The importance of ethics in accounting

Ethical compliance is key to maintaining public confidence in the accountancy profession. All chartered accountants are bound by ICAEW's code of ethics, which is based on the five fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. In late 2021, a special Ethics Survey from the Consultative Committee of Accountancy Bodies (CCAB) found that, in the previous three years, 27% of respondents had either been put under pressure or felt under pressure to act in a professionally unethical way – while 54% had felt under some form of threat to compromise their ethical standards. However, as a chartered accountant, upholding ethical standards is not just important; it's fundamental to your role. In the beginning of the year, the FRC published an update to its Ethical Standard for auditors, effective from 15 December 2024. Mark Babington, executive director of Regulatory Standards at the FRC, said: “The revised ethical standard has been simplified to ensure auditors are clear as to the high ethical standards expected, while the limited number of new requirements are proportionate and balanced to support trust and confidence in UK corporate reporting and audit and in doing so helping to support UK growth and competitiveness.” In this article, we'll delve deeper into the importance of ethics for accountancy firms Trust and credibility The role of an accountant is to present accurate and reliable financial statements. Therefore the foundation of trust and credibility in the accountancy industry is ethics. Following ethics in the accountancy industry promotes trust, honesty and integrity. This in turn helps secure new business or maintain long-term client relationships. A joint report, conducted by Edelman and Chartered Accountants Worldwide found that trust in chartered accountants has increased to 85%, despite ongoing economic uncertainty, positioning them trustworthy as nurses. Business leaders are placing more emphasis on the profession to go beyond their role by providing advice and guidance around resilience, ethics, technology, AI and much more. Not adhering to ethical standards or not having a strong ethical foundation often raises questions of reliability and accuracy. It can also result in loss of reputation and legal ramifications. Regulatory compliance Maintaining ethical standards helps accountants follow regulatory frameworks and industry guidelines as they serve as a shield against legal risks and non-compliance. In addition, it guarantees that financial statements accurately and fairly depict the financial status of a company and are created in compliance with set standards. In addition to shielding accountants from legal trouble, ethical compliance preserves the integrity of the financial markets and promotes general economic stability. Professional integrity Upholding the public's trust and the profession's reputation depends on a firm’s ethical behaviour. Accountants frequently have to weigh the interests of their clients against their moral and legal commitments in order to resolve ethical issues. Respecting moral principles in these circumstances upholds the profession's dedication to honesty and openness. As a result, because of their commitment to moral behaviour, accountants are more likely to behave in the public's and the profession's best interests, which raises the industry's general reputation and esteem. Quality of decision-making When faced with challenging financial circumstances, ethical guidelines and principles help provide a framework for evaluating choices and actions. These principles also act as a deterrent to fraudulent activities and unethical practices. It also improves the quality of financial data and safeguards the interests of the company, shareholders, and stakeholders from financial malpractice. Accountants committed to ethical standards are also less likely to engage in fraudulent activities such as embezzlement or manipulation of financial data. Reputation management The enhancement of an organisation's corporate image and reputation is greatly aided by its accounting ethics. Adherence to moral accounting principles cultivates a good impression among stakeholders, customers, financiers, and the general public. On the other hand, unethical practices can lead to scandals, law suits, and loss of clientele, which can permanently hamper the image and credibility of the firm. Businesses that continuously uphold moral principles are also often seen as reliable and responsible, which boosts brand value and fosters lasting relationships. Prevention of fraud Ethics are essential in stopping fraud and other financial misbehaviour and firms with strong ethical foundations are able to easily spot irregularities. They are also less likely to engage in fraudulent activities. This helps protect organisations from financial losses and legal issues associated with fraud. Ethical accountants serve as a line of defence against financial deception, ensuring the accuracy and reliability of financial information, which is essential for the proper functioning of businesses and the broader economy. Long-term success Ethical accounting practices are integral to the long-term success of the firm as they form the foundation of a company’s durability and success. Upholding ethical principles ensures that resources are used effectively, promotes economic stability, and ensures that business operations remain viable over the long run. Additionally, ethical companies can hire and retain top talent, as they are more appealing to professionals who look to work with firms that value integrity and ethical behaviour. Maintaining ethical standards also improves client satisfaction, loyalty, and referrals—all of which are essential for sustained expansion. Lastly, accountants who uphold high ethical standards can not only protect their own careers but also the general stability and well-being of the financial system.