International Journal of Management (IJM)

Volume 11, Issue 2, February 2020, pp. 241–247, Article ID: IJM_11_02_025
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ISSN Print: 0976-6502 and ISSN Online: 0976-6510

© IAEME Publication Scopus Indexed

ETHICS IN ACCOUNTING: ANALYSIS OF

CURRENT FINANCIAL FAILURES AND ROLE
OF ACCOUNTANTS
Dr. Giriraj Kiradoo
Associate Professor, Department of Management & Technology
Government Engineering College Bikaner, Bikaner, Rajasthan, India

ABSTRACT
Purpose: The main purpose of this research is to contribute towards enhancing
the knowledge regarding importance of ethics in accounting profession. Accounting
profession is required to uphold the principles of trustworthiness, transparency, and
accuracy in financial reporting. This research informs about the importance of
effective ethical behaviour among professional accountants to reduce ethical issues in
practice.
Methodology: This research adopted qualitative systematic review methodology.
The careful selection of the studies and evidences was done, which enhanced the
quality of findings. This study includes peer reviewed papers and accounting and
management books for ensuring the quality of evidences. Critical appraisal of all
evidences further helped in collection and synthesis of most relevant evidences.
Findings: Findings of this research informs that there are various moral and
ethical dilemmas that can result in affecting the quality of accounting. Therefore,
compliance to ethical principles and ethical standards is necessary for ensuring the
quality, fairness and trustworthiness of accounting statements. It has been identified
that financial crisis in the last decade was the result of various financial
misstatements and financial frauds. Therefore, analysing the role of accountants in
financial frauds and scandals becomes imperative. This study conducted the
systematic review that specifically seeks to answer the research question. This study
informs regarding the importance of ethical principles that are important for reducing
ethical dilemmas of various forms.
Conclusion: This research concludes that professional and personal ethical
values are very important for reducing ethical issues in accounting that can result in
diminishing the reputation and values of accounting profession.
Keywords: Accounting and ethics, ethics of accounting, Ethical accounting, financial misstatements
and accounting, accounting and public interest.
Cite this Article: Dr. Giriraj Kiradoo, Ethics in Accounting: Analysis of Current Financial Failures and
Role of Accountants, International Journal of Management (IJM), 11 (2), 2020, pp. 241–247.
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 Ethics in Accounting: Analysis of Current Financial Failures and Role of Accountants

1. INTRODUCTION
1.1. Rationale for Research
Last two decades have witnessed a significant rise in financial scandals related to
misstatements and financial frauds involving a number of accountants and major accounting
firms. Failures of the management reporting and oversight process are being considered as
some major ethical issues. In response to the failure of many big firms and organisations all
over the world, scholars have raised the questions and scepticism regarding the role of
auditors and accounting professionals. There has also been a growing concern regarding the
ethics associated with accounting profession. Ethical dilemmas could be very common in
accounting profession. Therefore, this research would re-examine some significant evidences
regarding the role of ethics in accounting profession that can be successful in preventing legal
and financial dilemmas.

1.2. Research Question

Primary research Question that this research seeks to answer is:
“What is the significance of professional and personal ethics in accounting profession for
reducing professional ethical dilemmas?”

1.3. Aims and Objectives

The aim of this research is to conduct a systematic review of existing literature. Objectives of
the study include:
 To understand what are accounting ethics
 To assess the significance of ethic in accounting
 To understand the cause of ethical dilemmas

2. RESEARCH METHODOLOGY
2.1. Research Design and Methods
This study has adopted the qualitative method of conducting the systematic review of the
literature. Systematic reviews are conducted for gathering, analysing and synthesising the
evidences from the literature in order to answer the research question. This qualitative
systematic review will provide the synthesis of evidences that informs about the significance
of ethics in accounting profession.

2.2. Data Collection and Analysis

Data collection is a very important process, as the quality of data collection is associated with
collecting the evidences that could support in answering the research question [1]. This
research has focused on collecting evidences from the management databases and has
specifically included the studies that were published with the period of five years (2015-
2019).

3. WHAT ARE ACCOUNTING ETHICS?

According Zorna in his study, ethics can be understood as some set of the moral rules and
norms that influence the individuals and organisations and also determine the ways in which
individuals and organisations operate or function in business and personal activities [2].
According to Mariana, and Maria Ciurea, in the context of accounting and accounting
profession, ethics could be associated with the moral values and standards that provide
guidance to professional accountant to ensure the quality of accounting and to report financial
statement as “true and fair” [3]. Studies have also argued that the main purpose of accounting

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 Dr. Giriraj Kiradoo

and auditing is to provide the accurate and fair financial status of the company in order to help
stakeholders.
Luca Paciol, who has also been known as the “Father of Accounting” had stated in his
book “Summary of arithmetic, geometry, proportions and proportionality (Summa de
arithmetica, geometria, proportioni, et proportionalita,)” the code of ethics have strong
relation with profession of accounting (as cited by Sahar) [4]. The basic principle of ethics
associated with accounting profession encompasses professional integrity, confidentiality, as
well as professional behaviour and competence [5]. International Federation of Accountants
(IFAC) has also recognised the significance of these ethical principles in accounting
profession and has informed that association of ethics with accounting profession is not just to
fulfil the interest of individual clients, but to act in public interest [6]. Addressing the problem
of accounting failures and financial frauds is also important because, it has resulted in causing
a significant financial loss to countries.

Source: Office for National Statistics UK (2019)

4. ETHICAL DILEMMA IN ACCOUNTING

Ethical dilemma in accounting and auditing of firms could be associated with the problem that
auditors might face in presenting the true and fair financial statement of the firm and the
pressure of protecting the interest of management [7]. Ethical dilemmas can also occur in
producing the fair financial statements because of the agency problem that could occur
between the management and stakeholders as well as between the accountants and
stakeholders [8]. Management’s pressure, interest and greed could result in production of
manipulated financial statements. However, the dilemma could occur as the auditors have to
maintain the long term working relationship with the management of companies, while also
required to conduct their duties with scrutiny [9].
Financial frauds and misstatements could be the main problem in current accounting
system because of the non-adherence of the accountants to accounting standards, rules and
regulations. Organisational governance and internal control systems are also responsible for
affecting the quality of accounting and auditing, as in the case of Enron, WorldCom and Tyco

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 Ethics in Accounting: Analysis of Current Financial Failures and Role of Accountants

[10]. All these cases have explained that pressure of management over accountants is one of
the main reasons causing ethical issues. The conflict of interest can also occur when the
interest of the management of the organisation do not align with interest of its stakeholders.
Also, as management hold a significant influence over auditors and also have the power of
harming interest of auditors, result in causing ethical dilemmas for accountants [11]. Lack of
supervision and quality control are also the reasons associated with increased ethical issues in
accounting profession [12].

5. SIGNIFICANCE OF ETHICS IN ACCOUNTING

A wide body of literature has focused on identifying the significance of ethics in accounting
and its role in reducing financial misstatements and financial frauds. Steven Mintz has
espoused in his book that accounts and auditors have the obligation and duty of working in
interest of public and stakeholders of the firms [13]. He further informed in his work that
focus on public interest works as the duty that encompass ethical perspective and allow
auditors and accountants to make balanced professional decisions. Aghdammazraeh and
Karimzadeh argued in their work that ethics in accounting helps in preventing the issues
associated with self-interest [14]. However, other studies have espoused that providing ethical
education to accounting students could be significant in moral development of professionals
[15]
The professional principle of integrity implies that accounts are required to display
professional honesty and fair conduct, while objectivity implies that accountants are required
to apply the professional judgement in conducting audits [16]. Principles of professional
behaviour and professional competence in accounting are found to be significant for
preventing any actions that diminish the reputation of profession and also help auditors and
accountants to work by complying to legal and regulatory duties [17]. Ethics in accounting is
highly important for reducing fraudulent activities. Poor corporate governance and internal
control can result in creating loopholes, by which accountants can indulge in unethical
activities. This also results in diminishing the reputation of business. Integration of ethical
values, standards and principles are significant for ensuring the trust of stakeholders in
accounting profession [18].

6. FINDINGS
The findings of this research have been significantly based on the gap that has been identified
in the literature. Literature displays the dearth of evidences regarding the types of ethical
dilemmas that could be faced by accountants and auditors and that particularly leads to ethical
dilemmas. The financial crisis in the last decades have informed that the major reasons that
contributed towards the financial issues were associated with the financial misstatements and
financial frauds that were not identified or that were hidden through unprofessional practices
[2]. There are various issues in financial management approaches that lead towards the
increase of financial frauds. Principle and agent problem have been identified in the research
as the reason that lead to ethical issues. Management who work as the agent and the
stakeholders who are principles have a very delicate relationship. Stakeholders place their
trust in management and financial reporting system of the firm as they have interest in
financial position of the organisations [3-5].
However, the stakeholders have little access to information, while management have more
power over company’s information, which also provides them the opportunity of
manipulating it for their self-interest. In such circumstance, the role of accountants or external
auditors is to work as the whistle-blowers and to identify the accounting violations in internal
audits. However, findings of this research inform that need of protecting personal interest and

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 Dr. Giriraj Kiradoo

influence of management over auditors increase the chances of ethical dilemmas and may
prevent auditors from their legal, ethical and statutory duties [6-9]. Management of
organisation may also have conflict of interest, as their personal interest and greed may not
align with interest of stakeholders. Therefore, in such circumstances, auditors must comply
with their duty of protecting the public interest and must also comply with their ethical duties
to protect such interest [10-12].
Code of ethics in accounting is found to be based on five important ethical principles of
integrity, objectivity, confidentiality, professional competence and professional behaviour.

Figure 2
Lack of any of these principles in professional practice can lead to ethical dilemmas. The
findings of this research signify the importance of role of supervisors and oversight boards.
Currently, accounting industry lack the supervision and monitoring of such boards [13-14].
The findings of this study also informed that codes and principles of ethics are fundamental
for effecting accounting practice. Accounting professionals are required to ensure professional
integrity and public interest and must carry out their activities with fairness and honesty.
Professional administrators and supervisory groups must implement strict monitoring
standards for ensuring that accountants fulfil their duties in professional and ethical manner.
The findings of this study significantly contribute towards the literature associated with
importance of ethics in professional accounting. Working in public interest and ensuring that
professional practice is significant for contributing towards enhancing interest of stakeholders
could be the most effective approach in reducing financial and accounting failures [15-18].

7. CONCLUSION
This study concludes that ethical principles and values are very necessary for ensuring the
trustworthiness in accounting profession. Different stakeholders place their trust in
accountants and auditors to provide them with fair and true picture of financial statements.
Ethical values are also associated with professional and personal values of accountants and
inform that such values help in making honest decision making. Ethical dilemmas in
accounting can only be prevented through strong and strict compliance to international
accounting standards and ethical values. This research contributes towards informing about
the ethical dilemmas that accountants may face and how strict compliance can reduce such
professional issues.

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 Ethics in Accounting: Analysis of Current Financial Failures and Role of Accountants

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