Ethical Standards in a Financial Statement

• Financial statements must be prepared accurately. Thinkstock/Comstock/Getty Images

  Famed investor Warren Buffett once said, "Earnings can be as pliable as putty when a charlatan heads the company reporting them." In order to prevent fraudulent financial reports and statements, the American Institute of Certified Public Accountants (AICPA) has created ethical standards. When working for a company, accountants must maintain their independence, objectivity and integrity. Otherwise, accountants and their clients put themselves at risk for legal action, public embarrassment, a loss of profits and a poor reputation.

Independence

• AICPA has two definitions for the word "independence." The first definition deals with independence of the mind. Independently-minded accountants can perform their jobs without being influenced by any negative pressure to compromise their professional judgment. The second definition discusses independence in appearance. That means that an unconnected third party would conclude that an accountant demonstrated professional integrity and his judgment has not been compromised.

Objectivity

• Objectivity relates closely to independence. AICPA links objectivity with conflicts of interest. The phrase "conflict of interest" means that an individual has a direct or indirect interest that impacts his ability to perform his job. One example of a conflict of interest might be an accountant who has significant interest in a firm that directly competes with his client. This accountant could not perform services for his client, because his capability to carry out his duties without bias might be compromised.

Integrity

• Integrity, according to AICPA ethical guidelines, refers more to what an accountant does than what he thinks. If, for example, an accountant knowingly allows a misrepresentation of facts to be published on a financial statement, he has violated AICPA's integrity standards. Members of AICPA must also demonstrate integrity when dealing with their supervisors. A supervisor cannot tell an accountant to misrepresent facts on a financial statement, and an accountant cannot follow such an order.