Professional Documents
Culture Documents
Maksi Audit Valeyutham 2003
Maksi Audit Valeyutham 2003
doi:10.1016/S1045-2354(02)00138-7
A code of ethics has been the traditional means by which a profession assures
the public and its clients of its responsibilities and thereby the maintenance of its
integrity and reputation. As Abbott (1983) observes “ethics codes are the most
concrete cultural form in which professions acknowledge their societal obligations”
(p. 2). In this paper, it is argued that the accounting profession’s code of ethics has
moved from a focus on moral responsibility for a public good to that of technical
specification for a product or service. The replacement of the ‘true and fair view’ re-
quirement by ‘compliance with accounting standards’ is highlighted as a major shift
in the focus of the code of ethics. This shift can be related to the profession’s need
to legitimise itself within the wider public domain in which technique has replaced
character as an important virtue. It is concluded that “code of ethics” is misleading
and that “code of quality assurance” is more appropriate. The study is based on an
evaluation of the code of ethics of the Institute of Chartered Accountants of New
Zealand (ICANZ) and the Australian Society of Certified Practising Accountants
(ASCPA).
© 2003 Elsevier Science Ltd. All rights reserved.
Introduction
A code of ethics has been the traditional means by which a profession assures the
public and its clients of its responsibilities and thereby the maintenance of its integrity
and reputation. It is used as the principal support for a profession’s claim to work
in the public interest. In one of the earlier articles on the professions, Greenwood
(1957) states:
Through its ethical code the profession’s commitment to social welfare becomes a matter of
public record, thereby insuring for itself the continued confidence of the community. (p. 50)
More recently, Abbott (1983) points out that “ethics codes are the most concrete
cultural form in which profession’s acknowledge their societal obligations.” Most
† E-mail: sivav@sharjah.ac.ae
Received 18 May 2001; revised 10 February 2002; accepted 10 March 2002
483
1045-2354/03/$ – see front matter © 2003 Elsevier Science Ltd. All rights reserved.
484 S. Velayutham
professions employ formal and informal disciplinary procedures to support the en-
forcement of their code of ethics.
Empirical studies, however, have raised major questions concerning the function
of the code of ethics in many professions (Taeusch, 1966; Kultgen, 1982; Parker,
1987) as well as the professions commitment to the enforcement of a code of ethics
(Millerson, 1964; Carlin, 1966; Arthurs, 1970; Neu, 1991; Allen, 1991). Others have
argued that the code of ethics are merely smokescreens for the protection of sec-
tional interest (Mitchell et al., 1994), and that they do not address the more important
issues such as social justice and equality (Ruland & Lindblom, 1992; Neimark, 1995;
Dempsey, 2000).
The above scrutiny has contributed to a considerable amount of research on
the ethics of the accounting profession, ranging from the capacity among the ac-
counting profession for ethical reasoning (Ponemon, 1990; Harrington, 1997), ma-
jor ethical problems in accounting (Finn et al., 1988) to the inclusion of ethics
in accounting education (Armstrong, 1987). The accounting profession in many
countries, e.g., Australia and New Zealand on its part have revised their code of
ethics to reflect contemporary concerns (Preston et al., 1995) and put in place
more rigorous disciplinary procedures to support the enforcement of the code of
ethics.
This paper seeks to ask a more fundamental question—“What is the content of the
accounting profession’s code of ethics focused on?” An evaluation of the Codes of
Ethics of the Australian Society of Certified Practising Accountants (ASCPA, 1999)
and the Institute of Chartered Accountants of New Zealand (ICANZ, 1999), highlights
that although the codes consists of both ethical and quality elements, the main focus
of the codes, as they are currently formulated, is quality rather than ethics. For the
above purpose, the paper examines both ethics and quality, and the content of the
code of ethics with respect to these concepts. In conclusion, it is suggested that
the code of ethics should be replaced by a code of quality assurance. The codes
of ethics referred to in the paper are primarily drawn from that of the accounting
profession in Australia and New Zealand.
The rest of the paper is organised into four sections. The next section identifies the
features of the concept of ethics, quality and quality assurance, and distinguishes the
concern of quality from that of ethics. The third section provides a brief description of
the ICANZ and ASCPA code of ethics. The fourth section analyses and evaluates the
content of the two codes of ethics to identify their bias and highlights the emergence
of a code of quality assurance. The last section consists of an explanation for the
recent shift in the bias of the code of ethics towards quality, with some concluding
remarks in the final section.
In contrast to the term ‘function’, which implies purpose, the term ‘concern’ implies
relationship or the interest of a particular concept. With this in mind, this section
examines the interest of the domain of ethics and quality, identifying the essential
and defining characteristics of both concepts.
The accounting profession’s code of ethics 485
Ethics
moral philosophy arises when we pass beyond the stage in which we are directed by
traditional rules and even beyond the stage in which these rules are so internalised that we
can be said to be inner directed, to the stage in which we think for ourselves in critical and
general terms, and achieve a kind of autonomy as moral agents. (p. 4)
The term ‘ethics’ is also frequently used as just another word for ‘morality’, and
frequently used to refer to the moral code or normative theory of an individual or
group. This seems to be the usage adopted when it is used in the contexts of pro-
fessional codes of ethics. The above discussion, however, does not provide us with
the essential and defining characteristics of ethics other than its principal concern
with morality. A review of the ethics literature however, indicates that philosophers for
a long time did not find the need to define the words ‘moral’ and ‘morality’. Wallace
and Walker (1970) in their collection of readings on the ‘Definition of morality’ state
that it is surprising that “detailed and self-conscious examination of the concept or
concepts involved should not have been undertaken earlier” (p. 1).
The collection of readings highlights a number of key features that a definition of
‘moral’ or ‘morality’ should possess. It is, however, important to emphasise that there
is no universal agreement on the features. Harris (1994) argues that the terminology
used in codes of ethics, the matters covered by them, and the situations in which
appeal is made to them, would appear to fit most easily into a deontological moral
theory of a Kantian kind. The features identified therefore follow more closely a
Kantian view of ethics. It is pointed out that an action-guide is moral only if one
(Wallace & Walker, 1970, pp. 8–12):
4. rules and principles should pronounce actions and agents to be right, wrong,
good, etc., simply because of the effect they have on the feelings, interests,
ideals, etc., of other persons or centres of sentient experience, actual or hypo-
thetical (or perhaps simply because of their affects on humanity) (p. 689).
Frankena (1973) in an earlier article focused more on defining moral judgements,
principles and codes. He identified a moral code as a moral value system consisting
of one or more moral principles taken as forming a complete moral guide. The
professional codes of ethics would probably most closely fit the description. The
above article is also focused on the need to distinguish moral codes from non-moral
codes. Frankena (1976) emphasises that
normative judgements, principles and codes are moral ones if and only if, (a) besides being
universalised, they are backed at least when challenged, by reasons consisting of facts
about what actions, traits and characters, etc., do to the sentient lives of those affected,
including others if others are affected; (b) that such facts constitute moral considerations
or reasons because they matter from a certain point of view that includes having a certain
conative (desire or will to perform an action) disposition; and (c) that this point of view is a
moral one just because it includes a conative disposition responsive to such facts. (p. 192)
A review of the literature highlights that moral code in addition to being univer-
sal, prescriptive, and overriding should also be concerned with persons or sentient
beings and a disposition for voluntary action.
Callahan (1988) further emphasises that ethics should not be confused with law,
prudence, and obedience to authority in general or mere opinions and taste. It is
pointed out that the law could permit immoralities and that morality may permit or
require breaking a law. Morality is also distinguished from prudence in that it takes
one beyond mere self-interest, by requiring us to take the rights and interests of
others into account (Callahan, 1988). On the third point Callahan points out that
genuine morality involves maintaining moral autonomy, i.e., “the right to question
commands if there is any reason to believe that those commands involve an unjusti-
fiable infringement of rights or will lead to harm to persons or other sentient beings”
(p. 13).
Quality
Although the word ‘quality’ is not a new introduction to the dictionary, the word has
received new prominence and meaning in the last 50 years with the emergence
of the quality control movement. The Concise Oxford Dictionary defines ‘quality’
as ‘degree of excellence’. Garvin (1984) is his review of the definition of quality
identified five different approaches. The first approach follows from the dictionary
approach. This approach he calls the transcendent (transcend, “to rise above or
The accounting profession’s code of ethics 487
extend notably beyond ordinary limits”) approach, and is probably the meaning of
the concept. Proponents of this view (Pirsig, 1974, 1992; Tuchman, 1980) claim
that quality cannot be defined precisely; rather it is a simple unanalysable property
that we learn to recognise only through experience: “Quality doesn’t have to be
defined. You understand it without definition, ahead of definition. Quality is a direct
experience independent of and prior to intellectual abstractions” (Pirsig, 1992, p. 81).
This definition borrows heavily from Plato’s discussion of beauty (Dickie, 1971). This
approach to quality is also reflected in the age of craftsmanship during the middle
ages where the masters in the craft guilds knew quality and it was acquired by
apprentices through experience (Evans & Lindsay, 1999).
The industrial revolution separated the planning function from the execution func-
tion and contributed to the demise of the master–apprentice approach to manufac-
turing. In this environment the transcendent approach was found to be subjective
and indefinite for practical purposes (Shewhart, 1931):
Dating at least from the time of Aristotle, there has been some tendency to conceive of
quality as indicating the goodness of an object. The majority of the advertisers appeal to
the public upon the basis of the quality of the product. In so doing, they implicitly assume that
there is a measure of goodness, which can be applied to all kinds of product, whether it be
vacuum tubes, sewing machines, . . . or correspondence school courses. Such a concept,
is, however too indefinite for practical purposes. (p. 37)
The concept has since gone through an evolution (Anand, 1997). The second
approach identified by Garvin (1984) is the product/service-based approach, which
views quality as a precise and measurable variable. This approach is summed up by
Abbott (1955) as follows: “Differences in quality amount to differences in the quantity
of some desired ingredient or attribute” (p. 126). This approach to quality would be
close to that prescribed by W.E. Deming, although he did not attempt to provide a
definition. The third approach named is the user-based approach, and starts from
the premise that quality “lies in the eyes of the beholder” (Garvin, 1984, p. 27). This
view was strongly pushed by J.M. Juran (1974) when he defined quality as “fitness
for use” (p. 2).
The fourth approach is identified as the manufacturing-based approach, which
emphasises “conformance to requirements” (Crosby, 1979, p. 15). Excellence is
equated with meeting specifications, and with ‘making it right the first time’ (Garvin,
1984, p. 28). The last approach identified is the value-based approach, which defines
quality in terms of costs and prices. This approach, in a way, attempts to combine
economics with manufacturing and user based approaches. Garvin (1984) refers to
this as “affordable excellence.”
The above classification of Garvin (1984) whilst providing a useful analysis of the
use of the word does not provide us with a clear conception of the word (Smith,
1993). Smith (1993) in his attempt at conceptual analysis identifies a number of
features in the usage of the term. First, it is emphasised that quality is a property
term or attribute, and refers to a characteristic of something. Smith (1993) points out
that, except for the neo-platonists who argue that quality exists independently of its
objects, ‘quality’ always has an object—a physical thing, state, process, etc.—and
cannot be conceived as existing apart from its object.
488 S. Velayutham
Based on the above analysis Smith (1993) provides the following tentative
definition:
Quality is the goodness or excellence of something (product or service). It is assessed
accepted standards of merit for such things and against the interests/needs of users and
other stakeholders. (p. 237)
The dimensions above highlight the areas requiring attention in the development of
a framework.
The different approaches to defining quality have contributed in different ways to
managing quality. Garvin (1988) identifies them as four stages of the quality move-
ment. The first stage is referred to as the inspection era and is related to the advent
of the industrial revolution in the 1800s during which detection of defective prod-
ucts was the primary concern. The second stage is referred to as the statistical
quality control era beginning in the 1930s. This stage was characterised by the
introduction of statistical tools and techniques and emphasised product uniformity
with reduced inspection. The third stage is referred to as the quality assurance era
beginning in the 1950s. This stage was characterised by the evolution of quality
from a narrow, manufacturing based discipline to one with implications for the man-
agement throughout a firm. The fourth stage is referred to as the strategic quality
management era beginning in the 1980s. This era is characterised by the iden-
tification of quality as a competitive advantage, to be addressed in the strategic
planning process. Table 1 provides an overview of the four stages of the quality
movement.
In this paper, we are mainly interested in quality assurance as a responsibility of
the professional body through the development of professional standards and such
wise. Strategic quality management would be more a focus of accounting firms who
would utilise quality as a competitive advantage, to be addressed in the strategic
planning process. Quality assurance is a systematic approach to the pursuit of quality
(Collins, 1994). The purpose of quality assurance is the conformance of products,
services and processes to given requirements and standards (Morenzo-Lonzo &
Peris, 1998). The conformance is achieved through systematic measurement and
control as well as process standardisation. The whole process is concerned with
quality planning and defect prevention through programs and documented systems
throughout the company’s supply chain (Garvin, 1988). ISO 9000 is the most popular
example of a standard or code of quality assurance. The standard or code attempts
to build in quality by ensuring conformity requirements to be specified during the
design, development, installation and services.
Comparison
S. Velayutham
proactively
Emphasis Product uniformity Product uniformity with The entire production The market and consumer
reduced inspection chain, from design to needs
market
Methods Gauging and Statistical tools and Programs and systems Strategic planning, goal
measurement techniques setting and mobilising
the organisation
Orientation and ‘Inspects in’ quality ‘Controls in’ quality ‘Builds in’ quality ‘Manages in’ quality
approach
Following from the above distinction a covenant approach to the provision of ser-
vices emphasises the attitudes of the first person, while quality specifications follow
from a contractual approach to the provision of services and emphasises the atti-
tudes of the third person.
Other differences between ethical statements and quality statements that follow
from the earlier include a strong focus on measurement in quality standards as
opposed to ethical codes. The quality movement also places considerable emphasis
on techniques such as statistical methods while codes of ethics place a great deal of
emphasis on education and character or the development of virtues. Furthermore,
492 S. Velayutham
as pointed out at the beginning of our discussion of ethics, autonomy for the actor as
a moral agent is an essential feature of ethics, quality on the other hand emphasises
conformance. Whilst cost and price are also not major features of a discussion of
ethics, there are important considerations in quality assurance systems (Garvin,
1984). The differences between ethics and quality are summarised in Table 2. In
summary the central distinction between ethics and quality is the object of interest,
in ethics it is sentient beings, while in quality it is products and services. This section
provides the framework for analysing and evaluating the focus of the ICANZ’s and
ASCPA’s code of ethics.
Different professional bodies use different terms for their codes of ethics. For exam-
ple, the Institute of Chartered Accountants of New Zealand (ICANZ) uses the term
Code of Ethics (COE) while the Australian Society of Certified Practising Accoun-
tants (ASCPA) uses the term Code of Professional Conduct (CPC). The use of the
term Code of Professional Conduct by the ASCPA, rather than, the term Code of
Ethics as used by ICANZ probably indicates an attempt by the ASCPA to widen the
domain of its code to include areas other than ethics. The ICANZ in addition to the
Code of Ethics also issued a new class of statements referred to as professional
standards, and at the moment has only one Professional Standard (PS-1) on Quality
Control.
Both the COE and CPC is divided into three main sections—Introduction, which
highlights the objective and purpose of the code of ethics, its applicability and com-
pliance; Fundamental Principles, these principles are to express the basic tenets of
ethical and professional conduct; and Ethical Provisions (COE) or Statements and
By-laws (CPC).
The Introduction section of both the COE and the CPC highlight the need for the
statements, e.g., “One of the hallmarks of a profession is the commitments by its
members to high standards of professional conduct . . . . The Society’s Code of Pro-
fessional Conduct is designed to provide members with authoritative guidance on
acceptable standards of professional conduct” (CPC); and “Those who pursue a vo-
cation in which knowledge and skills are offered in the service of the affairs of others,
The accounting profession’s code of ethics 493
have responsibilities and obligations to those who rely on and are affected by their
work. It is the duty of a governing professional body to identify those responsibilities
and obligations and codify them for the benefit of both the providers and recipients
of their skills” (COE).
The other major part of the Introduction of both the COE and CPC emphasises the
need to comply with the code by all members of the professional body supported by
threat of disciplinary action for non-compliance.
The second section consists of Fundamental Principles that express the basic
tenets of ethical and professional conduct. The COE of the ICANZ and the CPC of
the ASCPA share a common set of fundamental principles with some variation in
the ordering of the principles and the wording. They are:
(b) Integrity;
(f) Compliance of technical standards and other standards of the body; and
The third section is made up of a number of Ethical Provisions (EP), Ethical Guide-
lines (EG) in the COE, or Statements and By-laws in the CPC. This section is to
constitute the enforceable part of the code. The COE has some 88 EP’s divided
into eight classes on the use of descriptions and designations, method of practice,
matters affecting service to clients and standards of work, relations with employers,
technical dealing with certain services, client monies and members trust accounts,
promotion of professional services and relations with other members, and compli-
ance. The COE also consists of two EG’s dealing with independence and on ethics
in tax practice.
The Statements and By-laws in the CPC are divided into four classes, namely
those applicable to all members, applicable to members providing public accounting
services, those contained in other parts of the members handbook relevant to spe-
cific aspects of professional conduct, and professional statements. The first class
applicable to all members mainly provides guidelines on the preparation of legal doc-
uments. The main issues in the second class relate to professional fees, funds held
in trust and client monies, practice names and descriptions, referrals and changes.
The third class requires compliance with accounting, auditing, taxation, and man-
agement consulting services standards, engagement letters, general quality control
standards, policies and procedures, and forms of practice. The last class includes
detailed statements on independence, professional fees, client monies, referrals and
changes in professional appointment.
494 S. Velayutham
To identify the focus of the accounting profession’s code of ethics one must scrutinise
the structure of the code of ethics as well as the purpose of the code of ethics. It is
also not sufficient to just look at the code of ethics but also the relationship of the
code of ethics to other pronouncements of the accounting profession.
It was earlier pointed out that the use of the term CPC by the ASCPA, was probably
to widen the domain to include other areas. The rationale provided for the CPC
seems to reinforce the above. An analysis of the rationale shows it to be circular with
no clear definition of the use of the term professional. The rationale for the COE, in
contrast to that of CPC, is clearly identified as one of codifying the responsibilities and
obligations of accountants to those who rely on their services. The above rationale
could be well adopted for a code of quality assurance.
Collins and McRae (1987) point out that the fundamental principles section of a
code of ethics is to be goal-oriented, positively stated and inspirational. Its intent is to
encourage members to go beyond the minimum framework of the present rules in the
spirit of professionalism. The purpose of the fundamental principles section appears
to be similar to the mission statements of many companies. Of the above seven fun-
damental principles in the COE and CPC, those principles that the profession is most
concerned about (Finn et al., 1988; Leung & Cooper, 1995), e.g., independence,
compliance with standards and competence, and the need to be enforced are sup-
ported by other statements or guidelines. For example, both the COE and CPC have
a separate ethical guideline (COE) or professional statement on independence and
objectivity. The requirement to comply with technical and other standards implies
that accounting and auditing as well as quality standards are subsidiary parts of the
code of ethics and therefore in analysing the code these standards should be taken
into account. The need for integrity seems to be a major ethical issue in the taxation
area and both the COE and CPC have separate statements or EG for Tax Practice.
In evaluating the concern of the COE and CPC, an important question is whether
the fundamental principles are law like statements or ethical principles that provide
for a kind of autonomy as moral agents. Most of the fundamental principles like pub-
lic interest, integrity, independence, competence and due care, and confidentiality
seem to be focused on character and therefore considered to be general ethical
principles. In contrast, the other fundamental principles like compliance with techni-
cal and other standards and, professional behaviour could not be considered to be
ethical principles since their compliance depends on law like statements and quality
standards, which do not provide for autonomy in decision making. Second, the later
principles pronounce actions and agents to be right, wrong, good and bad based on
rules and regulations rather than on the effect they have on the feelings, interests of
other persons or sentient beings.
It seems however that fundamental principles that appear to be ethical state-
ments, e.g., public interest are not meant to be enforceable and frequently in conflict
with other sections like EG and accounting standards as illustrated by Ruland and
Lindblom (1992). They show that accountants sometimes have a genuine conflict
between duties to comply with professional rules and duties to disclose information
in the public interest.
The accounting profession’s code of ethics 495
The objectives of general purpose financial reporting are to provide information to assist
users in: (a) assessing the reporting entity’s financial and service performance, financial
position and cash flows; . . . . (Statement of Concepts, ICANZ, p. 4)
Following from Garvin’s (1984) eight dimensions of quality, the above represents
the performance dimension against which the product or service is to be measured.
The components of the financial report (balance sheet, income statement) and sup-
plementary statements (statement of accounting policies, auditor’s report) represent
the features of the product or service. The conceptual framework also identifies
qualitative characteristics such as reliability and relevance. Standards (accounting
standards) are then developed to ensure that the product or service meets the per-
formance dimensions identified earlier.
496 S. Velayutham
The purpose of quality assurance is not only to detect or control quality but also
to ‘build in’ quality through programs and systems at every stage of the production
process. Auditing standards represent the programs and systems that auditors must
have in place to ensure a quality product or service. This is reflected in the type of
auditing standards developed for different stages of the process—design (terms of
audit engagement, and planning), production or preparation (audit evidence and sta-
tistical sampling and testing) and delivery (auditors report on financial statements).
The accounting profession also has quality assurances processes in place like the
Review Program of the ASCPA (PP 5).
The shift to a product or service view of accounting information is also supported
by the accounting professions desire to limit its liability to third parties who rely
on financial reports and in proportion to their responsibility (Gwilliam, 1997). The
responsibility of auditors then becomes more limited to its clients and identified
users.
Following from the moral purpose of providing a ‘true and fair view’, independence
and objectivity were identified as essential prerequisite to achieving the above pur-
pose. It was presumed that if auditors were independent there would be no incentive
to be dishonest. It is however, a major ethical issue for the accounting profession
because accounting firms, which provide auditing services, frequently want to pro-
vide other services to the client as well. Following from the above the most impor-
tant concern of the principle of independence and objectivity is the prevention of
situations of conflict of interest and excessive reliance of particular clients for its
survival.
Recently this principle has been framed in a totally different fashion. It is not iden-
tified as an ethical principle, but rather as a factor affecting the quality of a product or
service. This view is succinctly articulated by Allen (1997) Chairman of the Indepen-
dence Standards Board (ISB) in the recent Seymour Jones distinguished lecture:
. . . the first important point that I suggest to you is that we should keep in mind that auditor
independence is not a value in and of itself. Independence in this context is an instrumental
value. We value it because we think it helps produce something else: efficiency (of the
capital markets and thus efficiency of the economy as a whole). (p. 3)
There are many values as well as technology that contribute to efficiency but we
would not refer to them as ethical values. Second, as has been pointed out when
we refer to something as ethical, they are important values in themselves. Following
from the perspective that independence is an instrumental value, Allen (1997) argues
that independence regulation should be a cost–benefit exercise: “Losses that may
arise from flawed audits—including flaws that may arise from auditor dependence—
should be reduced, but not regardless of the price entailed in doing so” (p. 5). This
approach to independence is very similar to Garvin’s (1984) last approach to defining
quality in terms of cost and prices.
Following from this view of independence, the Ethical Guidelines (EG) of
ICANZ and Professional Statements of the ASCPA identify the situations which
might contribute to a compromise in independence. The conceptual framework
guiding financial reporting in New Zealand (Statement of Concepts) and Australia
(Statement of Accounting Concepts) identify relevance, understandability, reliable,
The accounting profession’s code of ethics 497
that rely on the services provided by accountants. They are also framed in a fash-
ion that provides accountants with autonomy as moral agents performing partic-
ular duties. They are framed in a general fashion concerning attitudes that are
moral.
The fundamental principles section however is not meant to be enforceable other
than in exceptional situations like a member who is convicted of a crime. Their pur-
pose as identified by Collins and McRae (1987) seems to be inspirational just like
the mission statements of many organisations. The enforceable part of the code
of ethics are identified in the ethical guidelines or professional statements and ac-
counting standards.
The fundamental principle of compliance with standards highlights the important
role of standards. The replacement of the ‘true and fair view requirement’ with ac-
counting standards represents a fundamental shift in the focus of the code of ethics.
A covenant was replaced by terms of a contract. Accounting standards are based on
the premise of financial information as a product or service rather than a public good.
This view of financial information as a product or service requires the profession to
identify the quality dimensions of the product or service and the standards to ensure
that the product or service meets the quality dimensions. In addition to ensure that
quality is ‘built in’ to the production process the profession has in place auditing
and other professional standards. It has also been pointed out that the concept of
independence in the ethical guidelines and professional statements is more in tune
with the concept of quality.
The elements that are concerned with ethics seem to be a relic of the past, and
new elements in the code seem to be very much focused on quality (Preston et al.,
1995). It may therefore be concluded that the term “code of quality assurance” may
be a more appropriate term. This is, however, not meant to imply that the ‘code of
quality assurance’ is comprehensive. The most recent audit failure in the case of
Enron shows that the code is far from complete.
The initial rationale for a code of ethics for professions can be traced to what
Greenwood (1957) refers to as “a non-professional occupation has customers; a
professional occupation has clients” (pp. 47–48). It is pointed out that a customer
determines what services and/or product that s/he wants, and shops around until
s/he finds them; while a client is held to be unable to diagnose his/her own needs,
nor discriminate among the range of possibilities for meeting them. The above rela-
tionship places the professional in a position of authority and allows the professional
to exploit the client for purposes of personal gratification (Greenwood, 1957). There
is however, indication that the professional–client relationship is being replaced by a
professional–customer relationship (Haug, 1973; Haug & Lavin, 1981; Velayutham
& Perera, 1996).
Because of the above relationship and the fact that many professions enjoy a
monopoly in the provision of certain services open to abuse, the professions devel-
oped a code of ethics to ensure that its members set higher standards for themselves
The accounting profession’s code of ethics 499
than society set for other groups (De George, 1990). De George further emphasises
that professionals were expected to follow a higher standard in their personal as well
as their professional conduct.
Many of the services provided by professionals were also considered not to be
limited to the private domain but were considered to be public goods. The above
view contributed to large scale subsidisation of some professional services by
the state, e.g., free health care and legal aid; and therefore the terms of the ser-
vice was to go beyond individual customer specifications. Because of the above, and
the view that professional services were based on complex knowledge (Greenwood,
1957), the provision of professional services was not determined by specific stan-
dards, but rather general goals as represented by the Hippocratic Oath in medicine.
Similarly, financial reports were to provide a true and fair account of the finan-
cial position of the company, rather than based on compliance with accounting
standards.
Whilst Greenwood (1957) and Abbott (1983) have pointed out that the profession’s
code of ethics is a means of acknowledging societal obligations and ensuring the
continued confidence of the community, the literature seldom identifies in what way
a lack of professional ethics or virtues affects professional reputation and/or public
interest. One plausible explanation in the literature is that the code of ethics provides
legitimacy to professional work (Abbott, 1988). It is pointed out that legitimation
justifies both what professions do and how they do it. Legitimating work connects
professional diagnosis, treatment and inference to central values in the larger culture,
thereby establishing the cultural authority of professional work (Abbott, 1988). Abbott
(1988) points out that legitimation both establishes that the results produced by
successful professional work are culturally valued results, and that they are produced
in a culturally approved manner.
Abbott (1988) identifies a fundamental shift in society and consequently profes-
sions, from legitimacy of character to legitimacy of technique. It is argued that
in the twentieth century character lost much ground to science and technology,
and its emphasis on rationality and efficiency (Abbott, 1988). This shift in the ba-
sis for professional legitimacy is broadly reflected in the education and training
of professionals. Professional examinations focus on technical competence rather
than personal moral values. Although ethics is included in professional examina-
tions it is but a small part. Probably the only moral sanction than might prevent
a technically competent person from admission to a professional body is a crim-
inal record. Another crucial question is whether a client is more interested in the
moral values of a professional or his/her technical competence. If ethics was the
defining feature of character then quality can be identified as the defining fea-
ture of technique. For the above reasons, the current concern with ethics in pro-
fessions can be attributed to its impact on the quality of professional service
rendered.
Quality also attaches itself to impersonal subjects, e.g., product and service while
ethics attaches itself to human subjects. This makes the concept of quality more con-
sistent with contemporary values of moral minimalism highlighted by Baumgartner
(1988). It is highlighted that people show a considerable degree of embarrassment
and discomfort whenever interpersonal tensions arise, and this frequently arises
500 S. Velayutham
if fiduciary experts tell us we need to raise the social security tax to keep the fund from
going bankrupt, our obligation to the previous generation is resolved for us, and we need
neither praise nor blame ourselves for whatever results. (p. 14)
It is also pointed out that the dominance of the state minimises our moral obliga-
tions: the care of others is not my responsibility, but that of government agencies.
When we discuss quality, we also refer to the control of quality, how we measure
quality, what policies do we have in place to ensure quality, and what indemnity will
be made for defective quality. The above attributes of quality seem more in harmony
with the modern technological society with its emphasis on measurability, consumer
and control, which are not important attributes of ethics. The concept of quality with
its focus on contracts is more consistent with current values that emphasise the
replacement of moral obligation with financial obligation (Wolfe, 1989). The penalty
for deficient quality is frequently financial indemnity which focuses on the damages
suffered by the user of a product or service whilst the penalty for the non-observance
of ethics focuses on the provider of the service.
Whilst the content of the ‘code of ethics’ has evolved the profession has sought to
retain the term code of ethics and some moral concepts such as public interest. The
accounting profession has attempted to legitimise a new commercial ideology within
traditional discourse (Neimark, 1995; Dempsey, 2000). It represents the mixing of
two inherently incompatible syndromes, the commercial (quality) and the guardian
(ethics) (Jacobs, 1992). Just as Jacobs attributes many of the scandals of the 1980
to the mixing of the two systems, many of the accounting scandals probably can be
attributed to the same.
It is probably time that the accounting profession separated the two syndromes and
provided a terminology (code of quality assurance) more appropriate to the content.
The focus on quality would, however, require major re-orientation in how professions
see themselves and the service they provide. First, the traditional professional–client
relationship, in which the professional is considered to possess special competence
in a specific area and therefore assumed to know what is good for the client better that
the clients themselves has to change. The professional has to rather see the client
as a consumer who has certain needs which the professional must first understand
and then design his/her service to meet those needs.
Second the profession must define what constitutes quality service and must iden-
tify means of measuring the variables that contribute to quality service. The iden-
tification and measurement of what constitutes quality service would enable the
profession to put in place policies and procedures to ensure the provision of quality
service by its members.
The accounting profession’s code of ethics 501
Conclusion
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