Unit 6
Additional Accounting Topics
Chapter 27 Introduction to Partneships
Chapter 28 Financial Statements and Liquidation of a Partnership
Chapter 29 Ethics in Accounting
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Chapter 29
Ethics in Accounting
What You’ll Learn
 Explain the meaning of ethics.
 Describe the components of business ethics.
 Identify the role of the accountant in business
ethics.
 Discuss how ethical behavior benefits individuals,
businesses, and society.
 Explain the key principles an accountant is
expected to follow.
 Identify the accounting organizations that establish
codes of ethics for the profession.
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Chapter 29
Ethics in Accounting
What You’ll Learn
 Describe the Sarbanes-Oxley Act.
 Define the accounting terms introduced in this
chapter.
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Chapter 29, Section 1
The Nature of Ethics
What Do You Think?
What difference do you think it makes if
businesses act ethically?
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SECTION 29.1
The Nature of Ethics
Main Idea
All elements of society benefit from ethical behavior.
You Will Learn
 what is meant by the term ethics.
 who benefits from ethical behavior.
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The Nature of Ethics
SECTION 29.1
Key Terms




ethics
business ethics
code of ethics
ethics officer
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SECTION 29.1
The Nature of Ethics
Ethics
Ethics is the study of our notions of right and wrong. A
person’s ethics can provide guidelines for action when
facing ethical dilemmas.
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SECTION 29.1
The Nature of Ethics
How Are Business Ethics Determined?
Business ethics refers to the policies and practices that
reflect a company’s core values such as honesty, trust,
respect, and fairness. This can be seen in the way a
company treats its employees and customers.
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SECTION 29.1
The Nature of Ethics
The Law As a Guide
Law attempts to formally define the general public’s
ideas about what makes something right or wrong. It
describes a minimum acceptable level of correct
behavior.
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SECTION 29.1
The Nature of Ethics
Statements of Company Values
A business should set good examples of ethical
behavior and must state a well-defined framework of
ethical concerns and core values.
A code of ethics is a formal policy of rules and
guidelines that describes the standards of conduct that a
company expects from its employees.
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SECTION 29.1
The Nature of Ethics
Training and Outreach
A company must communicate its policy properly. This
can be done by
 distributing written code, along with
 providing formal training.
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SECTION 29.1
The Nature of Ethics
Ethics Committees
Ethics committees help develop and enforce ethical
processes. An ethics officer is responsible for creating
conduct programs, evaluating performance, and
enforcing standards of conduct.
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SECTION 29.1
The Nature of Ethics
Enforcement
To enforce ethical behavior, businesses can use
penalties including
 performance appraisal notes,
 probation,
 suspension,
 demotion, and
 termination.
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SECTION 29.1
The Nature of Ethics
What is the Accountant’s Role?
Accountants may face ethical dilemmas while involved
in the operation, management, and development of a
business. Accountants should focus on the following
goals:
 Avoid harm to stockholders.
 Optimize the interests of the public.
 Adhere to universal standards of what is right.
 Respect the human rights of all people.
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SECTION 29.1
The Nature of Ethics
Ethical Behavior
Ethical behavior benefits individuals, businesses, and
society.
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SECTION 29.1
The Nature of Ethics
Individuals
Acting ethically can increase self-esteem, contentment,
and self-respect. Society rewards and honors an
individual’s ethical behavior.
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SECTION 29.1
The Nature of Ethics
Businesses
A DePaul University study found that companies that
made commitments to an ethics code provided twice the
value to shareholders than those that did not.
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SECTION 29.1
The Nature of Ethics
Society
Society is the sum of all social relationships between
humans and is only as ethical as the individuals and
business that make it up.
Business Ethics Video
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SECTION 29.1
The Nature of Ethics
Key Terms Review
 ethics
The study of our notions of right and wrong; a set
of basic principles.
 business ethics
The policies and practices that reflect a
company’s core values such as honesty, trust,
respect, and fairness.
 code of ethics
A formal policy of rules and guidelines that
describes the standards of conduct that a
company expects from all its employees.
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SECTION 29.1
The Nature of Ethics
Key Terms Review
 ethics officer
The employee directly responsible for creating
business conduct programs, evaluating
performance, and enforcing standards of conduct.
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Chapter 29, Section 2
Ethics in the Accounting Profession
What Do You Think?
Why do you think school dress and behavior
codes are created?
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SECTION 29.2
Ethics in the
Accounting Profession
Main Idea
The accounting profession requires its members to
follow a code of ethics.
You Will Learn
 the key principles an accountant is expected to
observe.
 the guidelines that accounting organizations
provide for decision making.
 the impact of the Sarbanes-Oxley Act on the
accounting profession.
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Ethics in the
Accounting Profession
SECTION 29.2
Key Terms





integrity
objectivity
independence
competence
confidentiality
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SECTION 29.2
Ethics in the
Accounting Profession
Key Principles
Accountants should follow certain principles including:
 integrity
 objectivity
 independence
 competence
 confidentiality
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SECTION 29.2
Ethics in the
Accounting Profession
Integrity
Integrity requires that accountants choose what is right
and just over what is wrong. To operate with integrity, an
accountant should ask these questions:
 Is this what a person of integrity would do?
 Have I made the right decision?
 Have I maintained the spirit of ethical conduct?
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SECTION 29.2
Ethics in the
Accounting Profession
Objectivity
Objectivity requires accountants to be impartial, honest,
and free of conflicts of interest. They should not be
influenced by personal interests or relationships with
others.
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SECTION 29.2
Ethics in the
Accounting Profession
Independence
Accountants who audit public companies must maintain
independence; the CPA should not have a financial
interest in the company.
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SECTION 29.2
Ethics in the
Accounting Profession
Competence
Competence refers to knowledge, skills, and
experience needed to complete a task. Accountants
must complete only those services that they are
competent to provide.
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SECTION 29.2
Ethics in the
Accounting Profession
Confidentiality
Accountants who work with information in the course of
work must maintain confidentiality. This information
should not be used for personal gain.
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SECTION 29.2
Ethics in the
Accounting Profession
Codes of Ethics
Accounting organizations provide guidelines to assist in
ethical decision making.
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SECTION 29.2
Ethics in the
Accounting Profession
American Institute of Certified
Public Accountants
The American Institute of Certified Public Accountants
(AICPA) is the national organization of certified public
accountants whose members voluntarily accept the
standards described in its Code of Professional
Conduct. These standards are much stricter than the
law requires.
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SECTION 29.2
Ethics in the
Accounting Profession
Institute of Management Accountants
The Institute of Management Accountants (IMA) is
devoted to management accountants and financial
managers. IMA members have the responsibility to
maintain professional competence, uphold professional
standards of confidentiality, avoid conflicts of interest,
and communicate information fairly and objectively.
Institute of Internal Auditors
The Institute of Internal Auditors (IIA) expects members
to demonstrate competence and follow the principles of
integrity, objectivity, and confidentiality.
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SECTION 29.2
Ethics in the
Accounting Profession
Sarbanes-Oxley Act (SOX)
 Effective 2002, SOX protects investors after
several corporate scandals failed to be identified
and prevented by auditors.
 SOX requires CEOs, financial officers,
accountants, and auditing firms to comply with
new regulations and procedures.
 SOX established an accounting board to
oversee and investigate the audits and auditors
of public companies.
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SECTION 29.2
Ethics in the
Accounting Profession
Key Terms Review
 integrity
The principle that requires accountants to choose
what is right and just over what is wrong.
 objectivity
The principle that requires accountants to be
impartial, honest, and free of conflicts of interest.
 independence
The principle that requires accountants to choose
what is right and just over what is wrong.
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SECTION 29.2
Ethics in the
Accounting Profession
Key Terms Review
 competence
The principle that requires accountants to have
the knowledge, skills, and experience needed to
complete a task.
 confidentiality
The principle that requires accountants to protect
and not disclose information acquired in the
course of work unless they have the appropriate
legal or professional responsibility to do so.
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CHAPTER 29
Chapter 29 Review
Question 1
What are five items that could be included in a business’
code of ethics?
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Chapter 29 Review
CHAPTER 29
Answer 1
Answers will vary and might include the following:













Conflicts of interest
Product quality and testing
Customer relations
Employee relations
Suppliers and consultants
Expense reports
Security
Political contributions
Environmental actions
International business
Workplace safety
Technology
Whistle-blowing
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CHAPTER 29
Chapter 29 Review
Question 2
What is the foundation for ethics in accounting?
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CHAPTER 29
Chapter 29 Review
Answer 2
Certain principles provide the framework for rules of
conduct that an accountant is expected to follow. The
principles include integrity, objectivity, independence,
competence, and confidentiality.
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Resources
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