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What can accounting offer for improved ethics?

by Simon Longstaff

What can accounting offer for improved ethics? It seems to me that any response to this question will need to explore two related dimensions. The first of these touches on the question of that which accountants should do in order to improve ethics. The second dimension touches on the question of that which accountants should be. However, before addressing these questions, there may be some value in turning to an issue of fundamental importance - namely, the nature of ethical enquiry.

What is ethics all about?

Many discussions about ‘ethics’ begin with a flourish only to grind to a halt as people encounter disagreement about the answer to a fairly fundamental question, “What is ethics all about?”.

The disagreement flows from the fact that most people only have a partial understanding of the basic questions that are addressed in the field of ethics. The most commonly held views include a mixture of the following:

• Ethics is the same as morality
• Ethics is about rules for behaviour (‘soft laws’ if you like)
• Ethics is to do with theory (part of the useless species of things dreamed up in ivory towers)

While each view is severely limited, it is easy to see how it can be held as most people tend to see only part of the overall picture. Those wanting to capture the broader perspective may be best assisted by returning to what is regarded to be the founding question in ethics.

Few will be surprised to learn that the basic question of ethics has an ancient pedigree. Indeed, it can be traced back to a Greek philosopher who lived and taught in Athens during the fifth century BC. Socrates asked:

What ought one to do?

It should be obvious that this is an immensely practical question confronting us whenever we have a choice or decision to make. It is also a question that is extremely difficult to avoid. Indeed, the only sure way to escape this question is to be a creature of unthinking habit who goes about life doing things “because everyone does it” or because “that's just the way we do things around here” or because “it seemed like a good idea at the time”.

People who are dissatisfied with this approach; people who wish to make their lives their own will recognise that Socrates’ question ultimately requires each of us to give an account of how our choices and decisions contribute to what we would defend as a ‘worthwhile’ life. And that is how we come to address issues of good and evil, right and wrong.

If ethics is about practical rather than purely theoretical matters, it should also be understood that it encompasses a general conversation about how people should live a ‘good’ life. This helps to explain the difference between ethics and morality. The distinction can be demonstrated by using the analogy of a conversation. If one imagines that the field of ethics is a conversation that has arisen in order to answer the question, “What ought one to do?”, then moralities (and they are various) are voices in that conversation.

Each voice belongs to a tradition or theory that offers a framework within which the question might be contemplated and answered. So there is a Christian voice, a Jewish voice, an Islamic voice, Buddhist voice, Hindu voice, Confucian voice and so on. Each voice has something distinctive to say - although they may all share certain things in common.

There are, in addition to the moralities that flow from the worlds’ religions, the voices that represent the various attempts to found moral systems on the thinking of secular philosophers. No ethical theory or morality (from the West) has found a way to answer Socrates’ question in a way that totally avoids the countless ethical dilemmas that seem to be a persistent feature of what might be called the ‘ethical landscape’.

One simple example may suffice as an indication of the type of dilemma that might be encountered. Most people would agree (possibly for quite different reasons) that people ought to tell the truth. These same people will hold that one ought to avoid causing harm. But what happens when to tell the truth will cause another person harm? Each principle seems to be valid on its own account, but when put in combination with other values an irreconcilable tension may arise. This is not a trivial point. It reminds us that the ethical landscape is painted in shades of grey and not black and white. Sometimes we need to accept the limits to certainty when trying to decide how best to proceed. Sometimes our range of choice is reduced to picking the least bad alternative. Sometimes we may have nothing more than a well-informed conscience to guide us through the maze of ethical decision-making.

A final point about ethics

In all this discussion one crucial point has been left unsaid: that ethical considerations involve an essential social element. Whether one seeks to move from religious conviction, or from a position in which one seeks to generate consequences in which pleasure is maximised and pain minimised, or from the point of view in which other persons are seen as being members of the ‘kingdom of ends’, the result is the same - a consideration of ethical questions involves a consideration of the quality and nature of relationships with other people.

What accountants might be!

There is a temptation to think of accountants exclusively in terms of the services that they provide. Such thinking gives rise to two problems. Firstly, it tends to emphasise functionality and outcomes at the expense of process. In such circumstances, consideration of the proper means by which an outcome can be achieved may be set aside in favour of an orientation towards ‘getting the right result’.

Secondly, this focus tends to obscure our view of the accountant as a member of a profession that has an impact on the tone (and not just the function) of society. It is, perhaps, this second point that needs to be further explored. In order to do this it is necessary to say something quite general about the role played by the professions in society.

Being a member of a profession

The first thing to be understood is that the professions do not have a right to exist. They are not the product of a law of nature. Nor is their existence a curious metaphysical fact that one must necessarily take into account when contemplating the cosmos. Rather, the professions are a social artefact.

There could be thousands of people with a superb knowledge and understanding of the relevant disciplines and still be no professions as such. Individual practitioners might attract clients willing to recognise and pay for their learning and skill, but this would not make for a profession. Indeed, for there to be a profession at all it would first be necessary for people to come together in order to form some sort of voluntary association. The trouble is that not all associations are allowed to survive, let alone flourish. For longevity, one or more of the following conditions need to apply (the list is indicative and not exhaustive):

Internal conditions

1. there continues to be a raison d'etre for maintaining the association,
2. the membership of the association remains committed to its preservation,
3. there is a decision-making process capable of resolving and managing internal disagreements, of charting new directions and so on.

External conditions

1. the new association is relatively insignificant and therefore escapes attention,
2. the new association is conceived by society as an expression of itself,
3. the new association is perceived to offer no threat to society,
4. the new association is believed to offer positive benefits to society,
5. the new association is under the protection of some power sufficient to shield it from attack,
6. the new association is sufficiently powerful to ward off any attempt to curb it.

As noted before, the conditions outlined above are not mutually exclusive. Indeed, it is quite possible that a fledgling association will pass through a number of phases in which its status changes. One imagines that a history of the professions would reveal just such a progression. But this is beside the point. The chief fact to bear in mind is that the existence of an association is a contingency and not a necessity. A sufficiently powerful force can obliterate it at any time. Alternatively, it can destroy itself through implosion, collapsing when internal supports have decayed. The facade may stand awhile, but it too will eventually fall.

Of the external conditions, except in the application of conditions eight & nine, the association will depend on the goodwill (or indifference) of the host society. One can imagine societies in which a powerful protector might be minded to guard the interests of an association. And it is possible to think of groups having sufficient power to protect themselves. However, all of this is quite academic when it comes to understanding the place of associations in a modern democracy such as we find in Australia today.

Given the sovereignty of the people, the community has the power to dissolve associations as and when it may desire. Constitutions and Bills of Rights offer only limited protection as they may be amended according to the popular will. Of course, it could be argued that the selective abolition of certain associations would be ‘undemocratic’. This may be true. However, it is a curious feature of democracies that they enjoy the capacity to act undemocratically. The only penalty they might suffer is the sting of criticism from those who are concerned to promote authentic democratic consistency. The charge of bad-faith might stick. But short of some external power imposing sanctions, there would be little to prevent such a course of action being followed.

The social ‘compact'

While a society might be expected to tolerate all manner of associations as a proper expression of a commitment to the principles of liberty, it is a little more difficult to see why it should allow any group, defined by a common occupation, to enjoy privileges not available to other occupational groups. A moments’ reflection will lead one to conclude that a society founded on the idea of the formal equality of all can accept only two reasons for positively discriminating in favour of one group over another. The first is to redress some acknowledged wrong, the second (which it might be argued entails the first) is to promote the interests of the community as a whole.

For example, it is accepted by most people that the community would suffer if I had the right to perform open-heart surgery on my kitchen table. Instead, the right to perform such operations is restricted to those properly qualified and registered as medical practitioners. Similarly, it has been concluded that society would suffer if each individual was permitted to take the law into his or her own hands. Civil peace is thought to be enhanced if a properly accountable State is able to exercise a monopoly in the administration of force. Thus, powers of arrest are limited. An impartial cadre of judges supervises the trial of alleged offenders and the State (on behalf of the community) punishes the guilty.

None of this is controversial. At the heart of the position described above is the idea of a social compact made between society and particular occupational groups and associations. Certain privileges are accorded in return for the provision of social goods that would not otherwise be available. It is within this general scheme of arrangement that an understanding of the role of the professions in Australia must be located.

The idea of a profession

There is, however, another dimension to the discussion of professions. Rather than flowing from a consideration of the external environment in which the professions are sustained, this other dimension relates to what have been held to be the internal standards of a profession per se. One can observe that all manner of occupational groups can make bargains with society in return for privileges or other social goods and yet still not be considered to be professions. For example, parking meter officers have special powers not normally conferred on ordinary citizens. Yet, to be a parking meter officer is not to be a member of a profession. So where does the distinction lie?

One particularly influential definition of a profession was offered by Roscoe Pound. It goes as follows(i):

The term refers to a group ... pursuing a learned art as a common calling in the spirit of public service - no less a public service because it may incidentally be a means to livelihood. Pursuit of the learned art in the spirit of public service is the primary purpose.

The point should be made that to act “in the spirit of public service” at least implies that one will seek to promote or preserve the public interest. A person who claimed to move in a spirit of public service while harming the public interest could be open to the charge of insincerity or of failing to comprehend what his or her professional commitments really amounted to in practice.

In August of 1993, the Australian Council of Professions issued a discussion paper, Professional Services, Responsibility and Competition Policy (ii). Significantly, a press release about this paper was issued under the title, In The Public Interest. Both the paper and the release sought to distinguish a profession from “more commercially minded occupational associations”. As opposed to others, professional practitioners:

... must at all times place the responsibility for the welfare, health and safety of the community before their responsibility to the profession, to sectional or private interests, or to other members of the profession.

If the idea of a profession is to have any significance, then it must hinge on this notion that professionals make a bargain with society in which they promise conscientiously to serve the public interest - even if to do so may, at times, be at their own expense. In return, society allocates certain privileges. These might include one or more of the following:

• the right to engage in self regulation
• the exclusive right to perform particular functions
• special status

At all times it should be remembered that what society gives, it can take away. It only accords privileges on the condition that members of the profession work to improve the common good. Having said this, there should be no doubt that all citizens are served by the existence of independent professions that are free to interpret the common good as being something other than that which a government of the day decrees. Once again, it should be noted that a capacity for a profession to fulfil this role depends on the extent to which the broader community trusts its judgement and motives.

Deciding to take up the full and proper responsibilities of a professional career is akin to the old idea of finding a vocation. In most cases, the actual rewards on offer hardly seem to cancel out the sacrifice that is made when the narrower pursuit of self-interest (common in the market) is eschewed in favour of the public interest. Instead of relying on the operation of the ‘invisible hand’, the professional must choose - and choose well! The burden of choice is sometimes felt to be intolerable. This may explain why it is that one now hears members of the profession stressing that their primary orientation is towards ‘running a business’.

Perhaps the idea of ‘vocation‘ has become foreign to most of those who make up the contemporary professions. Perhaps the belief in intrinsic goods has faded. But even if one is motivated by a spirit of public service, how is one to determine what may be in the public interest? One answer, from as far back as the ancient Greeks, is to try to identify certain core goods. Some of these immediately come to mind. For example, a good society is likely to be one in which people are treated with justice, in which good health is commonplace, in which the environment is rich, rewarding and safe.

The introduction to Ethics & the Legal Profession, edited by Michael Davis and Frederick Elliston(iii) builds on this idea:

One of the tasks of the professional is to seek the social good. It follows from this that one cannot be a professional unless one has some sense of what the social good is. Accordingly, ones’ very status as a professional requires that one possess this moral truth. But it requires more, for each profession seeks the social good in a different form, according to its particular expertise: doctors seek it in the form of health; engineers in the form of safe efficient buildings; and lawyers seek it in the form of justice. Each profession must seek its own form of the social good. Without such knowledge professionals cannot perform their social roles.

As noted above, an old idea is at work here. It suggests that professionals might need to develop a particular appreciation and understanding of some defining end, such as justice. It is as much for this and the disinterested pursuit of these ends that the community looks to the professions for assistance.

In this respect, I wish to suggest that the distinctive end of the accounting profession is to pursue the truth. Accepting that the notion of what constitutes ‘truth’ is notoriously difficult to define, I do not wish to suggest that accountants accept an impossible obligation. However, I do believe that accountants have a responsibility to be especially interested in the nature of truth and to ensure that this interest is reflected in the organisation of their professional practice.

What might accountants be? (a refrain)

The point to be made here is that the claim to belong to a profession entails a considerable range of substantive commitments. In some cases, the privileges associated with membership of a profession balance (even outweigh) the attendant obligations. However, the point has already been noted that the benefits flowing from society to the professions are not equally available to all members. In many, if not most, cases a proper fulfilment of the role of accountant will require sacrifice of some kind - whether it be suppression of the apparently normal desire to place self-interest before all others or the acceptance of a higher degree of risk attached to the discharge of professional obligations.

I wish to argue that it is the accountant’s preparedness to accept these additional obligations that has the potential to add so much to the quality of the ethical landscape traversed by us all.

Without wanting to load members of the profession with unrealistic expectations, it seems to me that society is qualitatively improved by the fact that there are people who are committed to acting in a spirit of public service and who are held accountable, to their peers, for doing so. The importance of this should not be underestimated at a time when there is so much popular cynicism about society’s institutions. Furthermore, anecdotal evidence suggests that younger people are especially cynical about the prospects of success through ethical means. Rather, there seems to be a prevailing view that the pursuit of self-interest dictates adopting any means likely to secure the preferred end.

Accountants have the opportunity to demonstrate that there are tangible (and intangible) benefits accruing to those who share practices designed to bolster integrity and a range of other virtues that the professions should honour in practice.

This leads to a further point: it is essential that professional virtues be founded in a culture that lends the weight of tradition, stories and institutional sanction to the practical application of best practice. In essence, this requires the profession to demonstrate the reality of inter-personal accountability. This type of accountability is essential to the process of self-regulation, and requires moral courage sufficient to meet the needs for a combination of explicit standard-setting, peer support and effective disciplinary measures. All of this constitutes a fairly tall order - especially when set in the context of a society that places special emphasis on the rights of individuals and the need to be efficient and competitive within a market economy in which the pursuit of self-interest is the ideal.

It could be argued that the professions find a more natural home in a world in which rights are balanced by obligations, in which the individual is recognised as finding full expression only in society and where efficiency is valued less for itself than in terms of its ability to contribute to the common good. Then again, the continued existence of the professions may be one of the pre-conditions for maintaining the viability of this broader conception of an ethical society.

An absence of ethics leads to a reduction in the level of trust that exists in a community. When a community feels that it can no longer rely on informal canons of decent behaviour, it often resorts to formal mechanisms of increased regulation and surveillance. Somewhat ironically, this has a tendency to weaken the bonds of ethics even further. Extra regulation is always accompanied by increased costs. There is a financial cost which hits the good and bad alike and which is passed on to the consumers in the form of higher charges and taxes. There is also a social cost as regulation also depends on the need for surveillance. There is a subtle but real change in the quality of our liberty. And there is also the cost to be borne in terms of our ethics. If somebody else is prepared to tell you what is ‘right’ and ‘wrong’, then it lifts a burden of having to make our own decisions. In a sense we become less responsible. ‘I was only following the code’. ‘They make the rules, it is not my problem’. One of the important benefits that a group of self-regulating professionals should bring to society is a framework for informal systems of checks and balances designed to protect the community from some of the less welcome excesses of human behaviour.

What might accountants do?

Much of the above could be regarded as self-evident or even a little too abstract - removed from the realm of daily practice. It could be said that all of the above is fine in theory. However, what is to be done in practice?

While many of my earlier comments apply equally to all true professions and to all accountants, I should now like to turn attention to some of the issues and possibilities that arise for accountants working in government.

The first, and perhaps most provocative point, arises from the curious position that accountants may find themselves in as employees working in a government department, statutory authority or government business enterprise. That is, in circumstances where the independent, professional orientation of the accountant is in tension with the objectives and procedures defined by the employer.

It should be conceded, at the outset, that accountants working in government are not alone in facing the potential dilemmas arising in paid employment. Many accountants working in industry and commerce encounter situations where professional obligations are sorely tested by the requirements of the employer - for example in the facilitation of questionable deals designed to avoid tax liabilities.

However, there is a crucial difference in the circumstances of those who work for government. Unlike those in equivalent positions in the private sector, government employees work for a body that claims to be able to define the public good! That is, governments (and particularly those in a democracy) argue that their election mandate and representative status allows them to be the final arbiters of what the public good may require. If taken literally, this means that a member of the profession may be bound to follow government policy in a quite uncritical manner. This flows from the conjunction of the professionals’ obligation to act in a spirit of public service and the governm’ claim to be able to define just what the public interest happens to be.

It should be noted that the obligation of the professional to carry out a governments’ project (in such circumstances) arises quite independently of any obligation arising out of the duties owed to an employer.

Yet, what is the professional to make of a governments’ claim to be able to define the public good? In particular, what should the professional do when confronted by a situation in which adherence to professional ethics would require a course of action opposed to that required by the employer?

A comprehensive answer to such questions - would require an analysis of democratic theory (something beyond the scope of the current exercise). Having said this, it does seem to me that a few useful observations can be made. Not least of these is to recognise that history shows that governments have been prone to the siren call of self-interest to a degree sufficient to cause apparent confusion between the interests of the political formation in power and those of the wider community. Furthermore, if one accepts Schumpeters’ arguments concerning the role and influence of interest groups in shaping government policy, then it becomes, at the very least, arguable that a governm’ view of the public interest may be distorted.

While not wanting to suggest that accountants are especially ethical or courageous (when compared to their colleagues in public service), they do have the advantage of belonging to a professional association that can support them, if it is minded to do so. Individuals acting alone may feel unable to raise their concerns for a variety of reasons which might include: a lack of access to relevant information, concern about continued employment prospects and so on. Accountants enjoy peer support which should be directed to helping them to discharge professional obligations - especially those relating to integrity, an orientation towards the truth and a commitment to the provision of independent advice.

Some will argue that this is to require nothing more than that which is owed by the civil servant as a matter of course. In some places, and at some times, this may be true. However, there are many countries and political systems where the independence of the civil service cannot be assumed, or where the degree of independence is heavily circumscribed. In such circumstances, the presence of professionals may afford access to an extended critical mass of independent advisors able to lend support to those who wish to resist attempts to give too partisan a flavour to debates about the nature of the common good.

Let me be clear, I am not suggesting that accountants ought to substitute their judgement for that of the government on matters of policy. Instead, I am saying that accountants must not suspend their judgement in deference to those who exercise power or influence. That is, the critical assessment by accountants should bolster a more general tradition in which civil servants provide impartial advice and service to the government of the day. To do so is quite consistent with a more general professional obligation to discern the difference between a clients’ interests and wants.

A Proposal and a Practical Example

The need for such a role to be played by accountants has been recognised, in part, by the institution of offices such as that of Auditor-General which, in the commonwealth sphere, in Australia, maintains statutory independence from the executive and reports directly to parliament. It seems to me that the office of Auditor-General, and those like it in the departments of State, provide an essential form of review. Yet, there are also examples where what might broadly be defined as an ‘accounting function’ can be extended beyond the task of reporting on events passed. Instead, a more pro-active approach can be adopted.

One example of this extension of role can be seen in the work of the Inspector General in the Commonwealth Department of Defence. While acknowledging that the Inspector Generals’ department fulfils many other roles, I would like to draw particular attention to its work in encouraging a more ethical environment.

In the case of Defence, one of the key motivations for the Defence Ethics Fraud Awareness Campaign (DEFAC) has been to minimise the incidence of fraud. Having said this, the Inspector Generals’ department has adopted an innovative approach designed to address fundamental questions about the overall culture within which fraud occurs. This has been an ambitious approach - especially given the way in which the services tend to reserve their right to define the traditions and dispositions that, in part, define the ethos of each unit.

I mention this work because it draws attention to the wider possibilities that might be explored by those who work in places, the primary purpose of which is to give account. The point of the example of the work being undertaken by the I/G is that it shows how a proper concern about accountability can lead to work that creates and reinforces structures in which practices conducive to the exercise of accountability can flourish.

Bearing this in mind, other agencies and officers (such as the Auditor General) may care to review the scope of services offered with a view to taking a more active role in assisting organisations to develop and maintain an ethical culture. Having said this, I would issue one word of caution. It is my considered view that talk of ethics ought to be separated from talk about fraud. While recognising that the prospect of savings (from reduced fraud) often motivates people to approve budgets for programmes in which ethics will be explored, I caution against reliance on the link between ethics and fraud. My chief reason for this is a concern that the maintenance of such a link will lead people to conclude (quite incorrectly) that ethics is primarily about stopping people from acting illegally. As has been argued above, ethical reflection is of more benefit than merely as a means to preventing wrong-doing.

Sorting the wheat from the chaff: a more speculative proposal

I have spoken of the need for accountants to have a particular orientation to the truth. This is not just a philosophical point about the distinctive concerns that may provide emphasis for professional orientation. It is also a practical point that has particular importance in a world in which the tide of information is reaching full flow.

Disintermediation is occurring in a considerable range of activities. Although most commonly associated with developments in the field of financial services, a similar phenomenon can be seen in almost any area where information is the underlying currency. Changes in the scope and power of information and communications technology mean that an increasing number of people, living in the industrialised world, have direct access to raw data (whether it be in the form of text, numbers or images). This increased access raises at least one important issue that accountants might address.

Most people with increased access to raw data will need to find independent sources of advice able to verify that data is reliable (and, preferably, true). Accountants have long been trusted as those who assure the broader community that financial information is both ‘truer’ and ‘fair’. Perhaps this role can be expanded to encompass other types of information that might be ‘audited’ by the profession.

Conclusion

In the current social environment there are many who would argue that a genuine commitment to ethics is an unrealisable ideal. Many think that sound ethical principles are fine in theory but that they can't really be applied in practice. To try to do so is to be nostalgic. They say that to promote virtue is to be old fashioned, to hark back to ideas only useful in a different era. They ask us to be ‘realistic’ and to embrace the ‘modern’ way of doing things. This plea is often nothing more than an ill disguised plea to allow for the survival of the fittest. Perhaps such people are right. Perhaps a dog-eat-dog world will be the most efficient. And perhaps efficiency is the only value that we need to embrace in the search for a worthwhile life. Or perhaps efficiency is only one of a number of important values that we must learn to juggle across an unpredictable landscape.

Those of us who are serious about the need to make ethical considerations an explicit concern in our daily lives must face up to this challenge. After all, what if our critics in the market place are right? What if the prime (and exclusive) aim in life really is to maximise our satisfaction of wants (and not just needs)? What if the liberty of the individual (important as it is) transcends all other considerations? What if it is through competition alone that we find the ultimate expression of our humanity?

One can only reply that an authentic commitment to leading an ethical life may require us to live in a way that makes only partial sense in a world dominated by an orientation to the principles of laissez faire. The noted Australian social researcher, Hugh Mackay,(iv) argues that a commitment to ethics may only make full sense when viewed against a background of community. That is, the possibility of leading an ethical life probably depends on the prior existence of a society and not just an enterprise association.

Most people have a fairly good feel for what it means to live in a ‘society’. But what about an ‘enterprise association'? John Casey(v) has tried to describe the latter:

We might imagine a city founded purely as a trading post. The laws of the city will reflect its original purpose, and have to be understood in relation to this purpose. Contracts will be vigorously enforced however unreasonable or unjust, because it is of the highest importance to retain the confidence of those with whom the city trades. Indeed, the notion of a contract being ‘unjust’ will have no meaning. All education will be subordinated to the need to produce an ‘enterprise culture’, and no subject will be studied as an end in itself. The rulers of the city will regard themselves essentially as the managers of the enterprise. Their tasks will be to maximise wealth and promote trade.

Is this so very far from what we now experience? Some may say that this is an accurate and even attractive picture of the type of world in which we live. But does such a view of our relationships miss something of vital importance? For example, do we exist simply to “facilitate the exchange of commodities’ or is there something more? Is there, for example, a need to value friendships, to realise that other people can make a claim on us? Is living in a society only possible when we recognise that each person is bound to others within a network of formal and informal relationships?

The professions, and the community that warrants their continued existence, face the challenge of making a choice about the kind of society to be preferred Do we desire a community of citizens in which something like the professions make sense? Or do we want the enterprise association in which each of us is little more than a purveyor or consumer of commodities? The latter consigns us to a place where the active pursuit of public service will seem strange and alien - just a shadow of a once remembered past.

Accountants ought to be at the forefront of debates about such matters. Beyond this, they need to demonstrate a practical commitment to being ethical and doing that which is right and good. Above all else, this will be the bedrock of their contribution to the task of building and maintaining a more ethical society.

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