ETHICS IN TURKISH ACCOUNTING PRACTICES

ETHICS IN TURKISH ACCOUNTING PRACTICES Assoc. Prof. Dr. Seval KARDEfi SEL MO LU Anadolu University Faculty of Business Administration Abstract Ethical values are what make a profession a profession, what put personality into a profession, and set a code of conduct for a profession thereby creating an atmosphere where the business world can develop successful and healthy relations. In that respect, ethical values improve the prosperity of society and help create a more civilized and conscious society. This paper deals in general with the concept of ethics and ethical principles and underlines the importance of ethics in terms of the accounting profession. In addition to the relation between the notion of accounting and ethics this paper also elaborates on international and national approaches towards ethics in accounting practices and existing legal arrangements. In this context, it includes various suggestions regarding the existing situation in Turkey. Key words: Accounting Ethics, Ethics, Ethical Principals and Rules, Legal Arrangements in Turkey. 200 1. INTRODUCTION The texture of the business world has been tremendously transformed by globalization and such a transformation has made relations more complex. As a result of this, one must support and give full weight to ethical values and the notion of social responsibility to ensure that businesses and professions can cope with such a transformation, and that such a harmonization process can be based on a sound foundation. One cannot think of any profession which does not have any ethical values to be adhered to. Ethical values are what make a profession a profession, what put personality into a profession, and set a code of conduct for a profession thereby creating an atmosphere where the business world can develop successful and healthy relations. In that respect, ethical values improve the prosperity of society and help create a more civilized and conscious society.

The accounting profession is a kind of public service. Today, society attaches a special meaning and importance to the concept of profession. As a result of this, society expects every professional to abide by a code of conduct specific to their profession regardless of the type of profession they perform. What society expects a professional to do is to maintain the highest standard of ethical conduct above everybody else, and which would be considered by everybody to be a prestigious act 1. This expectation brings a higher degree of responsibility than the degree of responsibility defined in the concept of a profession and by the social arrangements and laws. Today, ethical values are one of the keys to professional success. The notion of ethical values emerged as early as the 1960s in the developed world and in Turkey after 1995. However, it is in the 2000s that we see that this notion has become a hot topic. Today, it has gained significance in the business world and become an indispensable element thereof. Ethical values necessitate the elaboration of good and bad, correct and improper, and fair and unfair practices in business. These values are a mixture of social environment, individual ethics, and characteristics of a business. All of these three elements interact with each other and come together to create professional ethical values for an individual. Today, ethical values are needed in the accounting profession as in any other profession. Knowledge, skills, and personal qualities matter a great deal in the accounting profession, as in any other profession. Practitioners of accounting also face similar problems which may be encountered in any other professions such as dilemmas in terms of established value judgments, conflicts between rules and decisions, and problems specific to the profession. In addition to all this, accountants cannot avoid identification of their responsibilities, inter alia, regarding honesty in all their acts when performing their profession, and taking coherent and correct decisions. At that point they may conflict with, or even face problems in terms of, ethical values when fulfilling the responsibilities they have assumed and performing their professional duties. In coping with ethics-related problems a professional code of conducts plays an important role. Ethics is an ideal virtue of a human being; it means having selfcontrol to a degree which goes beyond legal definitions. When it is elaborated on from the point of view of accounting professionals, this 1 GÜRED N Ersin, Denetçinin Meslek Ahlâk, Standartlar ve Uygulamadan Örnekler, SMMM Odas 3. Türkiye Muhasebe Denetimi Sempozyumu, 1997-Alanya,s.115. 201

concept may be defined as the functioning of the system of moral principles; compliance with the code of conduct is required in relations with customers, society, and other accounting professionals 2. Accounting ethics can be considered as a sub category of business ethical values. The reason for this is that accounting ethics has no different characteristics or privileges. Accounting ethics means the independence, autocontrol, and moral honesty of an accounting practitioner. In other words, accounting ethics means maintaining ethical values based on the highest standards when serving customers, the public, and other practitioners. In this profession practitioners must have a sufficient level of qualification in related fields of expertise and must have proven that they are reliable, honest, and impartial. 3 The accounting profession is as important as any other profession for the prosperity of society and it is needed as much as other professions. Therefore, accountants rank highly among other professions in the eyes of society, as they have two such important functions as serving the public benefit and protecting the interests of the public. This is why practitioners of accounting are required to maintain the highest code of professional conduct so that they are able to both gain the trust of society and easily compete with each other in a competitive market. Validity of ethical values is also correlated with an increase of confidence and respect of society for the profession and professional activities. The Code of Ethics of the accounting profession should be written down and then could be varied and debated on the basis of personal opinion. A written Code of Ethics of the profession serves as a foundation for the development of the law on professional standards. This, in return, enables the public to see the laws in this field and be able to make a judgment regarding the profession. In that context, standards guide those who intend to become a practitioner of the profession and also create a sense of the existence of a measure of practitioners of the profession. Codes of Ethics of the profession specified for accounting practitioners are applied by members of the institutions specifying such codes and those who do not comply with such codes, are sanctioned by such institutions so that other practitioners of the profession do not fall from grace of the society, but rather they are extolled in the eyes of the society. 2 Michael W. HOFFMAN and Robert F. FREDERICK, Business Ethics: Readings and Cases in Corporate Morality, Third Edition New York: McGraw Hill, Inc, 1995, s.14. 3 Sharon E: STANFORD, Ethics, Internal Auditor June 1991, s.103. 202

2. THE CONCEPT OF ETHICS Businesses operate within certain environmental conditions, and decisions thereof both affect and are effected by that environment. In such interaction, professional ethics includes responsibilities for the company, personnel, shareholders, and the environment. In other words, professional ethics encompasses responsibilities of all elements in the micro environment. Stated simply, it is about interorganizational discipline and therefore requirements and the rules, which are required to be complied with, are very definite and clear 4. In that case professional ethics can be defined as follows: It is a set of principles and rules based on beliefs on what is right or wrong, or fair or unfair in professional conduct. The first thing that one would recall when one thinks of professional ethics is an analysis of the good-bad, right-wrong, and fair-unfair professional SOCIAL ENVIRONMENT practices. Among tools used in the analysis of ethics are a set of guidelines, rules, values, and ideas. Judgments based on principles and standards related to ethical behavior generally stem from religious and philosophical ideas, cultural values, and the human conscience 5. As can be seen from FIGURE 1, professional ethics is concerned with the social environment, personal ethics, and characteristics of the business. Ethical or non-ethical behavior of individuals in an organization is the outcome of the social environment in which the individuals live, the family in which the individuals have grown up, religion, and the organizational culture of the organization where the individuals work. In other words, individual ethics, business ethics, and societal ethics are the basis of professional ethics, while society, customers, competitors, shareholders, legal and political institutions are the external factors affecting the professional ethics (as it can be seen in FIGURE 2). INDIVIDUAL ETHICS Behavior conforming or not conforming to professional ethics CHARACTER ISTICS OF THE BUSINESS SOURCE :TUGIYAD, 1992, P.8 FIGURE 1: Factors Affecting Behavior Conforming to Professional Ethics 4 Pamela A. LEWIS, Management Challenges in the 21st Century, Minneapolis, St Paul West Publishing, 1995, s.11 5 Michael W. HOFFMAN and Robert F. FREDERICK, Business Ethics: Readings and Cases in Corporate Morality, Third Edition New York: McGraw Hill, Inc, 1995, s.17. 203

Professional ethics problems in business are categorized into two groups: ethical dilemma and ethical drift. An ethical dilemma arises when an issue has conflicting but yet mutually arguable correct points 6 while an ethical drift arises when a person takes an unethical decision. 7 Two important reasons giving rise to an ethical drift are the selection of an individual to act in a selfish way and having different personal ethical standards compared to society. Businesses most often face ethical dilemmas regarding professional ethics. There are various solutions for solving ethical dilemmas encountered with respect to professional ethics. The solutions may be listed as follows 8 : - If everybody behaves like that then that behavior is an acceptable behavior. - If that behavior is legal it may be accepted that it is ethical. - If it may occur and end in any way whatsoever. Recently, a new process which is composed of six steps, has been introduced for the resolution of ethical dilemmas. The aim and goal of the said six-step process is to identify professional ethics issues and help individuals decide on the proper direction for his/her behavior by using their own value judgments. The process to be used in resolving ethical dilemmas is composed of the following six steps: 9 1- Identifying the related event, 2- Defining professional ethics issues through events, 3- Identifying the affected party and the way in which each individual or group may be affected from the outcome of the dilemma 4- Defining by the individual, who is required to resolve the dilemma, the appropriate option to take, 5- Defining a valid result of each option and 6- Deciding on the appropriate behavior. 3. ETHICS IN ACCOUNTING In a general sense, ethics is considered as the values and principles directing right and wrong behaviors of an individual or a group. Professional ethical standards help a practitioner decide what is right and what is wrong. Every professional group specifies a Code of Ethics specific to their profession on their own. Although there are differences 204 6 Howard L.SIERS, Ethics in an International environment, Management Accounting February 1991, s. 27. 7 STANFORD, s.104 8 Alvin A.ARENS and James K. LOEBBECKE, Auditing: An Integrated Approach, Fifth Edition, Practice Hall International, Inc., 1991, s.72. 9 Neil HOLMES, Resolution of Ethical Conflict, Management Accounting, December 1991, s.14.

among professions Codes of Ethics, the majority of the professions have the following three characteristics in common: 10 A professional is required to act above the legal requirement and maintain such a level. The Code of Ethics should be specified to ensure honest behavior and to lead to leaving a positive impression on the public. Professional groups should ban all behavior which conflict with the ethical standards, and impose sanctions against such behavior. And, the accounting profession has also considered three such common characteristics when determining their specific professional ethics. There are mainly three factors shaping the behavior of the practitioners of a profession. These are: legal arrangements, freedom of choice, and the notion of ethics 11. The ethical norms that a practitioner has, constitute a balance by filling the gap between legal arrangements defining the right and limits and the freedom. As in other profession, dilemmas in value judgments, conflicts in rules and decisions, and professional problems are common in the accounting profession. No matter what, an accounting practitioner is obliged to fulfill his/her obligations to speak the truth, be honest, and take consistent and right decisions in addition to cope with such problems. Professional ethics in accounting is a collective expression of independency, autocontrol, and moral honesty. In other words, it means serving the public, the State, and other related parties with values based on the highest ethical standards. A practitioner, who is to perform such a service, is required to have sufficient personal qualities, to have proven that s/he is trustworthy and is honest and impartial. 12 Two of the primary objectives of accounting are to serve the public and to protect the interests thereof. From that point of view, accounting practitioners should maintain the highest ethical standards so that they can obtain the public s confidence. Because of that reason, it is required that specific professional ethical standards of the accounting profession should be specified by related institutions so that the profession gains recognition by the public and their confidence. 10 Stevan M.MINTZ, Cases In Accounting Ethics And Professionalism, 2nd Edition, Mc Graw-* Inc., New York 1992,s.2.. 11 Philip G.Jr. COTTELL-Terry M.PERLIN, ACCOUNting Ethics:A Practical Guide Far professionals, Quorum Books, Westpart conn. 1990,s.3. 12 James Pong Teng FATT, Ethics and The Accoufntants, Jounal of Business Ethics, Vol.14, 1995, s.997. 205

4. ELABORATION OF THE NOTION OF ETHICS IN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES In the accounting profession, professional ethics and professional knowledge and practices cannot be separated. Professionals are required to abide by the Code of Ethics of the profession, behave as professionals by virtue of their profession, take great responsibility for information users who are considered to be the business-related parties. They should abide by the concepts of honesty, objectivity, reliability, loyalty, impartiality, and open-mindedness, which are considered to be part of the professional ethics, when performing such responsibilities. An accountant should comply with the generally accepted accounting principles and basic concepts, i.e. the technical aspects of the profession, while the above-mentioned concepts are the ethical elements of the profession. Generally accepted accounting principles and basic concepts are the corner stones of accounting and related to both the legal dimension and implementation dimension. Therefore, they cannot be disregarded. And, concepts related to professional ethics are indispensable elements of the ethical aspect of the accounting profession. Practices carried out without adhering to the professional ethics are definitely incomplete. On the other hand, if a practitioner does not have sufficient knowledge in the field it would not make a difference whether or not s/he abides by the Code of ethics. All of these elements should be reflected in the implementation so that it means something, and the profession is able to receive the respect that it deserves. Accounting is an open system, which interacts with its environment. The most important characteristic thereof, is that it is utilitarian; the theory of accounting is an inductive theory it specifies how financial information will be compiled, processed, and provided to information users 13. Accounting is a theory which is composed of basic concepts, generally accepted principles, standards, and scientific opinions. In other words, accounting information provided to the information users is produced on the basis of these four basic elements. So, if a practitioner abides by the professional ethical principals and rules of that process, the quality and degree of reliability of the information so generated will improve. A total of 12 concepts have been identified to make the accounting system universal and make the system useful in our country. These concepts are as follows 14 : 13 Orhan SEV LENGÜL, Genel Muhasebe, 6.Bask, Gazi Kitapevi, Ankara 1997, s.21. 14 SEV LENGÜL, a.g.k.,s.22-27. 206

Social responsibility Entity concept Going-concern assumption Matching principle Monetary units Cost concept Objectivity Consistency Full Disclosure Prudence (Conservatism) Substance over from Materiality Among the above-mention concepts social responsibility is the concept which can be exactly matched with professional ethics, as the social responsibility concept directly affects effectiveness of implementation of all other concepts and principles. Social responsibility can be defined for an individual or entity assuming consequences of one s own behavior and an event, which is under the responsibility of him/her or it 15. From an accounting point of view that concept means a practitioner fulfilling the responsibilities that s/he has undertaken within the scope, meaning, and purpose of accounting. This concept also covers responsibility in accounting organization, implementation of accounting practices, reporting of the information generated, and considering the interest of related information users and even society16. An accountant should perform such responsibility in a truthful, impartial, objective, and fair manner. In other words, an accountant should abide by the ethical values of the profession so that s/he is able to completely fulfill the responsibilities that s/he has undertaken. Since decisions to be taken by information users, who will use such accounting information by adhering to the social responsibility concept and ethical values, would be as much reliable and correct as the accounting information this would ensure protection of interest of the society 17. If an accountant fully abides by the social responsibility concept as s/he produces accounting information this means that s/he also abides by all other accounting concepts, and generally accepted accounting principles and standards. And, this shows that practitioners perform their profession in accordance with the professional ethics required by the profession, and that decisions are taken by considering the interests of the public and by fully complying with accounting concepts and principles. 15 SEV LENGÜL,a.g.k.,s.22 16 Özgül CEMALCILAR- Saime ÖNCE, Muhasebenin Kuramsal Yap s, Anadolu Üniversitesi Yay n No:1093,Eskiflehir 1999,s.43. 17 Ferruh ÇÖMLEKÇ, Muhasebe Denetimi, Birlik Ofset, Eskiflehir 2001,s.4. 207

5. ETHICS IN INTERNATIONAL ACCOUNTING PRACTICES 5.1. Ethical Arrangements of the American Institute of Certified Public Accountants (AICPA) Today, we have an ethical crisis in the business world not only in the America but in other developed countries. Efforts to overcome such crises have made the notion of professional ethics important again. The United States of America is one of the most developed countries in terms of the accounting profession and accounting practices. As in any other aspect of accounting, the first works on professional ethics in accounting were related with the Code of Professional Conduct of The Accounting Profession published by the AICPA (American Institute of Certified Public Accountants) in 1966. This document was republished in 1973 and then reviewed in 1988 and published under the title of Restructuring the Code of Professional Ethics to include Code of Professional Conduct. All works of the AICPA concerning professional ethics are carried out by an executive committee named Professional Ethics and Moral Values Committee and by three subordinate committees 18 AICPA s Code of Professional Ethics and Conduct is composed of 6 principles and 11 rules concerning professional ethics. The principles and rules are shown in the below table: ETHICAL PRINCIPALS Responsibilities. Public Interest. Honesty. Impartiality and Independency. Professional Care. Scope and Nature of the Service. CODE OF CONDUCT Independency Honesty and Impartiality General Standards Compliance with the Standards Conformity with the Accounting Principles Conditional Fee Activities, which are not compatible with professional honor Advertisement prohibition Commission and Expert s fee Professional Title and Incorporation Sanctions imposed against activities which are not compatible with professional honor Table 1- AICPA s Principles and Rules of Code of Professional Conduct 208 18 Selçuk USLU Muhasebe Mesle i Meslek Ahlak ve Moral De erler, 3. Türkiye Muhasebe Denetimi Sempozyumu, SMMM Odas Yay n, No:20, stanbul 1998,s.27.

Professionals are not required to abide by the principles shown in the above table whereas all professionals are required to abide by the rules, otherwise they will be subject to penal sanctions. AICPA is an institution which assumes the most important duties in the accounting profession in the U.S. and can be considered as a corner stone. Other than the Code of professional Conduct published by the AICPA there are other significantly different professional codes of ethics, which are applicable to each division of the profession. These codes have been developed by other professional institutions, such as Association of Government Accountants (AGA), the Financial Executives International (FEI), the Institute of Internal Auditors (IIA), the National Association of Accountants (NAA), and the American Accounting Association (AAA) for their members (15). There are different sets of the Code of Ethics for the profession in the U.S. The second important accounting institution in the U.S. is the American Accounting Association (AAA). The association specified the Code of Ethics for the profession for the first time in the Report on Future Structure, Content, and Scope of the Accounting Profession through the Bedford Committee designated in 1986. Later the Accounting Education Change Committee, designated by the AAA in 1989, published the first code of professional ethics in 1995. AAA has started to undertake initiatives in accounting education with the belief that accounting education is important in developing the notion of professional ethics and promoting the concept among its members and still continues taking initiatives in that direction. The National Accounting Association is the second institution after the AAA in the U.S., which has taken considerable initiatives in the field of professional ethics. This association covers the management accountants. The association published the Standard of Ethical Conduct for Management Accountants in 1983 for the first time. The number of standards specified is four. These are 19 -: - Integrity - Confidentiality - Professional Competence and Due Care - Objectivity. In addition to such institutions, the Institute of Internal Auditors specified the Standards of Ethical Conduct for the member internal auditors in 1989. Again, the Association of Government Accountants formed the Government Professional Ethics Commission to initiate start work in this field and has been carrying out related activities since then in collaboration with the Education Department. 5.2. Ethical Arrangements of the International Federation of Accountants (IFAC) The International Federation of 19 ------ Standard of Ethical Conduct for Management Accountants, Management Accounting, February, 1995, s.20. 209

Accountants, which was established to ensure unity among accountants in the world and harmonization among the countries and to which Turkey is a member, started to produce initiatives in the field of professional ethics in the 1990s. In 1992, IFAC published the Professional Ethics for Accountants: The Educational Challenge and Practical Applications guideline under the supervision of the Education Board established with IFAC. The said guideline is based on various standards, bylaws, guidelines, and codes specified by various accounting institutions and associations in the U.S. And, in 1998 IFAC published the Part A Impartiality Resolution of Professional Ethical Dilemmas Professional Competence Confidentiality Tax Practices Inter-governmental Activities Advertising Code of Ethics for the Accounting Profession 20. IFAC s guideline published in 1992 is important in the sense that it was the first international document governing the Code of Ethics for the profession. The guideline is composed of two parts. Part A is applicable to all kinds of professional accountants (e.g. public accountants, industrial accountants, government accountants, commercial accountants, and trainers) while Part B is only applicable to professional accountants in the public practice 21. Principles set out in Parts A and B are as follows: Part B Independence Fees and Remuneration Relations with other Professionals Advertising - Promotion Clients Assets Incompatibility of activities with the practices Table-2 IFAC s Code of Ethics for the Profession 22 210 20 International Federation of Accountants (IFAC), Code for Ethics for professional Accountants and Statement of Policy of Council- mplementation and Enforcement of Ethical Requirements, IFAC Handbook, New York 1998 21 (IFAC)International Federation Of Accountants Handbook 1994, Technical Pronouncements, New York, 1994, s.437-438. 22 IFAC, The Code Of Ethics for Professional Accountants, http://www.ifac.org./ethics/(19.10.2006)

I n item three of the list of purposes for publishing the guidelines, it was stated that professional ethics should be included in the educational curricula, and educational institutions should teach such issues to students. The guideline further provided instructions for the inclusion of professional ethics in professional training as a precondition for such training. 23 According to such guidelines students should take a separate course of professional ethics in addition to other professional courses that they are required to take and be able recognize the importance of such professional values as honesty, responsibility, independency, and public interest when they graduate from their schools. When setting these principles the guideline was based on the idea that the profession would play an important role in society in the future, and that practitioners of the profession would assume social responsibility. 6. TURKISH ACCOUNTING PRACTICES AND ETHICS The triggering effect of professional ethics on economic development has played an important role in getting the attention of researchers, businesses, and professional accounting organizations. In particular, the globalization process and Turkey s full accession negotiations with the EU and efforts to attract more direct foreign investment to the country have given rise to the enactment of new arrangements, which are based on approaches, ideas, and practices from the code of ethics for the profession in developed countries. Law No. 3568, enacted in 1989, is the first legal instrument governing the accounting profession. The law defines the practitioners of the profession under three titles, namely Public Accountants (PA), Certified Public Accountant (CPA), and Chartered Accountant (CA). In addition to such definitions, the law also specifies the tasks that each category of practitioner is permitted to perform. These tasks can be summarized as follows 24 : (PA/CPA) to keep statutory book of the businesses, and to prepare financial statements such as balance sheets and profit/loss statements and other statements to be submitted to relevant authorities in accordance with the generally accepted accounting principles and applicable laws; 23 International Federation of Accountants (IFAC), Professional Ethics for Accountants: The Educational Challenge and Practical Applications, Educational Guideline No:10, 1992,s.1-2. 24 Serbest Muhasebecilik, Serbest Muhasebeci Mali Miisavirlik veyeminli Mali Mii avirlik Kanunu, Resmi Gazete,13.6.1989, 20194. ; Çiftçi Y. Ve Çiftçi B. (2003), Muhasebe Mesle inde Meslek Etigi (Türkiye deki Düzenlemeler ve Uluslar aras Düzenlemelerle Karfl laflt r lmas, Muhasebe ve Denetime Bak fl Dergisi, y l 3, say 10,eylül,s. 82 211

(CPA/CA) to establish and develop accounting systems in businesses, to regulate legislation on management, accounting, finance and practices thereof, or to provide consultancy services on such matters; (CPA/CA) to perform inspections and analyses and conduct audits of statutory books and records of businesses, and to provide written remarks on financial statements and other statements; (CA) to perform certification as per the authorities granted under applicable laws. Other than the above-mentioned legislation on the profession, the Communiqué 25 issued by the Capital Market Board (CMB) and the By-Law 26 published by the Undersecretary of Treasury govern the matters regarding independent auditing practices and independent auditing organizations and independent auditors. It is observed in both instruments that references were made to Law No. 3568. From accounting point of view, Law No. 3568 provided a legal foundation for the accounting profession and enabled the profession to gain recognition and respect both in society and in the business world. Within that context, the law provided for new and required responsibilities for public accountants, certified public accountants, and chartered accountants. One of the most important new responsibilities is ethical values. Ethical values are important because, as mentioned before, they are needed to provide a foundation for professional ethics specific to the profession to improve the performance of the profession and enable it to gain more respect. The Capital Market Law and Law No. 3568 are two instruments governing professional ethics in the accounting profession in our country. The Capital Market Law No. 2499 emphasizes the importance of giving full information to the public and it is observed that Communiqués # 1 and 16 include some arrangements concerning professional ethics to this end. We see that Communiqué #1 specifies the basic accounting concepts, accounting policies and principles on implementation of such policies and preparation of financial statements, while Communiqué #16 sets out the conditions for eligibility to become an auditor. Accounting Profession Law No. 3568, on the other hand, stipulates the professional ethics concepts in the Part Two governing procedures and principles for professional practice. 212 25 SERMAYE Sen X No. 16 PIYASASI KURULU, "Sermaye Piyasas nda Ba ms z Denetim Hakk nda Teblig", Resmi Gazete, 4.3.1996, 22570. Çiftçi ve Çiftçi, s. 83 26 BA BAKANLIK HAZINE MUSTEfiARLlGl, "Bankalarda Ba ms z Denetim Yapacak Kurulufllara iliflkin Esaslar Hakk nda Yönetmelik", Resmi Gazete, 21.3.1997, 22940. Çiftçi ve Çiftçi, s. 83

THE PROFESSIONAL LAW NO. THE CAPITAL MARKET LAW 3568 NO. 2499 Professional Title and Competence Professional Competency Principle Professional Training and Knowledge Ensuring and Improving Honesty, Reliability and Impartiality Professional Competence Confidentiality On-the-Job Training and Responsibility Fellowship Study Social Responsibility Professional Experience Responsibility towards Business Independence Owners and managers Professional Diligence and Due Care Responsibility towards Colleagues Confidentiality Independence Advertisement Prohibition Unfair Competition Reciprocal Relations and Unfair Competition Prohibition for Acts not Compatible with the Commercial and Professional Practices Responsibility at the Time of Discharge Responsibility at the time Appointment Use of Title Table 3- Professional Ethics Concepts Stipulated in the Professional Law No. 3568 and the Capital market Law No. 2499 In fact, there are no specific bylaws or guidelines that have been developed for professional ethics for the accounting profession in our country. Even, there are no standards, principles, or guidelines to govern professional ethics for accounting practices in our country. We can only speak of two legal instruments, which include some concepts related to professional ethics and which are basically similar to each other, issued by two different institutions. It would be better to integrate these two instruments under a single instrument to compile all related rules under one scheme and complete deficiencies thereof by allowing Chambers of Certified Public Accountants of Turkey (TURMOB) to develop a single Code of Ethics for the profession. Also, penal sanctions should be introduced for acts to the contrary to such a code, to achieve the intended aim. To this end, Chambers of Certified Public Accountants of Turkey (TURMOB) has issued the Mandatory Professional Decision on Code of Ethics for the Professions of PA, CPA, and CA, published in the Official Gazette No. 24557 on October 18, 213

214 2001 to provide necessary norms for the accounting profession; TURMOB has acted as a pioneer in the implementation of such norms. One can never disregard the important function of ethical values in bringing the accounting profession into the 21st century, and in the light of this what has been done and will be done by TURMOB in the field of professional ethics, the sole institution for the accounting profession in our country, guarantees the future of the profession. 7. CONCLUSION In the final analysis, the introduction of norms for professional ethics (applicable in developed countries) into domestic legislation, the issuance of the Mandatory Professional Decision on the Code of Ethics for the professions of PA, CPA, and CA published in the Official Gazette No. 24557 on October 18, 2001 by Union of Chambers of Certified Public Accountants of Turkey (TURMOB) to provide a serious foundation for professional ethics for the accounting profession, and taking the lead role in the implementation of such norms, are the most important measures taken to improve the performance of Turkey in line with the level of developed countries in this field. One can never disregard the function of ethical values in bringing the accounting profession to the 21st century and in the light of this what has been done and will be done by Chambers of Certified Public Accountants of Turkey (TURMOB) in the field of professional ethics, the sole institution for the accounting profession in our country, guarantees the future of the profession. Finally, development of the notion of professional ethics can only be achieved through effective involvement of all stakeholders. Therefore, it is required to enact complementary legislation so that they orient practitioners of the profession towards positive attitudes and behaviors. In other words, it is required to introduce such legal arrangements complementary to the Code of Ethics for the profession to be developed by related professional organizations. A set of rules covered by the concept of professional ethics is closely related to the laws. Therefore, it is essential to enact laws, which meet the demands of the period and which especially address professional practices. Legal loopholes in terms of unfair competition, confidentiality, and reliability prevent deterrent effects of laws. And, it is not possible to speak about any deterrent provision to prevent the creation of an unfair competition environment due to unfavorable relations and insufficient communications among practitioners of the profession. In addition, serious consideration should be given to on-the-job training, which has gradually become a basic requirement for the professional organization. In fact, it is not sufficient only to ensure continuity

of on-the-job training, but it is also necessary to develop such deterrent legislation to improve professional ethics. However, one should never forget that ethical professional behavior can only be attained through education and training as is the case in developed countries. Therefore, written instruments have been drawn up to set out the Code of Ethics for the profession and principles of professional ethics have been included into the curricula of secondary and tertiary accounting education schools as a distinctive class or topic. This way, it will be possible to teach those, who will choose accounting as their profession in the future, the professional ethics beforehand. This is a suggestion for something which is not being implemented in our country at present but is required to be introduced soon. Also, as for professional ethics, it is possible to refer to IFAC s standards and guidelines for professional ethics to specify the Code of Ethics for the practitioners of the accounting profession in Turkey when we take into account that Turkey will become a member of the EU. Increasing competition necessitates the practitioners of the accounting profession to come together under the roof of the professional organization and join their forces to attain the goals thereof. Priority should be given to this issue in our country and practitioners of the accounting profession should consider themselves to be part of the professional organization and it should be ensured that continuous communication should be maintained among the practitioners. This way, the accounting profession can gain recognition and respect in the public eye and in the business world. In order to achieve this, the Code of Ethics of the profession should be set out and formalized under legal instruments to be communicated to all practitioners of the profession thereby creating an environment for them to feel that they are obliged to abide by such standards and principles. The professional organization, which aims to institutionalize the professional ethics, emphasizes the following ten basic duties: 1- Review of qualifications of individuals applying to the professional organization for eligibility for professional practice; 2- Preparation of announcements underlying significance of the notion of ethics and expectations concerning complying behaviors; 3- Development of policies of the professional organization, which will set out the goals, define non-ethical behaviors, and include formal arrangements concerning the notion of ethics; 4- Development by the professional organization of a written Code of Ethics for the profession to define general values and purposes of the 215

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