Understanding Accounting Ethics:

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Understanding Accounting Ethics

• Chapter 8
• Growth in Accounting Ethics and
  Professionalism

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Growing in Excellence

• Three Important Distinctions
• Intellectual Virtue vs. Virtues of Character
• Speculative vs. Practical Wisdom'
• Individual vs. Common Effort

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Intellectual Virtue vs. Virtue of Character

• Intellectual Virtue is acquired simply through
  study.
• Virtue of Character is acquired through practice,
  that is through doing virtues actions.

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Speculative vs. Practical Wisdom

• Speculative - Knowledge had about somethings
  nature for its own sake.

• Practical - Knowing the basic principles that
  guide action.

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The Role of Habit

• What is a habit? - An Automatic, Undeliberated
  Response
• How does it help? - It allows us to coordinate
  our actions and feelings with what we think we
  ought to do and feel.

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Individual vs. Common Effort

• Individual- Seeking to do something on ones own.
• Common- Seeking to do something in concert with
  many other individuals.

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Part IAdvice to the Individual

• Three Stages
• Accounting Student
• Newly Licensed CPA
• Seasoned Practitioners

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Advice for the StudentFirst

• Seek a broad, liberal education in your
  undergraduate years.
• Why?
• It gives breadth of vision.
• Develops the whole man.
• Encourages a preference for honorable goods.

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Second

• Practice habits of integrity and truthfulness in
  all areas of your life, especially in seemingly
  small matters.
• An accountants task is to tell the truth in
  order to create trust in a market economy.

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Third

• Be attentive to signs of greed resist it, and
  avoid occasions of feeling it.
• Regularly give away some fixed amount or
  percentage.
• Live two notches below what you can afford.

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Fourth

• Seek out those accounting professors who in your
  view exemplify the highest ethical ideals get to
  know them and 'mentor yourself' to them.
• Relationships do not form without effort.
• The task usually falls to the student to start
  and encourage mentoring relationships.

Telemachus Mentor
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Fifth

• View your professional training as part of a
  unified life marked by integrity.
• Professions involve the whole person.
• Accounting is no exception.

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Advice to Accounting StudentsIn Summary

• Seek a liberal education.
• Strengthen habits of integrity and truthfulness
  in all areas.
• Be attentive to, and resist, signs of greed.
• Seek admirable professors as mentors.
• View professional training as part of a unified
  life.

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Advice for Newly-Licensed CPAsFirst

• Be especially careful in one's first engagements
  to uphold the highest and most strict standard of
  professionalism.
• Your behavior on your first engagements will do
  much to determine
• Your own business character.
• Clients and Colleagues opinion of you.

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Second

• Be scrupulous in honesty about unseen things,
  unchecked things, and small things.
• The size of the offense is irrelevant because of
  the incommensurably high nature of the good that
  accountants provide.

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Third

• Identify senior accountants and partners in your
  firm whose commitment to professional standards
  you admire and seek them out as mentors.
• The importance of imitation for acquiring virtues
  of character.
• A mentor has seen it all and can provide advice
  coming from experience.

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Fourth

• Find fellow practitioners at roughly your same
  level in the firm whose commitment to
  professional standards you admire and befriend
  them.
• Friendship can be a school of virtue.
• Friends can create a worldview that is
  unchangeable by outside pressures.

Nisus Euryalus
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Fifth

• As part of your professional development, draw up
  a good list of books on ethics and the meaning
  of life and make steady progress in reading
  them.
• Growth in professionalism is a lifelong struggle.
• Growth requires constant improvement in knowledge.

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Fifth

• As part of your professional development, draw up
  a good list of books on ethics and the meaning
  of life and make steady progress in reading
  them.
• Growth in professionalism is a lifelong struggle.
• Growth requires constant improvement in knowledge.

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Sixth

• Cherish a high opinion of your calling and
  communicate that to others in speech and through
  actions.
• Unity of life.
• But, unity of life for an accountant requires a
  strong commitment to his profession.

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Advice to Newly Licensed CPAsIn Summary

• Take special care in your first job to uphold the
  highest ethical standards.
• Be scrupulously honest about unseen, unchecked,
  and small things.
• Seek out mentors among those who are above you in
  the firm.
• Seek our admirable colleagues to be your friends.
• Continue your ethical education through good
  reading.
• Cherish a high opinion of your calling.

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Advice for Seasoned PractitionersFirst

• Seek out CPE courses in ethics and professional
  conduct that are truly valuable, not simply those
  that satisfy the requirement as easily as
  possible.
• A true commitment to improving requires effort
  and to not simply take the easiest way.
• Continuing education should be invigorating and
  revitalize your love of the profession.

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Second

• Convene formal and informal discussion groups
  among those of your colleagues who are similarly
  enthusiastic about promoting high-ethical
  standards.
• A society of friends devoted to ethical
  considerations and virtue.
• Provides a forum for discussing difficult ethical
  matters.

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Third

• Seek to mentor younger members just as you were
  mentored.
• Pay back for what you were given by others.
• Also, the mentoring relationship is often even
  more pleasant and helpful for the mentor as for
  the protégé.

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Fourth

• Take steps to contribute to the community at
  large.
• Unity of life
• Improvement of mankind with your peculiar gifts.

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Advice to Seasoned PractitionersIn Summary

• Seek out truly valuable CPE courses.
• Form formal and informal venues for discussions
  about ethics.
• Seek younger employees to mentor.
• Seek to contribute to your community.

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Part IIAdvice to the Firm

• Four Headings
• "Good corporate culture"
• "Tone at the Top"
• "Accountability"
• "Reward ethics and professionalism"

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Good Corporate CultureFirst

• Know your Firm
• Knowledge is necessary for action.
• Knowledge of a firm can be acquired through
• Surveys
• Advice-Boxes
• Speaking to them face-to-face

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Second

• Have a clear and recognized code of ethics for
  the firm, which lets employees clearly know what
  is expected of him, and which is scrupulously
  observed and vigorously enforced by senior
  management.
• This sets a standard of action that all are aware
  of and thus know whether or not they are breaking
  it.

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Third

• Create an ethics training program.
• Case studies should be utilized for three
  reasons
• Illustrate important principles.
• Give experience of complicated situations to
  practitioners.
• Demonstrate how even difficult problems can be
  solved without having recourse to unethical
  behavior.

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Fourth

• Encourage an atmosphere that is open and
  supportive of ethical conduct.
• Appoint firm historian.
• Create groups to discuss new ethical legislation
  and complex ethical problems.
• Acknowledge openly that ethical behavior is
  always preferred to simply making money.

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Fifth

• Encourage "unity of life" in the firm's
  practitioners.
• Make it clear that the firm desires and expects
  its employees to contribute to society.
• Promulgate the attitude that the firm does not
  want its employees to sacrifice other parts of
  its life to its work.

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Advice on Fostering a Good Corporate
CultureIn Summary

• Know your firm.
• Have a clear, recognized, and strongly enforced
  code of ethics.
• Create an informative and inspiring ethics
  training program.
• Encourage an open atmosphere which supports
  ethical conduct.
• Encourage unity of life among the employees.

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Tone at the TopFirst

• The firm's leadership should be actively involved
  in the firm's ethical training program and
  initiatives for professionalism.
• No double standard.
• Clearly communicates that the firm holds ethics
  to be of the utmost importance.

Robert H. Montgomery
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Second

• The firm's leadership must not only act in a way
  that is above reproach, but also always give the
  appearance of doing so.
• People learn through imitation and people imitate
  those in charge.
• Not only actual virtuousness, but also the
  appearance of it, is of the utmost importance.

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AccountabilityFirst

• Make it clear within the firm that each
  practitioner has genuine authority and bears
  responsibility for his or her own decisions.
• Follow the principle of subsidiarity.
• Accountability should be seen as tied up with
  high expectations.

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AccountabilityFirst

• Make it clear within the firm that each
  practitioner has genuine authority and bears
  responsibility for his or her own decisions.
• Follow the principle
• of subsidiarity.
• Accountability should
• Be seen as tied up with
• high expectations.

Canaanite Delegation
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Second

• Publish widely the firm's code of ethics, to
  create expectations among clients and the public,
  and therefore a corresponding sense of
  accountability to them.
• Create accountability with the public and
  clients.
• Declare that you wish to be judged by high
  ethical standards and not mere legality.

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Reward Ethics and ProfessionalismFirst

• Use stringent ethical criteria in hiring.
• Require a description of the character of the
  applicant in the letters of recommendation.
• Pose ethical questions during job interviews.
• Make it clear that ethical behavior is necessary
  in order to continue being employed.

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Second

• Reward employees in concrete ways when they show
  good professional judgment under difficult
  circumstances.
• This demonstrates clearly that the firm prefers
  ethical behavior to simply making money.

Triumph of Mordecai
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Third

• Make it clear that unethical conduct serves as
  automatic grounds for punishment, and that
  serious unethical conduct should be automatically
  punished with dismissal.
• Both hiring and firing should be greatly
  influenced by ethical considerations.

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Concluding Remark from Robert H. Montgomery

• We cannot hope to make progress unless we
  fight for the ideals and standards which have
  come to us from the founders of the profession.
  There are a thousand obstacles to the attainment
  of any worth-while good.
• Lets fight to maintain all that has come to us
  which is good and to eliminate everything
  inimical to progress.

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• Lets fight to raise the standards of the
  Institute in every way. Lets fight to suspend or
  expel any member who is guilty of conduct
  unworthy of a member
• Lets fight for sound business practices. Dont
  lets wait until unsound practices creep in, are
  reflected in balance-sheets and embarrass the
  accountants who are asked to certify to them
• Lets fight for honest accounting, clear
  financial statements and full disclosure of all
  essential facts.
• Lets fight anyone who seeks the assistance of
  a certified public accountant in the issuance of
  any kind of misleading statement.
• Lets fight anyone who thinks that one
  certified public accountant will supplant another
  who has done a good job.
• Lets fight for easily understood accounting
  terms. Lets fight weasel words.
• Lets fight bunk whenever and wherever it
• appears.