The Role of a Professional Accountant Why is understanding it critical? Scandals Rededication Public expectations of:

All professionals Professional accountants

Fiduciary relationships Implications for services offered Judgements and values Sources of ethical guidelines

Understanding the Role Answers Questions Who really is our client: the company, the

management, current shareholders, future shareholders, the public?

Do I owe primary loyalty to my employer, client, boss, profession, myself, or the public?

Am I a professional accountant bound by professional standards, or just an employee?

Is professional accounting a profession or a business - can it be both?

When should I not offer a service? Can I serve two clients with competing interests? Is there any occasion when breaking the

profession's guideline against revealing confidences is warranted?

Lang Michener Affair

Are expectations for professional standards above non-professionals?

Lawyers actions not up to expectations, or obligation to clients, prof., law society, public?

Is self-regulation effective? Is an honest mistake “of no

consequence?”

Dilemma of an Accountant

Pressure for a “clean opinion” Problem is not material No one read or cared about those

statements anyway Removal of working papers Action???

Public Expectations of a Profession Essential Features: (Bayles)

Extensive training Provision of important services to society Training and skills largely intellectual in character

Typical Features: Generally licensed or certified Represented by organizations, associations, institutes Autonomy

Foundation of Ethical Values: (Behrman) Significantly delineated by and founded on ethical considerations rather than

techniques or tools

FIDUCIARY RELATIONSHIPS

Features, Duties, Rights & Values Of the Accounting Profession… Table 4.2

Features Duties essential to a fiduciary

relationship Rights permitted by most

jurisdictions Values necessary to discharge duties

and maintain rights

Features and Duties

Features: Provision of important fiduciary services to society Extensive knowledge and skill are required Training and skills required are largely intellectual Overseen by self-regulating membership organisations Accountable to governmental authority

Duties essential to a fiduciary relationship: Continuing attention to the needs of clients and other

stakeholders Development & maintenance of required knowledge & skills Maintenance of the trust inherent in a fiduciary relationship

by behaviour exhibiting responsible values Maintenance of an acceptable personal reputation Maintenance of a credible reputation as a profession

Rights Permitted, Values Necessary

Rights permitted in most jurisdictions: Ability to hold oneself out as a designated professional to render

important fiduciary services Ability to set entrance standards and examine candidates Self-regulation and discipline based on codes of conduct** Participation in the development of accounting & audit practice Access to some or all fields of accounting & audit endeavour

Values necessary to discharge duties & maintain rights: Honesty & Integrity (i.e. truth & the whole truth) Objectivity - based on independent judgement Desire to exercise due care Competence Confidentiality Commitment to place the needs of the public, the client, the

profession, and the employer or firm before the professional's own self-interest

Important Implications

Dominance of ethical values vs. technical competence

Priority of duty Public Profession Client/employer Professional

Confidentiality: strict vs assisted

Important Implications

For Services offered

Critical value-added

Standards for behaviour

Importance of Values To Value-added & Development of Judgement

Kohlberg’s Six Stages of Moral Reasoning

Preconventional Self-interest Motivation

1. Fear of punishment & authorities

2. Self-gratification

Conventional Conformity Motivation 3. Approval from others 4. Adherence to moral codes, law & order

Principled Interests of others 5. Concern for others, broad social welfare

6. Concern for moral or ethical principles

Sources of Ethical Guidance

Codes of conduct

Laws & jurisprudence

When codes & laws don’t count

Legal Liability Developments Personal liability: history, rationale,

partnership Joint & several liability……deep pockets sued Self-insurance plus $50-150 mil external ins. Burden getting too high……how to limit? Lawsuit trend - Victoria Mtge - GAAP but misleading Limited Liability Partnerships (LLP,LLC, PSLLC)

1994 New York State Law protects innocent partners from personal liability for the negligence and malpractice of other partners, not from commercial losses, or from their own misdeeds, or from losing their invested capital.