The Impact of Professional Ethics on Financial Reporting Quality 1 1-2
Mahdi Mahdavikhou, 2Mohsen Khotanlou
Young Researchers Club, Hamedan Branch, Islamic Azad University, Hamedan, Iran.
Abstract: This research aims to study the impact of professional ethics on promoting quality of financial reporting. The statistical population in this study includes 440 listed companies in Tehran Stock Exchange (TSE) in 2010. Using Krejcie and Morgan's table for determining sample size, 205 companies were selected as the statistical sample and a 24-item questionnaire was designed to study professional ethics and qualitative characteristics of financial reporting based on code of ethics of International Federation of Accountants (IFAC) and qualitative characteristics of financial reporting of International Accounting Standards Board (IASB), then the questionnaires were distributed among the financial managers of companies. For testing the hypothesis, relevant statistical tests such as the Spearman's correlation coefficient and other required tests were used. The data collected was analyzed using the SPSS statistical package. The results pointed to statistically significant relationship between professional ethics and quality of financial reporting. Key words: Ethics, Professional Ethics, Financial Reporting Quality, Tehran Stock Exchange (TSE). INTRODUCTION Accountants have obligations to shareholders, creditors, employees, suppliers, the government, the accounting profession and the public at large. In other words, their obligations go beyond their immediate client. Decisions made on information provided by accountants can materially affect the lives of any or all of these stakeholders. Therefore Behaving ethically is an essential and expected trait (Carroll, 2005). As a result, an accountant is responsible for the consequences of his moral choices not only for his own life but also on the lives of other people. An accountant who commits fraud not only ruins his own moral being but also harms the interests of the other members of society who depend on him (Catacutan, 2006). Professional ethics is important to accountants and those who rely on information provided by accountants because ethical behavior entails taking the moral point of view. This can be seen as a formal method of declaring to all that the occupation can be trusted (Carroll, 2005). Internalizing and developing professional ethics in accounting profession lead to promoting the quality of financial reporting (Mahdavikhou, 2010). This paper examines the relationship between professional ethics and qualitative characteristics of financial reporting. The structure of the research is as follows: section 2 presents the literature review, section 3 discusses the research hypotheses, section 4 describes the research method, section 5 discusses the data analysis, section 6 presents discussion and section 7 concludes the discussion. Literature Review: Ethics in Accounting: “Ethics” is a term subject to numerous, sometimes conflicting, interpretations (Luoma, 1989). Ethical problems are a very relevant issue present in many aspects of real life. These situations can be examined through several branches and under several grids of analysis, modern or classic (Filipe et al., 2011). A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest (IFAC, 2005). Key qualities which appear in the codes of ethics of professional bodies include independence, integrity, objectivity, competence and judgment. For example, the ICAEW’s introduction to its ‘Guide to Professional Ethics’ (ICAEW, 1997:178) includes a list of five fundamental principles which either expressly mentions or clearly implies all of these qualities, along with other related qualities such as honesty, fair-dealing, truthfulness, courtesy, skill and diligence...