Ethics and Accounting :: Finance Business Accountant Accountancy

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