k.ockree, iia ethics - intermediate acctg i k. ockree ethics and professionalism ethical...

K.Ockree, IIA

Ethics - Intermediate Acctg I

K. Ockree

ETHICS AND ETHICS AND PROFESSIONALISMPROFESSIONALISM

ETHICAL PROFESSIONAL ETHICAL PROFESSIONAL CONDUCTCONDUCT

PERSONAL MORAL JUDGEMENTPERSONAL MORAL JUDGEMENT

OUTLINEOUTLINE

IntroductionIntroduction General views of ethicsGeneral views of ethics Group ethicsGroup ethics Accountants and ethics, specificsAccountants and ethics, specifics ConclusionConclusion ReferencesReferences

CAN ETHICS BE TAUGHT/LEARNED?CAN ETHICS BE TAUGHT/LEARNED?

Yes –but need a common Yes –but need a common basis.basis.

At a minimum, professionals should:Be able to recognize an ethical situationBe able to identify the issues involvedBe able to identify ALL the stakeholdersReach a reasoned ethical position AND be able to defend it. [ref. 4]

Can we or should we all be whistleblowers?

At least at a personal level – yes!

What Ethics Training Can DOWhat Ethics Training Can DO

1. Help individuals understand 1. Help individuals understand rationales, ideas and vocabularyrationales, ideas and vocabulary

2. Help individuals make sense of their 2. Help individuals make sense of their own ethical environmentown ethical environment

3. Provide intellectual ammunition to do 3. Provide intellectual ammunition to do battle with advocates of economic battle with advocates of economic fundamentalism and others who fundamentalism and others who violate ethical standardsviolate ethical standards..

And moreAnd more

What Ethics Training Can DOWhat Ethics Training Can DOcontinuedcontinued

4. Enable employees to recognize and 4. Enable employees to recognize and expose potentially unethical choices expose potentially unethical choices within a firm.within a firm.

5. Enhance moral reflectiveness and 5. Enhance moral reflectiveness and strengthen moral courage.strengthen moral courage.

6. Help one handle an unethical 6. Help one handle an unethical directive from a bossdirective from a boss

VIEWS OF BUSINESS VIEWS OF BUSINESS ETHICSETHICS

Ethical RelativismEthical Relativism ““When in Rome”When in Rome”

FundamentalismFundamentalism Self-RighteousnessSelf-Righteousness

Universal-ParticularismUniversal-Particularism ““Who am I to say...” Who am I to say...” Ref. 3Ref. 3

ATTITUDES TOWARD ATTITUDES TOWARD ETHICSETHICS

AmoralAmoral Business is business and law = ethicsBusiness is business and law = ethics Ethically unaware (naïve)Ethically unaware (naïve) Business exists only to make moneyBusiness exists only to make money

Immoral Immoral If you don’t get caught it isn’t wrongIf you don’t get caught it isn’t wrong Unethical for the firm / Unethical against the firmUnethical for the firm / Unethical against the firm

The Moral EmployeeThe Moral Employee Ethically awareEthically aware Proactive Proactive Code of conduct Code of conduct Ref. 4Ref. 4

UNIVERSAL ETHICAL UNIVERSAL ETHICAL VALUESVALUES

HonestyHonesty IntegrityIntegrity Promise-keepingPromise-keeping FidelityFidelity FairnessFairness CaringCaring RespectRespect ResponsibilityResponsibility Striving for ExcellenceStriving for Excellence Accountability Accountability [ref.2][ref.2]

STAGES of MORAL STAGES of MORAL JUDGEMENTJUDGEMENT

What is rightWhat is right Reason for doing Reason for doing rightright

Point of ViewPoint of View

Level OneLevel One

PreconventionPreconventionalal

a. Obediencea. Obedience Avoid PunishmentAvoid Punishment Egocentric Egocentric

b. Self-Interestb. Self-Interest

Fair Fair exchangeexchange

Serve one’s own Serve one’s own interests where interests where others also existothers also exist

No abstract No abstract awareness of awareness of right and wrongright and wrong

ETHICS IS A PERSONAL ETHICS IS A PERSONAL RESPONSIBILITYRESPONSIBILITY

““But who is responsible for But who is responsible for increasing our ethical sensitivity increasing our ethical sensitivity – and how can they accomplish – and how can they accomplish this?”this?”

The responsibility rests first and The responsibility rests first and foremost with us as individuals. foremost with us as individuals. Ethics is a personal matter and we Ethics is a personal matter and we cannot pass the buck to others. The cannot pass the buck to others. The individual must consciously focus on individual must consciously focus on ethical concerns. ethical concerns.

He or she must go beyond He or she must go beyond the rules, thinking about the rules, thinking about why the rules are necessary why the rules are necessary and written as they are – in and written as they are – in other words, the substance other words, the substance behind the form.”behind the form.”

Ethical Issues in the Practice of Accounting, p.38 Ethical Issues in the Practice of Accounting, p.38 [ref. 2][ref. 2]

EVALUATING ETHICAL CHOICES

Is the action you have arrived at one Is the action you have arrived at one that lives up to your sense of moral that lives up to your sense of moral integrity? integrity?

[Could I do this and still look at myself in the mirror][Could I do this and still look at myself in the mirror]

Would it be the action chosen by Would it be the action chosen by someone you consider a moral model? someone you consider a moral model? [Could I feel good about telling my mother (father, minister, spiritual [Could I feel good about telling my mother (father, minister, spiritual advisor, spouse, etc.) I took this action]advisor, spouse, etc.) I took this action]

Would you be comfortable if the action Would you be comfortable if the action or its results were made public?or its results were made public?[What if this became headline news?][What if this became headline news?]

Other Evaluative HelpsOther Evaluative Helps

Is it Right ?Is it Right ? Is it Fair?Is it Fair? Who Gets Hurt?Who Gets Hurt? What would you tell your child to do?What would you tell your child to do? Is this action or decision I’m getting Is this action or decision I’m getting

ready to take compatible with my ready to take compatible with my concept of myself at my BEST?concept of myself at my BEST?

ETHICAL CHOICESETHICAL CHOICES WITHIN ORGANIZATIONSWITHIN ORGANIZATIONS

START AND END AT THE TOP START AND END AT THE TOP

““The tone at the top”The tone at the top”

FIRM/CORPORATE ENVIRONMENTFIRM/CORPORATE ENVIRONMENT ATTITUDEATTITUDE LEADING BY EXAMPLELEADING BY EXAMPLE FOLLOWING THROUGHFOLLOWING THROUGH

CODE OF CONDUCT???CODE OF CONDUCT???

ASKING KEY QUESTIONSASKING KEY QUESTIONS What are the core values and beliefs of my What are the core values and beliefs of my

organization?organization?

Whose values, beliefs and interests may be at risk in Whose values, beliefs and interests may be at risk in this decision?this decision?

Who will be harmed or helped by my decision or by the Who will be harmed or helped by my decision or by the decision of my organization?decision of my organization?

How will my own or my organization’s core values and How will my own or my organization’s core values and beliefs be affected or changed by this decision?beliefs be affected or changed by this decision?

How will I and my organization be affected by this How will I and my organization be affected by this decisiondecision..

WHERE WHERE ACCOUNTANTSACCOUNTANTS

SHOULD BESHOULD BEIN THE ETHICAL IN THE ETHICAL

SCHEME OF SCHEME OF THINGSTHINGS

SERVICE IN THE PUBLIC SERVICE IN THE PUBLIC INTERESTINTEREST

INTEGRITYINTEGRITY ACCEPTABLE PROFESSIONAL ACCEPTABLE PROFESSIONAL

BEHAVIORBEHAVIOR OBJECTIVITY AND INDEPENDENCEOBJECTIVITY AND INDEPENDENCE DUE CAREDUE CARE

Independent in substance andIndependent in substance and

in appearancein appearanceRef. 1, 2, 3

PRINCIPLES BASED ACCOUNTING?PRINCIPLES BASED ACCOUNTING?

ConservatismConservatism

Never overstate assets or revenuesNever overstate assets or revenues

Never understate expenses or lossesNever understate expenses or losses Substance over formSubstance over form

Transactional reporting should Transactional reporting should present present the actual the actual nature of the nature of the occurrenceoccurrence NOTNOT the legal form or other the legal form or other form in form in which it was written or presentedwhich it was written or presented

ACCOUNTANT’S ADDITION TO ACCOUNTANT’S ADDITION TO THE LIST OF UNIVERSAL THE LIST OF UNIVERSAL

VALUESVALUES Professional Personal AttributesProfessional Personal Attributes

IndependentIndependent UnbiasedUnbiased ObjectiveObjective NeutralNeutral

Our work should beOur work should be RelevantRelevant Reliable Reliable VerifiabilityVerifiability Representationally faithful Representationally faithful [ref. 1, 3][ref. 1, 3]

ReferencesReferences

1.1. AICPA Concepts StatementsAICPA Concepts Statements2.2. Albrecht, W. Steve; Albrecht, W. Steve; Ethical Issues in the Practice of AccountingEthical Issues in the Practice of Accounting, ,

1992., South-Western Publishing, Cincinnati, Ohio. 1992., South-Western Publishing, Cincinnati, Ohio. 3.3. Armstrong, Mary BethArmstrong, Mary Beth; Ethics and Professionalism; Ethics and Professionalism, 1993. Mary , 1993. Mary

Beth Armstrong. South-Western Publishing, Cincinnati, Ohio.Beth Armstrong. South-Western Publishing, Cincinnati, Ohio.4.4. Myers, Randy; Ensuring Ethical Effectiveness, Myers, Randy; Ensuring Ethical Effectiveness, Journal of Journal of

AccountancyAccountancy, February 2003., February 2003.5.5. Wallace, Wanda; “Commentary: Will Principle vs. Rules Become Wallace, Wanda; “Commentary: Will Principle vs. Rules Become

Substance vs. Form?, Substance vs. Form?, Accounting TodayAccounting Today, January 27 – February 9, , January 27 – February 9, 2003, pp14-16.2003, pp14-16.

6.6. Calmes, Jackie, “Minor Memos”, Calmes, Jackie, “Minor Memos”, Wall Street JournalWall Street Journal, January , January 25,2002, p.1 C5.25,2002, p.1 C5.

7.7. Watts, Duncan, “Unraveling the Mysteries of the Connected Age” Watts, Duncan, “Unraveling the Mysteries of the Connected Age” The Chronicle of Higher Education, February 14, 2003, p.B7-B9.The Chronicle of Higher Education, February 14, 2003, p.B7-B9.

8.8. Weiss, Joseph W. Weiss, Joseph W. Business Ethics, A Stakeholder and Issues Business Ethics, A Stakeholder and Issues Management ApproachManagement Approach, 2003, Southwest Publishing, Cincinnati, OH., 2003, Southwest Publishing, Cincinnati, OH.

K.Ockree, IIA

IIA Presentation, March 4, 2003

K. Ockree

Intermediate Financial Intermediate Financial Accounting IAccounting I

Stated Expectations for Stated Expectations for Professional AccountantsProfessional Accountants

Objectivity and IndependenceObjectivity and Independence In Fact – In Appearance – In Mental In Fact – In Appearance – In Mental

AttitudeAttitude Due Care – The Quest for excellenceDue Care – The Quest for excellence

Competent technically and ethicallyCompetent technically and ethically And ever improvingAnd ever improving

Ever increasing Quality of ServiceEver increasing Quality of Service Constant in professional responsibilityConstant in professional responsibility

Financial AccountingFinancial Accounting Process that produces financial reports Process that produces financial reports

on:on: Organization as a wholeOrganization as a whole For use by internal and external partiesFor use by internal and external parties

UsersUsers Investors and potential investorsInvestors and potential investors CreditorsCreditors ManagersManagers UnionsUnions Government and other regulatorsGovernment and other regulators EmployeesEmployees

ETHICS and Professionalism ETHICS and Professionalism PrinciplesPrinciples

RESPONSIBILITIESRESPONSIBILITIES Exercise sensitive professional and moral Exercise sensitive professional and moral

judgment in their professional activitiesjudgment in their professional activities Public InterestPublic Interest

Serve the public interestServe the public interest Honor the public trustHonor the public trust Demonstrate commitment to professionalismDemonstrate commitment to professionalism

IntegrityIntegrity Maintain and broaden public confidenceMaintain and broaden public confidence Do what is right and just in the absence of rulesDo what is right and just in the absence of rules

With highest sense of integrityWith highest sense of integrity

WHY ACCOUNTING STANDARDSWHY ACCOUNTING STANDARDS Accounting StandardsAccounting Standards

IASCIASC FASBFASB PCOAB and CongressPCOAB and Congress

SEC OversightSEC Oversight

Why do we have accounting Why do we have accounting standards?standards?

Comparability, Consistency, Comparability, Consistency, ReliabilityReliability

GOAL: to present fairly, clearly and GOAL: to present fairly, clearly and completely the financial condition of completely the financial condition of

the firmthe firm

Where Accounting Standards Come FromWhere Accounting Standards Come From

CongressCongress SECSEC FASB [Funded by the FAF]FASB [Funded by the FAF]

other sources/organizationsother sources/organizations CAP APB GASB AAA IMA FEICAP APB GASB AAA IMA FEI____________________________________________

IASCIASC______________________________________________________ CONGRESSCONGRESS

Sarbanes Oxley Act -> PCAOBSarbanes Oxley Act -> PCAOB SECSEC

Other Accounting Standard IssuesOther Accounting Standard Issues Political ProcessPolitical Process

Economic ConsequencesEconomic Consequences

Expectations GapExpectations Gap

K.Ockree, IIA

IIA Presentation, March 4, 2003

K. Ockree

Financial Accounting ReportsIncome StatementStatement of Retained Earnings or Statement of

Stockholders’ EquityBalance SheetStatement of Cash FlowsNotes to the financial statementsDisclosures

Audited Financial StatementsIn: Annual Report to Stockholders SEC Required reports 10K annual report

10Q quarterly report