Ethical Accounting Practices
Knowing you’re in good financial health
By Dr. Brian Keen
Is the term “ethical accounting”, an oxymoron? Many people believe it is. As an ethicist who works with an accounting consulting firm, I can tell you “ethical accounting” is not an oxymoron; it is possible – and desirable.
The most important consideration when hiring someone to you’re your financial records is their professional designation. There are three: Chartered Accountants (CA), Certified Management Accountants (CMA), and Certified General Accountants (CGA). Each designation offers specific training and accountants are required to have a working knowledge of ethics and an understanding of business ethics.
What should you expect from an accountant with a professional designation?
One of the most important decisions you have to make is what accounting software you should use. Interestingly, many business owners will ask relatives, colleagues or friends about software. Not surprisingly, many people purchase the wrong accounting package. When you get appropriate accounting software, you can greatly enhance your business. Utilizing the appropriate software and maintaining ongoing consultations with your accountant, a business can know where they stand within an hour. This is not as remarkable as some people may think.
With appropriate accounting software, you can issue cheques, produce invoices, and keep records and much of it can be automated. Your business needs to have a chart of accounts. The best way to handle this is to find an accounting consulting firm that offers a monthly service.
A monthly service can provide you with specific charts of accounts designed for your business. Your accountant can review your accounts to determine the financial health of your business. If your business is doing poorly, your accountant can recommend appropriate ways of growing your business. The accountant should let you know what your financial statements mean. Your accounting consultant should also be able to teach you to set-up and use your software and accounting system.
What is ethical accounting?
Ethical accounting is when the accounting firm makes a commitment to ethics. One of the ways to easily determine whether an accounting firm has this commitment is whether they have an ethicist on staff. An ethicist can help a business clarify their ethical standards.
An ethical accountant wishes their clients to be ethical, stressing this aspect in their advertising, in the contract or Memorandum of Understanding, and all other procedures.
An ethicist knows the intricacies of business through studies in business ethics. Business ethics is the glue that brings the accountant and ethicist together. The ethicist is able to provide a non-accounting perspective while the accountant offers financial expertise.
If you’ve ever had to deal with professionals, you know they all have their own jargon or industry specific language. Accountants, for example, use terms like debits and credits, assets and liabilities. An ethicist can help you understand the jargon and can advocate for you. In addition, the ethicist provides insights to the accountant, alerting them to any action that might be unethical or illegal.
What exactly is an ethicist?
An ethicist is an individual who has earned a doctorate in a scientific discipline or philosophy. Ask for credentials if in doubt. There are many people who claim to be ethicists but haven’t completed their doctorate degree. Would you let a doctor operate on your leg if they hadn’t earned their M.D.?
Can you save on taxes?
Of course. An ethical accountant is proactive and can design systems for keeping track of mileage, petty cash and the correct way of using credit cards for business purposes – all tax deductible expenses.
In the long term, ethical accounting pays. First, you’ll sleep at night assured your financial statements are correct. And secondly, you will never be brought to court as some unethical businesses eventually are.
You might ask, “Can I write-off a dinner with my spouse when it really wasn’t a business dinner?” Only 50% of all meals and entertainment are allowable for tax purposes. Chances are very good that some discussion of your business took place during the dinner, thus giving the dinner a business-related component. This has nothing to do with ethics, this is tax law.
What exactly does an ethicist do with an ethical accounting firm?
Most businesses have a Mission Statement, but few have considered ethical standards. A statement of ethical standards is the first step in implementing an inclusive ethical program throughout the entire business.
Ethical accounting is relevant. A business that hires an ethical accounting firm knows that they are scrupulously honest and can be confident that employees, customers and clients are in good hands.
Dr. Brian Keen is an ethicist with 21st Century Accounting and can be reached via www.21stcenturyaccounting.com
2600 John Street, Unit 207, Markham, ON L3R 3W3 T: 905.475.5222 F: 905.475.6369
