Ethics: The Cornerstone of Professionalism & Life's Standards - Essay Sample

Introduction

Ethics is defined as a set of principles that govern an individual's conduct as they undertake a particular activity. Ethics provides a basis for always doing the right thing, where an individual can measure up to a given set of standards, which qualifies their behavior. Ethics are applicable in life generally and in professional life. In a given profession, ethics are meant to guide the professional conduct of experts in a field (Melé et al., 2017). Ethical behavior is built into the experts' code of conduct, which enables them to adhere to a given set of rules and regulations. That allows them to engage in systematic activities, hence making their work more reliable. In this case, ethics is used in accounting and financial management. Accounting is majorly concerned with the systematic process of recording business transactions. On the other hand, financial management is about planning, controlling, directing, and analyzing financial information to be used in decision making. In both accounting and financial management, some standards are developed meant to enable professionals to have their work being reliable (West, 2017). Ethics has had an impact on the accounting and financial management framework that is being used globally. That can be highlighted through multiple examples.

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The first impact that ethics has had is the enhancement of transparency in accounting, which enables the users of the financial statements can get relevant information. A transparent financial statement is a clear one, and an individual can get all the information they need from the face of it (Mabil, 2019). Based on ethics, there is the requirement that all relevant information is presented on the financial statement. There is material information in the reports, which is vital when an individual uses the financial statements for decision making. With transparency, which is enhanced by ethics, all information disclosed on the financial statement should be understood. One of the practices that increase transparency and ethics in accounting and financial reporting is auditing. Financial statements are scrutinized to ensure that accounting standards have been adhered to in the preparation of the reports. Various measures can be based on determining the transparency of financial statements. That includes, that is not limited to, International Financial Reporting and Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) (Todorovic, 2018). The standards are based on ethics, enhancing the truthful representation of information in accounting, and the products of financial reporting. Based on ethics, there has been the preparation of more transparent financial statements of late.

The other effect that the application of ethics has had in accounting and financial reporting is the protection of stakeholder interest. Financial statements that are prepared are relied on by various parties within an organization and outside (Melé et al., 2017). For example, the shareholders need to know the profits that an organization has earned over a given operating period. That enables them to gauge the health of the entity as a going concern. When financial reporting and accounting are done unethically, there is a high probability that the information they are presented with may be false. They may have an inaccurate representation of the company's welfare. However, when there is the application of ethics in accounting and financial reporting, the organization's stakeholders will have reliable information. On that basis, they can use financial information for plans and safeguarding their financial and non-financial interests in the organization (As et al., 2019). However, when there is unethical conduct in the accounting and financial reporting framework that may lead to dissatisfaction of stakeholder interests being frustrated. An example of the use of unethical practices in accounting is Enron. There was the use of unethical accounting practices, which, in the long run, led to the collapse of the organization (Salaudeen et al., 2015). Consequently, their interests were not represented well by the people in charge of accounting and financial reporting in the organization.

The other issue that is relevant to ethics, accounting, and financial management is enhancing the ease of comparison of the performance of an entity over time and with other organizations. Ethics is the basis of the development and revision of the accounting and financial reporting principles that are used (Jaijairam, 2017). When entities use the same accounting standards, it is easier to identify a firm that is performing better. On that basis, there can be an investment of financial assets in the firm that is performing better. That will guarantee the shareholders and interested parties better returns in the long run. Furthermore, corrective measures can be taken to ensure the underperforming firm measures up with the firms performing better than it. Moreover, based on the developed standards, the comparison of a firm's performance over some time is more straightforward. That is because of the consistency in accounting standards (Tschopp et al., 2015). That enables corrective measures to be taken, or keep up with the excellent performance that the entity is experiencing. Without the basis of ethical conduct, the analysis of an organization's performance would have been a challenge because of the lack of a justifiable basis of decision making.

Accountability is the other issue resulting from the application of ethics and financial reporting for entities. Responsibility is based on expectations that an individual is tasked with. For example, the profits earned or turnover might be the basis of accountability that a manager is held accountable (Flower et al., 2018). Using unethical means, there can be the doctoring of the books of account to hide poor performance. Furthermore, there can be an understatement of achievements so that there can be lower targets set. However, with ethics, an organization is capable of holding the employees accountable in a better way. The reliability of the information that is presented for accountability should be based on ethical practice. There will be falsehood in holding any individual accountable without the use of ethics in accounting and financial reporting. Based on ethics, however, an organization can be sure that the agents in charge are responsible and take care of the organization's interests.

Ethics is an essential component when developing the code of ethics for professional accountants. Various aspects of ethics are incorporated into the code of ethics that guides the operations of accountants. For example, there is the aspect of truthful representation of facts. The recorded figures should be presented in a way that is true so that any party that relies on them in decision making cannot face any risk. Based on that, there is materiality, where information that is essential in decision making should be disclosed (Tassadaq et al., 2015). Material information in accounting and financial reporting is that which the party using the financial statement can rely on in decision making, and has a tangible impact. When material information is misrepresented, then that turns out to be unethical. The parties that rely on such information may end up suffering losses, which means the accountants will be held accountable on that basis. In financial reporting, when material information is misrepresented, a project can be adopted, leading to losses. Therefore, the use of ethics in accounting and decision making can be highlighted as being essential.

Ethics is the basis of most activities in professional practice, which enables orderliness in the conduct among professionals. When a profession is based on ethics, there is the trust that is instilled in the people that depend on it. For example, the use of ethics is essential for accountants and finance experts, which protects the interests of various people. Without ethics, people and organizations would be defrauded of their financial resources. That would lead to a lack of motivation by investors and other parties to engage in business activities. The impact that ethics has had on global accounting and financial management is creating orderliness and reliability. With more accountability and trust within the accounting and financial reporting framework, there is the enhancement of better practice within the accounting profession.

References

AS, T., & GA, A. (2019). THE EFFECT OF STANDARDS OF ETHICAL CONDUCTION FOR MANAGEMENT ACCOUNTANTS ON FINANCIAL REPORTING QUALITY. Journal of Internet Banking and Commerce, 24(2), 1-20. http://www.icommercecentral.com/open-access/the-conduct-for-management-accountants-on-financial-reporting-quality.php?aid=87650

Flower, J., & Ebbers, G. (2018). Global financial reporting. Macmillan International Higher Education. https://books.google.com/books?hl=en&lr=&id=D1JdDwAAQBAJ&oi=fnd&pg=PR1&dq=financial+reporting+&ots=xJKA9twIPe&sig=QBlnAruIfDFY9mqTwj3yZUOwnLI

Jaijairam, P. (2017). Ethics in Accounting. Journal of finance and accountancy, (172705), 1-13. https://www.researchgate.net/publication/321167489_Ethics_in_Accounting

Mabil, A. N. (2019). Investigating effects of accounting ethics on quality of financial reporting of an organization: case of selected commercial banks in South Sudan. Mediterranean Journal of Social Sciences, 10(1), 177-177. http://www.richtmann.org/journal/index.php/mjss/article/view/10380

Melé, D., Rosanas, J. M., & Fontrodona, J. (2017). Ethics in finance and accounting: Editorial introduction. Journal of Business Ethics, 140(4), 609-613. https://link.springer.com/article/10.1007/s10551-016-3328-y

Salaudeen, Y. M., Ibikunle, J., & Chima, E. I. (2015). Unethical accounting practice and financial reporting quality: Evidence from Nigeria. International Journal of Academic Research in Accounting, Finance, and Management Sciences, 5(2), 143-150. https://www.researchgate.net/profile/Yinka_Salaudeen2/publication/310765190_Unethical_Accounting_Practice_and_Financial_Reporting_Quality_Evidence_from_Nigeria/links/5b533eeb45851507a7bb88ba/Unethical-Accounting-Practice-and-Financial-Reporting-Quality-Evidence-from-Nigeria.pdf

Todorovic, Z. (2018). Application of Ethics in the Accounting Profession with an Overview of the Banking Sector. Journal of Central Banking Theory and Practice, 7(3), 139-158. https://content.sciendo.com/downloadpdf/journals/jcbtp/7/3/article-p139.xml

Tassadaq, F., & Malik, Q. A. (2015). Creative accounting & financial reporting: model development & empirical testing. International Journal of Economics and Financial Issues, 5(2). https://d1wqtxts1xzle7.cloudfront.net/51116945/1047-3565-1-PB.pdf?

Tschopp, D., & Huefner, R. J. (2015). Comparing the evolution of CSR reporting to that of financial reporting. Journal of Business Ethics, 127(3), 565-577. https://link.springer.com/article/10.1007/s10551-014-2054-

West, A. (2017). The ethics of professional accountants: an Aristotelian perspective. Accounting, Auditing & Accountability Journal. https://www.emerald.com/insight/content/doi/10.1108/AAAJ-09-2015-2233/full/html