Accounting Ethics: What Business Owners Must Look For When Facing an Audit
It truly takes a village when it comes to your accounting and finances. That’s why it’s crucial for business owners who outsource their accounting and audit work to know what to look for in an accountant and a certified public accountant (CPA). For a successful audit, you need:
An accounting partner you can trust who understands accounting ethics and will ensure your records are accurate and complete for an audit, and
A CPA who adheres to those accounting ethics to complete and sign off on your audit.
If you’re considering outsourcing your accounting and auditing services, you may be wondering:
How will a good accountant set you up properly for an audit?
Why should I care about accounting ethics?
What is the code of ethics for accountants and auditors?
We’re answering all of your questions below.
How a Good Accountant Prepares You for an Audit
When you work with a trusted accounting firm, they will:
Have direct insight into your financial situation
Provide you with an honest assessment of your company’s performance
Offer guidance on how to move forward and improve profitability
Ensure you are compliant with accounting and tax laws
Record all revenue and expenses properly
Correct any errors or issues that could threaten your compliance
Verify that all documentation is complete and organized for your auditor
Why You Should Care About Accounting Ethics
Organizations that govern CPAs put accounting ethics in place to prevent abuse of information or manipulation of numbers. In North America, CPAs are subject to the American Institute of CPAs (AICPA) Code of Professional Conduct. These standards vary by country, but we will look more closely at the North American accounting requirements. If an audit does not meet these accounting ethics, it must be paused.
The AICPA Code of Professional Conduct
The AICPA Code of Professional Conduct is one of the foremost authorities for accounting ethics. Most state boards of accountancy have even adopted the code within their own laws or have created their own.
Objectivity & Independence
Your auditor should be objective and be without conflict of interest that could affect their judgment and audit work. They should be independent in:
Fact: These facts are usually obvious. For example, the auditor should not own any shares or investments in your company.
Appearance: This is more subjective, so it can be tricky. For example, if your auditor attends your company’s summer outing and wins an employee raffle prize, it could imply a bias.
Threats to Independence
Specific scenarios can negatively affect the level of independence, including:
Familiarity Threat: Does your CPA have a long relationship with you? Are they a relative or close friend?
Intimidation Threat: If a client threatens to switch auditors because of the auditor’s findings, it could affect the integrity of the audit.
Self-Interest Threat: If an auditor has a direct financial interest in your company (e.g., a hefty outstanding fee you owe them), their independence is threatened.
Self-Review Threat: You should have a separate auditor and bookkeeper; otherwise, the auditor would be reviewing their own work!
Every CPA must exercise sensitive professional and moral judgments. This means that they are responsible for their own work and for reporting a fellow CPA who violates the code of conduct. This is also known as the whistleblower rule.
The Public Interest
The AICPA code of conduct states that auditors must do what is best for the public. Simply put, they must honor the public trust and always remain professional.
You know your CPA should perform their work with honesty, but what, exactly, does that look like? An auditor should:
Present you with the facts, no matter what the numbers show, and be upfront about what they mean.
Act with discretion, keeping all of your information confidential and never sharing it with outsiders.
NOT charge conditional fees (e.g., bill you for a certain percentage of your net income or funding you received).
Accounting ethics state that auditors should complete your audit thoroughly and promptly. They should also strive to improve their professional competence continually. This means staying updated on the latest rules, regulations, and trends to ensure they provide high-quality service and work. Your auditor should also have experience in your industry to understand the accounting and financial nuances and requirements.
Find Experts Who Adhere to Accounting Ethics
Handling your accounting, auditing, and taxes can be a significant burden when you’re trying to run your business. But hiring experienced professionals who understand the nuances of accounting ethics and your company can save you money, increase your bottom line, and ensure legal compliance.
If you have more questions about the code of ethics for accountants or you’re interested in outsourcing your bookkeeping and auditing, contact Check & Balance today at 603-541-7485 or schedule a free consultation today! We will help you with your books and recommend a trusted CPA for your audit needs.