The foundations of the ethical business of small and medium-sized enterprises are the individual characteristics of the individual, the ethical code of business conduct, the moral responsibilities and obligations of managers, and the levels and dilemmas of ethical decision-making. The financial reporting of small and medium-sized enterprises is daily faced with many, sometimes illogical moves by the management who is the main and responsible for the financial reporting of small and medium-sized enterprises. Internal controls are performed within the boundaries of the company in order to monitor the achievement of pre-set goals and propose possible corrective actions in case of deviations from the goals. Business ethics teaches what morality is and that behavior should be adapted to what is natural, normal and what is expected from the company, regardless of what the business result will be. Accordingly, management is responsible, and accounting is in charge of preparing financial statements in accordance with business ethics. The conducted research shows that there are still frauds in financial statements and that accountants often face pressures to behave unethically. Frequent reasons for such behavior are the reduction of tax obligations and the creation of a false image of business success, as well as bribery and corruption.