ACC 2214: ACCOUNTING ETHICS

ACCOUNTING CODE OF ETHICS

1.0 DEVELOPING CODE OF ETHICS

Most organizations develop code of conduct for their employees. They do so to give
employees actions. Organizations develop an overall corporate code by first ensuring
that each department develops its code which can become an integral part of the overall
corporate code. Those interested in developing code of ethics or conduct can take a clue
from the guidelines prescribed as follows:
1. Identify the key ethical values your organization cherishes most.
2. Identify those key elements in desired code of conduct, for instance, they include
quality products/services in respect of customers or clients, required style of dressing,
honesty, integrity, avoiding the use of illegal drugs, obeying instructions of superiors,
being reliable and prompt, maintaining confidentiality, not accepting personal gifts,
avoiding tribal and religious bias, avoiding sexual discrimination, avoiding conflict of
interest, complying with laws and regulations, not using organization property for
personal use, not discriminating against age or race and reporting illegal or punishable
activity.
3. Identify key behaviors needed to adhere to the ethical values you cherish most.
4. Include appropriate wording that indicates all employees are expected to confirm to the
desired behaviors.
5. Prepare a draft copy 0of code of conduct and ethics and circulate it.
6. Obtain review from key members of the organization.
7. Announce and distribute the new code of conduct to all your staff, you must ensure that
each employee has a copy of the code of conduct.
8. Post code in each employee’s office.
9. In preparing the corporate code of conduct or ethics, you must appreciate that you
cannot include preferred behaviors or every possible ethical dilemma that might arise.

2.0 POLICIES AND PROCEDURES

The following policies and procedure can be adopted:
1
1. Update policies and procedure to produce behaviors prepared from the code of ethics.
2. Produce behavior that aligns with the organizations values, policies and procedures.
3. Include policies and procedure to address ethical dilemmas.
4. Include policies and procedures to ensure training of employees about the management
programs.
5. Include policies and procedures to reward ethical behaviors and impose consequences
for unethical behavior.
6. Include a grievance policy for employees to use to resolve disagreements with
supervisors and staffs.
7. Consider the establishment of an ethics “Hotline. This function might best provided by
an outsider for instances a Lawyer, Clergyman etc.
8. At least once annually, you re expected to review all the personnel policies and
procedures. In a small organization, there may be the need to include all staff during
this review and which , changes can be suggested.
9. Conduct an in-house training to improve the level of awareness.

3.0 COST OF UNETHICAL CONDUCT

There are two broad cost targets involved in unethical conduct, the cost to the “Doer”
and the cost to the “Victims”.
1. Cost to the Doer: This include:-
 Cost of covering up unethical behavior
 Loss of trust
 Censored communication
 Declining loyalty
 Forfeiture of bright careers
 Imprisonment
 Loss of patronage
 Image damage
 Costly litigation

2
2. Cost to Victims: this involves the losses an individual might suffer when he is a victim
of unethical code of conduct. This can be further divided into Civil losses and Social
losses
i. Civil Losses: this involves the loss in which the victim could have compensatory
damage from the doer.
ii. Social Losses: this is refers to the indirect costs that unethical practices impose on third
parties. Third parties who learn from the unethical practices may:
 Undertake defensive expenditure in order not to fall victims in the future
 Adopt strategy for not buying from producers who are not nationally known.
 Spending additional time and money inquiring into the bona-fide sellers.
 Unethical practices may cause legitimate businesses to increase their defensive
expenditure. For example, they may incur additional expenses to convince customers
that their products are not fraudulent.

4.0 GUIDELINES AND REGULATIONS

The question of professional integrity is strictly tied up with the accountants’ services
and relationships with his client(s) on the one side and on the other hand, the public in
general.
1. Professional Integrity: the question of professional integrity is neatly and carefully
tied up with the accountants’ services and relationships with his clients. It is expected
that professional accountants should behave with high level of integrity in all
professional relationships. In this sense, integrity implies not mainly being honest but
fair in dealing with and truthfulness all the time. The absence of integrity tends to
devalue the professional himself and his work.
2. Conflicting Instruction: in the course of discharging professional duties, either as an
accountant in the industry or in practice, some conflicting instruction, may sometimes
occur. Therefore, the professional guide provide that while employed member of the
accounting body could observe the term of their employment quite well, such terms or
instructions should not require them to be implicated in any dishonest transactions.

3
3. Public Statement: members are encouraged to take particular care to observe the
professional guidance in the content of corporate finance activities or comment or take
over situation especially public statement. Any document whether for private or public,
should be prepared in accordance with normal professional standards, integrity, and
objectivity and with a proper degree of care.
4. Objectivity of members: members are encouraged to strive for objectivity in all their
professional judgement. In this regards, objectivity implies the state of the mind, which
has regard to all considerations relevant to the task at hand.
5. Personal Relationship: an employee relationship is bound to occur between the
employer and employee. Relationship can, sometimes, impair subjectivity and even
integrity of a member. Consequently, problem maybe created either by financial
involvement or personal relationship. The nature or degree or degree of such
relationship or financial involvement could threaten the objectivity of members.
Therefore, where any doubt exists, such involvement or relationship should be disclosed
in writing to the employer or avoid altogether.
6. Gifts Favor, Hospitality etc.:- gift may be given to the Accountant or close family
members or even his wife by a client. Ordinarily, it could give rise to self-interest,
threat to objectivity. Intimidation threat to objectivity could even arise. The significance
of such threat could be weighed against its nature, value, and intent behind the offer.It
must be pointed out too that, some offers are made in the ordinary course of business
without any specific intent to influence decision process.
Africans are very hospital people. Therefore a clean point must be identified beyond
which the gift, favor or hospitality may offend our ethical standing. Above a certain
level, they could become induced and could constitute a threat to compliance of
fundamental principles such as objectivity. Therefore, employed members should be
aware of the difficulties which may arise, from acceptance of any gift or hospitality
which may be intended to influence the recipient.
7. Documents or Reports: It is professionally required that any report for which the
employed members are responsible, whether it bears their signature or not, should be
prepared with integrity and objectivity. Also reports, prepared by employed members
should be accurate, truthful and within scope.
4
8. Conflicts: most at times, an employed member in the course of performance of his
work may be subjected to directives from his employer or director and such directives
may sometimes create or generate a conflict of royalties in seeking to apply their
fundamental principles. Members should take reasonable steps to identify such
circumstances that could potentially generate conflict of interest and to avoid them.
Conflicts of interest may give rise to non-compliance with fundamental principles such
as objectivity and confidentiality.
9. Courtesy and Consideration: It is instructive that members should conduct themselves
with courtesy and consideration towards all, with whom they come in contact during the
course of performing their work.
10. Professional Fees: a member is entitled in law to charge for his services, rendered to
his client or employer. The following must be considered:
i. Such specific duties as agreed with client.
ii. A fee calculated in accordance with any agreement with client
iii. Where no agreement, a fee calculated by influence to the customs of the professional
11. Contingent Fees: They are commonly used in some non-assured engagements. It is
important that the following safeguard be followed:
i. Identify the nature of engagement
ii. Define it scope in write up.
iii. Agree on the basis of fees
iv. Identify range of possible fees

5.0 MERIT AND DEMERIT OF THE ETHICAL CONDUCT.

MERITS
1. Ethical codes help to standardize accountants’ operations and the methodology he
adopts in his professional service or work.
2. Formalized ethical code ensures uniformity of job performance.
3. It serves as a check on members conduct.
4. It guides members on issues requiring decisions.

5
5. It provides basis of assessment of members’ compliance with required or expected
standards of professional practice, competence and judgement.
6. It provides a frame work for developing good professional practices and standards.
7. Code of ethics gives the profession a distinct character or languages.
8. Ethically conscious individual professionals are respected and patronized more than
ethically less conscious individual.
DEMERITS
1. That general applicability of code is based on the assumption that circumstances of
events and situations
2. That the adoption of uniform standard practices might bring initiative of the individual
3. Strict adherence to ethical codes may tend to negate the dynamic nature of the
accounting and auditing environment.
4. Compliance with rules of ethics tends to limit the expansion of the frontier of
knowledge derivable from exploration of alternative options and approaches
5. The rigidity associated with code tends to restrict their hindrances as they are not
regularly being reviewed in the light of current development
6. The code may not be realistic in the context of problem they are meant to solve in the
first case.
7. Some of the code may not even be relevant in case of small firms
8. Some codes may be difficult to monitor and enforce because they are not popular.