Businesses have the ethical responsibility to ensure that the accounting statements reflect the accurate financial position of a company. Ethical accounting involves reliable outsourced bookkeeping services. The transactions must be honestly recorded in the books of a company.
Certified public accountants (CPAs) are required to prepare accounting statements in compliance with the accounting rules and standards. They must prepare reports based on generally accepted accounting principles and norms.
In this blog post, you will learn more about ethical accounting. Also, you will learn about the importance of ethical accounting for businesses to ensure accurate records of financial transactions.
Accounting Ethics: An Overview
Accounting ethics refers to the ethical norms that should be followed when recording transactions. The ethical norms should be followed as per the specific situation of the company.
Ethical norms and values such as integrity, honesty, and competence must be adopted when making bookkeeping entries. The auditing of the company’s books should also be done per local laws and standards.
Reliable outsourced bookkeeping follows accounting ethics in recording transactions. They also make sure that confidentiality is maintained by preventing access of the company’s financial records from unauthorized entities.
Moreover, CPAs and auditors are bound by accounting ethics to ensure that due diligence is practiced to prevent misrepresentation of accounting information.
As a business owner, you need to make sure that the accounting information is free from any errors that prevent third parties from assessing your financial position and performance. The invoice and bills must list the correct items with proper credits for damaged or returned items.
Components of Ethical Accounting
Ethics in accounting means that a business should display integrity in recording financial transactions. This requires a thorough understanding of right and wrong actions. Businesses must show integrity in reporting to build trust with the stakeholders that include vendors, customers, investors, creditors, and government agencies.
1. Protection of Sensitive Information
A critical component of ethical accounting is the protection of confidential information of vendors and customers. You need to handle the bank account and credit card information of the customer with great care. These details are given by customers and vendors to process transactions.
Businesses must make sure that all sensitive information is properly protected. Accountants need to ensure that sensitive company and employee data remain secured.
The sensitive data should not be emailed to third parties. It is also important to secure the accounting software using strong passwords. The firewall and antivirus software should be installed to prevent hackers from stealing confidential accounting and financial information of the company, vendors, or customers.
Ethical actions include following cyber security best practices to protect confidential accounting information. The sensitive information should be protected by adhering to the norms and standards for preventing cyber attacks.
2. Adherence to Accounting Rules and Guidelines
Businesses must follow accounting rules and guidelines when recording financial transactions. It is important to have complete knowledge of the accounting rules when making bookkeeping entries. Making mistakes when recording accounting information is an unethical act that shows unprofessionalism and incompetence.
Accountants need to keep up-to-date with accounting principles and rules. The chances of accounting mistakes will be zero when you follow the standards, rules, and regulations for recording financial transactions.
Keeping up with the accounting news and journals is important to ensure that your company adheres to the latest rules. Ethical accounting involves not just knowledge of the rules but also complying with the laws applicable in the area.
Moreover, ethical accounting also involves not taking actions that can harm the reputation of the business. Taking the help of a reliable outsourced bookkeeping firm will help ensure that you avoid legal problems.
3. Follow Ethical Norms
Businesses must follow ethical norms when recording financial information. You must understand the ethical framework for ensuring confidentiality, integrity, and professional competence. The decision-making should be done in light of the ethical framework. This is important to ensure that the business continues operating with positive relationships with the stakeholders.
Following ethical norms is important to maintain a business reputation. Internal control policies must prevent employees from misusing information for their benefit. The employees must be held accountable for willful disregard of accounting norms and rules when recording and reporting transactions.
Importance of Accounting Ethics
A business that focuses on ethical accounting fares better than those that violate the accounting norms and standards. Following ethical accounting creates a positive image in the mind of customers resulting in improved business prospects in the long run.
Building an ethical accounting framework will create a professional environment. It will force employees to adopt the highest level of professionalism in the workplace. The firm will benefit from ethical accounting as it will not only avoid legal problems but also build a positive reputation among the stakeholders.
Businesses in the US must conform to the Sarbanes-Oxley Act that was instituted in 2002. All accounting, bookkeeping, and auditing activities must be carried out in conformity with the Act. Businesses must learn from the mistakes of Enron and Arthur Anderson regarding the repercussions of unethical accounting which led to the enactment of the Act about two decades ago.
Conclusion
Ethical accounting is important to ensure that the business keeps a positive reputation in the community. The company should have appropriate checks in place to prevent mistakes in recording accounting information.
Complying with ethical accounting norms and standards is important to avoid legal issues. Unethical actions will land your business in hot water when caught. The choices that you make today will have a significant impact on the outcome of our business.
Business owners must familiarize themselves with the accounting norms, standards, and expectations. All the relevant rules must be followed when making bookkeeping entries and preparing financial reports.
Maxim Liberty is a reliable outsourcing bookkeeping company. Our team of bookkeepers with honesty and integrity when recording business transactions. You can rest assured that we adhere to the highest standards when making bookkeeping entries. For more information about our accounting and bookkeeping services, you can contact us by dialing (703) 957-6938.