing with and provides ethical standards that must be met.
An example of the need for trust in accounting is when investors use financial statements to make investment decisions. Publicly traded stocks have an increased need for transparency in their financial reporting because their stock is being sold and traded by the public, a huge benefit to both companies and investors, providing capital to companies, and opportunities for gain to investors.
For an individual to invest, however, they need to analyze their options, and financial statements are the primary tool for this analysis. If investors do not have confidence in the numbers reported on the financial statements, do not understand how the numbers are reported, or cannot compare the numbers to related companies, investment transactions will decline due to a lack of information and trust.
Fraud is. . .
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