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Is it ethical to use a family member as your accountant?

Is it ethical to use a family member as your accountant?

When you are a business owner, you probably find yourself doing as much as possible by yourself or with your spouse and family’s assistance. Regarding accounting ethics, many family businesses just starting may need help to afford to hire someone to deal with all the bookkeeping. You can afford the services of a family member at this time. However, this comes with its own set of risks.

Use family members for daily accounting work by understanding the inherent hazards and how to overcome them. A few of the most common concerns are listed below, along with suggestions for mitigating them.

What ethical dilemmas do accountants face?

There is no legal immunity for accountants, who may enter the risky territory at any time. It is only sometimes possible to avoid ethical and legal dilemmas. Accountants must implement superior risk management strategies to prevent any unintended legal ramifications from their client work.

Many ethical dilemmas can arise in the workplace and should be considered and avoided before problems occur. An ethical dilemma for an accountant may arise when working on two-party transactions dealing with conflicts of interest, performing pro-bono work, or signing confidentiality agreements. The following are a few of the most common accounting ethics dilemmas that accountants encounter.

Take a chance with the numbers

The most common unethical request clients make to their accountants is to have them manipulate the books to distort a company’s or individual’s financial picture. In such a situation, an accountant is placed in a challenging position: risk losing the business or complying with the unethical request. The accounting ethics course of action is always to act ethically, even if this results in losing a valuable client.

Transactions involving two parties

In most cases, accountants will be asked to assist with a two-party transaction at some point. An individual may be involved in the case if they are divorcing or if they are parting ways with a business partner.

When working on transactions between two parties, accountants run into several snags. Conflicts of interest may occur, confidentiality risks may arise, and even the most meticulous accountants may be caught offering preferential treatment. It should be noted that even the appearance of such preferential treatment can be problematic.

During two-party transactions, accountants must have proper disclosure forms and conflict of interest waivers to mitigate some of these risks. Even when couples or business partners are on good terms and communicating civilly, relations can quickly deteriorate, and tensions can rise. Before these issues become legal stumbling blocks – or land mines – you must ensure that you are protected with the appropriate disclaimers.

Keeping a blind eye

The request that an account turns a blind eye to unethical or illegal business or accounting practices is another example of misusing accounting ethics. An accountant may find themselves in a problematic lose-lose situation in this type of situation. The accounting profession places great emphasis on accountability and honesty, so generally, accountants will know the right course of action to take in such cases and must take the ethical path.

Pressure from management

Small, medium and large organizations will put tremendous pressure on their accountants when preparing the balance sheet and financial report. The accounting profession has an ethical dilemma because they are responsible for maintaining accurate financial statements, balance sheets, company assets, liabilities, and profits and providing them to the company’s officers. 

Your company’s financial records could be easily changed by false accounting ethics, thereby portraying a false picture of the company’s financial status.

Inadvertent omission of financial records

Another dilemma in accounting ethics involves requesting an accountant to omit specific financial figures from a balance sheet that may portray the organization in a negative light. In this situation, the accountant faces a difficult dilemma because he is required to omit certain items from the company’s balance sheet and financial statement. 

For this reason, an accountant must maintain ethical vigilance to avoid falling into such a trap. Therefore, hiring accounting services in Los Angeles is highly recommended to prevent your business from falling into a state of decline.

Greed’s effects

It is common for businesses to engage in greed, and you can observe this in all types of organizations. Since accountants have a more excellent knowledge of business finance, they may become greedy in pursuit of the profits the company generates. 

As a result, an accountant who pays more attention to his bank account than to his company’s balance sheet can become a liability. There is no wonder that such accountants can cause serious business violations.

Solving accounting ethical dilemmas

The ethical dilemmas accountants face in accounting firms are already known to you. We will now discuss the methods for resolving these problems.

Consider following and valuing theory.

To understand accounting ethics, you must first learn the theory behind it. You will learn the theory of accounting and dilemmas involved in the accounting industry when you study the theory of accounting and the difficulties involved in the accounting industry.

Ignore the dilemma

Accounting dilemmas may sometimes be ignored, as some are less significant than others, which are given a great deal of attention. Therefore, you can avoid addressing the dilemma if it does not harm your business.

Always seek alternative solutions

As an accountant, you must be aware of any ethical dilemmas that may arise in accounting. You should then identify the problem and find an alternative solution. Identifying alternative solutions will assist you in resolving your difficulty.

Can a family member be my accountant?

Yes, your family member can serve as your accountant. Various countries and cultures have different attitudes toward hiring family members and friends. Employing someone you know in some areas may be customary and entirely acceptable. It can be against the accounting ethics in some countries and may be subject to legal repercussions in others. Consider this situation in light of your country’s specific context and seek legal advice if necessary.

Moreover, you must be familiar with your employer’s policy regarding hiring family members. Organizations often have a specific procedure that defines when this is acceptable and what safeguards should be implemented. 

If you are working with a family member, you should remain on your toes and monitor any ongoing threats to compliance with the Code.

It is common for people to volunteer or be asked to perform the bookkeeping functions for a family business without any accounting experience. In this case, the greatest challenge is to figure out how to complete the job. 

This is typically achieved by trial and error on the job. Regardless of whether the person doing the books has some accounting experience, arrange for them to receive some training from a qualified accountant. 

In addition to setting up the company’s books correctly, this professional will establish good practices for the company. Additionally, you may arrange for professional assistance, such as from a Quickbooks ProAdvisor, to ensure that your family member learns the whole system rather than just parts.

Can I pay my wife to work for me?

The answer is yes; you can pay your wife to work for you. If you hire your wife to work as an employee in your business, you can save a considerable amount of money on taxes. You can save a significant amount if you are a sole proprietor or own a single-member LLC taxed as a sole proprietorship or partnership (if your spouse is not a partner).

If your spouse or another family member is going to work for your company, you may make them an employee and pay them a salary for their work. Hiring your spouse as an employee will result in salary costs being considered an expense, reducing your company’s tax obligation.

When you have a spouse willing to help out and sufficient revenue coming in from the business and other sources, it may be tempting to allow the spouse to work in the business but not as an employee.

A spouse may also be a part-owner of the business and receive dividends (if the company is a corporation) or a share of the company’s net income (if the company is a partnership or LLC). If your spouse works in the company, you may decide not to pay them a salary in addition to what the company receives as an owner.

Is it unethical to do business with family members?

There is nothing fundamentally unethical about conducting business with family members. As a result, there is a potential for complications that have nothing to do with the company itself. Think about how you would handle these situations if the individual in question were a relative rather than an unrelated person.

  • Underperformance requires the termination of an employee
  • A member of staff requests a substantial advance on their salary
  • The perpetrators of some fraud have been narrowed down to two or three individuals
  • The position of a new employee is referred to a person
  • One of the employees of your company has an affair with your business partner
  • The employee has accused you of favouritism (rightly or wrongly)
  • A customer owes a significant amount of money

These should be fine for a well-managed business with clearly defined internal systems and processes. Most companies are not at this stage, and it falls on the company owners to deal with them directly and, to some extent, make things up as they go along. 

There is a natural tendency for people, whether they are family members or not, to try and influence the decision in their favour under such circumstances. A family will have a more excellent supply of “ammunition” than another individual. 

Management of this process is manageable, and it does not need to be a significant concern for experienced business managers. Sometimes, the situation can still be difficult if the family member is particularly close to you, such as a spouse or a child.

Can I employ a family member?

There is a widespread perception among employees of the organization that the hiring of “friends and family” would undermine their own efforts to advance within the organization. A person competing for a promotion might assume that the relative or personal friend of the CEO will receive the promotion, which would lead them not to apply for the promotion if they are competing against them.

The problem with doing so is that you are likely to deprive your organization of talented potential leaders that you might have nurtured had you been more proactive. Businesses must be able to establish a culture of innovation within their organization in order to ensure growth and avoid disruption from competitors in the industry.

In many organizations, nepotism can sometimes result in a large majority of employees sharing similar beliefs and ideas, which results in a lack of innovation and the failure of management to help the organization move forward. A workplace that is characterized by a variety of backgrounds, cultures, thinking styles, and learning styles can maintain a fresh feel and encourage innovation as a result of teamwork. However, nepotism is, on the other hand, a factor that can lead to stagnation in an organization.

Accounting ethics – Conclusion

When you establish financial controls in a family business, you may feel that you are undermining the trust of family members, but you should not look at it that way. As a result of establishing internal controls, family businesses can build more trust because family members will feel more confident that the business records and books are accurate and will be treated equally.