0 Glencoe Accounting Unit 6 Chapter 29 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Unit 6 Additional Accounting Topics Chapter.

Glencoe Accounting Unit 6 Chapter 29 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 1

Unit 6Additional Accounting Topics

Chapter 27 Introduction to Partneships

Chapter 28 Financial Statements and Liquidation of a Partnership

Chapter 29 Ethics in Accounting

Glencoe Accounting Unit 6 Chapter 29 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. 2

Chapter 29Ethics 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 29Ethics 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 1The Nature of Ethics

What Do You Think?What difference do you think it makes if businesses act ethically?

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Main IdeaAll 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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Key Terms ethics business ethics code of ethics ethics officer

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EthicsEthics 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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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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The Law As a GuideLaw 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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Statements of Company ValuesA 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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Training and OutreachA company must communicate its policy properly. This can be done by

distributing written code, along with providing formal training.

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Ethics CommitteesEthics 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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EnforcementTo enforce ethical behavior, businesses can use penalties including

performance appraisal notes, probation, suspension, demotion, and termination.

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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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Ethical BehaviorEthical behavior benefits individuals, businesses, and society.

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IndividualsActing ethically can increase self-esteem, contentment, and self-respect. Society rewards and honors an individual’s ethical behavior.

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BusinessesA 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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SocietySociety is the sum of all social relationships between humans and is only as ethical as the individuals and business that make it up.

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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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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 2Ethics in the Accounting Profession

What Do You Think?Why do you think school dress and behavior codes are created?

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Main IdeaThe 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.

Ethics in the Accounting Profession

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Key Terms integrity objectivity independence competence confidentiality

Ethics in the Accounting Profession

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Key PrinciplesAccountants should follow certain principles including:

integrity objectivity independence competence confidentiality

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IntegrityIntegrity 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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ObjectivityObjectivity 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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IndependenceAccountants who audit public companies must maintain independence; the CPA should not have a financial interest in the company.

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CompetenceCompetence 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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ConfidentialityAccountants 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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Codes of EthicsAccounting organizations provide guidelines to assist in ethical decision making.

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American Institute of CertifiedPublic AccountantsThe 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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Institute of Management AccountantsThe 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 AuditorsThe Institute of Internal Auditors (IIA) expects members to demonstrate competence and follow the principles of integrity, objectivity, and confidentiality.

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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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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.

Ethics in the Accounting Profession

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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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Question 1What are five items that could be included in a business’ code of ethics?

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Answer 1Answers 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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Question 2What is the foundation for ethics in accounting?

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Answer 2Certain 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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