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Ethics in Accounting Keys to Reducing Fraud The major problem facing accounting today is the ethical and moral decline of accounting professionals. The American Institute of Certified Public Accountants (AICPA) has published ethical rules to guide accountants and protect the trustworthiness of their decisions in the event an ethical dilemma arises. However today, the profession remains challenged with the need to invest in the growth and development of ethical and moral reasoning to protect them from veering from ethical standards. This paper will explore ethical concepts such as professional conduct and integrity and how emphasis on these ethical values will affect fraud.

Table of Contents I. Executive Summary 1 II. Introduction 2 III. Review of Literature 4 IV. Analysis 11 V. Recommendations 14 VI. Summary and Conclusions 15 VII. References 16

ACCT 601 – Accounting Capstone

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I. Executive Summary

This paper looks at the significance of ethical behaviors in the corporate world, mostly in the accounting sector. The American Institute of Certified Public Accountants (AICPA) is at the heart of promoting ethical behaviors in professional environments and the market at large. Accounting ethics are different from the objectives of employee or workplace ethics. Professional and ethical accounting standards involve being upright and honest and demands accountants safeguard the truthfulness of financial information and results. These are especially important to protect the public interest as stakeholders, creditors and investors are entitled to valid, transparent and reliable financial data. However, in financial settings, circumstances can arise that cause individuals to question their motives, actions and choices. These ethical dilemmas test the moral system and attitude of the professional and requires them to choose between right and wrong behavior, between moral actions and dishonest deeds. Ethical accounting codes may be observed as a strategic framework formed to assist the accountant faced with dilemmas that can lead to fraud. This paper aims to describe the crucial ethical values required to diminish fraud and the nature of ethical accounting codes which encourages integrity and high levels of professional conduct. The following analysis looks more into the professional ethical environment of accounting and the moral strength necessary to impact fraud. More specifically, it designates integrity and upright professional conduct as the champions against fraud.

II. Introduction

Accounting is the process by which financial transactions are monitored, tracked and examined. It aims to provide a means of determining the expenditure levels of an institution and it provides a means of maintaining transparency and honesty in the recording of business transactions. While most accounting is recorded using technology, software can be easily manipulated by unethical people. Thus, individuals are the least reliable part of the financial process, as they are susceptible to influence from outside sources and defiant personal decisions. Therefore, the major problem facing accounting is the ethics and morals of the individual accountant. This paper will determine the importance of specific aspects, such as autonomy, confidentiality, professional conduct and integrity and establish the overall ethical characteristics necessary to ensure proper accounting and inhibit fraud.


According to Kant's moral philosophy, autonomy is the capacity of an individual to act based on objective morality rather than personal desires or other influences. In accounting, managers make decisions on their own without the input or approval of higher authorities. In some cases, this self-rule or individuality may affect decisions made due to pressures of the moment rather than the right decisions for the company. In other words, singular decisions made with the aim of bias in the outcome, in favor of either a party involved in the process or the decision maker rather than for the greater good is in itself corrupt. Therefore, to ensure decisions are made with the best intentions of the organization, rather than other influences, an individual’s integrity becomes the main defense against unethical autonomous actions (Metzger, 2011).


Confidentiality is the state of maintaining secrecy or privacy on specific issues. In accounting, confidentiality entails protecting the details of a client’s private business information and financial transactions from the public or competitors. The promise of privacy is the foundation that allows clients to open all their accounts to the scrutiny of an accountant, especially in an audit. The accountant, being the custodian of client data, must use discretion as to what is saved, as this information may not be protected by law (Snyder, 2011). Logically, ethical dilemmas arise when an accountant must decide whether to endanger client confidentiality with the moral responsibility to report fraud and protect the public. Moreover, ethical problems occur when an accountant leverages confidential information for personal benefit by sharing or selling client information. Regardless of the intentional or unintentional spillage of confidential client data, it is once again apparent that focusing on moral values, such as integrity and responsible professional conduct, accounting ethics will be promoted.

Professional Conduct

The lack of motivation in fully observing professional conduct may be the cause for discord that has been noted to result in financial crises (Melé, Rosanas, & Fontrodona, 2016). Professional conduct standards are created for members of a professional body to ensure the quality of services delivered and establishes thresholds to be met. The professional conduct of accountants can conflict, such as when integrity and confidentiality collide. As discussed, fraudulent client activity may result in the accountant debating between confidentiality and protecting the public interest as both are required professional standards of conduct. Subsequently, the need to apply ethics in decision-making points to an individual being more susceptible to disregarding professional conduct when they deem the infringement to be low level (Bobek, Hageman, & Radtke, 2015). Therefore, it is crucial to highlight the magnitude of moral strength of finance students in professional conduct and decision-making (Shawyer & Miller, 2015).


Integrity is the binding moral value that all accounting ethics and professional standards are built upon. It is the attribute of being morally upright through the strict observance of moral principles and generally being an honest person. Integrity is the binding ingredient that holds the accounting profession together. It is an essential quality that emboldens accountants to faithfully perform their duties and focus on the good of their client without seeking personal gain. An accountant is required to be candid, honest and direct regarding the financial situation of a client. The breakdown of integrity in accounting can be the result of two factors, lack of ethical standards within an organization or the moral decay of an individual (Metzger, 2011). The existence of organizational and professional standards aids in establishing the levels of integrity expected of an individual. Thus, highlighting the unequivocal necessity to develop and invest in assessing the moral uprightness of accounting candidates and the inclusion of morality training in higher education, professional and organizational settings.

III. Review of Literature

The Effects of Professional Role, Decision Context, and Gender on the Ethical

Decision Making of Public Accounting Professionals

In the article, The Effects of Professional Role, Decision Context, and Gender on the Ethical Decision Making of Public Accounting Professionals, the authors, Bobek, Hageman and Radtke investigate the scale to which professional roles, decision perspectives, and gender affect ethical decision making of governmental accountants. Considering they are in the same profession as other financiers and accountants; the outcomes of the study can still be implemented in the paper. Nevertheless, the study consisted of over 130 public accountants and concluded that the accountants had a lower probability of conceding with clients in an antagonistic situation. Moreover, they were also less likely to recommend yielding when they were auditing as compared to calculating taxes. It was also identified that, in the context of auditing, public accountants were less likely to yield to clients. When the data was broken down to their basic gender-based analysis, women seemed to demonstrate better decision-making abilities. Overall, the study was designed to estimate the likelihood of public accountants compromising their ethics and conducting activities that can be deemed illegal. By understanding the dynamics that result in unethical behaviors, policies could be developed to curb the probability of unethical professional conduct taking place. In this article, it is suggested that when evaluating the ethical framework or the ethical training needs in the accounting department, managers should break down the entire process in terms of the professional role of the accountants, the different contexts in which the accountant’s practice and the gender of the professional.

Ethics in Finance and Accounting: Editorial Introduction

In the article, Ethics in Finance and Accounting: Editorial Introduction, Melé and Fontrodona evaluate the recent financial crisis the nation, as well as the globe experienced 2007-2008. They state it is vital for the relationship between finance and accounting to be reflected upon as well as their ethics and efficiencies. Moreover, in order to apply proper ethics and efficiencies, they have to both motivate and empower practitioners in the financial industry. As a result, the practitioners will commit their activities to adhere to the law, fairness, and enhancement of understanding and improvement of personal veracity. Further, the authors introduce works that can be used by various financial and accounting companies to control and measure ethical behaviors and misconduct in the financial sector and overall profession. This article performs an analysis on the essentials of ethics and partisanship in the financial sector and demonstrates, through examples, how those factors can affect the domestic fiscal environment as well as external economies. Ethics is a necessity when it comes to professional conduct, such as the handling of monetary assets. By understanding how professional conduct and other dependent systems relate, the article identifies the importance of ethics in accounting and finance.

In order to enhance ethics in the contemporary accounting environment, the technical aspects of accounting and finance should be integrated into the actual business activity. This implies that ethics should not only be limited to the accounting rules but also extend into the employer’s system of values. Therefore, the entity and its internal departments must promote ethical codes that define the practice of accounting in order to discourage fraud.

The Keys to Integrity and a Sense of Well-being for Accounting Professionals

In the article, Keys to Integrity and a Sense of Well-being for Accounting Professionals, the author, Lawrence Metzger, defines integrity and briefly discusses the barriers and stumbling blocks that place an accountant’s independence, objectivity and integrity in danger. More importantly, the author defines integrity and observes that a person who chooses to act with integrity, in situations which demands a choice, will create a “sense” of well-being. This sense of well-being is instrumental to an accountant’s professional conduct and overall sense of satisfaction in themselves and their profession. The key ingredient, of course, is integrity and the key areas of professional wellness are: sense of agency, sense of the appropriate, sense of wholeness, sense of positive influence, sense of creativity, sense of purpose, sense of character, sense of trust, sense of self and sense of happiness. The intent of this reference is to examine how a deeper understanding of personal and professional integrity will influence and guide the professional through ethical dilemmas. Furthermore, the author reiterates that integrity is doing what is right, even if it results in negative consequences and asserts that acts of omission are just as unethical as acts of commission. This is important when discerning whether to investigate or report suspected fraud or whether to willfully participate or ignore fraud. More importantly, personal and professional integrity contributes to the sustainability of the elite reputation the accounting profession has strived to foster.

Accounting in the Public Interest: An Historical Perspective on Professional Ethics

In his article, Accounting in the Public Interest: An Historical Perspective on Professional Ethics, the Steven Mintz illustrates how the accounting profession has changed since the 1970s. During the 1970s accountants paid more attention to independent auditing. However, this has dramatically changed as accounting professions pay more attention to promoting advisory services for audit customers. As the advisory services expanded, the main concern is whether auditors will still be committed to the public trust and will they compromise professional values. Consulting service revenue rose to almost a level that was equal to the audit fees. Culture in the accounting profession has dramatically changed, from focusing more on delivering professional service to focusing more on the profits and revenue. More companies began to invest in consulting services. A public opinion survey was performed, which showed many companies use financial statements believing that auditing independent is impaired by consulting services. The more services that are provided to customers by the accounting company the more pressure auditors feel to provide those service which can lead to conflict of interest. Professional ethics state that social relationships or normal professional may lead to a conflict of interest. In order to maintain public trust, it is important to avoid relationships that would lead to a conflict of interest.

Since the issue of the new AICPA professional code of conduct, ethical standards have changed dramatically. Several commercial activities previously prohibited are currently being accepted. Many leaders in the accounting profession are questioning the accountant’s commitment to serve the interest of the public over the interests of their clients, the firm and their own personal interest. AICPA code of conducts states that employees should act in the best interest of the public and build public trust. They should also be committed to upholding the values the profession demands. In addition, members may receive conflicting pressure from clients, government, employers, investors, and credit grantors. To resolve these conflict members should act with integrity and fulfil their obligations to the public. This reference serves to enhance the overarching theory that integrity and professional conduct, that is to serve the public good are the key elements needed to improve ethics in accounting.

Moral Intensity Revisited: Measuring the Benefit of Accounting Ethics Interventions

In the article, Moral Intensity Revisited: Measuring the Benefit of Accounting Ethics Interventions, the authors of this study, Shawyer and Miller, were determined to understand whether accounting students’ acuity of moral strength could be improved with the aid of ethical interventions in one of their advanced classes. This article plays a critical role in the overall understanding of ethics in accounting as it determines, if students in school can perceive ethics and its importance. Nonetheless, from the study, it was identified that ethical decision-making is influenced heavily by the moral strength problem. The controlled experiment measured the change in perception of moral intensity utilizing pre and post-testing instruments. The authors also appreciated the results of other studies stating that they identified moral intensity determined ethics, but the class experiment noted additional data. Depending on the ethical content being presented to the students, it affected their acuity of moral intensity. This information is important as it could be utilized to create a trace to the source of unethical conduct. In general, the study was set to determine if unethical behaviors can be limited through school education thereby having the overall effect of limited unethical behaviors in the financial sector. The data from the study provided the students with a learning opportunity to understand how education can impact ethical professional conduct.

Client Confidentiality and Fraud

Client Confidentiality and Fraud” written by Herbert Snyder is an article about confidentiality and the potential conflict posed when fraud is detected. The article explored whether the public interest take precedence over confidentiality and looked at instances of other professions which require confidentiality such as lawyers, and doctors. According to AICPA Code of Ethics 1.700.001, Confidential Client Information Rule prohibits the disclosure of any client information without the expressed consent of the client (AICPA, 2014). The exceptions which allow disclosure of the client’s information are for peer review, summons, subpoena and inquiry by AICPA or State Board of Accountancy.

During an audit engagement, accountants should provide great care to protect the client confidential information from being exposed or easily accessed. According to Scott Hillson an audit engagement is independent. The auditor relationship with the client to render an opinion on the financial statement is not privileged. However, if fraud is discovered the client may want to take steps to protect certain information from being divulge during court proceeding. “A fraud examiner should consider ways in which attorney-client privilege can be protected” (Snyder, 2011).

According to Snyder, a conflict exists between following a professional obligation to keep private client information and reporting fraud when discovered. Just as there is a conflict between professional obligation and ethical values there is also a delicate balance between client confidentiality and the public’s trust. The balance should be on the side of the public’s trust. The nature of accountant-client relationships and the grievous harm of unreported financial misconduct makes it difficult to support the professional claim of confidentiality in the face of fraud (Snyder, 2011).

Embracing Ethics and Morality: An Analytic Essay for the Accounting Profession

In the article, Embracing Ethics and Morality; An Analytic Essay for the Accounting Profession, the authors, Stephens, Vance and Pettegrew, look beyond the standards, principles and laws that were undoubtedly disregarded in accounting scandals of yesterday; such as Enron, WorldCom, AOL and Lehman Brothers and evaluates the failed morality of the accounting profession and society as a whole. In particular, the article delves into the ethical behavior and ethical readiness of the present and next generation accounting professionals. The authors search for reasons that explain why moral values have declined and explain the rationale behind ethical training. Specifically, they assert ethical education should be about professional conduct and decision-making that seeks the good of others and teaching the importance of integrity; doing what is right because it is right. They contrast a person’s decision for choosing right behavior based on values and virtue against moral behavior forced by rules and fear of punishment for breaking said rules. Accordingly, the article explores high-school students’ tendency toward cheating, lying, and stealing, which paints a bleak picture for the future of accounting professionals. More specifically, it suggests that students believe there are no absolute standards for moral and ethics and have a disregard for personal responsibility and accountability. The article further provides a negative outlook on the effects of ethical education and standards, as “most ethicists agree that an individual’s value system is fully developed by the time he reaches college and that further education can do little to change that” (Stephens, Vance & Pettegrew, 2012). As such, the authors analyze the six stages of moral reasoning and explains that most people fail to reach the last two stages. Thus, the article exposes the desperate need for a professional class of accountants that will exhibit a higher level of integrity and higher moral reasoning, that moves beyond being ethical because it’s the rule, regulation or law. The intent of this reference is to further our underlying theory that integrity and the careful development of said virtue is the cornerstone of ethical accounting. Honesty, trustworthiness and decisions to do what is right are the personal attributes to win against fraud.

IV. Analysis

The effects of fraudulent activities in an economy are far reaching. Unethical behaviors harm individuals, firms and the economy at large. Accountants play a vital role in ensuring the reliability and trustworthiness of accounting data and influence the moral culture of business and society. In order to achieve this, accountants are advised to observe the American Institute of Certified Public Accountants (AICPA), Professional Code of Conduct. This ethical professional code requires accountants to have a high level of integrity, to maintain confidentiality and behave according to a high degree of professional standards. Undoubtedly, private and public organizations employ professional accountants who are required to provide financial information regarding its business transactions. In the course of doing business, accountants may encounter situations where they feel compelled or pressured to provide false financial information and/or alter financial results. These events create a threat to the moral and ethical character of an accountant and are known as ethical dilemmas. Ethical dilemmas test the moral system or ethical code of an individual, an organization and a profession. In these cases, individuals must choose whether to remain steadfast in their moral values or act contrary to what they personally believe or what has been established by ethical code.

In the event an individual chooses the later, fraud is inevitable. Accounting fraud involves the intentional manipulation of financial information, which misleads shareholders, creditors, investors and the general public. These actions are premeditated attempts to deceive and attract investors by intentionally altering financial statements. Often, this is accomplished by overstating revenue and assets and under reporting expenses and liabilities. Perpetrators of accounting fraud are employees, managers, accountants and top executives. To reduce business fraud, ethical codes have been instituted within corporations, industries and state and national accounting boards. For certified public accountants, the AICPA Code of Professional Conduct has been adopted to tackle the ethics of accounting.

Professional Conduct Diminishes Fraud

An accountant’s professional conduct is a key quality used to minimize fraud. As mentioned, state accountancy boards and the AICPA are authorized to formulate and enforce professional standards for all accounting members. The AICPA Professional Code of Conduct was recodified in June of 2014 and became fully effective in December of the same year. This code of conduct requires all accountants to act with integrity, due care, objectivity, competency and ensure confidentiality for their client. In addition to this, accountants are required to disclose any conflict of interest in their work and to ensure that their clients are aware of any referral fees and commissions. Moreover, the obligation to guard public interest is required to be met by accountants. Steven Mintz writes, “the public relies on the ethics and professionalism of CPAs to protect their interests. Professionalism is demonstrated by behavior that is consistent with the ethical obligation to serve the public interest…” (Mintz, 2018). Reasonably, aligning the conduct of accountants through an obligation to conduct their activities to serve the public good, and not their employers, investors or themselves, will reduce the temptation to commit fraud. In this manner, strengthening the accountants’ determination to conduct and execute their duties faithfully and confidently thereby diminishes the opportunity for fraud.

Integrity Withers Fraud

Without a doubt, integrity is the fundamental ingredient necessary for all professionals. It is the essential character trait that dictates the professional and ethical actions of an accountant. Accountants who have strong moral values and who are honest in conduct will help to eliminate accounting fraud. As mentioned, the AICPA has been entrusted with the responsibility of ensuring and developing professional ethical values in accounting. The key attribute and cornerstone to the entire code of ethics is integrity. “Having integrity means acting out of moral principle and doing what is right, even if there are negative consequences” (Metzger, 2011). In basic terms, integrity is choosing to do the right thing because it is the right thing to do. It requires accountants to be honest in their work, to be candid and forthright with the financial information of a client. An accountant with high integrity restricts themselves from any personal gain or advantage in the cause of their work through the utilization of important information. Moreover, integrity restricts accountants from manipulating financial information intentionally or for any other reason other than to correct accounting errors. Instilling and insisting that accounting professionals maintain high levels of integrity has a significant impact on reducing fraud. Accountants with high integrity will not alter or allow any unnecessary manipulation of financial information for personal gain or gain of a third party. In fact, accountants with high integrity will forego their work when pressured by employers to manipulate financial information. Undeniably, this ethical fortitude and commitment to professional integrity will uphold the accounting industry and shrink fraud.

V. Recommendations

Accounting fraud is estimated to cost an organization approximately 5% of revenue per year. In 2016, the Association of Certified Fraud Examiners (ACFE) found that $6.3 billion in total losses occurred due to fraud, with an average of $2.7 million per company. These are extraordinary losses and every possible measure should be deployed to ensure the reduction of fraud cases. In addition to accountants and accounting regulatory bodies essential role of adhering to and implementing ethical rules, other measures to reduce fraud should be engaged. According to the ACFE, the greatest detection method of fraud is whistleblower tips. Organizations should consider instituting hotlines or other systems of anonymous reporting to encourage employees to report ethical violations (ACFE, 2016). Of course, other detection methods should also be engaged. Businesses should also consider installing technology, such as surveillance and monitoring systems to detect and minimize fraud. Unfortunately, these fraud barriers alone will not eliminate unethical activities. With that said, it is important to encourage current professionals and future accountants to grow in their moral reasoning. William Stephens explains in his article, Embracing Ethics and Morality, that most young adults have not reached the highest levels of moral reasoning described by Kohlberg’s cognitive framework of ethical behavior. He further explains that most people have stopped at stage four, which says ethical behavior is dictated by punishment and reward. Thus, it is recommended that colleges, universities and accounting authorities develop studies that cultivate moral teachings that will move accountants to higher stages of reasoning, stage five and six, which say that ethical actions are based on the welfare of others and because principally moral actions are the right thing to do (Stephens 2012). More importantly, today, accountants can recommit to truthfulness in financial transactions along with their continued professional investment and development of ethical values. Ultimately, it is human virtue and the high righteousness of actions and deeds that will positively affect the financial integrity of business and our society, thereby extinguishing fraudulent activity and our overall moral decline.

VI. Summary and Conclusions

Ethical codes of conduct are fundamental when it comes to an accountant’s professional conduct. It is evident that failed integrity and lack of motivation to observe standards has overwhelmed the profession and society and explains why accounting fraud has flooded our business markets. Nevertheless, the objective of reducing fraud is a challenge worth confronting. This intention, however, includes a greater challenge for businesses to enhance their controls and for individuals to reassess their personal moral values and qualities. First, businesses …