Ethics and accounting professional

 

     Branch of philosophy concerned with the nature of ultimate value and the standards by which human actions can be judged right or wrong. The term is also applied to any system or theory of moral values or principles. Ethics is traditionally subdivided into normative ethics, met ethics, and applied ethics. Normative ethics seeks to establish norms or standards of conduct; a crucial question in this field is whether actions are to be judged right or wrong based on their consequences or based on their conformity to some moral rule, such as "Do not tell a lie." Theories that adopt the former basis of judgment are called consequentialist (see consequentialism); those that adopt the latter are known as deontological (see deontological ethics). Metaethics is concerned with the nature of ethical judgments and theories. Since the beginning of the 20th century, much work in metaethics has focused on the logical and semantic aspects of moral language. Some major metaethical theories are naturalism, intuitionism, emotivism, and prescriptivism. Applied ethics, as the name implies, consists of the application of normative ethical theories to practical moral problems (e.g., abortion). Among the major fields of applied ethics are bioethics, business ethics, legal ethics, and medical ethics.

    Timely and reliable accounting information is essential. Not only firms themselves but the markets they serve, and particularly the investment community, depend on it. Accounting data and their interpretation must be above suspicion, says Riahi-Belkaoui, and to be sure of that, corporations and other users of accounting information must be certain that accountants subscribe to and practice morality set to high standards. What these standards are, and how they are deficient, distorted, and sometimes even fallacious, are the themes explored here. In doing so, Riahi Belkaoui's book leads readers through the complexities of what the author identifies as the five aspects of accounting morality: fairness, ethics, honesty, social responsibility, and truth.

 

Deontological Ethics

     In accounting profession ethics, deontological ethics or deontology (Greek: Deon meaning obligation or duty) is "the theory of duty or moral obligation." One of the most important implications of deontology is that a person's behavior can be wrong even if it results in the best possible outcome, and an act can be righteous even if it results in a negative outcome. In contrast to consequentialism, a philosophy famous for its claim that the ends justify the means, deontology insists that how people accomplish their goals is usually (or always) more important than what people accomplish.

     The most famous deontological theory was advanced by the German philosopher Immanuel Kant. In his theory, Kant claimed that various actions are morally wrong if they are inconsistent with the status of a person as a free and rational being, and that, conversely, acts that further the status of people as free and rational beings are morally right. Therefore, Kant claimed, we all have a duty to avoid the first type of act and perform the second type of act. In order for society to be reassured, these deontological theories must first and foremost undertake the civil right of each individual. As forementioned, Jonathan Blair Rosen has taken a political and economical stance on this position. The deontological view that much of society holds deals with the Anima, and the Anamus.

     Kant believed that this duty was absolute. He drew a distinction between contingent duties, which only need to be carried out under certain empirical circumstances, and categorical duties, which always need to be carried out, because they are based on a priori reasoning about the general nature of things, and thus applies no matter what the circumstances are. Kant thought of the duty to promote human freedom and rationality as the only truly categorical duty. He called this duty the categorical imperative, and described it at great length in his writings. Of the five formulations of the categorical imperative Kant developed, the three most well-known and significant are:

 

·        Act only according to that maxim by which you can also will that it would become a universal law.

·        Act in such a way that you always treat humanity, whether in your own person or in the person of any other, never simply as a means, but always at the same time as an end.

·        Act as though you were through your maxims a law-making member of a kingdom of ends.

 

     Other examples of deontological theorists include the English philosopher John Locke and the modern-day philosopher John Rawls. Locke held that individual persons have rights that are part of the natural law of the world, and that actions can be judged as right or wrong based on whether they respect these rights. John Rawls held that individual persons have a duty to act according to the laws that they would propose if they were unaware of their present socioeconomic status. Because most people are risk-averse, Rawls argues, most people in this situation would propose laws that disproportionately benefit the poor and the oppressed. Because John Rawls is particularly concerned with the maximization of "the good"(or "utility") for the least well off in order to promote human equality, he is sometimes associated with utilitarian and/or Consequentialist schools of thought. What John Rawls has in common with thinkers like Kant and Locke is his use of the distinction between the concept of the right and the concept of the good. Whereas, Consequentialist theories argue or assume that an act is right, if it maximizes the good, deontological theories assert that an act can maximize the good yet still be wrong (and therefore should not be carried out) if it violates some deontological principle such as a right or a duty or the categorical imperative.

    

Utilitarianism Ethics

     Utilitarianism is the ethical doctrine that the moral worth of an action is solely determined by its contribution to overall utility. It is thus a form of consequentialism. Utility — the good to be maximized — has been defined by various thinkers as happiness or pleasure (versus suffering or pain); though preference utilitarians like Peter Singer define it as the satisfaction of preferences, or "interests". So in accounting it is the duty of every accountant to adhere the code of ethics to work in the best interest of people. While there is a tendency to consider only the well-being of humans when interpreting this doctrine, some utilitarians count the interests of any and all sentient beings when assessing overall utility.

     Utilitarianism has its origins in the works of the Greek philosopher Epicurus, but as a specific school of thought, it was originally proposed by Jeremy Bentham. From the principle of utility, Bentham found pain and pleasure to be the only intrinsic values in the world: "nature has put man under the governance of two sovereign masters: pleasure and pain." From this he derived the rule of utility: that the good is whatever brings the greatest happiness to the greatest number of people. Later, after realizing that the formulation recognized two different and potentially conflicting principles, he dropped the second part and talked simply about "the greatest happiness principle."

     Jeremy Bentham's foremost proponent was James Mill, a significant philosopher in his day and the father of John Stuart Mill. John was educated according to Bentham's principles, including transcribing and summarising much of his father's work whilst still in his teens."

     In his famous short work, Utilitarianism, John Stuart Mill argued that cultural, intellectual, and spiritual pleasures are of greater value than mere physical pleasure, because the former would be valued more highly by competent judges than the latter. A competent judge, according to Mill, is anyone who has experienced both the lower pleasures and the higher. Like Bentham's formulation, Mill's utilitarianism is hedonistic, because it deals with pleasure or happiness.

     Many Act or Case utilitarians offer critiques of deontology as well as Rule Utilitarianism. Jeremy Bentham, an early utilitarian philosopher, criticized deontology on the grounds that it was essentially a dressed-up version of popular morality, and that the unchanging principles that deontologists attribute to natural law or universal reason are really a matter of subjective opinion. John Stuart Mill, who lived in 19th century Britain, argued that deontologists usually fail to specify which principles should take priority when rights and duties conflict, so that deontology cannot offer complete moral guidance.

     Shelly Kagan, a current professor of philosophy at Yale University, notes in support of Mill and Bentham that under deontology, individuals are bound by constraints (such as the requirement not to murder), but are also given options (such as the right not to give money to charity, if they do not wish to). His line of attack on deontology is first to show that constraints are invariably immoral, and then to show that options are immoral without constraints.

     Another, unrelated critique of deontological ethics comes from aretaic theories, which often maintain that neither consequences nor duties but "character" should be the focal point of ethical theory. The ancient Greek philosopher Aristotle, for example, sought to describe what characteristics a virtuous person would have, and then argued that people should act in accordance with these characteristics.

   

Ethics in Accounting/Business Profession

     Some of the most radical changes in the business and professional environment relating to ethics and litigation have taken place since the 1960s.The 1960s witnessed the emergence of a counterculture, the growth of ecological, pollution, and nuclear and toxic waste problems, and the divisive Vietnam War. The American Civil Liberties Union (ACLU) championed the idea that individual rights were of paramount importance.

     Principles, laws, rules, or codes should not be viewed as the standard, but they should be seen as a minimal guide to behavior. Laws are generally considered to be the basis for actions, as evidenced by their proliferation, in an effort to be more specifc and cover all areas where judgment and choice must be exercised. The truth is that hard and fast rules to cover every possible circumstance cannot be written, and perhaps the attempt should not be made.

     Bok (1978) stated that codes of ethics function all too often as shields; their abstraction allows many to adhere to them while continuing their ordinary practices. These codes must be the starting point for a broad inquiry into the ethical quandaries encountered at work. Methods of disciplining those who violate the guidelines must be given teeth and enforced. The question of whose standards to follow must be addressed.

     Accountants may face the problem that they have higher ethical standards than management (Jones & Hiltebeitel,1995).If management is abiding by Generally Accepted Accounting Principles (GAAP),the Internal Revenue Code, or other official pronouncements, then the question may be asked, Does one have a right to impose a higher level of moral responsibility on others than the law requires? This is a question each professional must answer, but one should be careful how it is answered given the litigious situation today.

     In this environment of legalism, ill-defined standards, and changing behavior patterns, there may be concerns about the future of the profession (Olson, 1978). Accountants have been recognized as professionals who must meet very high standards.

     The public expects its elected officials to have high ethical standards. But standards of ethical behavior have changed over time. When Daniel Webster served as a senator in the 1830s and 1840s, he carried on a private legal practice and argued cases before the Supreme Court. Since Congress met for only half the year, it was commonplace for members to continue their other business activities during the months of adjournment. Questions arose about members’ conflict of interest, and Congress began to meet year-round. The Senate and House revised their rules to prohibit members from representing legal clients and engaging in other outside activities. The old practice of a member putting his wife and children on the congressional payroll was banned. Ethics laws also prohibited the use of campaign funds for personal expenses. But no set of ethics laws will ever be final because political and financial practices, and public opinion, are constantly changing.

     From time to time, scandals have stirred public opinion and caused Congress to reexamine its rules of behavior. In the 19th century, such lobbying scandals as the one involving Credit Mobilier in 1872—when high-ranking members of both houses accepted stock from a railroad company receiving subsidies from the federal government—began the movement to restrict members' outside business and financial activities. Similarly, the 1970s investigation of Abscam (in which an FBI agent posed as an Arab sheikh and offered bribes to members of Congress) and the savings and loan scandals of the 1990s—which caught some members offering their influence in return for campaign contributions—further tightened congressional rules of ethics. The public has also seen excessive perks of Congress, including travel junkets and check bouncing at the House bank, as indications of the need for continued reform.

     Making ethical decisions in business is often difficult because business ethics is not simply an extension of an individual's personal ethics or a society's standards of right and wrong. Just being a good person with high ethical standards may not be enough to handle the tough choices that frequently arise in the workplace. Persons with limited business experience are often called upon to answer troublesome questions about complex issues, such as Can professional breach client confidentiality? When can a professional permit harm to a client for the sake of the welfare of another person or the public? Can a professional deceive a client for the client's own well?

     Business executives are faced with two types of ethical issues in conducting their day-to-day affairs. Micromanagement issues include conflicts of interest, employee rights, fair performance appraisals, sexual harassment, proprietary information, discrimination, and accepting or offering gifts. Macromanagement issues include corporate social responsibility, product liability, environmental ethics, comparable worth, layoffs and downsizings, employee screening tests, employee rights to privacy in the workplace, and corporate accountability.

     The need to control, regulates, and legislate ethical conduct on the individual, corporate, and government levels has ancient roots. For example, one of the first law codes developed, the Code of Hammurabi, made bribery a crime in Babylon during the eighteenth century b.c. Most societies share certain features in their ethical codes, such as forbidding murder, bodily injury, and attacks on personal honor and reputation. In modern societies, the systems of law and public justice are closely related to ethics in that they determine and enforce definite rights and duties. They also attempt to repress and punish deviations from these standards.

     Codes of Ethics are very important in accounting context but are in the final analysis insufficient devices, because their necessarily generalized form has to be translated into the specific situation and thus requires acceptance rather than merely adherence. Codes have to be complemented with developed ethical reasoning of accountants. Hence, individual ethical principles are discussed which have been applied to accounting in the recent literature, i.e. utilitarianism, deontology, virtue ethics and ethics of care. Unsurprisingly, none emerges as giving completely satisfactory solutions. Yet eclecticism can be avoided by using compound models, which combine individual principles to provide reasonably comprehensive cover of decision-making in a business context.

     The response of many professions to the challenging and demanding problem of institutionalizing business ethics for accounting is to implement codes of ethics, develop statements of corporate goals, sponsor training and educational programs in ethics, install internal judiciary bodies that hear cases of improprieties, and create telephone hot lines through which employees can anonymously report possible ethical violations.

     A code of ethics provides members of a accounting profession with standards of behavior and principles to be observed regarding their moral and professional obligations toward one another, their clients, and society in general. A code of ethics is generally developed by a professional society within a particular profession. The higher the degree of professionalism required of society members, the stronger and therefore more enforceable the code. For instance, in medicine, the behavior required is more specific and the consequences are more stringent in the code of ethics for physicians than in the code of ethics for nurses.

     In addition, accounting professions that require licensure from a state-authorized board, which guarantees both the competency and the moral efficacy of its members, place a duty on the licensed professional to help prevent unauthorized practice by unlicensed providers as a means of protecting the public.

 

    

AICPA Code of Professional Conduct

     The AICPA Code of Professional Conduct and Bylaws applies to all services rendered by AICPA members. The following sections of the Code of Professional Conduct have particular applicability to the practice of business valuation and litigation services:

• Rule 102, Integrity and Objectivity
• Rule 201, General Standards
• Rule 202, Compliance With Standards
• Rule 301, Confidential Client Information
• Rule 302, Contingent Fees
• Rule 501, Acts Discreditable

 

In some instances, the following also apply:

• Rule 101, Independence
• Rule 203, Accounting Principles

     An understanding and appreciation of the importance of all rules contained in the Code will assist practitioners in their efforts to provide opinions that are relevant, and that assist the trier of fact.

    

ET Section 203 - Accounting Principles

     A member shall not (1) express an opinion or state affirmatively that the financial statements or other financial data of any entity are presented in conformity with generally accepted accounting principles or (2) state that he or she is not aware of any material modifications that should be made to such statements or data in order for them to be in conformity with generally accepted accounting principles, if such statements or data contain any departure from an accounting principle promulgated by bodies designated by Council to establish such principles that has a material effect on the statements or data taken as a whole. If, however, the statements or data contain such a departure and the member can demonstrate that due to unusual circumstances the financial statements or data would otherwise have been misleading, the member can comply with the rule by describing the departure, its approximate effects, if practicable, and the reasons why compliance with the principle would result in a misleading statement.

     Rule 203 [ET section 203.01] was adopted to require compliance with accounting principles promulgated by the body designated by Council to establish such principles. There is a strong presumption that adherence to officially established accounting principles would in nearly all instances result in financial statements that are not misleading.

     However, in the establishment of accounting principles it is difficult to anticipate all of the circumstances to which such principles might be applied. This rule therefore recognizes that upon occasion there may be unusual circumstances where the literal application of pronouncements on accounting principles would have the effect of rendering financial statements misleading. In such cases, the proper accounting treatment is that which will render the financial statements not misleading.

     The question of what constitutes unusual circumstances as referred to in rule 203 [ET section 203.01] is a matter of professional judgment involving the ability to support the position that adherence to a promulgated principle would be regarded generally by reasonable men as producing a misleading result.

     Examples of events which may justify departures from a principle are new legislation or the evolution of a new form of business transaction. An unusual degree of materiality or the existence of conflicting industry practices are examples of circumstances which would not ordinarily be regarded as unusual in the context of rule 203 [ET section 203.01].

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