Are you aware of your ethical obligations to clients as an accountant?
In a world of web-security issues, whistleblowers, and data leaks, it can seem like corporate integrity is low on the priority list. However, just because the world around you may seem like it is not working above-board, does not mean you need to follow suit. It can be difficult to make the right decisions when handling clients’ accounts, but maintaining integrity and building your customers’ trust is vital to being successful in the accounting world.
That’s why we at Gusto are proud to partner with our friends at CPA Academy to bring you the webinar, “Ethics: An Independent, Objective Look at Independence and Objectivity (and Integrity).” This informative webinar took a deep dive into the accounting code of ethics under the guidance of the one-and-only, Greg Kyte, with special guest, Will Lopez, the head of Gusto’s accountant community.
Greg is the founder of Comedy CPE, which offers professional development with a comedic twist and has been named in Accounting Today’s “100 Most Influential People in Accounting.” His unique approach to educating people in the profession offers a fresh take on professional development in accounting.
In this article, we will take a look at the importance of behavioral ethics in accounting, how to maintain objectivity as a CPA, and the ethical obligations and decision-making process in accounting.
What are behavioral ethics?
Ethics can be broken down into two broad categories—regulatory and behavioral. Regulatory ethics primarily focus on the “what” behind the decision-making process, while behavioral ethics focus on why you make particular decisions.
For example, regulatory ethics describe the physical details that determine whether or not an act is considered ethical, like how monetarily invested you can be in a client’s company before crossing the line.
“[Regulatory ethics] ask the question, ‘How many shares of a client’s stock can my portfolio hold for me to still maintain ethical integrity?’”– Greg Kyte
On the other hand, behavioral ethics look deeper than physical transactions and investments. This branch of ethics determines how the motives behind our actions define ethical behavior.
“[Behavioral ethics] look at what are the different things that are going to help us be more ethical. Specifically, a lot of what they look at is objectivity and independence.”– Greg Kyte
Asking the questions about why you are making decisions instead of what you can get away with before you get in trouble makes it easier for you to build a framework of integrity that guides your practice. Maintaining integrity in your work keeps you safe from legal trouble and lays the groundwork for proper interaction between you and your clients.
What does integrity look like in accounting?
The simplest definition of integrity is honesty—the quality of being truthful or sincere. However, when you look at integrity a little more closely, it goes beyond honesty and is a framework of how you approach decisions in your life.
“I feel like integrity is a framework, too. It’s the way you approach something consistently over and over again. Yes, integrity means honesty, but there is also a framework to being honest. You do things in a certain way that shows evidence of your honesty. … Telling the truth, not lying, and being objective are like the boundaries [of integrity], and that’s a framework.”– Will Lopez
The AICPA Code of Professional Conduct reflects the idea of integrity as a framework. The code does not explicitly define integrity. Instead, it states the terms of things you need to do to have integrity.
By looking at integrity as a framework in your life, you better understand the code behind making decisions that reflect honest choices. These decisions are integral to maintaining good standing with clients and others around you:
“The root word of integrity is ‘integrate.’ So, is what you are doing integrated with the code that you are supposed to be following? If it does integrate with that [code], and you’ve mapped that into what you are doing, that’s part of integrity, which is a lot of what we are doing with the code of the accounting profession. “– Greg Kyte
Some of the greatest examples of the need for integrity in accounting come from the realm of auditing. Many times, CPAs find themselves in potentially compromising situations while determining the accuracy of a client’s financial records.
When do accounting and ethical issues intersect?
Maintaining your integrity and independence from clients is crucial to properly analyze a client’s financial records, but it can become difficult at times. The public relies on CPAs to tell them if their financial statements are accurate, so you need to maintain independence and objectivity when working with their accounts.
“We’re really leaning into audit requirements because you don’t have to be independent at all to do someone’s tax return. But when you’re auditing or reviewing financial statements, what you’re doing is [telling the public if financial statements are reasonable].”– Greg Kyte
During an audit, it is understood that determining the validity of financial records with 100 percent accuracy is virtually impossible. Instead, auditors analyze accounts through statistical math to extrapolate an opinion on whether or not the data falls into a reasonable range.
“[Forming an opinion] is strategic because there’s a lot of gray in opinion. Quite honestly, when you look at the opinion you give supported by the evidence you provide, you’re not trying to provide accuracy, you’re trying to provide reasonableness. If you said [the accounts] were accurate, you’d have to test 110 percent of everything. … Anchoring yourself in opinion leaves you room to get smarter over time.”– Will Lopez
Your integrity and independence from the subject of the audit are necessary to properly form an opinion of their account’s accuracy. If you allow yourself to be influenced by them, what you see as reasonable may be skewed.
How do you define objectivity in accounting?
Many aspects of accounting, especially in audit, rely on your ability to remain objective about the situation. When forming an opinion about the reasonableness of an account you audit, it is best to remain as objective as possible.
“The AICPA Code does not define objectivity, but as a whole, it builds the idea of what objectivity means. The definition of objectivity that best relates to accounting is … dealing with facts and/or conditions as perceived without distortion by personal feelings, prejudices, or interpretations.”– Greg Kyte
Simply put, objectivity is having the ability to remove yourself from the situation you are analyzing. Maintaining objectivity while assessing someone’s account allows you to form an accurate opinion of the situation without letting bias get in the way.
Can you have integrity without objectivity?
At first glance, it may seem impossible to have integrity with objectivity. The complexity of human nature and the need for extensive information to be objective keeps us from obtaining authentic objectivity most of the time. However, that does not mean your integrity is compromised if you are not objective.
“Integrity is about being honest, and I don’t think you have to be totally objective to apply the framework of integrity. Objectivity requires a lot of information, [which makes it] almost impossible to be totally objective.”– Will Lopez
For instance, in auditing an account, you have to come to a stopping place when you analyze data. Yes, you do your best to make sure you have an informed decision on the account’s reasonableness, but that does not mean you completely remove bias from the scenario.
Learn more about ethical obligations and decision making in accounting
Building a professional opinion with integrity and individuality can be a difficult process, but it is not impossible. If you dedicate yourself to working within a framework of honesty, you can analyze clients’ accounts and give your opinion with the peace of mind that you used your best judgment.
“You can give an honest opinion while at the same time being totally unaware that your opinion is distorted by your personal feelings, prejudices, interpretations—which we said objectivity was if you’re not being distorted by those things. … And I think the big kicker that I want to [reveal] is that you are giving your honest opinion, but you might not even be aware that you’re not objective.”– Greg Kyte
If you want to learn more about ethical obligations and decision-making in accounting, check out the entire webinar here. Also, if you want to know more about navigating difficult questions in the workplace and the relationship between independence and objectivity, be sure to check out Part Two and Part Three of this webinar article series.
Our mission at Gusto is to create a world where accountants can work with integrity and provide honest, professional opinions. Be sure to look into our People Advisory Program to learn how you can train your team to reach their potential. We also provide a partner blog full of resources for all your advising needs. Visit our Gusto for Accountants page for more information on utilizing people-based accounting within your firm.