ETHICAL

BE HAVIOR IN
ACC OUNTING:
ETHICAL T HEORY
 I N TR O D U C TION
Dilemmas help to illuminate the nature of ethical theories.
Contemporary ethical theories provide ultimate principles that can
be used to solve a dilemma.

• Utilitarians.
For utilitarians, the ultimate justifying reason for an action is that the action
brings about more good for more people than it does harm.
• Deontologists.
For deontologists, the end does not justify the means.
• Egoists.
If we consider only what is good for ourselves and give self - interested
concerns priority over what is good for others and what is fair, we adopt the
position of theorists called egoists .
E GO ISM
Egoism gives priority to the reason, “It benefits me.” When there is
a conflict between something good for me and society, or a conflict
between something good for me and its fairness, egoism
recommends the self- serving action.

Both egoism and utilitarianism determine whether an action is

ethically acceptable according to the action’s consequences.

UT IL ITAR IA NIS M
Utilitarianism gives priority to concern for everybody’s good,
including the individual’s, which is factored into the total overall
good. If self - interest conflicts with the overall good, self- interest is
set aside.
 EGOISM
Most people think the principle of egoism – that an individual ought always to
act in the his or her own self - interest - is inherently unethical.

Egoists assert, as we have noted earlier, that self - interest is a good thing.
Egoism can go too far, however, because always pursuing self - interest leads to
selfishness, and selfishness is immoral.

Acting in self - interest is doing what is in one ’ s own best interest – what benefits
one. Self - interested pursuits are not bad.

Psychologists have pointed out the necessity of self - love and self esteem, and the
desirability of an individual ’ s vigorous pursuit of his or her projects and dreams. It
is healthy, therefore, to pursue your own interests. After all, if you don’ t , who will?
 EGOISM
The problem arises when the pursuit of one ’ s own interests is at the expense of
others. Selfishness is pursuing one ’ s own interest at the expense of another.

Example:
Persuading a customer who can’ t afford the product to buy it
Would you consider a friend “ true ” if you knew that he was acting as a “ friend”
just for what he could get out of the friendship?

Clearly, it is not acceptable in the accounting profession, where the code of ethics
mandates the accountant's “obligation to act in a way that will serve the public
interest.”
 EGOISM
According to Adam Smith, “ It is not from the benevolence of the butcher, the
brewer, or the baker, that we expect our dinner, but from their regard to their own
self - interest. We address ourselves, not to their humanity but to their self - love, and
never talk to them of our own necessities but of their advantages. ” Hence, it makes
economic sense to appeal to people’ s self- interest.

When economists adopt this theory, the economic and business models they develop
assume that everyone is self- interested. This has to affect their view of what is
acceptable or not acceptable. There is a moral maxim “ought implies can ”. If you
are necessarily always self - interested you will not be able to act otherwise. If all are
self - interested it is foolhardy to tell people to go against their nature, just as it is
foolhardy to expect stones to fly.
 UTILITARIANISM
John Stuart Mill: “Actions are right in proportion as they tend to promote happiness, wrong
as they tend to produce the reverse of happiness.”

Mill continues that “the happiness” to which he refers is “not the agent’s own greatest
happiness, but the greatest amount of happiness all together.”

Utilitarianism has recently been expressed in a slightly different way: “Do that
action which will bring about the greatest good for the greatest number of people.”

Utilitarianism is significantly different from egoism because the consequences used

to judge an action’s worth are not simply the consequences for the agent but also
include the consequences for everyone concerned with or affected by the action,
including the agent.
 UTILITARIANISM

A utilitarian uses the following procedure to justify or condemn an action:

- Take any action.
- Compute the benefits and harms of the consequences for everyone affected.
- If the action brings more total happiness than unhappiness for more people, it is
justified.
- If it causes more total unhappiness for more people, it is wrong.
Thus, utilitarianism is the ethical theory that uses a cost - benefit approach.
 UTILITARIANISM
Major problem with utilitarian theory is the distribution problem . The phrase “ the greatest
good for the greatest number of people” is ambiguous. Are we obliged to bring about the
maximum good, or are we obliged to affect the maximum number of people?

Another problem for utilitarianism is the deciding what counts as “the good .” We
alluded to this problem earlier in the discussion of the dimensions of human
fulfillment, and contrasted the good – what we need – with what we desire.
Utilitarian John Stuart Mill and his mentor, Jeremy Bentham, equated “the good”
with happiness, and happiness with pleasure. But there are numerous difficulties
with this theory.
 UTILITARIANISM
Further problem with utilitarianism is that of predicting the future – deciding whether an
action is right by looking at its consequences. Predictions, however, can be tenuous, even
risky. Thus, the inability to predict accurately creates several problems.

The difficulty with utilitarianism that many critics think is the most serious is the problem
of illicit means . Many of us were raised with the maxim that the ends do not justify the
means.

The philosopher W.D. Ross raises one more very important objection to
utilitarianism, which he calls its “essential defect”
Ross reminds us that we give ethical priority to the duties that arise from special
relationships. If lying to the bank is repugnant to you as an accountant, for
example, it is because you have a special duty to present companies’ financial
pictures accurately. That is what accountants do.
KANT AND DEONTOLOGY
Ross belongs to a group of ethical theorists who maintain that there are
ethical concerns with actions themselves that prohibit the actions, in spite of
the consequences.

These theorists are called deontologists. Deontologist derives from the Greek
word “deontos,” meaning "what must be done.” It is sometimes translated as
“obligation” or “duty.” The foremost deontologist was the 18th century
philosopher Immanuel Kant.

Kant calls the motive duty . We can describe it as a sense of moral obligation and contrast
it to inclination or desire.

According to Kant, if you are acting merely from inclination or desire, you are not acting
morally at all. Rather, you are behaving the way nonhuman animals behave.
KANT AND DEONTOLOGY
Let’s compare a human being’s way of acting with a spider and with a beaver.
A spider spins webs. Why? Because of an instinct or inclination. Because
nature makes them that way. They have no choice. They are not free. They are
inclined by nature to do those things and consequently will do them.

According to Kant, human beings, too, have inclinations. We are inclined to

pursue things we want. We have psychological propensities and inclinations to
pursue goals.

But we have two capabilities other animals don’ t have:

(1) the ability to choose between alternate means or ways to achieve the goals to which
we are inclined; and
(2) the freedom to set aside those goals or inclinations and act out of a higher motive.
DEONTOLOGICAL ETHICS
When we make decisions based on qualified oughts, what determines the goodness or
badness is whether or not the decisions accomplish the goal.

For example, if you're in a third - floor classroom and you want to get to the cafeteria in the
next building, what should you do? You could jump out the window, but you’d probably
break a leg, if not more. Such a course of action would be “imprudent,” according to Kant.
The “prudent” thing to do would be to take an elevator or walk down the steps.

Several formulas for the categorical imperative

• Act so that you can will the maxim of your action to become a universal law. •
Act so as never to treat another rational being merely as a means.
THE FIRST FORMULA OF THE
CATEGORICAL IMPERATIVE
The first formula for the categorical imperative, “Act so that you can will the maxim of
your action to become a universal law,” needs some explaining. A maxim is your reason
for acting.

The categorical imperative stresses that we must “will” the maxim to become a
universal law. For Kant, the will is practical reason, and we cannot will that promises not
be kept. This is not because it results in unfavorable consequences, but because it creates
a “will- c ontradiction.”

The implications for business and accounting are obvious. There must be an
atmosphere of trust to allow business to function. If you will to break promises,
however, you will other people not to break them; otherwise, promise making will
not exist.
THE SECOND FORMULA OF THE
CATEGORICAL IMPERATIVE
Unlike other animals, human beings transcend nature’s inclinations and limitations;
humans are free; humans are autonomous.

Kant thus calls humans “ends in themselves.” We can determine and self - regulate our
moral life; we can establish values and ends.

Consequently, human beings are special, which leads to Kant’s second formula: “Act so
as never to treat another rational being merely as a means.”

Under this view, everyone is morally equal and ought to be treated with respect and
dignity. Everyone’ s rights ought to be respected; no one ought to be used merely as a
means or instrument to bring about consequences that benefit the user.
VIRTUE ETHIC S
The word virtue comes from the Latin virtus, meaning power or capacity,
and virtus was used to translate the Greek word arête, which means
excellent.

For ancient Greek philosophers, especially Aristotle, the good life (the
life of well - being) was a life in which an individual did things in accord
with his or her excellent capacities – “activity in accord with virtue.”
Excellent capacities led to well - being.

Aristotle and his mentor Plato introduced a model for us to follow. Accountants
should behave with integrity. If they accomplish these goals – activities in
accord with virtue – they will likely be excellent accountants.
VIRTUE ETHIC S
Most people do not often deliberate on these underlying principles.
Rather, they follow their feelings or intuitions, or they practice the
everyday rules they’ve heard all their lives.

Ethical principles enable us to analyze and evaluate these feelings and

intuitions. 

But the everyday rules we apply in our decision - making process are also
important – in accounting, for example, professional standards of conduct and
the AIPCA code of ethics.