Accounting Ethics Can Make the Difference Reasons why Morals are Key Components - Research Paper Example

ACCOUNTING ETHICS CAN MAKE THE DIFFERENCE: REASONS WHY MORALS ARE KEY COMPONENTS In the article of the New York Times, Claudia Parsons(2009) cites Steve Priest, president of Ethical Leadership Group, who eloquently sums up what can be justly called as modern crisis of accounting ethics: "Investors don't trust the companies they're investing in. They don't trust the financial statements, they don't trust the audits, they don't trust the bond rating agencies." Indeed, contemporary profession of accountancy has been continuously wrestling with how to improve ethics in the profession. In the wake of prominent accounting scandals such as Enron, WorldCom, Tyco, and Arthur Andersen, the accounting profession in general and accounting ethics in the main has received both public's and regulator's glare. In 2002 the U.S. Congress responded to this dilemma with enactment of The Sarbanes-Oxley Act. However, when it seemed the regulatory field for adherence to accounting standards and ethics had been prepared, the world witnessed yet another crisis of accounting ethics triggered by unnoticed 50 billion Ponzi scheme invented and managed by Bernard Madoff for almost twenty years. Because the accounting profession is the gatekeeper of the financial affairs of the business community, it must strive to cultivate and maintain ethical standards and principles that must not be compromised. Ethical sensitivity is paramount in conducting business honorably and fairly. Business communities around the globe hold accountants in high esteem and expect them to be beyond reproach, ethically. The primary existing paradigm related to accounting ethics is based on the premise that individuals make ethical choices because of individual integrity. This may be partially true; however, ethical or unethical accounting practices usually reflect the values, attitudes, beliefs, and behavior patterns of the organizational culture (True & Pelton, 2005). Early ethical and moral theorists have gone to great lengths to understand human behaviors and to define what behaviors constitute good morals. Some people believe that morality is contingent on environmental and situational circumstances. Dawson (2005) asserted that the character traits defining the ethical nature of the business are embedded in the social values of its culture. Dawson (2005) also believed that businesses with a strong rational and bureaucratic culture, such as financial institutions, have difficulty promoting individual ethical behavior beyond the rules in the absence of a compensating culture of social values such as trust and honesty. Businesses that thrive on the quality of human relationships internally and externally have more opportunity for building such a culture to promote ethical behavior. Those businesses with high employee turnover and a higher percentage of part-time/casual workers with low intrinsic valuation of work have difficulty sustaining a work ethic conductive to ethical behavior. Thus, ethical behavior is as much an organizational issue as it is a personal issue. Further, in some instances, ethical behavior is learned behavior that is based on formal educational instruction and personal experiences/modeling. According to position formed by Duska and Duska (2005), "accountants have a number of ethical responsibilities, to themselves, their families, and their profession as well as to the clients and company for which they work" (p. 30). Practically, most of accounting crises occurred in past primarily due to CEOs not adhering to the rules and regulations of the accounting practices as well as the U.S. Security Exchange Commission requirements. According to Healy-Burress (2010), "a professional code of conduct explicitly states the expectations of behavior and character for the members of the profession" (p.57). Therefore, a professional code of ethics that is followed by participants represents a defining feature of a profession, and the major document which formulates the ethical conduct of accounting professionals is the AICPA Code of Professional Conduct. Rule 102 of the AICPA Code of Conduct (Integrity and Objectivity) states; "In the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others"(ET Section 102, 2010). Duska and Duska (2006) indicate that "Rule 102, then calls for four things in performing professional service: (1) maintaining integrity and objectivity, (2) being free from conflicts of interest, (3) not knowingly misrepresenting facts, and (4) not subordinating one's judgment to others" (p. 95). From the critical perspective, Duska and Duska (2006) believe that much of the AICPA Code is generally too broad. For example, the first principle of the AICPA code states, "In carrying out their responsibilities as professional, members should exercise sensitive professional and moral judgments in all their activities" (Duska & Duska, 2005, p. 90). Duska and Duska (2006) assert that AICPA code is too broad because accountants do not act as certified public accountants in all their activities, and is too vague because it does not define "sensitive and moral judgments." Therefore, accounting ethics requires more individualistic approach, like deontological or utilitarianism perspectives. Kant's deontology is based on a duty to follow the rightness of an action that could become a universal imperative (Dawson, 2005). Simultaneously, Mill's version of utilitarianism measures the ethical worth of an action by its consequences for social happiness but constrained by social conventions made largely unpopular after the passage of the Sarbanes-Oxley Act of 2002. Still, no universal philosophical agreement among ethicists exists whereby one ethical theory "trumps" the others as the universal master (Dawson, 2005). For instance, Dolfsma (2006) indicates that "the balance has always been more towards deontological principles and even a communitarian perspective in accounting" (p.5). Practically, both Mill's utilitarianism and Kant's deontology conflict at the margins for various critical ethical dilemmas, limiting the value for business where people are looking for philosophical guidance to resolve complex ethical problems (Dawson, 2005). However, the contemporary discipline of accounting ethics has focused primarily on the principle-based ethics of deontology and utilitarianism. In order to understand the accounting ethical dilemmas faced in today's corporate world, it is necessary to have an understanding of the pivotal moral theoretical underpinnings as well as contemporary research findings on importance of ethical education in accounting programs. Dolfsma (2006) explains that the understanding of morality of situation is subject to development. According to Dolfsma "when teaching accountingparticularly to students majoring in other disciplines, one is faced with the challenge of trying to present a perspective of the world that at first sight would seem alien to many people" (p. 209). Therefore, accounting profession has attempted to deal with this matter within the "walls" of academia as well as in practice. "The American Assembly of Collegiate Schools of Business (AACSB) and the AICPA recommended that accounting students receive ethics education at the general education level, the business administration level, and in every accounting course" (Hass, 2005, p. 66). According to Watkins and Iyer (2006), "The AACSB developed a webbased ethics resource center for its members, and in June 2004 published the guide Ethics Education in Business Schools" (p. 68). Mastracchio (2005) believes that a strong academic foundation in ethics, which emphasizes methods of measuring the consequences of decisions in ethical terms, is very important. Particularly, Mastracchio (2005) emphasizes the correct understanding of accounting ethics in the academic setting: Unfortunately, the attitude toward teaching "ethics" in most curricula consists primarily of learning rules. Acting ethically then becomes merely not violating particular rules. An auditing course may go further, listing the AICPA rules of professional conduct, but still say little about how protecting the public interest is a CPA's responsibility (p.6). Proponents of corporate responsibility have argued for years that today's typical management educations turn out leaders who possess limited ability to think broadly about the affect of such decisions on stakeholders, societies, and the natural environment (Waddock, 2005). The same criticisms have been applied to accounting education. Because most "management theory focuses predominantly on maximizing shareholders wealth, it considers only some stakeholders and fails to educate managers and accounting professionals about all of the consequences of their decisions, or indeed, about the full range of issues that rightly need to be embedded in accounting statements" (Waddock, 2005, p. 146). Waddock (2005) believed that business educators must focus on integrity at the individual, company, and societal levels and they need to work toward and attendant transformation in the curriculum that covers business in society, not just business in economy. Therefore, businesses must align with educational institutions at every level to provide business ethics education as part of the curricula. This participatory approach will ensure that businesses recruit new workers who are trained in business ethics. The subject of accounting ethics has emerged as one of the most talked about topics during the last two decades. The accounting profession has been publicly chastised by lawmakers, the national and international business communities, investors, and standard-setting bodies of the profession of accountancy for breaching the public's trust in a spate of accounting scandals involving major multinational corporations. Having a keen comprehension of this ideology and the necessity to refurbish the tarnished image of the profession, regulatory bodies of the accounting profession have rallied to develop and implement corrective measures to arrest the damage caused by the array of recent accounting scandals and to restore ethical integrity to the profession. One of the most notable steps undertaken in this process was the development of the AICPA Code of Conduct. In addition, significant emphasis has been made on importance of accounting ethics programs and teachings conducted within the educational institutions. REFERENCES Dawson, L. (2005). Philosophy, work ethic and business ethics. Journal of Corporate Citizenship, 55-64. Dolfsma, W. (2006). Accounting as applied ethics: Teaching a discipline. Journal of Business Ethics, 63,209-215. Duska, R. F., & Duska, B. S. (2005). Accounting ethics. Maiden, MA: Blackwell Publishing. ET Section 102 -Integrity and Objectivity. (2006). New York: The American Institute of Certified Public Accountants. Retrieved Nov 12, 2010, from Haas, A. (2005). Now is the time for ethics in education. The CPA Journal, 75(6), 66-68. Mastracchio, N. J., Jr. (2005). Teaching CPAs about serving the public interest. The CPA Journal, 75(1), 6-9. Healy-Burress, J. (2010). Ethics Regulation by the Accounting Profession. Journal of Business and Economic Research, 2(9), 57-66. Retrieved Nov 12, 2010 from < http://www.cluteinstitute-onlinejournals.com/PDFs/200497.pdf> Parsons, C. (2009). From Madoff To Merrill Lynch, 'Where was ethics officer.' The New York Times, Retrieved Nov 12 from True, S. L., & Pelton, L. E. (2005). The role of ethics in a business education. In Business ethics: Perspectives for corporate responsibility (pp. 1-4). Boston: Houghton Mifflin Company. Waddock, S. (2005). Hollow men and women at the helmhollow accounting ethics Issues in Accounting Education, 20(2), 145. Watkins, A. L., & Iyer, V. M. (2006). Expanding ethics education: Professionals can participate. The CPA Journal, 78(2), 68-69. Read More