Accounting Standards and Ethics

http://www.aicpa.org/interestareas/tax/resources/standardsethics/pages/default.aspx

http://www.ifac.org/ethics

Ethical accounting is when the accounting firm makes a commitment to ethics. One of the ways to easily determine whether an accounting firm has this commitment is whether they have an ethicist on staff. An ethicist can help a business clarify their ethical standards.

Due to range of accounting services and recent corporate collapses, attention has been drawn to ethical standards accepted within the accounting profession. These collapses have resulted in a widespread disregard for the reputation of the accounting profession. To combat the criticism and prevent fraudulent accounting, various accounting organizations and governments have developed regulations and remedies for improved ethics among the accounting profession.

Businesses rely heavily on accounting ethics, whether they’re aware of it or not. Unless investors, creditors and managers can be reasonably confident that the financial recordkeeping practices of their accounting professionals are honest, straightforward and consistent with industry standards, it is unlikely they can trust their records’ accuracy. In addition, either investors or creditors may be exposed to the risk of fraud if accounting ethics and integrity standards are not upheld, which can also undermine trust in the larger markets.

The professional accounting organizations establish codes of ethics and integrity standards that their members must adhere to in their practice. The accounting boards in each state also lay out ethical standards for membership and state law usually requires accountants to certify with the state board in order to legally practice. States punish the violation of state-adopted ethics and integrity standards with penalties that can include the suspension of an accountant’s license.

At the core of accounting ethics is the strict adherence — as much as is possible — to generally accepted accounting principles (GAAP). These are the basic rules of accounting laid out by the Financial Accounting Standards Board, and their use ensures the reliability, comparability and integrity of financial statements. In some rare cases, business circumstances may require diversions from GAAP. In these situations, accounting ethics require that any departures are fully documented and clearly justified for investors or others reading the resulting financial statements.

In accounting, ethics and integrity standards are based on a broad commitment to honesty, impartiality and objectivity. Ethical standards also require that accountants present information in the clearest and most accurate way possible, with the expectation that the information constitutes an independent report of a business’ financial situation. In most cases, this requires not just observing professional rules but also recognizing the potential for harm, using reasoning and judgment to resolve ethical conflicts and displaying moral integrity and motivation to apply a resolution.

Most businesses have a Mission Statement, but few have considered ethical standards. A statement of ethical standards is the first step in implementing an inclusive ethical program throughout the entire business.

Ethical accounting is relevant. A business that hires an ethical accounting firm knows that they are scrupulously honest and can be confident that employees, customers and clients are in good hands.

How to Avoid Accounting Fraud

http://www.accountingweb.co.uk/topic/practice/tips-preventing-accounting-fraud
http://www.dummies.com/how-to/content/how-to-prevent-employee-fraud.html

It seems like every week, another company is being investigated for accounting irregularities. In fact, accounting-fraud cases accounted for about 20 percent of the SEC’s roughly 500 enforcement cases last year. Charges were filed against 26 companies, 19 chief executives, and 19 chief financial officers in 2000. To avoid an accounting scandal, follow all laws governing the practice of accounting. Keep accurate records and never ‘fudge numbers,’ or make up results, just because a higher-up employee is pressuring you. Report any suspicious accounting activity to the proper authorities.

If you do not implement sound internal controls and you fail to be vigilant in monitoring employee behavior, you’re probably a sitting duck for fraud.  Fraud can be expensive and damaging in many ways. Not only can it erode profit margins and shareholder value, but fraud can also adversely impact company morale and productivity.  The ultimate cost of fraud can be enormous!

Fraud can be perpetrated by employees, managers and vendors in a variety of ways. Among the most common methods include forgery of signatures, stolen or misused credit cards or checks, unauthorized purchases or payments, or the theft of cash.

Opportunities to commit fraud often arise from poor internal controls, too much trust in individuals, inadequate training, not implementing controls thoroughly, carelessness, apathy and simply not paying attention.

Prevention is the best way for a company to avoid fraud.  To stop fraud before it occurs, it is important to create a fraud-hostile environment by providing a heightened sense of awareness.  If you suspect that your company has a problem with possible fraud, please contact us and we can help investigate your concerns.

The methods for concealing frauds are so numerous and ingenious that almost anyone can be easily cheated or defrauded. Measures should be designed with great care to keep a check on such practices. Some of the measures that can be adopted are illustrated below:

Segregating duties: One of the main factors of an effective internal control system is the segregation of duties. Management helps to prevent fraud by reducing the incentives of fraud. One incentive, the opportunity to commit fraud, is reduced when accounting functions are separated. The act of segregating duties separates the record-keeping, authorization and review functions in the accounting process. To segregate duties, involve more than one person in the financial statement preparation process.

Independent third party audit: This plays a crucial role in identifying frauds conducted at the management level. Frauds conducted at lower levels can be detected through internal checks but fraud conducted by those at senior levels is difficult to detect and this calls for independent third party audit.

Minimize cash transactions: Policies may be set regarding who are authorized to disburse cash and prior approval of senior officials should be obtained in case of cash payment. Maximum amount that can be disbursed in cash should also be set. Insurance policy against embezzlement and theft should also be taken to minimize losses. The person involved in cash transactions should not be the one handling the accounts department.

Reconcile bank accounts and review statements: Review every statement received from the bank. Make sure all bank accounts and credit cards are reconciled. Afterwards, take time to review every reconciliation report. Notice stale checks or deposits that have not cleared the bank. Check for missing deposits. An increase in the number of reconciled items may also reveal mischief.

Accounting Scandal – WorldCom

http://www.scu.edu/ethics/dialogue/candc/cases/worldcom-update.html

On June 25, 2002, WorldCom, the Nation’s second largest long distance telecommunications company, announced that it had overstated earnings in 2001 and the first quarter of 2002 by more than $3.8 billion. The announcement stunned financial analysts and, coming on top of accounting problems at other corporations, had a noticeable effect on the financial markets.

The accounting maneuver responsible for the overstatement – classifying payments for using other companies’ communications networks as capital expenditures – was characterized by the press as scandalous, and it was immediately asked why Arthur Andersen, the company’s outside auditor at the time, had not detected it. WorldCom filed for bankruptcy protection on July 21. On August 8, the company announced that it had also manipulated its reserve accounts in recent years, affecting an additional $3.8 billion. Response in Washington was swift. On June 26, the U.S. Securities and Exchange Commission (SEC) charged the company with massive accounting fraud and quickly obtained court order barring the company from destroying financial records, limiting its payments to past and current executives, and requiring an independent monitor. Hearings were held by the House Committee on Financial Services on July 8 and by the Senate Committee on Commerce, Science, and Transportation on July 30. Several company officials have been indicted. The fundamental economic problem confronting WorldCom is the vast oversupply in the Nation’s telecommunications capacity, a byproduct of overly optimistic projections of Internet growth. WorldCom and other telecommunications firms faced reduced demand as the dot–com boom ended and the economy entered recession. Their revenues have fallen short of expectations, while the debt they took on to finance expansion remains high. As the stock market value of these firms has plunged, corporate management has had a powerful incentive to engage in accounting practices that conceal bad news.

When WorldCom, the telecommunications giant, failed and was put into bankruptcy, the U.S. witnessed one of the largest accounting frauds in history. Former CEO, Bernie Ebbers, 63, was convicted of orchestrating this US$11 billion accounting fraud and was sentenced to 25 years in prison on July 13, 2005. WorldCom made major accounting misstatements that hid the increasingly perilous financial condition of the company. The Report described the accounting shenanigans as follows: “… As enormous as the fraud was, it was accomplished in a relatively mundane way: more than $9 billion in false or unsupported accounting entries were made in WorldCom’s financial systems in order to achieve desired reported financial results.

In the end, I want to say that professional accountants should never compromise ethical standards. They must uphold the high ethical standards because they are one of the Deloitte’s core shared value. There should be professional competence, confidence, integrity and objectivity in professional accountants. They should only take tasks that can be completed with professional competence. If professional accountants carry in their minds the ethical factors, this will help them to carry out their responsibilities with sufficient care and diligence. Listing ethics as first core value in accounting sends a message internally and externally that they are the foundations of everything that an accountant does for success. In short ethics are the highway to success for professional accountants.

 

 

Ethics and accounting profession

http://www.ethics.org.au/ethics-articles/ethics-accounting-profession

http://icas.org.uk/home/technical-and-research/research-centre/research-publications/ethics-and-the-professional-accounting-firm–a-literature-review—executive-summary/

Ethics are important for Professional Accountants because throughout the history, it has been proven that accounting partially reflects moral orders of the world in which it is practiced. It has become a moral discourse, because of the injustice that has occurred in regards to ethics with in the accounting profession.

Ethics are important for Professional Accountants because accounting requires ethical knowledge and skills to a great extent. They clear the concept of right and wrong. They help the professional accountants to build personal fortitude to make a right decision. By keeping in mind ethical factors, accountants can easily manifest peer pressure. They will never focus in short term pressures for keeping up revenue growth or for satisfying investors. They make them think in long term because all successful companies manage not for short term but for long term. Ethical behavior forces to confront personal relations in case of fraud. Concentrating on ethical factors makes the accountants to build an inner strength which forces them to make an ethical decision of not ignoring the fraud. Accountants, whose first priority is ethics, can easily deal with ethical dilemmas, areas that are not black and white. They feel comfortable dealing with grey areas. They never under represent their time for completing a job. They can easily go along with the crowd or do what their managers tell them to do, by never compromising with ethical factors.

There is a concept that “ethics can never be taught, it is something inherent”. I totally disagree with this concept. Yes there are some qualities and skills which are in our blood but still there are many skill and abilities which are need to learn for being successful in our profession. Teaching ethics in early studies can provide reasoning skills. There should be a course on ethics which prepares the accounting students well for their careers. The board of accountancy in at least 25 States not including New York requires accountants to pass on ethics exam or course either before sitting for the Uniform examination or as a condition of certification. Few states require a college course in ethics. The passing grade for this course is 90%. Because of the low emphasis on ethics under both the new and the prior versions of professional accountants exam means that accounting graduates may have had limited exposure to ethics matter to cope up with this problem, accounting teachers should bring in the classroom their own audit experience so that they can better understand the life in the field will be like this way when these students will become professionals, they can easily face the ethical situation and know how to deal with them. Accounting students should understand that “ethics are not optional” because they equip them with behavioral patterns of good moral decisions. This helps them in making reasoned sound decisions in their future. Ethics build in them cognitive moral reasoning skills so that they can easily come to know how to get around the system or how to hear other people but rather to defend their selves against such underhandedness in future.

Ethics education in accounting

http://www.nysscpa.org/cpajournal/2007/107/essentials/p64.htm

Click to access 298.pdf

One can hardly pick up a business publication today without noting some reference to an accounting scandal. Enron is only one dishonor to the profession, though perhaps the best known; other recent accounting and auditing failures include WorldCom, Microsoft, Peregrine Systems, W.R. Grace, and Xerox, among many others. The sheer number of accounting abuses serves as prima facie evidence that something more is needed in terms of accounting ethics.

In the Wharton School project on integrating ethics into the undergraduate business curriculum it was reported that more than three quarters of student comments ‘enthusiastically endorsed the idea of discussing ethical issues in regular college courses’. Indeed, many apparently referred to what they felt was an unethical content in some business courses, and the amoral or even immoral attitudes of their peers. However, it appears that we should treat students’ views with caution. Lawson observes that many students, especially those in their early undergraduate years, lack the business experience to appreciate the complexity of situations, and fail to realize that some ‘unethical outcomes of business activity are the almost inevitable side-effects of ethically ‘good’ decisions.

Opinions on Requiring Ethics

The accounting profession and its regulators have overlooked their responsibility to solicit students’ views on requiring a separate accounting ethics course and business ethics course, as well as the importance of ethics within the accounting curriculum. In this study, students advocating ethics courses took some interesting positions not generally seen or publicized. They are strong proponents for their point of view, and their supporting reasoning provides an insight into their fervor (the comments throughout are taken directly from students’ responses):

• Ethics is highly depended on in this profession. The importance of it is being minimized by our curriculum’s refusal to integrate ethics as required courses.
• It seems foolish of these authorities to make so many excuses concerning an issue that so obviously needs to be solved.
• Ethics is a field of learning, not a personality trait.

Teaching Ethics

With regard to whether ethics can be taught in the classroom, the position of students is similar to those of professionals and academics.

The two basic opposing viewpoints are:

• ethics can and should be taught in the classroom; and
• ethics cannot be taught at this stage, and someone is either ethical or not.

Some of the more interesting student views and concerns about the place of ethics in the curriculum were as follows:

• Accountants should always represent the highest level of professionalism, and enforcing ethics upon accounting students is crucial to the values they develop while completing their education.
• While ethics education is vital to the success of all professionals in the business field, it [is not] something that can be taught.
• An institution or college might be able to teach good solid ethical values in the classroom, but the teachings will not always stick.

Ethics is of primary importance to the accounting profession, and the profession clearly has the right to require an accounting ethics course as a condition of admittance.

 

Example of Accounting Ethics – Enron

http://www.scu.edu/ethics/publications/ethicalperspectives/enronlessons.html

Although Enron went bankrupt and disappeared ten years ago, the impacts it has made on the ethical standards never faded. It took Enron 16 years to go from about ten billion dollar assets to more than sixty-five billion dollar assets, and took twenty-four days to go bankrupt. The Enron scandal is one that left a deep and ugly scar on the face of modern business.  In this article, the facts of Enron’s case were reviewed and the major ethical issues involved in Enron’s scandal were analyzed.

Enron’s culture contributed much to the ethic scandal. Enron was a harsh and condescending company, who emphasized competition and financial goals.

Firstly, Enron’s competitive environments and rigorous performance evaluation standards caused a culture of deception. Since employees were nervous about losing their jobs, they only focused on how to make their performances look good.  They ignored the ethical standards, and only focused on the achievement of their financial goal.  After a few employees began cheating on their works, the only way to beat these persons was to cheat more

Secondly, this competitive environment contributed to the covering of the errors and cheating because employees tended to be uncooperative and seldom communicated with each other. The employees were unwilling to ask questions because asking questions was regarded as humiliating.  Besides that, they were also less willing to share resources and information because they competed with each other.  So in Enron, no persons asking questions as well as no one want to answer questions.  Because of this working environment, few employees at Enron actually understood their jobs.  As a result, they just tried to hide errors and made their work look good.  Additionally, they ignored the errors and cheatings of others.  They never mentioned their doubts about others’ works.   Because they thought if others were not actually wrong, the person who mentioned questions would be laugh at.  So employees at Enron were quiet.

Additionally, the culture of Enron emphasized too much on the financial goals. The person who can achieve the budget numbers would be the hero of the company. Both executives and most of employees focused on making profits for themselves through making good financial numbers instead of a real increase of the company’s economic value. Enron also was concerned less about the needs, values, desires and also the well-being of the employees. From the ethical aspect, employers should respond to their employees and keep the goal of benefiting them.  In such a company, ethical standards were just window dressing. No one followed them.

Fourthly, Enron tried to keep its employees and outside parties quiet.  Employees were discouraged from expressing doubts about the financial condition of the company as well as decisions made by the executives.   In these years when it committed fraud in its financial statement, Enron hurt both people inside and outside of Enron, who doubted Enron’s financial conditions. Therefore, employees in Enron were pressured to work blindly, keep silent, protect their own short-term interests, and try to achieve their goals even if it was an obvious cheat.

This evil culture contributed to Enron’s scandal. At Enron, both executives and most of employees behaved unethically when they encountered conflicts of interests. They were greedy and self-interested.

Ethical Dilemma for accountant

http://www.ethics.org.au/ethics-articles/ethical-dilemma-accountants

Ethical dilemmas do not always have a prescriptive and clear cut response (unless there is evidence of breaking the law or accepted regulations). You may have discovered something you believe to be illegal or fraudulent, or someone may be pressuring you to mislead, or to report in a way that is against or marginal to accepted accounting standards or outside the law. Conflicts of interest and confidentiality are also ethical issues.

In an article entitled “Business Accounting Ethics,” Katherine Smith and L. Murphy Smith explain that the main reason for ethical guidelines is not to provide an exact solution to every problem, but to aid in the decision-making process. An established set of guidelines provides an accounting professional with a compass to direct him toward ethical behavior. Specific responsibilities of the accounting profession are expressed in the various codes of ethics established by the major organizations such as the American Institute of CPAs. The AICPA Code of Professional Conduct outlines an accountant’s responsibilities towards the public interest and emphasizes integrity, objectivity and due care.

The effects of ethical behavior in accounting are far reaching in the economy. Every business entity has an accounting professional provide information at some point in the organization’s life cycle. Many accounting professionals are tempted to alter financial results and often rationalize the behavior by calling it creative or aggressive accounting. Aggressive accounting is the process of employing questionable accounting methods to boost results. An accountant may record revenues and expenses in an incorrect manner or omit expenses altogether. Repeated incidences of aggressive accounting are a result of the lack of ethical behavior.

A common example of an ethical dilemma involves management instructing a subordinate employee to record a transaction in an incorrect manner. For instance, a company with a Dec. 31 year-end calendar year, signs contracts with consumers to perform services. The contracts are usually signed Dec. 1 and are a year in length. Accounting principles require the company to record the revenue for the contract for one month only, the month of December. The remainder of the revenue is recognized on next year’s financial statements. However, management instructs an employee to record the entire amount of the contract in December to boost revenues for the current year end. Management receives a bonus for the boosted revenue and the subordinate receives recognition in an upcoming performance review.

Unfortunately, ethical dilemmas, such as the example provided, are common. To help curb the desire to practice aggressive accounting and ignore ethical behavior, a number of organizations require accounting professionals to complete continuing professional education courses on ethics. In addition, a number of companies establish whistleblower hotlines to encourage employees to demonstrate honesty and integrity in the workplace.

Many accounting professionals do not encourage ethics courses and argue that ethical behavior is not taught, but it is inherent in an individual’s personality. In addition, Faculty Director J. Edward Ketz notes that accounting professors do not like to research or study ethics because of its unscientific approach. The results are difficult to examine and it is hard to gauge the level of success from teaching ethics courses.

 

Sarbanes-Oxley Act

http://www.nysscpa.org/oxleyact2002.htm

Following the unmasking of billion-dollar earnings manipulations at corporations such as Enron and WorldCom in the early 2000s, the accounting profession has had to reexamine ethics and its implications. The Sarbanes-Oxley Act created new standards for corporate accountability as well as stiffer penalties for noncompliance including imprisonment for up to twenty years. In response to the Sarbanes-Oxley Act, accounting profession regulators began to look at enhancing ethics training for current and future accounting professionals.

 The Sarbanes-Oxley Act was designed primarily to regulate corporate conduct in an attempt to promote ethical behavior and prevent fraudulent financial reporting The legislation applies to a company’s board of directors, audit committee, CEO, CFO, and all other management personnel who have influence over the accuracy and adequacy of external financial reports. Section 302 affects senior management, both the CEO and the CFO must personally sign and certify that the company’s financial report does not contain any known untrue material statements or omit a material fact. They must admit that they are responsible for establishing and maintaining internal controls. CEOs and CFOs are subject to a $5 million fine or a 20-year prison term for violation of the certification regulation, which falls under federal court jurisdiction.

 The Sarbanes-Oxley Act takes a much stronger position on incarceration than previous attempts to legislate morality in business. Some people think Sarbanes-Oxley Act have negative effect toward market, because it is so strict. However, good ethics is good business. If you look closely at examples of unethical business behavior, you discover two things: the company derives only short-term advantages from its actions, and over the longer term, skimping on quality or service doesn’t pay. It is not a good business. Good ethics affects the good name of the company and builds trust. It is obvious that to cut corners for short-term gain will only erode the company’s reputation. An accounting firm that cannot be trusted is useless, because people depend on the firm and individual accountants to provide them with accurate pictures of organization’s financial status.

 The Sarbanes-Oxley Act was signed by President George Bush on July 30, 2002. As enacted, the law directly impact publicly traded companies, CPA firms auditing public companies, and top management of big firms. The SOX Act enhanced corporate transparency. The corporations have improved their internal controls and financial statement to be more reliable.

After reading those articles, I learned a great amount of information regarding the Sarbanes-Oxley Act (SOX). Sarbanes-Oxley Act is useful to reinforce accountability, improve financial reporting and governance in corporations. The primary goal of SOX is also to fix auditing of US public companies, consistent with it official name: the Public Company Accounting Reform and Investor Protection Act of 2002.

The punishment of disobey the Sarbanes-Oxley Act is serious. The top management should have integrity to avoid disobey this law. Having integrity is doing what you know is right regardless of what anyone else may want. It’s who you are when no one is looking and you do the right thing.

Insider Trading

http://www.sec.gov/litigation/litreleases/2013/lr22670.htm

https://www.sec.gov/litigation/complaints/2013/comp-pr2013-58.pdf

 

Insider trading is the trading of a public company’s  or other securities by individuals with access to non-public information about the company.

Scott London was fired as a partner by KPMG LLP, a giant accounting firm, where he had spent about 30 years as an auditor. The Securities and Exchange Commission (SEC) claimed that Mr. London had passed on confidential information about five companies that KPMG audited to his friend Bryan Shaw, including shoe retailer Sketchers Inc. and Herbalife Ltd, a nutrition company. On April 11th, Mr. London was in Los Angeles federal court facing criminal insider-trading charges that could carry a five-year prison sentence and up to $250,000 in fines if he is convicted of conspiracy to commit securities fraud. Bryan Shaw, the one who received non-public information subsequently made more than $1.2 million in illicit trades based on London’s stock tips. Even though Mr. Shaw has not been charged criminally yet, Shaw’s lawyer has said that he expects his client to be.

 

Scott London’s path from KPMG LLP partner to subject of insider-trading investigations began with a casual conversation with Bryan Shaw on a Los Angeles-area golf course. In an interview, Scott London said, although he continued talking to Mr. Shaw by phone, he didn’t pass any documents to his friend. He said he gave Bryan Shaw “no real significant information.” Mr. London also mentioned that Bryan Shaw only gave him a discount on a watch, bought him dinners from time to time and “on a couple of occasions” gave him $1,000 to $2,000 in cash.” However, Harland W. Braun, a lawyer for Mr. London, had a somewhat higher estimate of how much Mr. London received. The government said, Mr. London “obtained personal benefits” more than $50,000 in cash and gifts, including a $12,000 Rolex watch.

Integrity is an essential characteristic for a CPA in the performance of professional services; it should not be subordinated to personal gains and advantages. If Scott London is a person of integrity, he would not give the earnings information of his clients to Bryan Shaw before it became public. He is the professional, know the business law best, and have an ethical obligation to keep the secret information of his clients. In accounting, loyalty requires that we keep financial and other information confidential when it deals with our employers and clients. A CPA should not divulge confidential client information unless the client specifically agrees.

Sometimes crime is just sad, people ruin their lives for no reason at all. This isn’t the first time a partner at a major auditing firm has been accused of passing insider information. Former Deloitte vice chairman Thomas Flanagan was sentenced to 21 months in prison last year after pleading guilty to insider trading on information he obtained about some of the firm’s accounting clients. The total number of people and firms accused by the SEC of insider trading since October 2009 has grown to more than 430. Guiding people to make moral choice should become the ultimate mission and pursue of moral education.

What is accounting ethics?

http://www.aidpblog.org/understanding-the-code-of-ethics-in-the-accounting-profession

This article is mainly about what ethics is and how important accounting ethics is. Ethics concerned with right and wrong, good or bad. It is either a set of principles held by an individual or the discipline that studies those ethical principles. Every person has an ethical set of beliefs or ethical principles. For example, most people have some belief about whether practices such as abortion, capital punishment are good or bad, right or wrong. Human actions are not the only subject matter for ethics. Besides actions, ethics examines and evaluates social practices. When we say, “Stealing is wrong,” we are evaluating a social practice.

The ongoing accounting scandals call attention to the crisis in ethics. The issue of ethics usually comes up with any kind of profession that handles something of value, such as money. “To prevent these professionals from carrying out inappropriate behavior, based on the standards stipulated by the organization to which the professional is a part of, all are required to read and fully understand these codes before they practice their profession.” The codes of ethics for accountants do not differ with the ethical standards observed by other professionals in various fields. It is focused more on how the data is handled by an accountant given the nature of information they are tasked to handle. Without this code of ethics from which accounting professionals, it can be difficult for clients to build trust on these service providers in terms of ensuring confidentiality of their financial information. Acquiring knowledge and skills required to becoming a certified public accountant is therefore not enough. You must also learn to conduct yourself in the highest level of professionalism and ethics to avoid legal troubles while doing your job.

Accountants have a number of ethical responsibilities – to themselves, their families, their profession, and the clients and company for which they worked. Integrity is an essential characteristic for a CPA in the performance of professional services; it should not be subordinated to personal gains and advantages.

I think not lying is the foundation of being an ethical accountant. It is important to note that lying is not synonymous with saying something false. Telling a lie involves more than simply getting things wrong and not telling the truth. The essence of lying is found in its purpose, which is to alter another’s behavior. Lying involves deliberately misrepresenting something to another person to get that person to act in a certain way, a way the liar suspects the person would not act if that person knew the truth. Some might argue that if a person doesn’t benefit from a nondisclosure, as in some social occasions, it is not lying. For example, when your friends ask how you are, you don’t have to disclose that you feel miserable. They probably don’t want to hear it. That kind of social nondisclosure is acceptable because you are not trying to change another’s behavior to benefit personally from it.

In summary, the accounting profession was developed to give a true and accurate picture of the financial affairs of organizations.