Accounting Ethics

Accounting Ethics Accounting ethics is primarily a field of professional ethics, the study of moral values and judgements which are applied to the accountancy. “Accounting ethics can be defined as a set of distinct guidelines for a business to maintain clean balance sheets, accounting for their profits, losses and expenses incurred and prevent it from mishandling financial reports and statements” (Buzzle 2011). The nature of the work carried out by accountants and auditors requires a high level of ethics. Shareholders, investors, managers, and other users of the financial reports rely heavily on the financial statements of a company in order to make some big decisions and investments. And in the current business world, due to more and more business frauds and corporate collapses came out, attention has been drawn to ethical standards accepted within the accounting profession. In China, I often heard about that many companies act in some immoral ways, for example, preparing three books, overstating/understating their assets or net income, overstating the cost of inventory, and so on. The companies which misstate or hide some financial information may bring some substantial benefits to them in a temporary short time. This is the most obvious reason for the accounting frauds. As far as I know, preparing three books is the most common problem in many small companies. When they want to get a loan from the bank in order to make new investments or enlarge the productivity, they may try to overstate their net income to show that their profitability is good. Small companies often need some fresh money to keep their business running well, so this is why the first book exists in many small firms. In addition, when the taxation time, most companies would like to understate their net income to reduce their tax. In this situation, the accountants would usually understate the revenue or overstate the cost of goods sold so that the net income on the book will be lower