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Week Two - Ethical and Legal Obligations Paper
Ethical standards have had vast changes over the years. Michael Josephson, in Chapter 1
of Ethical Issues in the Practice of Accounting, 1992, described the "Ten Universal
Values." They were as follows: honesty, integrity, promise-keeping, fidelity, fairness,
caring, respect for others, responsible citizenship, pursuit of excellence, and accountability.
Good ethics does not always mean good business practices. The purpose of ethics in
business is to direct business men and women to abide by a code of conduct that facilitates,
if not encourages, public confidence in their products and services (Smith & Smith, 2003,
3). In the accounting field, the American Institute of Certified Public Accountants (AICPA)
maintains and enforces a code of professional conduct for public accountants. The Institute
of Management Accountants (IMA) and the Institute of Internal Auditors (IIA) also
maintain a code of ethics (Smith & Smith, 3). Investors and accounting professionals have
a responsibility to provide ethical guidelines for its members to follow; professional
accounting organizations fill this role. Investors need to know that there is a universal
standard for which they can use to determine if they should invest or not when taking into
account financial information a company provides the public.
There are several organizations that mange ethics in accounting practices, writing
guidelines and policies for which accountants must abide. The relationship between the
three we will discuss is that they are all guided by the Securities Exchange Commission.
These guidelines allow investors to have a comparable standard when looking at financial
statements of corporations. The Financial Accounting Standards Board (FASB), Securities
Exchange Commission (SEC) and Public Company Accounting Oversight Board
(PCAOB) are three such agencies.
The FASB is an organization that is not for profit. Since 1973, the Financial Accounting
Standards Board (FASB) has been the designated organization, in the private sector, for
establishing standards of financial accounting this includes reporting. The FASB regulates
auditors of publicly traded companies. They are officially recognized as authoritative by
the Securities and Exchange Commission (Financial Reporting Release No. 1, Section 101
and reaffirmed in its April 2003 Policy Statement) and the American Institute of Certified
Public Accountants (Rule 203, Rules of Professional Conduct, as amended May 1973 and
May 1979) (FASB [FASB],3 ). Standards of this nature are necessary for the efficient
functioning of the economy. Again, this is because investors, creditors, auditors and others
rely on credible and comparable information on financials of companies.
The Securities and Exchange Commission (SEC) is a division of the federal government,
