For the Staff Accountant or CPA: Guiding Your Employer Towards a Strong Financial Future
Over the course of the past several years, many high-profile cases of illegal or questionable accounting practices have come to the public’s attention. In many of these cases, officers and other high-ranking members of management faced heavy penalties and the companies ended up insolvent. As a result, the careers and retirement funds for countless employees evaporated. Although most high-profile cases involve large corporations, small and medium-sized businesses can fall victim to the same oversights and ethical lapses. In fact, according to the American Institute of Certified Public Accountants (AICPA), small and midsize companies suffer a greater share of fraud losses than do the largest companies. This may be because smaller companies lack the staff and budget to implement proper fraud detection and prevention practices.
It’s not only cases of fraud, shoddy practices, and ethics violations that can cause problems for companies and their employees. Poor business and financial decisions can be just as detrimental. Because of the serious nature of the consequences for these types of problems, it is imperative that accounting students and professionals learn how to guide their employer towards sound financial decisions and to help reduce the occurrence of fraud and other malicious activities.
In addition to standard accounting services and reporting, an accountant or CPA should be able to provide suggestions and guidance, particularly during difficult economic times or when the company is facing financial difficulties. Regardless of whether you’re a college accounting student or a practicing accountant, it’s vital to understand the critical role that accountants and CPAs play in preserving and building the financial health of their company. CPAs must provide the best possible guidance, which is not always the easiest task, since it is sometimes in direct conflict with directions or requests from their employer. None the less, it is the duty of any staff accountant or CPA to guide their employer towards sound decision making which will ultimately lead to a stronger bottom line in the future. At times it may not feel as if this is what your employer desires, but this is the very thin line that separates ethical directional decision making from leading an employer down the wrong financial path.
Ethical Standards for Accountants and CPAs
As an accountant or CPA, you are responsible for upholding high standards of ethics and professionalism. Failure to do so can result in fines, the loss of your license to practice and, in the more serious cases, criminal prosecution. Because of the serious consequences of lapses in proper judgment, you must evaluate the available choices and decisions through the lens of a strong set of ethical principles. Typically, if from the outside in something appears off, this worsens when you apply a stronger lens.
The AICPA sets forth a rigorous standard for its members’ ethical behavior in itsCode of Professional Conduct. Regardless of whether or not you’re a member of the AICPA, abiding by these standards is well-advised. However, no set of rules and standards can cover every situation so the AICPA offers a separate guide to help CPAs resolve ethical issues not directly covered in the code of conduct. The AICPA standards can be an excellent resource to help you provide suggestions to maintain your company’s financial strength, ethical practices, and accurate reporting. These standards can also help you navigate uncertain situations, which may present ethical dilemmas.
Maintaining Ethical Standards
At some point in almost every accountant’s or CPA’s career, they will be faced with a difficult ethical situation. Sometimes, the difficulty stems from the fact that your supervisor, or even upper management and executives, will ask you to do something questionable. Other times, the situation may involve decisions that leave the company in a compromised position or at risk of being accused of fraud or wrong doing.
Don’t get caught in the trap that many accountants and CPAs fall into of feeling like it’s your duty to cover things up or attempt to make things look financially better or different for your employer. Your real responsibility to your company and to your profession is to offer methods and suggestions that will keep your employer out of trouble and questionable status. As your company’s financial and taxation expert, you have the knowledge and skills to help them make sound decisions that comply with laws, regulations, and ethics. Ideally, while mandating this, multiple financial and process related benefits develop for your employer.
The Threats and Safeguards Approach to Resolving Ethical Issues
Using the AICPA’s threats and safeguards approach can help accountants and CPAs evaluate situations and make appropriate decisions. This approach identifies threats, which can be anything that poses a risk to the accountant complying with accounting rules and ethical standards, and establishes a threat level. A threat is at acceptable level if a reasonable and informed person would likely determine that there is no violation of rules and standards. If a threat is at acceptable level, no further action is needed.
If a threat is not at an acceptable level, then you must determine what steps you can take or safeguards you can put in place that will either eliminate the threat or reduce it to an acceptable level. Common examples of safeguards include establishing corporate policies regarding ethical behavior, corporate governance to restrict or reduce conflicts of interest, periodically rotating members working on compliance and internal controls, and peer reviews.
Taxation and Other Potential Issues
Understanding tax law, finance, and regulation is a must in order to provide guidance to your employer during difficult times, which might include economic downturns, audits, negative cash flow, and falling stock values. Any accountant who has become a CPA possesses the skill set to help their employer navigate times of uncertainty or adversity. For current accounting students studying taxation, it’s important to keep in mind that this issue will likely become even more critical over the next decade as the IRS renews its focus on increasing the federal tax compliance rates. The better educated you are as a result of becoming a CPA, the better your chances of earning higher salaries, better compensation, and more recognition.
Choose to Be Part of the Solution
Accountants and CPAs are critical resources in any company, and particularly for companies that are having trouble. You should be prepared at any point during your career to put together suggestions to improve company performance and finances and to advocate for and possibly spearhead ethical standards and protocol. It’s critical to keep yourself from getting caught up in situations that may result in legal or ethical violations in order to keep you and your company out of trouble. One of your most critical roles is to help implement ethical financial solutions that will benefit the company by solving financial concerns or improving their financial position.