What Does It Mean to Be an Ethical CPA? Theodore Evans. The Pennsylvania State University

Transcription

1 What Does It Mean to Be an Ethical CPA? Theodore Evans The Pennsylvania State University 12 April 2015

2 1 The Merriam-Webster English Dictionary defines ethics as the principles of conduct governing an individual or a group. Many of us spent our entire childhood learning about ethics, whether or not we were aware of it at the time. Our parents and teachers taught us the common ethics of society, establishing for us the differences between right and wrong. By the time many of us reach adulthood, we can clearly distinguish ethical behavior from unethical behavior. Ethics, however, becomes more difficult to define as one enters the nuanced world of business, where moral dilemmas are not always painted in black and white. As the last line of defense between the users of financial information and potential fraud, accountants have a particularly strong need for a solid ethical base. CPAs provide investors with the reassurance necessary to maintain faith in the accuracy of financial information and keep markets running smoothly. This assurance, however, can only be achieved if CPAs hold themselves to an unwavering ethical code of conduct and act as safeguards against abuses of financial information rather than as accessories to them. This necessity for a moral code for the profession then raises the question: what does it mean to be an ethical CPA? An unfortunate duality exists within the accounting profession. Accounting can be, and often is, the safety net that catches potential fraud and financial misstatement before it affects the users of financial information. On the other hand, however, accounting is often employed by unscrupulous individuals to misrepresent realities and conceal immoral and illegal activities for their own personal gain. If the myriad accounting scandals of the early 2000s demonstrate anything, it is the frequent and undeniable link between fraudulent financial reporting and a complete disregard for ethics. There is perhaps no better illustration of this connection than the accounting scandal that led to the collapse of the Enron Corporation in The energy giant was able to prevent massive amounts of debt from appearing on its financial statements through

3 2 a complicated combination of accounting loopholes, inadequate reporting procedures, and special purpose entities that allowed the company to account for numerous liabilities off the books (Folger, 2011). The company s assets and profits were also proven to have been artificially inflated, sometimes even to the point of being completely fictitious (Folger). Enron s auditor, Arthur Andersen, was also embroiled in the scandal, as it was discovered that the auditor had shredded hundreds of documents and deleted numerous computer files relating to Enron as its client was coming under federal investigation (Arthur Andersen, 2005). These acts represent a complete and utter absence of any sense of business ethics. Through the manipulation and misapplication of the very accounting rules that are designed to provide financial statement users with a reasonable depiction of the fiscal position of a company, Enron was able to instead lead countless investors astray by falsely improving its outward appearance. It is a sad but indisputable fact that immoral behavior in the business world is often paired with abuses in financial reporting, making the need for ethical CPAs, who can rise above such situations, all the more critical. Few people would likely question the need for a strong code of ethical conduct in the business world. If the moral dilemmas faced by today s businesspeople are indeed, however, more nuanced than clear distinctions between right and wrong, how is one to ensure that he or she is always acting in a way that would be deemed ethical? Education would seem to be a logical solution, but can the ethics of modern business truly be taught in the classroom? Research seems to suggest that they can be. Studies conducted by multiple independent researchers have concluded that education can have a significant effect on a person s capacity for ethical reasoning (Ellis, 2013). Mark Cheffers and Michael Pakaluk perhaps best summarized the need for and value of ethics education for accountants by stating that,

4 3 Attention to ethics is an essential aspect of the profession of accounting. Required ethics courses for accountants are not some kind of slapped-on expedient or desperate measure in response to a temporary emergency. They are not misguided punishments of the many for the sins of a few, or merely the temporary manifestation of adverse public opinion. Rather, by nature of the profession, accountancy is inherently bound to include reflection on ethics as part of what constitutes being a good practitioner and professional. Studying accountancy necessarily involves studying ethics. (Cheffers and Pakaluk, 2007) If the ability to think ethically can indeed be developed through education, then a truly ethical CPA is one who has honed his sense of morality through study of the topic. This act of studying the principles of ethics is not exclusive to a university setting, but follows a CPA as they transition from book bag to briefcase through continuing education opportunities such as conferences and seminars. It is through education that a moral code of conduct can be engrained in the profession and further accounting scandals can be prevented before they ever occur. The path walked by an ethical CPA can be equated to that of a tightrope walker: it is a delicate balancing act. Achieving balance is imperative when the ethical code necessary for a career in accounting comes into contact with one of the world s most powerful motivators, money. Like most other businesspeople, CPAs practice their profession, at least in part, to earn a livelihood for themselves and their families. For accountants, the income that makes such a livelihood possible is often earned performing various tasks for a client, whether on an engagement or in an internal capacity. The fact that a CPA s income is to some degree dependent on the satisfaction of a client can inadvertently create pressure for the CPA to compromise his or her moral code in order to avoid upsetting the client. The necessity for a steadfast sense of

5 4 ethicality creates a unique relationship between CPAs and their clients, as CPAs strive to perform their duties to the satisfaction of both their clients and their ethical code. As the most practical codification of the ethical requirements of a CPA, the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct is an excellent foundation for a discussion of this relationship. According to the Code, CPAs should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate a commitment to professionalism (AICPA, 2014). Countless parties utilize the financial information that is generated and audited by accountants for decision-making regarding investment and corporate strategy. There is a responsibility on the part of accountants to ensure that these documents reflect the interests of all parties by providing reliable, accurate data that does not mislead some at the expense of others. It is essential that CPAs perform all professional responsibilities with the highest sense of integrity and maintain objectivity and be free of conflicts of interest (AICPA). As previously mentioned, CPAs can often experience pressure as their own personal interests come into conflict with their duty to professional ethics. The accounting profession can only provide the business community with assurance on the accuracy of financial information if CPAs have the ability to put their personal motivations aside and present data as impartially as possible. Lastly, CPAs should observe the profession s technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the [their] ability (AICPA). In the business world, a single lapse in judgement, whether it be ethical or financial in nature, can have considerable repercussions. A firm moral code, like a strong work ethic, is not a sporadic pursuit adopted solely in times of convenience or evaluation, but rather a perpetual standard to which one must continually aspire. A truly ethical CPA is one who lives and works in accordance with these principles, constantly

6 5 striving to maintain objectivity and present financial data accurately, even in times of pressure or adversity. In a commencement address at Oberlin College in Ohio in 1965, Dr. Martin Luther King, Jr. stated that the time is always right to do what is right (Remaining Awake ). Although his use of the phrase at the time pertained to social equality and civil rights, Dr. King s words would be equally appropriate in a discussion of what it means to be an ethical CPA. There will undoubtedly always be those who seek to manipulate the very accounting policies and procedures that are designed to protect users of financial information in order to conceal immoral or illegal business activities. This threat, however, can be mitigated or even completely eliminated, by CPAs who consistently distance themselves from such behavior and hold themselves to a higher code of conduct. Education, both in the classroom and beyond, can foster a strong ethical base across the profession and ensure that accountants can effectively function as the final source of protection against financial misrepresentation and fraud. By acting in the best interests of the public, remaining independent, and refusing to compromise ethics or work quality under any circumstances, ethical CPAs can provide the essential function of preserving trust in the information that forms the very backbone of the modern business world.

7 6 Works Cited American Institute of Certified Public Accountants. AICPA Code of Professional Conduct. AICPA, Web. 5 Apr Arthur Andersen: Reversed and remanded. The Economist. The Economist Newspaper Limited, 2 Jun Web. 31 Mar Cheffers, Mark, and Michael Pakaluk. Understanding Accounting Ethics. Sutton, Massachusetts: Allen David Press, Print. Ellis, Joyce L. Accounting Ethics Education: Proposed Pedagogy Applying Cognitive Moral Development. Journal of Business and Accounting. 6.1 (2013): Print. Folger, Jean. The Enron Collapse: A Look Back. Investopedia. Investopedia, LLC, 30 Nov Web. 31 Mar "Remaining Awake Through a Great Revolution" Oberlin College. Oberlin College Archives, n.d. Web. 6 Apr