PROFESSIONAL CODES OF

ETHICS IN ACCOUNTING
A C C 2 1 3
 • At the end of the lecture, the students would have
learnt the following:
• The foundational principles on which professional
codes of ethics are built.

LEARNING • The examples of professional codes of ethics in the

accounting profession
OBJECTIVE • Enforcement and disciple
S
 •Definition: Professional codes of accounting ethics provide
a framework of principles and standards that govern the
behavior of accountants and finance professionals to ensure
they uphold the public's trust and maintain the integrity of
financial systems.
•Purpose:
1.To guide accountants in resolving ethical dilemmas.
INTRODUCTI
ON 2.To protect the interests of the public, clients, employers,
and stakeholders.
3.To reinforce the importance of professional behavior in
maintaining confidence in the profession.
 1.Protection of Public Interest: Accountants must
prioritize the public’s interest over personal or
corporate gains.
KEY
2.Encouraging Accountability: Ethical standards
OBJECTIVE ensure accountants are held responsible for their
S OF decisions and actions.
ACCOUNTI 3.Promotion of Transparency: By adhering to
NG ETHICS ethical principles, accountants ensure that financial
information is clear, accurate, and free from
misrepresentation.
4.Safeguarding Against Corruption: Strong ethical
codes help prevent financial fraud and unethical
practices.
 1. Integrity
Example: An accountant refuses to manipulate financial records
to inflate profits, even when pressured by management.

KEY 2. Objectivity

PRINCIPLE Scenario: An auditor discloses a potential conflict of interest

when auditing a company where their relative is employed.

S OF 3. Professional Competence and Due Care

Example: An accountant stays updated with changes in
ACCOUNTI International Financial Reporting Standards (IFRS) to provide

NG ETHICS high-quality financial reporting services.

4. Confidentiality
Scenario: An accountant is asked to disclose sensitive client
information to a third party but refuses, citing professional
ethics unless legally required.

5. Professional Behavior
Example: An accountant refrains from falsely advertising their
services or qualifications.
INDEPENDENCE
• Accountants, particularly auditors, are required to remain
independent in both mind and appearance to maintain the
credibility of their work.
• Independence means being free from conflicts of interest that
could impair objectivity and ensuring no undue influence affects
professional judgment.
INDEPENDENCE IN MIND AND
APPEARANCE
• Independence in mind and independence in appearance are two aspects of auditor
independence that are essential to achieving the goals of independence:
• Independence of mind: A code of professional ethics that requires auditors to maintain an
unbiased attitude throughout an audit. This allows auditors to perform their work without bias
and exercise proper judgment and skepticism.
• Independence in appearance: A code of professional conduct that refers to how independent
the auditor appears to outsiders, such as users of financial statements. This depends on
others' interpretation of independence and their faith in the auditor.
• Auditors must be both independent in mind and independent in appearance to be considered
independent. Some threats to auditor independence include: self-interest, familiarity, social or
economic bonds with the auditee, and employment or litigation relationships.
• Auditors must self-assess their independence for each audit
AV O I D I N G C O N F L I C T S O F
INTEREST
• Accountants must identify, disclose, and resolve conflicts of
interest, ensuring their professional work remains impartial.
COM P LI ANCE WI T H LAWS A ND
R E G U L AT I O N S
• Professional accountants must adhere to all relevant legal and
regulatory requirements in the jurisdictions in which they
operate.
ADDITIONAL ETHICAL
CONCEPTS IN ACCOUNTING
• Threats to Ethical Conduct
• Safeguards to Mitigate Ethical Threats
T H R E AT S T O E T H I C A L
CONDUCT
• Professional accountants face several types of threats that could undermine their ethical
behaviour:
• Self-Interest Threat: Personal financial interest, such as owning shares in a client’s
business.
• Self-Review Threat: Reviewing work that the accountant or their firm performed earlier.
• Advocacy Threat: Promoting a client’s interests to the extent that independence is
compromised.
• Familiarity Threat: Developing a close personal relationship with a client, leading to bias.
• Intimidation Threat: Being pressured by clients, employers, or other parties to act
unethically.
S A F E G U A R D S T O M I T I G AT E
E T H I C A L T H R E AT S
• Accountants can rely on safeguards to address these threats:
• Organizational Safeguards: Internal policies, such as
whistleblowing mechanisms or regular audits.
• Regulatory Safeguards: Oversight by professional bodies and
adherence to legal requirements.
• Individual Safeguards: Continuous professional education,
adherence to personal values, and using ethical decision-making
frameworks.
FRAMEWORKS FOR ETHICAL
DECISION-MAKING IN
ACCOUNTING
• When encountering ethical dilemmas, accountants can follow a structured approach:
1.Identify Stakeholders: Who will be affected by the decision (e.g., public,
shareholders, employees)?
2.Analyze Ethical Issues: What ethical principles (integrity, confidentiality, objectivity,
etc.) are at stake?
3.Evaluate Alternatives: Consider all possible courses of action, including the
consequences of each.
4.Seek Advice: Consult colleagues, supervisors, or the professional body for guidance.
5.Take Action: Act in a way that aligns with professional codes of ethics and document
the decision process.
KEY ETHICAL CHALLENGES IN
ACCOUNTING
1.Conflict of Interest: Balancing the interests of clients,
employers, and public stakeholders.
2.Pressure to Manipulate Financial Data: Ethical conflicts
may arise when employers or clients request accountants to
alter data.
3.Confidentiality vs. Legal Obligations: Accountants may
struggle to maintain confidentiality while complying with legal
reporting requirements.
4.Independence Threats: Personal or financial relationships that
could compromise objectivity.
EXAM P LES OF P ROFESSI ONAL
CODES OF ETHICS
1. IFAC Code of Ethics for Professional Accountants (IESBA Code): Published by
the International Ethics Standards Board for Accountants (IESBA), this code
applies globally. It emphasises the five fundamental principles of ethics.
2. AICPA Code of Professional Conduct:
• Designed for CPAs in the United States, it includes detailed guidance on
independence, integrity, and due care.
3. ICAN Code of Ethics:
• These principles establish the standard of behavior expected of a professional
accountant. The fundamental principles are: integrity, objectivity, professional
competence and due care, confidentiality, and professional behavior.
EXAMPLES OF ETHICAL
BREACHES IN ACCOUNTING
• Enron Scandal: Auditors from Arthur Andersen manipulated
financial statements, leading to the collapse of the company and
the firm's reputation.
• WorldCom Scandal: Accountants falsely inflated earnings to
maintain stock prices, resulting in bankruptcy and legal action.
• Wirecard Scandal: Auditors failed to identify fraudulent
practices, leading to significant financial losses.
CONSEQUENCES OF ETHICAL
V I O L AT I O N S
• Legal Penalties: Fines, imprisonment, and lawsuits for fraud or
misrepresentation.
• Loss of License: Accountants may face suspension or
revocation of professional certifications.
• Reputational Damage: Trust and credibility in the profession
are eroded.
• Business Failures: Ethical lapses can lead to bankruptcy or
significant financial losses for companies.
STEPS TO PROMOTE ETHICAL
B E H AV I O R
• Training and Education: Regular training on ethical principles
and decision-making frameworks.
• Enforcement Mechanisms: Strong disciplinary processes for
ethical violations.
• Whistleblower Protections: Policies to encourage reporting
unethical practices without fear of retaliation.
• Tone at the Top: Leadership commitment to ethical behavior
sets the tone for the organization.
ETHICAL CHALLENGES AND
EMERGING ISSUES IN
ACCOUNTING
1. Technology and Ethics
• Automation and AI: Ensuring ethical use of automation in decision-making and fraud detection.
• Data Privacy: With the rise of big data and cloud accounting, accountants must handle client data securely.
2. Globalization
• Cross-Border Standards: Accountants face challenges in adhering to ethical standards across multiple
jurisdictions.
• Cultural Differences: Addressing variations in ethical perspectives due to cultural diversity.
3. Sustainability and Corporate Social Responsibility (CSR)
• Accountants are increasingly tasked with ensuring ethical reporting of environmental, social, and governance
(ESG) factors.
4. Whistleblowing
• Ethical dilemmas often arise when accountants uncover wrongdoing but fear retaliation or job loss.
ROLE OF P ROFESSI ONAL
BODIES IN ACCOUNTING
ETHICS
• 1. Oversight and Guidance:
• Professional organizations like IFAC, AICPA, and ICAEW set global and
regional ethical standards to guide accountants.
• 2. Disciplinary Actions
• These bodies have mechanisms to investigate breaches of ethical codes
and impose sanctions such as fines, suspensions, or revocation of licenses.
• 3. Promoting Education:
They offer continuing professional development programs to ensure
accountants stay updated on ethical standards.
ADDITIONAL MEASURES TO
UPHOLD ACCOUNTING ETHICS
• 1. Tone at the Top
• Senior management and leaders must set an ethical tone within organisations, emphasizing
the importance of integrity and transparency.
• 2. Ethical Culture
• Organizations should foster an environment where ethical conduct is rewarded, and
unethical practices are discouraged.
• 3. Ethics Committees
• Establishing internal ethics committees to oversee compliance and address ethical concerns.
• 4. Reporting Mechanisms
• Implementing robust systems for whistleblowers to report unethical behaviour anonymously
and securely.
FUTURE TRENDS IN ACCOUNTING
ETHICS

1.Ethics in Sustainability Reporting

Increasing focus on accurate reporting of ESG metrics.
2.Blockchain and Ethics
Blockchain can improve transparency in financial transactions,
reducing opportunities for fraud.
3.Cybersecurity Ethics
Accountants must ensure ethical practices in safeguarding
financial and client data from cyber threats.
DI SCU SSI ON QU EST I ONS
1.How can technology both support and challenge ethical
behavior in accounting?
2.Discuss how accountants should balance confidentiality with
public interest.
3.What measures can organizations implement to minimize ethical
breaches?
4.Should accountants have legal obligations to report unethical
practices they discover? Why or why not?