The Briefcase #62: Accounting Ethics – Five Ways to Get It Wrong

Ethics is easy if you’re posed with “do the right thing” or “commit enormous accounting fraud” – you can probably navigate that one without consulting the professional code.

Unfortunately, real ethical dilemmas tend to be less obvious when you’re entangled in one. What feels like helping a client might actually be fudging the numbers, and meeting a deadline might be rushing through some dodgy digits. We all want to avoid conflict, but it might be necessary to stand up to a boss who’s encouraging you to behave “optimistically”.

Professional accountants are guided by five fundamental ethical principles – integrity, objectivity, confidentiality, professional competence and due care, and professional behaviour.

With these five principles in mind, we thought we’d look at five accounting dilemmas and explore some of the absolute worst possible ways you could respond. Then, in order for it to qualify as educational, we’ll look at what you should probably do instead.

Integrity

It’s year-end. You discover an error in the accounts which, once corrected, will cause the company to miss an important target. Your finance director looks at the spreadsheet. His coffee breath spills over your shoulder as he sighs.

“Are we absolutely certain that’s wrong?”

“Uh huh.”

“Could we perhaps do a little more work on it?”

“What does that mean?”

What does that mean?

What not to do

Through the power of peer pressure, you find the resolve to move the troublesome calculation onto a hidden tab and hope that, through some unexplained accounting process, reality eventually bends to your fantastic, inexorable will.

You’re a hero, you’ve just saved the company through the immortal technique of playing dumb.

What you should actually do

Integrity means being straightforward, truthful and fair. All that boring stuff that makes your life harder. If an error is material or otherwise relevant, ignoring it because the correct answer is inconvenient isn’t very integrity of you.

The sensible response is to establish the facts, explain the issue clearly, correct it where necessary and document how the decision was reached. Sometimes, integrity means delivering news nobody particularly wants to hear. Which is obviously rubbish.

Objectivity

A longstanding client offers you Tottenham tickets. After initially interpreting this invite as a threat, you are reassured by your client that he’ll take you out for dinner beforehand, so it won’t all be torture. They’re excellent seats, and your client is very generous with the drinks at halftime.

A week later, the client asks for your view on an accounting treatment that would produce a considerably more favourable result. Despite still feeling the warm glow of an evening well spent, you are convinced that it has not affected your judgement in any way.

What not to do

Conclude that you remain entirely objective because the match finished 0-0 and therefore the hospitality wasn’t actually very good. Alternatively, remind yourself that you have known the client for 15 years and would definitely know if they were asking you to do something questionable. This is particularly useful because familiarity famously makes human beings more objective.

What you should actually do

Objectivity requires accountants to base decisions on evidence rather than bias, personal relationships, self-interest or pressure. But this isn’t so easy to distinguish when you’re wrapped up in the middle of it all.

So, what to do? Well, one useful test is to ask a reasonable and informed third party what to do – maybe pick someone you know will probably make you do the more difficult thing. In this case, our advice is to tell your client that you’re going to keep to your usual treatment, thank you very much, though.

Confidentiality

You are working on a confidential acquisition – nobody outside a very small group knows it is happening, it’s that confidential.

Unfortunately, you are also having dinner with your mate Dave, who has cheerily announced that he is considering selling his stocks in one of the companies involved. Sure, it’ll be a loss, but it’s time to cut and run – the company isn’t going anywhere.

What not to do

Lean across the table and say, “I absolutely cannot tell you anything confidential, but if I were you, I definitely wouldn’t sell those shares, if you know what I mean, because that company is about to be bought by our giant investment group, if you catch my drift.”

Provided Dave has successfully read between the lines, he’ll understand your coded language, and will keep his investment nice and secure.

What you should actually do

Confidential information obtained through professional work generally stays confidential unless there is an appropriate legal or professional reason to disclose it.

That can create uncomfortable situations. You may know something that would help somebody you care about, and you may desperately want to explain why. But, in this case, it’d be a breach to give Dave the scoop, here.

There are exceptions – particularly where the law requires disclosure or where specific professional obligations apply. That is precisely why the sensible response to genuinely difficult cases is to establish what information you hold, why you hold it, what the law and professional rules require, and who you can properly consult. Unfortunately, it’s not Dave.

Professional competence and due care

Your managing director needs an answer on an obscure tax regulation by 3pm. It concerns an area you last encountered during your exams, and your defining memory of the issue is the beautiful drawing you doodled in the margin while watching the clock tick past.

It is now 1.30pm, and you’ve suddenly remembered the all-encompassing power of AI.

What not to do

Upload all the relevant client information into the first free AI tool you find, and ask it to explain the tax treatment. Having read the opening paragraph, you’re impressed by its confidence, and so immediately copy the answer into an email, add a sentence beginning “My understanding is…”, and send it to the managing director. Lovely stuff, just make sure to delete the prompt.

What you should actually do

Professional competence and due care means recognising the limits of what you know as well as maintaining your professional knowledge. Accountants should not take on work they are not competent to perform unless they obtain the advice, training or assistance needed to do it properly.

You might be yawning reading this, but it’s true!

Professional behaviour

You have had a difficult week – a client has annoyed you, your friend Dave is cross at you for some reason, and someone has scheduled a meeting over lunch.

So, you do what any self-respecting accountant would do – you open a bottle of Merlot and, more dangerously, LinkedIn, and start typing. Twenty minutes later, you’re halfway through the bottle and 1,700 words into your diatribe. Having explained what’s wrong with your office, you’ve successfully extrapolated that this specific deficiency is actually embedded deep within the government.

You’re pretty confident that if you post this, you’ll probably start some kind of movement. You’ll at the very least receive a raft of positive messages, none of which will read “are you alright?”

You hover over Post.

What not to do

Publish it, then spend the evening arguing with everyone in the comments. Dig your heels in so deep that the hill you’re currently dying on resembles a volcano. Maybe throw in a few choice insults when a colleague suggests you delete the post. They’re asking for it!

What you should actually do

Professional behaviour is broader than simply behaving properly while sitting at your desk. Accountants are expected to comply with relevant laws and regulations and avoid behaviour that could discredit the profession.

Before publishing something spectacularly ill-advised, it can be useful to imagine it appearing underneath your name and professional qualification in tomorrow morning’s newspaper.

Maybe go for a walk instead?

🧠 Final thoughts

The five ethical principles sound simple when written down:

• Be honest.
• Stay objective.
• Protect confidential information.
• Know what you’re doing.
• Behave professionally.

From the outside, it’s easy to fold your arms and tut at any accountant foolish enough to stray from these fundamentals. But then deadlines appear, and clients start getting pushy. Managers can start dangling promotions, and all you need to do is tweak the numbers just a little bit.

Very few questionable decisions begin with someone announcing that today they will embark upon a gradual erosion of their professional ethics. They usually start with something more subtle, like “just this once,” “no one will know,” or “I want to support Tottenham Hotspurs for the rest of my life.”