Accounting is the process of describing business processes in numbers. For a company's accounting to truly represent what is going on in its financial arena, its bookkeeping numbers must be honest and accurate. Honesty and accuracy in accounting are ethical as well as financial issues. Bookkeepers and accountants have a responsibility to represent information in ways that genuinely represent what is going on in the business. Failure to do so can have consequences for business owners, stakeholders and tax reporting agencies.
Businesses are accountable to a range of shareholders, from partners, to investors, to customers. Shareholders, partners and investors deserve to know the truth about your company's finances because this information is critical to sound investment decisions. Customers, as well, may be entitled to know whether your company is financially healthy if they enter into transactions that depend on its longevity. For example, a customer taking out a mortgage has a stake in working with a bank that is financially stable and a customer renting a storage unit has a stake in the storage company's ongoing solvency.
Accountants and bookkeepers have a responsibility to provide the business owners who employ them with accurate information that facilitates sound planning. This obligation involves providing accurate information, and providing it in a time frame that is prompt enough to be relevant. If your bookkeeper takes his time compiling profit and loss statements that could tell you that your business is spending too much on payroll, you may miss an opportunity to improve the situation before it puts your business in jeopardy.
Your company has a legal obligation to report financial information fairly and accurately on tax forms. Providing inaccurate information to tax agencies may lower your tax burden, but you will be subject to fines and perjury charges if you are caught. Ethical accounting practices ensure that your tax forms will be completed in a way that keeps your conscience clear and keeps you out of trouble.
Honest and ethical accounting helps to create a positive image for your business. When a company makes news for dishonest accounting, it loses the trust of current and potential customers. This is especially important with industries that depend on strong working relationships with their customers. In 2002, the accounting firm Arthur Andersen surrendered its license to practice after being involved in the Enron scandal, and its reputation and credibility were severely compromised even after the surrender ruling was overturned in 2005.