Unlike static financial accounting, based on the Financial Accounting Standards Board (FASB), cost accounting only needs to worry about internal vision and internal purposes. Ethics must be made to be profitable for it to be successfully implemented. What are the advantages and disadvantages of principles-based accounting? Sue-Lynn Carty has over five years experience as both a freelance writer and editor, and her work has appeared on the websites Work.com and LoveToKnow. Copyright 2020 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. It is vital in every business, from the smallest of the ventures to the largest corporation. Hence the auditor should not accept the terms and conditions of the client. The accountants are advised to follow the accounting ethics to make their task riskless. This is so because almost all the things are taken care of well in advance by the concerned persons so that they are liable for any legal actions. Identify what the organization’s assets are. This information is useful not only for managers or owners who use data on assets, debts, income, costs, expenses and results to make decisions for the future, but also is input an object of analysis of potential investors and creditors. Accounting firms may review their code of ethics with potential employees to ensure that no misrepresentations are given regarding the expected ethical manner of employees during daily accounting functions. This area of accounting allows business leaders to alter their budgets and plans for the future to focus on solving new financial problems or to take advantage of the financial strengths that are revealed and thus grow or gain competitiveness within the sector where the company develops. The code of ethics ensures that current employees understand the importance of acting ethically and that they respond to business scenarios with the proper mindset for maintaining high ethical standards. If regulatory bodies find any accounting malfeasance on the part of the company and/or on the part of the accountant, they can levy costly fines or sanctions against the company and the CPA could lose his license. Accounting is an art and should be done by a person who holds professional experience and the expertise of the accountant should also be there to make things easy and available for them because they can easily understand the accounting ethics and can also implement the same in the most effective way. Some view accountants as antisocial individuals who only like to figure out math problems and crunch numbers. Accounting ethics plays an important role in managing the organization as per its moral and social backgrounds. An example of corporate malfeasance is if the company failed to report all of its earned income. Therefore it is an important requirement for any accountant to follow with accounting ethics. Accounting Ethics may be a little complicated for the accountant to first understand and then implement. To make matters worse, in recent years the public has been able to see the negative ripple effect that happens when accounting is done wrong. Accounting ethics refers to following specific rules and guidelines set by governing bodies that every person associated with accounting should follow to prevent misuse of the financial information or their management position. Advantages and or Disadvantages of Auditing: Merits or Advantages of Financial Audit: Auditing is a best practice that ensures the growth of public companies. If in any organization the accounting ethics are sound and are in place then the work becomes very easy because everything has got its own system. The governmental regulations of any country require that the businesses carry out the financial accounting , under national and international standards. If it seems faster and cheaper to act unethically, then many people are inclined to do so. People who like working with numbers, balancing budgets and checkbooks and who thrive on a deadline are usually better at accounting than less structured minds. Creating and following an accounting code of ethics can ensure companies and their employees decrease legal liability from inappropriate actions. It is like guidelines that are to be followed and it has been set by the government authorized bodies. Advantages of Accounting Ethics As the different rules and guidelines are set by the governing bodies that govern the action of the person associated with the accounting profession, this prevents the misuse of the information available of the client with the accountant, auditor, or any other accounting person. Accounting ethics should be very seriously followed and implemented by any organization to achieve its goals. Accounting Ethics are basically the rules and laws which are to be followed while doing accounting. Large businesses employ qualified accounting departments, qualified specialists in universities, duly collegiate, and a support team to carry out their work. Managers may reiterate the specific expectations the employee must adhere to when working for the public accounting firm or company. Perhaps the primary benefit of principles-based accounting rests in its broad guidelines that can be applied to numerous situations. It sufficiently reveals the information of the company, based on bookkeeping and the double-entry principle. Black Friday Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More, All in One Financial Analyst Bundle (250+ Courses, 40+ Projects), 250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion. Consider the fallout of the Enron incident as an example. The information of financial accounting is an element of transparency and ethics of the operations of the company, which requires an honest, accurate treatment, under strict registration and recognition principles. These rules and guidelines prevent the misuse of the different powers given to the various accounting professionals. Rasmussen College: 10 Must-Know Pros and Cons of an Accounting Career, Brandon Gaille: 10 Pros and Cons of Being an Accountant. For example, cash accounting methods only recognize transactions once they are completed, which works well for small businesses, but could distort the portfolio of outstanding payments and accounts receivable that a large business has. If the information provided by financial accounting faithfully represents the situation of the company, the managers will act in an ideal manner and that efficiency and productivity will result in the business results, which is warned in turn by potential investors, creditors, customers and the market in general. Concept of Accounting. Have information about the results of economic operations. Companies rely on the financial reports prepared by their accountants to be true and accurate to make sound business decisions. It is quite easy to compensate for this by combining financial accounting with cost accounting, but, nevertheless, it highlights an error in cost accounting. An unfair disadvantage to being an accountant is the negative stereotype that some people have of the profession. There is decreased legal liability. The accounting profession is known for its ability to accurately assess and report financial information for businesses. Various authors, colleges and federations of accounting work coincide in the following characteristics and scope of financial accounting : Along with the most significant advantages of financial accounting is the information that is revealed about our business. Let us now look at a few advantages and disadvantages of auditing. Accounting ethics makes a clear idea of the accounting norms and which is very helpful for anyone to continue with accounting in the organization. This creates fear in the mind of the person and leads to follow up appropriately. The process of implementing accounting ethics can be cumbersome and time taking for some organized which are not organized in doing its accounting activity. Hence the importance for managers, managers and business owners, large or small. Accounting ethics plays a vital role in settling an accurate and systematic accounting approach in the organization. You will Learn Basics of Accounting in Just 1 Hour, Guaranteed!