1.1.1 Ethics of Accounting

The basic objective of accounting is to provide useful information for decision making. Information to be useful should be trustworthy. Thus, the effectiveness of financial reporting depends on sound ethical behaviors. Ethic is an ideological standard by which one’s conduct is judged to be right or wrong, honest or dishonest, fair or unfair.

When analyzing an economic activity involving ethics, it is helpful for accountants to follow the following three steps. First, accountants should recognize the ethical situation and its related ethical issues.That means to use accountant’s personal moral standards to identify the ethical situation and its related ethical issues. Some professional organizations also provide written codes of ethics as guidance in these situations. Both the Accounting Law of the People’s Republic of China and the Accounting standards specify contents and requirements of accounting professional ethics. Second, accountants need to identify and analyze the principal elements in the ethical situation so as to figure out who or which group may be harmed by or benefited from this situation, and which party should assume its responsibility and obligation.Third and the last, accountants need to design various alternatives, and assess the impact of each alternative to its stakeholders. This step requires that accountants should select the most ethical alternative after considering all the possible results. Sometimes there will be only one solution, but sometimes there will be more than one. In such situation, it’s necessary to select the best alternative through evaluation and comparison.