Professionalism & Ethics in Accounting Education
Dr. imad faour,*
Chairperson, of Accounting and Marketing department, A U L.

fter Enron, WorldCom, and a seemingly endless roster of additional accounting scandals, the public, and their elected representatives, want to know what has happened to ethics in accounting? Has the profession become less ethical? or have the recent economic downturn and related bankruptcies simply brought to light ethically questionable practices that have been going on for a long time? What can we do to stem the tide? Similar questions have been raised approximately every ten years, whenever the economy slumps and bankruptcies, often accompanied by financial fraud increase. Every decade, when financial frauds of enormous proportions are exposed, questions are also raised about accounting education. Are we not teaching our students enough ethics? Can ethics be taught? If so, how do we best teach ethics to accounting students?


Society is generally happy to have experts in its midst because the expertise helps make society, or some of its members, better off. But society does not want non-experts claiming to possess the expertise and mislead the general public. But society now becomes nervous. Knowledge is power. A small group of experts possess certain knowledge and society gives them even more power by granting them a monopoly. How does society know the power will be used to benefit, not harm it, some members of the profession will not follow the code of ethics. Society deems professionals, themselves, to be best suited to recognize and weed out these “bad apples.” So society grants the privilege of self-regulation to the profession if and only if the profession takes it seriously, as a duty. If society believes the profession is not doing a good job at self-regulation, it will take back the privilege, usually by increasing legislation and litigation.

Three levels of ethics
1. The macro level: Students today cannot escape hearing references in the financial press and classroom to such watershed events as the bankruptcy of Enron, the demise of Arthur Andersen, or the enactment of the Sarbanes-Oxley Act of 2002 (Sarbox). How do we help them put these events into an historical perspective; especially one that emphasizes recent changes in the accounting profession? In the 1970s, for example, the economy experienced a downturn, accompanied by a rash of bankruptcies: Equity Funding, Penn Central, Four Seasons Nursing Homes, etc. In addition, the press disclosed illegal and improper payments by some large and prestigious corporations. The public cry, “Where were the auditors?” could be heard all the way to Washington? In 1976 Congressman John Moss (D-Calif.) issued a report advocating regulatory reform that, among other things, called for

What is a profession, and what makes it different from other for-profit endeavors? Sociologists tell us that professions share certain attributes including expertise, monopoly, public interest, and self-regulation. Expertise, or special knowledge, is acquired through higher education and extensive training. The knowledge is of an academic, theoretic nature. Hence, professionals sell advice, not things. The expertise is also characterized by the fact that it requires professional judgment, not just technical skills. If answers could always be found by reference to written materials, such as laws, codes, or detailed standards, the individual would be technician, not a professional.

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3rd Quarter 2008 ‫ ـ ـ‬Issuse #35

The Cohen Commission. not just acceptability. titled “In the Pubic Interest. Some would say the profession itself. The AICPA formed the Commission on Auditors’ Responsibilities (Cohen Commission) in response to the same factors that resulted in congressional investigations of the profession. consulting for audit clients. If students have a sense of the historical trends facing the profession and observe the development of major themes (e. Soon after the report was issued. Early in the 1990s the Public Oversight Board (POB) issued a comprehensive report.” on issues confronting the profession. role of audit committees) they will understand why the Sarbanes-Oxley Act of 2002 (Sarbox) focused on the issues it did. The Cohen Commission addressed the “expectations gap” between what the public expects and what auditors understand their role to be relative to the finding of financial fraud. requested by Congressman Dingell. The report contained extensive recommendations to enhance self-regulation.” and that panel issued a report titled “Strengthening the Professionalism of the Independent Auditor. chief accountant at the SEC. or extreme • The auditors should meet with the Audit Committee at least annually without management present. In the mid 1990s the Government Accounting Office (GAO) issued a comprehensive report. • Reporting on internal controls. The remainder of the decade saw an intense effort on the part of the SEC to strengthen auditors’ independence and to strengthen audit committees of boards of directors. Progress. Within a year Senator Lee Metcalf (D-Mont.” In response. as a collective.Accounting the following: • Uniform accounting principles should be prescribed by the SEC • Auditors should attest to the quality of internal controls • Corporate Boards of Directors should have a majority of members unrelated to management. however. not management. Walter Schuetze. Much of the content of Sarbox had been debated in the halls of congress for three decades. moderate. • Maintaining independence of the FASB. has lost its ethical moorings. recommended that management report on their companies’ internal control systems and auditors should report on whether or not they agree with managements’ assessment of internal controls. The report identified the following issues as unresolved: • Auditor independence.) issued a staff report calling for even greater reforms. titled “The Accounting Profession: Major Issues. including the following: • The federal government should directly establish financial accounting standards • The federal government should specifically prohibit direct or indirect representation of clients’ interests and performance of non-accounting management advisory services by auditors for their public or private clients. the POB appointed an “Advisory Panel on Auditor Independence. expectations gap. • Responsibility for detecting fraud. and Concerns..g.” The primary recommendations of the advisory panel were as follows: • The Board of Directors. 35 ‫الف�صل الثالث 8002 ـ ـ العدد‬ 84 .” Its stated purpose was to identify major recommendations from 1972 to 1995 and identify unresolved issues. and went so far as to call auditors “cheerleaders for their clients. As a result of Sarbox. gave a scathing speech at an AICPA conference. of the accounting principles used and the clarity of financial disclosures • The Audit Committee should hear directly from the auditors whether managements’ choices of accounting principles are conservative. the accounting profession has lost much of its power to self-regulate. He was particularly critical of auditors who do not stand up to their clients on financial accounting and reporting issues. is the audit “client” • Auditors should express to the Audit Committee their independent judgments about the appropriateness. like the Moss report. • Public participation in standard setting. • Timeliness and relevance of accounting standards. The commission also asserted that audits should be designed to provide reasonable assurance that the financial statements are not affected by material fraud.

courses in critical thinking. Coleen Rowley of the FBI. Two of the three were accountants. Bebeau has shown that ethical motivation is enhanced when students identify with their profession. 2002 issue. The level of the firm In addition to macro. or global ethical issues. Ethical reasoning skills can be enhanced in a number of ways: Philosophy courses. Those cultures might be contrasted with that of Johnson & Johnson. and others attempt to document a change in culture at Arthur Andersen over the past two decades. however. but we should not be shy about exhorting them to uphold high ethical standards and to aspire always to protect the public interest. Time Magazine featured three women as “Persons of the Year”: Cynthia Cooper of WorldCom. THE CERTIFIED ACCOUNTANT 3rd Quarter 2008 ‫ ـ ـ‬Issuse #35 . lost the client? He should not have been put in a position to make that decision. the desire to act ethically. Ethical sensitivity can be enhanced in all accounting courses by talking about ethical issues germane to the technical issues being covered. Hence. in particular. The micro level Most ethics courses at the collegiate level focus on ethics at the level of the individual. but accounting academics still have a role in enhancing it in their students. shape behavior. In the field of Dentistry. in shaping attitudes. or even the study of great literature. Critical thinking skills. We are sometimes reluctant to “preach” to students. and Sherron Watkins of Enron. One way to enhance pride in the profession is to tell stories about “accounting heroes.000 salary if he had insisted that Enron consolidate its special purpose entities and.” In its December 30. partner in charge of the Enron audit. many recent articles and books have exposed a particularly cut-throat and arrogant culture at Enron. For example. In particular. What would have happened to his career and $700.Accounting line “at any cost. we must help our students spot the ethical issues before they become so embroiled in them that their action choices are limited. and culture within which they work. are powerful tools in promoting ethical behavior. and behaviors. Firm structures and reward systems can be formed to enhance or defeat ethical decisionmaking. belief systems. are only one component of ethical behavior. Students are not well educated if they leave the university ignorant of the power of corporate culture. firm structures. other than greed. accountants and their ethical decisions are affected by the structures. 3. there are four components of ethical behavior: • Ethical sensitivity (spotting the issues) • Ethical reasoning (thinking it through) • Ethical motivation (desire to act ethically) • Ethical behavior (carrying through) As educators. is not a cognitive skill. they concentrate on helping students develop critical thinking skills in a moral context. 2. developing a sense of professionalism and enhancing pride in the profession are powerful motivators. in its employees. systems. In addition to corporate culture.” At Arthur Andersen. Exhortation can also be a powerful tool used by academics to help increase students’ desire to act ethically. especially the tone at the top. What are the proper roles for audit committees? What makes one audit committee strong and another weak? What organizational structures make internal auditors strong or weak? What systems promote ethical behavior? Reward systems. where the corporate “Credo” infuses a sense of mission and purposefulness. Ethical motivation. It is unrealistic to ask employees to act ethically while rewarding them for enhancing the bottom 83 Ethics cases and problems at the end of textbook chapters might also be utilized to help enhance ethical sensitivity. not the technical experts in the firm. David Duncan. beginning with governance structures. as a result. The majority of research studies on ethics education in accounting concentrate on this component of ethical behavior. According to James Rest. Case studies may be a particularly useful tool to convey different corporate cultures. specialized accounting or business ethics courses. had final say with regard to technical accounting issues.

Then get out your scalpel and start cutting. If all of your receivables are up to date.www. Accounts Payable . Accounting curricula need to systematically convey these concepts to students. Time to make another list. projected income and expenses. covering ethics at the level of the firm. So what do you do? It’s time to get back to basics. there’s probably a bit of fat in there somewhere. Denise O’Berry Small Business Expert 35 ‫الف�صل الثالث 8002 ـ ـ العدد‬ 82 . But the reality is that the longer a customer takes to pay you. it needs to go. an applied ethics course in the senior year. The last thing you should be doing right now is the same old thing and expecting different results. check register and credit card statements and list every single thing you are spending money on. An example of such a systematic approach might include the following: A course in ethics taught by the philosophy department required of accounting students in the sophomore or junior year. the trickle down affect could surely reach your business. You’re not alone. by Thomas I. And if you’re like most small business owners.The CPA Journal Online . Look at your financial reports.Accounting Today’s students are tomorrow’s leaders. even when painful. covering accounting ethics at the micro and macro levels. you need to stay on top of them. Your budget should include an outlook of at least six months that details cash on hand.Internal Auditing – The Practice of Modern Internal Auditing . and finally a graduate course in the fifth year. For every item on the list ask yourself how it contributes to the bottom line of your business. Once you have your incoming and outgoing financials in shape. But I suspect that’s not the case. It’s time to make a list of all receivables that are older than 30 days. taught by accounting faculty. And it will help you sleep better at night too.Business Ethics – A philosophical Reader. And that stock ticker you peeked at the other day made you sick to your Back to Basics "Economy Requires" Cash Flow Approach The last time you turned on the TV. But being responsible leaders does not end with personal ethical choices. the less chance you will have of getting that payment.Take a hard look at who owes you money and how long it’s been pending. White . References: . The public interest requires leaders of the accounting profession to understand their unique role as professionals and to embrace their responsibility to act in the public interest. But this is not “new” news to small business owners like you. to create systems designated to protect and enhance the public interest. taught by accounting faculty. through professional societies and/or together with governmental organizations. there’s no action for you to take here.scu. With huge companies failing and banks struggling to stay afloat. Ethical leaders will also recognize the need to create organizations where ethical decisions are not undermined but are supported and encouraged. There’s no better way to keep track of how much cash you need flowing through your business than to create and monitor a cash flow budget. The newspaper headlines are focused on how this awful economy is impacting your local area. You work hard to keep your cash flowing and fight to make sure the bottom line is out of the red each and every day. ethics cases/problems/discussions in every accounting course. Many small business owners let their receivables become lax because they don’t want to become a collection company. Then contact those customers with outstanding balances and get a clear payment commitment. Leaders of the profession will also recognize the need to work at a global level. But this time the impact is worse than we’ve seen for a long time. There’s never much rest for small business owners who want to make their business a success.What goes out of your business every month makes a huge difference in your bottom line. Staying on top of what your business needs to stay afloat financially will go a long way in helping you make your business a success. Here’s where you need to begin: Accounts Receivable . the reporters were screaming about the doom and gloom economy. If it doesn’t add value to the services you provide to your customers or create a return on investment for your business.

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