What are the Common Ethical Dilemmas in Accounting?
Accounting professionals have the responsibility to objectively record all types of business transactions. They must make sure that the company books present an accurate record of the financial position of the company.
But sometimes accountants have to face the ethical dilemma of altering the books to paint a certain position of a company. They are forced to rationalize the decision by the business owners as creative accounting.
Creative accounting is the unethical process of recording expenses and income in a manner that reflects a positive position of a company’s profitability. The expenses and revenues may be omitted or the figures changed by utilizing loopholes in the accounting rules.
In this blog post, we will look at some of the ethical dilemmas that accountants and bookkeepers face and their impact.
Conflict of Interest
Certified public accountants (CPAs) may face a situation in which they might be asked to represent two opposing parties. This situation results in a conflict of interest that can benefit one party at the expense of another.
Accountants can get caught in providing preferential advice to a client at the expense of another. This may also have a negative impact on the accountant’s image on prospective clients.
CPAs are required to disclose any potential or actual conflict of interest. They should make sure that the disclaimers are written in a manner that protects them against legal issues.
A conflict of interest may also arise if you own shares of a company that you are providing accounting and bookkeeping services. You may get insider information that can be used for personal benefit. To avoid any legal repercussions, it is important to avoid clients that can create a conflict of interest.
Confidentiality Issues
Confidentiality issues are also present when you represent two competing clients. You may be compelled to disclose confidential information for a fee. This creates an ethical and legal dilemma for the accountants.
Cases regarding confidentiality should be handled in a professional manner. It is important to display the highest standards of professionalism when dealing with confidential information.
Accountants must decline any request by a client to disclose confidential information. The short time benefit may amount to nothing if the breach of sensitive data is identified, which can result in serious legal repercussions.
Pro Bono CPA Fees
Charging pro bono CPA fees is not wrong. You are free to charge fees below the rate charged to most clients. But it is important to remember that pro bono contracts are subject to the same level of scrutiny.
To avoid ethical issues when accepting pro bono work, you should maintain the same level of professionalism and dedication as displayed to your regular clients. It is essential that the work is completed with the utmost level of competence as displayed with your regular clients.
The Dangers of Inaccurate Reporting of Accounting Information – (maximliberty.com)
You must plan and manage pro bono work in a manner that work receives equal focus. It is important that you refuse to accept pro bono work if you don’t have the capacity to give equal focus and time to all your products.
Legal issues can arise due to not completing pro bono work in a professional manner. You should not take pro bono work as a way to boost income. It is important to choose projects so that you are able to keep commitments to each of your clients.
Window Dressing
Window dressing is an unethical accounting practice of presenting the financial position of a company to misled investors. The financial transactions are recorded with the goal of painting a positive picture even when the company is performing poorly.
The temptation to manipulate the accounting figures is hard to ignore. It is a prevalent ethical problem that creates lots of issues later on.
The Enron and WorldCom scandals serve as a lesson for business owners and accountants about the dangers of window dressing.
An ethical dilemma for accountants – THE ETHICS CENTRE
Accountants must make sure that the financial information of a company accurately reflects the actual performance and position of a company. It is important to follow all accounting rules and principles when recording accounting information.
Remember that you have both the ethical and legal responsibility to record all types of transactions. Not recording transactions with the intention to mislead others will result in criminal liability. It is important to deny any request to window dress the accounts. This will help ensure that you not only avoid legal issues due to manipulating figures but also allow you to maintain a positive brand image in the community.
Conclusion
Always act with professionalism when recording and reporting financial information. You need to make sure that the accounting information is accurate and fully represents the current position of the company.
The best way to protect against ethical issues related to bookkeeping and accounting is to follow the relevant standards and principles. Accountants need to make sure that the transactions are entered as per the generally accepted accounting rules and principles.
Companies who address ethical issues in a professional manner will avoid legal problems. It is important to avoid presenting false and misleading data regarding the financial performance of a company. This will help in avoiding lawsuits and other issues that can even lead to closing down the operations of a firm.
Maxim Liberty is a reliable and honest virtual bookkeeping service provider. Our team of experienced bookkeepers can record revenue and expenses based on GAAP and other relevant standards. You can rest assured the highest level of professionalism in recording your company data. For more information about our outsourced bookkeeping services, you can contact us by dialing (703) 957-6938.
