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Accounting Ethics and Professional Conduct Case Study

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Code of Professional Conduct and Standards of Ethical Behavior

The code of professional conduct for accountants and auditors is developed by the American Institute of Certified Public Accountants and other relevant stakeholders with the view to setting out the philosophy that inspires the rules governing the responsibilities of accountants and auditors toward their clients, professional colleagues and the public.

The code governs the actions of certified public accountants and auditors in terms of addressing the high moral standards required of the professionals, guiding the accounting and auditing profession, making independent decisions, and acting as a principal foundation of reassurance of the profession’s responsibilities for the public it serves (Schmutte and Duncan 68-69). The code of professional conduct for accountants and auditors underscores the characteristics of the profession, essential principles governing conduct, ethical conflict resolution, fiduciary duty, personal character and ethical conduct, application of the rules, principles governing the responsibilities of organizations, and interpretation of the rules (Mintz 63).

Available scholarship demonstrates that the standards of ethical behavior for accountants and auditors are contained in the code of professional conduct and are aimed at protecting the public, achieving orderly and courteous conduct within the profession, ensuring integrity and objectivity, and establishing ethical requirements for professional accountants and auditors (Rigos 64-65). The standards relate to the accountants’ or auditors’ integrity, objectivity, professional competence and due care, confidentiality, as well as professional behavior.

Steps to take when there is a Difference of Opinion

The first step to take when the internal accountant has a difference of opinion with the supervisor on an accounting or financial reporting procedure is to evaluate any identified threats occasioned by the difference of opinion in order to form a concrete conclusion about whether the position assumed by the supervisor fails to comply with professional standards, generates a material misrepresentation of fact, or violates applicable laws and/or regulations. If after careful evaluation the accountant makes a conclusion that the accounting or financial reporting procedure in not in compliance with professional standards but does not lead to material misrepresentation of facts or violation of applicable laws and/or regulations, he or she should discuss such a conclusion with the supervisor and rest the issue since the threats are viewed as insignificant (Keskek, Rees, and Thomas 770-771).

If the threats are considered significant by virtue of material misrepresentation of facts or violation of applicable laws and/or regulations, the accountant may either discuss the issue with the supervisor to resolve the difference of opinion or contact senior management in the organization to discuss concerns arising from failure to agree with the supervisor. In the eventuality that no appropriate action is taken by the supervisor or senior management, the internal accountant should proceed to take safeguards (e.g., consulting with legal counsel and documenting facts and principles related to the issue for future referral) aimed at ensuring that threats to compliance with Rule 102 (integrity and objectivity) are eradicated or minimized to an acceptable level (Shamsi and Habibi 201-202).

Lastly, if the internal accountant concludes that no safeguards can eradicate or minimize the threats to an acceptable level or reaches a conclusion that no appropriate action has been taken, it is important to “consider his or her continuing relationship with the member’s organization and take appropriate steps to eliminate his or her exposure to subordination of judgment” (Keskek, Rees, and Thomas 771).

Steve and RAC Inc

It is evident that the company may be using wrong accounting or reporting procedures to come up with the estimated useful life and salvage values for the year in what can be referred to as violation of applicable laws or regulations. Another perspective is that the company may be engaged in material misrepresentation of facts judging by the disclosure that the illuminated issue has been happening on a regular basis. The two possibilities can lead to accounting and disclosure fraud (Galletta 54), hence the need for Steve to deal with the issue in the most ethical way.

From an ethical perspective, Steve should exercise the fundamental principles of integrity and objectivity in analyzing the issue more comprehensively while at the same time ensuring appropriate safeguards to protect against subordinating his judgment. If a conclusion is reached that the company is indeed misrepresenting material facts or violating applicable laws and/or regulations, Steve should liaise with his immediate supervisor to address the issue, failure to which he should contact the company’s senior management. If no action is taken and Steve risks compromising his capacity to comply with the fundamental principles, he may consider the act of whistleblowing to bring the issue into the public domain.

Following Applicable Laws

I do not agree with the assertion that the auditor is ethical as long as he or she follows the applicable accounting laws or regulations. The code of professional conduct and standards of ethical behavior must be viewed within the context of a system that has been synchronized to work in harmony to achieve the intended outcomes (Bailey 890). An auditor, for example, may follow all applicable laws that have been developed by various bodies; however, he or she may be considered unethical by failing to follow the fundamental principles of objectivity and integrity in cross-checking the presented facts or details despite following all applicable laws. As such, it is evident that following all applicable laws may not work in the absence of other regulations and standards of ethical behavior.

Works Cited

Bailey, Andrew. “Perspectives on the Public Company Accounting Oversight Board (PCAOB) 2004-2005.” Accounting Horizons. 28.4 (2014): 889-899. Business Source Premier. Web.

Galletta, Patricia Z. “A Basic Field Guide to Fraud: Common Schemes, Relevant Cases, and Preventive Measures.” CPA Journal. 85.3 (2015): 54-59. Business Source Premier. Web.

Keskek, Sami, Lynn Rees, and Wayne B. Thomas. “Earnings Announcements, Differences of Opinion and Management Guidance.” Journal of Business Finance & Accounting. 40.7/8 (2013): 769-795. Business Source Premier. Web.

Mintz, Steven M. “Revised AICPA Code of Professional Conduct.” CPA Journal. 84.12 (2014): 62-71. Business Source Premier. Web.

Rigos, James J. “The AICPA’s New Ethics Code.” CPA Journal. 85.2 (2015): 64-70. Business Source Premier. Web.

Schmutte, James and James R. Duncan. “Making Independent Decisions under the Code of Professional Conduct.” CPA Journal. 84.10 (2014): 68-70. Business Source Premier. Web.

Shamsi, Ehsan and Hamidreza Habibi. “The Effect of Change in Auditors’ Opinion on Timely Disclosure of Financial Information.” International Journal of Management Accounting & Economics. 2.3 (2015): 200-209. Business Source Premier. Web.

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IvyPanda. (2020) 'Accounting Ethics and Professional Conduct'. 6 June.

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