Accounting and Business Ethics

An Introduction

Ken McPhail, Diane Walters

• Publisher: Routledge
• Year: 2009
• ISBN:
  9781134231669
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Despite the enormous impact of various accounting scandals on the accounting profession, the general malaise amongst the profession more broadly, and the significant legislative and institutional reforms that have taken place as a result, there are still surprisingly few textbooks on accounting ethics.

This concise introductory text takes a broad view of ethics and accounting, taking into account contemporary social trends, such as globalization and terrorism. Rather than delineating codes of professional conduct, this text pushes the reader towards an understanding of the nature of ethical dilemmas and the factors that influence the ways in which accountants frame ethical questions.

The book is divided into two parts. The first part focuses on developing thinking about the different kinds of ethical questions that could be posed in relation to accounting. The second part focuses more explicitly on accounting practice, exploring the ethical function of accounting in relation to the market economy, ethics in relation to the accounting profession, and the ethics of the international accounting harmonization project.

Accounting and Business Ethics is a compact introduction aimed at both students and practitioners who want to understand more about the ethics of accounting.

PART I
How to think ethically about accounting

1
Introduction

There aren’t many textbooks on accounting ethics, at least not in comparison to business ethics textbooks. The proliferation of books on the ethics of business seems to be part of a broader ethical awareness that covers, for example, bio-ethics, medical ethics, environmental ethics, cyber-ethics, and so on. The reasons behind this burgeoning concern with ethics are undoubtedly complex and in part it relates to the pace of medical and technological progress; if you can’t clone a sheep or perform a face transplant, then the ethical dilemma remains purely hypothetical. However, whatever its source, this increased public discussion of the ethical challenges posed by medical advances, bio-technology, environmental degradation and globalization does not seem to apply to the discipline of accounting, at least not to the same degree. This is despite the fact that the routine practice of financial accounting is so pervasive that it is inextricably linked to the development of bio-technology, the causes of, and solutions to environmental pollution, the allocation of scarce medical resources and, of course, it facilitates globalization. While there is considerable discussion on the role of medical staff in palliative care, for example, there is comparatively little public discussion of the role accountants should play within society.

Just as there are many reasons why particular topics seem to invite ethical investigation, so there are many reasons why accounting remains off the ethical radar. For a start, accounting is culturally maligned. Taking accounting seriously is not easy for us because we have to struggle against cultural stereotypes. Of course, post Enron, WorldCom and Parmalat, there has been quite a lot of discussion of the ethics of accountants and professional ethics more generally. However, despite the massive scale of these debacles, it is surprising how quickly they have been forgotten and how little substantive change they really engendered. This is somewhat perplexing; the lack of substantive engagement with the ethics of accounting, as opposed to the ethics of accountants, can’t be because accounting is unimportant. The level of political interest in the accounting profession immediately following the Enron scandal indicates that accounting performs a hugely important function within a market-based economic system. Perhaps it is because accounting is perceived to be a technical and fairly specialized subject that it is not exposed to more public debate and discussion. Whatever the reason for accounting remaining ethically marginalized, it’s wrong!

The lack of political debate and public discussion surrounding the role of accounting within contemporary society, however, does not reflect views from within the discipline. Over the past few decades a substantive body of research has given rise to a major school of critical accounting thought that challenges the conventional, technical view of accounting as a politically neutral and amoral practice. Influenced by this alternative perspective on accounting, this more critical school has begun to explore the ethics of accountants, the function and purpose of the accounting profession and the ethics of accounting. Some of the findings don’t make for pleasant reading.

THE ETHICS OF ACCOUNTANTS

Accountants appear to exhibit lower levels of moral reasoning than other professional groups. Accounting students become less ethical as they progress through their accounting education. Accounting students are less ethically aware than other students. Accounting students don’t recognize the broader social responsibility issues associated with professionalism. Most accounting students think that accounting is an amoral and technical activity. These are all research findings from the accounting literature!

Many academics have expressed concern over the ethical predispositions of both accounting students (see, for example, Gray et al. 1994) and practitioners. Some studies suggest that accountants seem to exhibit lower levels of moral reasoning than other professional groups (Eynon et al. 1997), and this possibility has led to a debate about the extent to which accounting education (at both the undergraduate and professional levels) either contributes towards or stultifies accountants’ ethical development. Taken in its entirety, the literature presents the somewhat disturbing possibility that conventional accounting education has a more negative than positive impact on students’ ethical predispositions. Fleming (1996) concludes that ‘the tendency of the evidence is to suggest, if anything, that accountants either occupy the middle ground or lean towards an amoral ethical position’.

THE ETHICS OF THE ACCOUNTING PROFESSION

However, on top of this concern with accountants, there is also growing interest in the changing nature of the accounting profession, both specifically and in general. For example, some of the research points to a major socio-cultural shift in the way we relate to each other, and in particular, the way people relate to the professions and professionals. A few years ago, a study by Modic (1987) hinted at diminishing levels of trust between individuals in general and in a slightly more recent study Bruce (1996) concludes that ‘the age of deference is over’. By this he means that people are not willing simply to accept what those in authority say anymore. The trend here seems to be a shift away from a reverence for and deference towards the professions, to viewing professionals in some partnership role, a shift that is also part of a broader socio-political movement for greater deliberative democracy. We will consider this issue of trust in a little more detail as we progress through the text; however, at this point we just want to connect diminishing levels of trust to a broader postmodern slippage away from authoritative anchoring points in traditional society. Undoubtedly these socio-cultural shifts have significant consequences not only for the accounting profession but for the idea of professionalism in general.

The other side to this waning deference towards professionals is an apparent shift in attitude within the professions themselves. Roberts (2001), for example, comments on the contrast between the traditional role of a professional and the accounting profession’s determination to ‘compete in a commercial marketplace in a wide variety of professional services’. Roberts (2001) states that the US practitioner literature is replete with evidence that commercialism is of primary importance to CPA firms and he contends that this commercial reorientation is primarily driven by declining profit margins (Fraser 1997). Indeed, Mitchell and Sikka (1993) claim that audits are now used as loss leaders in order to attract other more lucrative business and there is growing concern that the pursuit of commercial objectives has had a detrimental impact on the quality of audit services. In his 1987 study, for example, Larson refers to a number of surveys that indicated that 30–40 per cent of all audits undertaken in the US were substandard.¹

This increasing commercialization of accounting practice reflects a broader societal shift in the expectations surrounding professional work and the way it is appraised. Craig (1994) discusses the need to provide non-audit services for partnerships to ‘succeed’, and concludes that ‘the importance of these new services has changed the mindset of practitioners’. Boland (1982) has similarly questioned the commercialization of the accounting profession, highlighting the way growth is used as an indicator of both practice and individual success. Increased commercialization, combined with greater litigation has resulted in most of the major accounting practices converting to limited liability firms (Lee 1995). Roberts (2001) also suggests that this focus on commercial services has contributed towards the consolidation of accounting firms and the merger of accounting and law firms and he contends that this process has had a profound impact on the mentality of American CPAs. Fraser (1997), for example, quotes Ron Silberstein of an American CPA firm, who says, ‘when someone sitting next to me on a plane asks me what I do, I usually tell him or her I’m a salesman. Then they ask, “What do you sell?” and I tell them, “Accounting Services”.’ Fraser (1997) also recounts a similar comment by Stanley Nasberg, another American CA, who says, ‘we have arrived because we no longer think of ourselves as merely a profession, we are a business, we are entrepreneurs’. Both these quotes extol commercial acumen and seem very far removed from ideals of public service and altruism traditionally associated with professionalism. The implication is that the value of being seen to be a professional has somehow diminished. For these accountants at least, commercial acumen appears to be more useful than mere professional status. Indeed Roberts (2001) suggested that accounting, more generally, has become de-professionalized (see Zeff 1987; Briloff 1990, in Roberts 2001).

However, the majority of these studies were conducted prior to the Enron debacle. While the trend towards commercialization is still dominant today, there is a growing appreciation of the importance of the idea of professionalism for the continued legitimacy of the professions themselves. Enron and other high-profile scandals like the Alder Hey organ retention scandal and the Shipman murder inquiry have diminished levels of trust in the professions and business more generally. Against the backdrop of these scandals we are witnessing a renaissance in interest in the idea of professionalism, particularly in relation to whether it needs to be re-thought or replaced, for example by occupationalism.

While in response to this crisis, the primary agenda of professional bodies has been to try to re-establish their credibility and legitimacy. The magnitude of the scandals, combined with the other major social shifts that we alluded to above, may just have disorientated professional bodies enough to cause them to reflect on whether the task is simply a matter of re-establishing a relationship of trust, or more fundamentally re-conceptualizing it and making it work within a different cultural context.

Of course, we need to distinguish between the ideal type of role that professional bodies could play within a pluralist democracy and the kind of self-interested protectionism that is all too often the reality. But it’s an important contemporary question: in terms of the broader goals that we want to achieve as a society, would we be better off if there were no professions? Note the question is not if there were no doctors or lawyers or accountants but rather if these occupational groups were not given the special status of professions, and if the fields of health, accountability and the law become more participatory and deliberative.

INCREASED IMPORTANCE AND COMPLEXITY OF ACCOUNTANCY

However, on top of the concern with the ethical predispositions of accountants and increased uneasiness over the (re)orientation² of the accounting profession, there is also growing critical reflection on the functioning of accounting within society.

Traditionally, societal expectation of business was rather uncomplicated. In the words of Milton Friedman it was simply to make money. However, the last few decades have witnessed a perceptible shift in public attitude towards business more generally. Indeed, a major body of accounting research has in part influenced the emergence of the new corporate social responsibility (CSR) reporting and sustainability discourses (Gray 2002, 2001; Gray et al. 1998, 1987). While there is some considerable debate as to whether this discourse is likely to produce any substantive change in business practice, the emergence of social and environmental accounting as a valid academic subject, along with the growing momentum of CSR, presents significant challenges for the scope of both the professional responsibility of accountants and accounting practice (Gray 2001). The more serious discussion within CSR recognizes that it presents a challenge to our underlying notions about the function that business and accounting should serve in society.

This growing concern over the behaviour of big business also comes at a time when the organization and nature of commer...

Table of contents

• Cover Page
• Half Title page
• Title Page
• Copyright Page
• Dedication
• Contents
• Illustrations
• Preface
• Acknowledgements
• Part I How to think ethically about accounting
• Part II The ethics of accounting practice
• Index