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Ethics of the accounting profession:

Staying out of the disciplinary committee

by Simon Longstaff

It appears to be a regular trait of human nature that no-one likes to be thought of as a villain (except, perhaps, in a romantic sense). For most of the time, wrongdoing is a petty business hardly likely to fire the imagination of a gullible public which rarely sees the harm which lies behind the tabloid images of 'derring-do". Indeed, Australia is just now coming to terms with a mass-flirtation with a handful of 'robber barons". Imitation being the sincerest form of flattery, it is fair to say that a significant number of Australians joined in, in their own modest way. Now that the party is over, people are looking for someone to blame and a list of convenient targets would seem to include the accounting profession.

As noted above, very little of that which passes for dodgy behaviour is in any sense glamorous. That is probably one reason why the perpetrators of misdemeanours so rarely welcome publicity. It is not that they fear discovery (they have already been caught). Rather, there is an abiding sense of shame and, perhaps the milder condition of embarrassment at having been caught perpetrating a sordid little indiscretion.

As indicated above, people generally do not like others to think of them as having taken advantage of them. As C. S. Lewis asks, "can you think of a country where people are admired for running away in battle or where a man felt proud for double crossing someone who had been kind to him ... Selfishness has never been admired". Having said all of this, it might seem likely that there would be a great deal of interest in the topic of ethics. Perhaps it is the case that the climate for discussing ethics is improving. However, there are still some considerable barriers to be overcome.

What is ‘ethics’ all about?

Mention the topic of ‘ethics’ and, with a few exceptions, you are likely to elicit one of two common reactions. For many people the realm of ethics, what might be called the ‘ethical landscape’, is a place of complex and daunting terrain. It is a place far removed from their daily experience, it is an abstract entity which has little bearing on the real issues that they confront on a daily basis. Or so they think! Another familiar reaction comes from the person who believes that the 'ethical landscape' is bounded by specific sets of rules which, in turn, vary according to the context. So it is that some accountants will want to answer questions concerning ethics by drawing attention to sections recorded in their code.

Both types of response are understandable and both are less than adequate to the task of developing a proper appreciation of the role of ethics in the life of the professional. One of the ways to achieve a proper understanding of the realm of ethics is to consider the kind of issues that questions about ethics are meant to address. As will be seen, the range of issues is vast. However, there is one question, above all others, which defines our area of concern. This question was first asked by the ancient Greek philosopher, Socrates, and it is, “What ought one to do?”.

It should be noticed that there is nothing at all abstract about such a question. Indeed, it is an immensely practical question. If one thinks about it, it can be seen that such a question touches on every aspect of the conduct of our lives. How will we spend our time, how will we treat other members of our community, what values will we accord to such nebulous concepts as those of: leisure, the environment, human relationships, integrity and so on?

It is interesting to probe the matter a little further. Suppose I was to outline for you some sort of scenario which requires you to make a practical response. Such a scenario might involve you in trying to determine whether or not a doctor should always be absolutely truthful when answering patients' questions about illness. Alternatively, it might require you to determine the extent to which the competing interests of stakeholders should be balanced in the conduct of a commercial operation. Or again, it may involve you in deciding on issues such as the role of censorship in society, who to vote for in an election, whether to encourage your parents to book into a home for the aged, deciding for and against the purchase of environmentally friendly products, whether to read a novel or watch a soap opera and so on.

As you can see, the questions are endless. This, in itself, may help you to see the extent of territory making up the ‘ethical landscape’. But the thing which I would draw to your attention is that in considering how to respond to any of these scenarios you would be drawing upon your understanding of what you consider to be the essential elements of the ‘good life’. This explains the power and sweep of Socrates' question as it ultimately requires us to come to an understanding of what we would consider a ‘good’ life to be.

Is the 'good life' one of maximum pleasure and minimum pain, is it one of happiness, is it one shaped by obedience to a law which we give ourselves as rational beings, is it a life spent in obedience to the revealed commands of God, or is it one so led that at the very end it is possible to look back, without any regrets, and judge that your life has exemplified the true end of human being?

At one time or another, over the centuries, these ideas of what the 'good life' may involve have competed with one another for primacy of position when answering Socrates' question. I've outlined a few of the options. You will be able to think of more.

The other point of view is that ethics is all about rules governing the way in which we determine what is ‘right’ or ‘wrong’, ‘good’ or 'bad". There is, of course, a place for rules in the scheme of things. They are of potential use in a number of contexts. Their chief advantage arises from the fact that they can be applied in a relatively uniform way by different people. That way, life is made a little more predictable.

The trouble is that people often fail to keep their rules under review. This is not to say that a good set of rules should be changed just for the sake of variety. Rather, it points to the need to keep our understanding of the rules up to date and alive. The biggest problem with rules is that they depend, for their effectiveness, on there being people who are inclined to observe them. When you have a situation in which fundamental commitments have been set aside in favour of a situation in which people try to test the limits and see how much they can 'get away with", then the rules are hardly worth the paper that they are written on. This reminds me of a proposition made by one of the characters in Plato's The Republic. Adeimantus says:

I will describe around me a picture and shadow of virtue to be the vestibule and exterior of my house; behind I will trail the subtle and crafty fox.

In other words, he will keep up the appearance and reputation of honesty whilst trying to cheat as many as possible without getting caught. Only the 'mugs' are left to play by the rules.

So ethics, in general, require us to look beyond a framework which somebody imposes on us to one in which we have a view about all the dimensions of a ‘good’ life.

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Ethics and the practising accountant

Some of this may seem to be fairly remote when looked at from the perspective of the practising accountant. But think about it for a moment. The image of the accountant as a be-spectacled number cruncher buried in a back-room was always a fictional stereotype. The point that the caricaturists have always ignored is that accountants deal with clients; real people who have substantial problems that need resolution. Clients are made of flesh and blood and not numbers. True, it is essential that there be a high degree of technical competence; however, this is based on a fundamental premise that, as a professional, a duty of care is owed to the client, to the community, to other members of the profession and even, dare it be said, to oneself.

Naturally enough, there are some countervailing influences that work against the maintenance of a position of integrity. Some of these influences can be reduced, at a crude level, to various instances of greed. But there are more powerful factors which eat at the heart of any system of ethics. One of these is the need to ensure the survival of an enterprise. When things are tough, the temptation is to think of ethics as a luxury which can no longer be afforded. 'Let the client decide". 'Who am I to impose my values?". 'He who pays the piper calls the tune". 'If I don't do it then someone else will and they will get the fee. I'm usually very ethical, I deserve to survive".

This sort of attitude works in harmony with a tendency to see the law as a boundary to be tested to the extreme. 'What does the letter of the law require?". 'If the legislators didn't do their job well enough, then who am I to let them off the hook?". It is so easy to ignore the spirit of the law - especially in a time, such as ours, during which a predominantly 'legalistic' outlook is still dominant.

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.

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The paradox of the response from business

One thing that must be borne in mind is that the conditions, just outlined above, apply across the board. Every group in society has an opportunity to relieve themselves of responsibility for their own actions. A grudging reliance on government regulation can lead to a de facto abrogation of responsibility. In a similar way, reliance on professional advice allows for an opportunity to deflect criticism, blame and the penalty of sanctions. Some may regard this as a cynical suggestion, but it may be that business seeks further to insulate its sense of responsibility by taking cover under the cloak of the professions.

By relying on professional advice and services, any business seen to transgress the community's mandate has the option of trying to shrug off the onus of responsibility by pointing to the government of the day's failure to define (in adequate terms) the limit of the law, or to the experts who, having been consulted, approved, and even facilitated, the ill-regarded course of action.

This places the professional in an invidious position. It is often the case that the client will indicate a preferred course of action in the most general of terms and then ask, 'can this be done and if so, then how?". Such a client rarely asks, 'Ought this be done?". In many situations, this reduces the professional to the status of a 'hired gun".

But, could it be that many people in business are actually looking for someone to point out the limitations inherent in a proposed course of action. The situation may be likened to the activities of a diabetic who is cursed with a sweet tooth. The last thing that such a person needs is a doctor who agrees to provide the opportunity and means for the consumption of vast amounts of chocolate. Chocolate may be what the patient wants, but it may not always be what the patient needs. Indeed, there may even be times when such a patient would welcome the intervention of a doctor who is prepared to advise against a course of action and then refuse to assist in its commission.

This is purely a matter of speculation. However, is it possible that business may look to members of the professions to take a broader view of what may be in the client's interest? Following on from this, it may be that business expects the professions to act as a buffer against which they can drive their plans and ambitions. The fact that it is possible to do something doesn't mean that it ought to be done. In the aftermath of the 1980s, there is probably a number of people in business who continue to appreciate the fact that someone had the moral courage to dissuade them from a reckless course of action.

Then again, there are those who will pursue a course of action irrespective of the harm that it might cause to others or even, to themselves. Having made up their minds, they go for it. As things stand at the moment, a client who is bent upon a course of action can always shop around to find an accountant who is prepared to do what is deemed to be necessary. The temptation to capitulate and lower standards in order to maintain business must be very hard to resist. But if the profession has a sufficiently strong code of ethics which has been internalised by its members, then it may be that certain types of actions (which would not otherwise be possible without the assistance of a member of the profession) will not be performed. And it may be that the frustrated client may even be secretly pleased that an unwanted passion has been thwarted by another who can take the responsibility and hence the blame.

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Some possible solutions for the courageous

Each of these factors may affect the way in which a person responds to the opportunity to participate in an unethical course of action. So, are there any solutions? It is to be hoped that a few hints as to a proper response have been given above.

However, it may be as well to suggest a simple test that can be applied before a course of action is embarked upon. This test has been around for some time, but was recently given prominence when referred to by the emergency Chairman of Salomon Brothers, Warren Buffett, when appearing before a U.S. Senate hearing, concerning the improper trading of treasury bonds. Buffett suggested that the test to be applied should involve asking yourself whether or not you would be happy to appear on prime-time television to be questioned about your proposed course of action by a skilled and fully-informed interviewer and knowing that your family and friends would be members of the audience. Such a test is invaluable as a rough rule of thumb and should be thought of as such. In most circumstances, it will do its job.

The trouble is that nearly everyone can recall a situation in which the choice was between two equally ‘wrong’ alternatives. Is it best to compound a lie and keep the job or be scrupulously honest, maybe blow the whistle and face possible unemployment during a recession, with all that it could mean for a family? Should one poach another accountant's clients and stay in business or go down under a mountain of liabilities, including the mortgage on the family home? How to allocate a limited amount of time; to the family, to the clients who are looking for service or in studying the latest issue of the professional journal? There is a limit to what a rule of thumb (or even a canon of rules) can achieve.

The seriousness of each dilemma seems to vary. Yet even this may be a matter that requires comment. Why is it that some types of unethical behaviour appear worse than others? For example, nearly everybody would be in high dudgeon at the thought of an accountant misappropriating funds from a children's charity. Yet, it is difficult to generate the same ire when discussing an accountant who connives in 'creative accounting' designed to help a small business to complete the tax return. It is interesting to ask why this should be. Perhaps the answer lies in the degree of visibility enjoyed by the 'victim". Or, perhaps the difference lies in the relative position of power at the disposal of the different parties.

It is, of course, impossible to give a definitive answer to this question. However, it does draw attention to a range of issues relating to our perception of our responsibilities as citizens; that is, as fellow members of a community of interdependent individuals. Formal and informal sanctions may act as some sort of protection and as a check on less noble ambitions. But beyond this is the prospect of there being a positive incentive to preserve and enhance the quality of life enjoyed by society as a whole. This is to go beyond the injunction, 'do no harm", and actually to seek to do some good by the quality of the example set for other members of the community.

In closing, I want to suggest that the accounting profession finds itself in a privileged position in a modern and complex society such as ours. Complexity brings with it opportunities for the less scrupulous to take advantage of distractions and divided attention. Complexity is the parent of conditions in which people have need of strategic advice. Complexity generates a demand for the deployment of technical skills that the majority will not have mastered.

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Conclusion

Accountants have the capacity and the opportunity to look below the surface of this complex society. I am sure that some have taken the opportunity to plumb the depths! Others are more attuned to the light. Whatever the case, members of the accounting profession have an opportunity to go beyond the provision of merely technical advice. Being a member of the accounting profession and, therefore, one of the 'gate-keepers' of our society, the accountant can stop to ask clients to consider whether what they want, at any point in time, is in fact what they might choose if they took a broader view of their own self-interest (including that of their community).

Perhaps the key to staying out of the disciplinary committee is to ensure that your practice is a proper expression of the role of the professional, which necessarily involves a regard for the wellbeing of others in the community. In the same vein, try to imagine whether or not your actions would stand up to the scrutiny envisaged in Warren Buffett's test. The motto of the Society is 'integrity". Placed on a letter-head or a shield it is just a word, a series of printed letters. The word 'integrity' only gains life and meaning when it is applied to a person. That which is attained only after the passage of time and testing, can be lost in a moment of disregard. The disciplinary committee can apply many sanctions but none as harsh and as potentially harmful as the loss of one's good name.

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