In this unit on ethics and integrity, we are going to be looking at the concepts of ethics and integrity, including what this means and why it plays an important role in our work as accounting and bookkeeping professionals. We will also be looking at some of the codes of conduct and professional standards that apply to accountants and bookkeepers, and some of the key principles that define ethical practice. We will also be exploring some common ethical dilemmas faced by accountants and bookkeepers, what ethics and integrity looks like in accounting and bookkeeping, and tips for how you can always act with ethics and integrity during your practice as an accountant or bookkeeper.
What is ethics and integrity?
Ethics and integrity are essential principles that govern the work of any professional accountant or bookkeeper. When we act with ethics and integrity, we ensure that we are always doing the right thing by acting in a way that is ethical, honest, and moral.
Acting with ethics and integrity can also mean things like:
- Communicating in a way that is open and honest
- Being reliable and dependable
- Being trustworthy (particularly when it comes to completing tasks that are confidential, classified, sensitive, or which come with some level of risk)
- Showing respect for others
- Taking responsibility and accountability for your own work
- Owning up to your mistakes and failures
- Making ethically sound decisions
- Taking your job and what you do seriously
- Having a strong work ethic, and commitment to producing high-quality and accurate work
- Being clear about the responsibilities and obligations you have in your role
- Staying true to the moral and ethical standards that govern not just your workplace, but the accounting field in general
Why are ethics and integrity important?
Acting with ethics and integrity is essential in accounting and bookkeeping for several reasons. Not only do ethics and integrity help to prevent errors (which could prove very costly down the track!), but these qualities also help to prevent financial losses, avoid unethical or illegal activities, and achieve legal compliance.
Ethics and integrity can also help to protect the professional reputation of both yourself and the accounting or bookkeeping practice you work for, as well as that of the industry as a whole.
Common ethical dilemmas faced by accountants and bookkeepers
As you can see, it is essential that accountants and bookkeepers operate with a high degree of ethics and integrity. This is particularly important when you consider the nature of an accountant or bookkeeper’s work, which involves the handling of clients’ finances, exposure to sensitive information, and an obligation to ensure or work with client to help them meet their obligations legally and financially. It is important that accountants and bookkeepers are committed to a high level of behaving ethically and with integrity. There have been numerous instances of accountants and bookkeepers misusing power, abusing client finances, which can extend beyond serious legal repercussions. Recently PWC has been involved in a major conflict of interest, whereby obtaining information and in turn used this information to their advantage.
Before we get into the more technical side of the ethics for accounting and bookkeeping, you may find it useful to think about some of the different ethical dilemmas that you may come across in practice.
There are many different ethical dilemmas that may be faced by accountants. A lot of the time, these ethical dilemmas involve an accountant or bookkeeper becoming aware of unethical or illegal behaviour, or being pressured to act in a way that is unethical or which does not align with their moral values.
Some examples of unethical behaviours or ethical dilemmas that accountants and bookkeepers may be exposed to in the course of their work include:
- Conflicts of interest (that is, where an accountant or bookkeeper has a relationship with another person that might make them biased, prevent them from behaving objectively, or cloud their ability to make sound judgements and decisions)
- Requests from clients to “cook the books” (where accountants or bookkeepers are asked to handle incomplete or inaccurate financial records, or manipulate figures to present a better picture of their client’s financial position)
- Fraud (or the deception of others for financial gain)
- Tax evasion or avoidance (where a client may make attempts to avoid paying the true amount of tax that they owe)
- Money laundering (where the origin of financial assets is disguised, to hide the fact that they came from illegal activity)
- Corruption and bribery (where one conducts themselves in a way that is dishonest or fraudulent, with the latter occurring if money or another item of value has been offered in exchange)
- Breaches of confidentiality or mishandling of sensitive information (including the accidental or deliberate disclosure of this information to third parties)
- Being pressured by management to overcharge clients
- Being asked to turn a blind eye to actions or behaviours that are dishonest, illegal, or unethical
As you can see, there are a number of different ethical dilemmas that accountants and bookkeepers may commonly face in practice. Fortunately though, having a solid understanding of ethics and integrity can go a long way in helping accounting and bookkeeping professionals to navigate these challenging situations, and ensure they do what’s right. This will protect not just them, but also their clients and employer, from potential legal and financial repercussions in future.
Examples of ethics and integrity in accounting and bookkeeping
Now that we have looked at common ethical dilemmas faced by accountants and bookkeepers in a general sense, let’s now look at some specific examples of ethical dilemmas that you could potentially come across in the workplace. For each one, we will be exploring how an employee with ethics and integrity would respond, as well as how an employee who lacks ethics and integrity might respond.
As one example to illustrate why ethics and integrity are important qualities in accounting and bookkeeping, let’s say that an employee made a mistake on their client’s tax return which resulted in them not paying enough tax on their earnings for the year. In this situation, an employee with ethics and integrity would take responsibility, and own up to their mistake by telling their manager or supervisor what happened. Once their mistake is out in the open, they are then able to start taking the steps necessary to correct their error - for example, by apologising to the client, lodging an amendment for their tax return, and ensuring that they pay the correct amount of tax to ensure they remain legally compliant. By comparison, an employee who lacks ethics and integrity might deny or try to cover up their mistake, rather than taking responsibility for it. However, this can have a number of negative repercussions - not just for the accounting or bookkeeping practice (who may appear unprofessional or unethical if their mistake is later discovered), but also for the client. Whereas the employee who took responsibility for and owned up to their mistake was then able to fix it to prevent the client from facing any repercussions, if this employee does not admit to their mistake, the client could face some serious repercussions in future if the mistake is later found. This could include a large tax debt or other financial penalties for non-compliance.
As another example, an employee at an accounting or bookkeeping practice might be pressured by their client to “cook the books”, or do some “creative accounting” to paint a better financial picture of their organisation’s financial position. An employee with a strong sense of ethics and integrity would know that this is both unethical and illegal, so would refuse to honour this request. Instead, they might offer their client more ethical or legal options to paint the best financial picture of their organisation possible. On the other hand, an employee who lacks ethics and integrity might go along with the client’s request by helping to falsify their accounts. Although this unethical and illegal practice might seem to benefit the client in the short term, it is fraud. If discovered in future, this could open both the client and the accountant and their firm up to potential legal and financial repercussions in future, which is why it is important that accountants and bookkeepers are able to recognise and avoid being party to this type of illegal activity.
As a similar example, when working as an accountant or bookkeeper, you might notice that a client’s financial records or statements seem to have been doctored or falsified. This is, of course, both unethical and illegal, and constitutes fraud. An employee who has ethics and integrity would know that it is important to investigate these inconsistencies and report them to their manager or supervisor, before reporting it to the appropriate authorities if need be. By comparison, an employee who lacks ethics and integrity would be more likely to turn a blind eye, even though doing so could have consequences for both them and their client in future.
Finally, as one more example, an accountant or bookkeeper might be offered a bribe by a client. This could be money, or another high value item. This bribe might be offered in exchange for falsifying their records, underreporting their tax liability, helping them to launder money, or something similar. Not only are all these scenarios in themselves unethical and highly illegal, but the bribe is another example of unethical behaviour. It is frowned upon for accountants and bookkeepers to accept bribes, as doing so could impact their capability to make objective decisions, behave ethically and with integrity, and act in the best interests of all involved. An ethical accountant or bookkeeper would immediately refuse any bribe that is offered to them and speak to their supervisor or manager about the bribe and any other kind of unethical or illegal behaviour that the client is proposing as well. Their supervisor or manager will then be able to advise them on the best course of action from there. On the flip side though, an employee who lacks ethics and integrity is likely to accept the bribe, and will therefore feel obligated to go along with what the client is proposing - no matter how unethical or illegal that may be.
Principles of ethical accounting and bookkeeping
Ethical practice revolves heavily around some key principles. Basically, these principles are moral rules or standards that are prescribed for accountants - that is, it is expected that all accountants and bookkeepers will display these values in their professional practice.
According to the APES 110 Code of Ethics from the Accounting Professional and Ethical Standards Board, there are five fundamental ethical principles that all accountants should abide by. These are:
- Integrity (i.e. acting ethically and morally, including by being honest)
- Objectivity (i.e. being able to make decisions without the influence of bias or conflicts of interest)
- Professional competence and due care (i.e. ensuring that they possess the level of skill, knowledge, and experience to be able to carry out their job properly, and ensuring that the level of service provided is of the necessary quality)
- Confidentiality (i.e. handling sensitive or confidential information appropriately to ensure the privacy and proprietary information of clients is protected)
- Professional behaviour (i.e. acting in accordance with relevant laws, regulations, and professional standards)
By demonstrating all five of these principles, accountants and bookkeepers can ensure that they are operating with a high degree of ethics and integrity at all times.
Codes of conduct and codes of ethics
Codes of conduct or codes of ethics are basically sets of guidelines that set out the type of behaviour that is expected from someone working in a particular profession. Accounting and bookkeeping is no different, in that it has its own ethical standards and codes in place that outline the level of professional conduct that is expected. Familiarising themselves with these codes and standards is one of the best ways in which accounting and bookkeeping professionals can ensure they act with a high degree of ethics and integrity at all times.
In Australia, there are two main sets of guidelines that apply to accountants. The first is the Australian Accounting Standards Board (AASB)’s Standards, which provide a selection of policies and procedures to ensure the consistency of accounting practice industry-wide. This includes around things like contracts, payments, financial instruments and statements, transactions, taxes, benefits, equipment, assets and the disclosure of interests, to name but a few of the areas covered in these standards.
The second is the APES 110 Code of Ethics from the Accounting Professional and Ethical Standards Board. This sets out some of the key ethical principles that Australian accountants are expected to abide by, such as integrity, objectivity, due care, professional competence, confidentiality, and professional behaviour. It also provides practical guidance on how accountants are expected to handle issues like conflicts of interest, financial interests, compensation, incentives, expertise, and second opinions, to ensure they comply with the code. Once again, this list of topics covered is not exhaustive, though should provide you with some idea of the areas that the code governs.
Bookkeepers also have their own codes of conduct, including the Institute of Certified Bookkeepers’ Code of Conduct. Like the codes of conduct in place for accountants, this sets out some of the behavioural and ethical expectations for bookkeepers.
Full copies of each organisation’s standards and codes can be found on their respective websites, which makes them a quick reference for accounting and bookkeeping professionals looking for guidance about how to act in certain situations, or how to respond to a potential ethical dilemma.
Tips for professional practice that aligns with ethics and integrity
There are a number of things that accountants and bookkeepers can do to ensure that they behave in a way that is moral, and backed by ethics and integrity.
Perhaps first and foremost, it’s important that accountants and bookkeepers familiarise themselves with the codes of conduct and professional standards that apply to their industry. In Australia, this includes the Australian Accounting Standards Board (AASB)’s Standards and the APES 110 Code of Ethics from the Accounting Professional and Ethical Standards Board for accountants, and the Institute of Certified Bookkeepers’ Code of Conduct for bookkeepers. Some professional associations, such as the Institute of Public Accountants and CPA Australia, have their own codes of conduct which provide further advice and guidance to accountants.
Familiarising themselves with these codes and standards ensures that accountants and bookkeepers are clear about the duties, responsibilities, and obligations they have as professionals in the industry. As a result, they will have a better understanding of what is considered right and wrong from an ethics and integrity point of view, and know how to approach different ethical grey areas that they might encounter in their professional practice. These codes and standards also provide practical guidance and advice, so they feel more confident about how to approach potential ethical dilemmas with ethics and integrity.
It’s also important that accountants and bookkeepers feel comfortable seeking advice from their colleagues, managers, supervisors, or a more experienced mentor - particularly if there is something that they feel unsure about, or something that they feel uncomfortable or uneasy about doing. Particularly when you are new to the industry, it can take some time to get to grips with what is right and wrong, especially when you are facing significant external pressures that may be encouraging you to act a certain way. Having these connections with other accounting and bookkeeping professionals who you trust can be a great way to build your confidence, and get more comfortable with being able to say no to these pressures.
Engaging in ongoing professional development and training can be another great way for accountants and bookkeepers to ensure they are operating with the highest degree of professionalism, ethics, and integrity. Not only will these courses help accountants and bookkeepers to stay on top of the latest developments in the field, but they can also provide best practice guidance on how they can approach different ethical dilemmas that may be commonly encountered in accounting and bookkeeping. As a result, accountants and bookkeepers who complete this kind of training will be best-placed to draw upon what they have learned, and respond to these potentially unethical scenarios in the best possible way.
Accountants and bookkeepers may also find the Association of International Certified Professional Accountants’ ethics checklist useful. This decision-making tool is designed to help accountants to identify the best course of action in any situation that they have ethical concerns about. Although this tool is designed with accountants in mind, it could also be used by bookkeepers who are facing an ethical dilemma. This ethical checklist takes accountants through a flowchart consisting of a series of “yes” and “no” questions to consider factors like whether they have all the facts, whether any laws are being broken, whether they are following their relevant code of ethics, whether they are complying with their workplace’s organisational policies, whether they are at reputational risk, and whether they feel personally comfortable with the situation. Depending on their answers to each of the six questions, they will then be able to ascertain whether they should proceed or not.
If you are interested, there are also a number of resources available online from various professional bodies and associations, which provide some more examples of ethics in accounting and bookkeeping. These will provide you with a better idea of specific examples that you may come across in the workplace, and give you ideas and guidance about how to respond to these in an ethical and professional way.
Finally, The Official Journal of the Institute of Public Accountants provides a five-step procedure to follow when considering ethical dilemmas, which can guide accountants and bookkeepers when responding to these kinds of situations in the workplace. These five steps are to recognise that an ethical issue exists; get the facts; evaluate different solutions; make a decision; and act, then reflect on the outcome. This is a sensible approach that allows for the careful consideration of any potential issue, before formulating a well-thought out approach that ensures the accountant or bookkeeper is acting in the more ethical way possible.
By following these practical strategies, accountants and bookkeepers can achieve a high standard of professional practice that aligns with ethics and integrity.
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