An ethical dilemma for accountants
A version of this article was first published: after a presentation at a Certified Practicing Accountants' Conference - March 1997
Imagine that you are the Chief Financial Officer of a medium to large company. It is April and the Chief Executive Officer has just returned from a meeting with the company's bankers. She calls you to her office to discuss the results of the negotiations. As things stand, the company requires a fairly significant injection of capital which will be used to modernise plant and equipment. The company has been promised new orders if it can produce goods to an international standard. Existing machinery is incapable of manufacturing the required level of quality. Whilst the bank is sympathetic, current lending policies require borrowers to demonstrate an adequate current and projected cash flow, as well as a level of profitability sufficient to indicate a capacity to make repayments from an early date. The problem is that, largely because of some industrial problems, the business has not been performing at a level which realises even its 'unimproved' potential. Strictly speaking, the figures would not satisfy the bank's criteria.
The CEO reminds you of all of this and then mentions that she has told the bank that the company is in excellent shape, that she believes that its financial results will meet the criteria and that she will ask the Chief Financial Officer to deliver a financial report to the bank at the beginning of the next week. She tells you that it is up to you to decide upon the contents of that report.
Two final pieces of information; you have recently purchased a home - leveraged with a significant mortgage. Failure to invest and gain the promised new orders is almost certain to lead to major retrenchments of personnel.
What are some of the ethical issues arising in a case such as this? For the most part they are fairly obvious:
- Should the accountant tell the truth to the bank, irrespective of the consequences?
- Does it really matter if the accountant massages the figures, perhaps factoring in notional income arising from projected new sales that will be made once the new plant is operational? After all, the projected cash flows are the really important thing to consider.
- Does the accountant have a duty to do everything possible to ensure the preservation of jobs at the factory?
- Is the self-interest of the accountant a justifiable concern?
- How should the accountant tackle the matter of loyalty to the CEO?
Whilst this presentation involves a fictional dilemma, it is not too far removed from the actual experience of many practitioners. Even so, it is important to realise that there is still something rather artificial about such a construction. It's not that the case is unreal. Rather, the problem arises from the fact that most ethical dilemmas are of a much smaller dimension, perhaps lacking the obvious significance of the type of 'big ticket' issue outlined above.
Indeed, one of the things that we need to recognise is that many people find it difficult to recognise an ethical dilemma as such. It is not that most people are inherently unethical. Instead, the problem is that many people are unconscious of the fact that nearly everything that they do has an ethical dimension. Before trying to explain the reason for this, it may be interesting to pause and consider some of the relatively 'invisible' cases where ethical questions seem to be ignored. Take a simple example; have you ever seen a person avoid taking a telephone call by telling someone else to answer and say that the person is not there. Even such a simple case has at least two aspects to consider. Firstly there is the matter of deceit and secondly there is the matter of getting someone else to do the 'dirty work".
Some might respond by saying that this sort of behaviour is quite harmless. But is it really? What sort of message does such behaviour give about the prevailing values of an organisation? How easy is it to accept an avowal of honesty from a person who is habitually deceitful for the sake of minor personal convenience?
Some people take a similar line when it comes to filling in a tax return, or when producing financial statements or when trying to do a cost benefit analysis that compares product safety with cost of production, retrenchments with increased dividends to shareholders. Practical concerns and pragmatic considerations can make one relatively blind when it comes to spotting ethical issues which arise.
The reason for mentioning these cases is to demonstrate how even simple forms of behaviour are loaded with ethical significance. This ceases to be any kind of mystery once it is realised that ethics is all about answering a very fundamental question; namely, "What ought one to do?". As you will appreciate, this ancient question is an immensely practical one that admits all manner of answers. Some of these answers are given in the form of established moralities, frequently expressed in the writings and teachings of great religions. Other answers have been generated by philosophers searching for theories that might give some rational underpinning to answers about the nature of 'right living".
As this audience will know, the different voices in the conversation about how to answer that fundamental question seem to be arguing quite different cases. However, although there are real differences to be observed there is also much that is shared in common - not least, a fundamental agreement that persons ought to be valued as ends in themselves and not simply as means to help realise the ends of others.
It is not just philosophers and theologians who have been in the business of developing ethical systems. Various groups in society have also been active in the development of rules of conduct that are sometimes referred to as Codes of Ethics. The rules of the Accounting profession represent one such attempt to codify principles that apply to a particular group of people engaged in a common activity. Before going on to look at the status of such rules, it may be useful to say something, in general, about what it means to claim the status of being considered a profession. There is a widely accepted definition that runs as follows:
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 of livelihood. Pursuit of the learned art in the spirit of public service is the primary purpose.
Dean Roscoe Pound
Thus, a profession is distinguished by having a:
- Specialised body of knowledge
- Commitment to the social good
- Ability to regulate itself
- High social status
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 (1993, p. 1) issued a discussion paper, Professional Services, Responsibility and Competition Policy. 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 (1986, p. 18) 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, one's 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.
But is there more to being an accountant than is captured by the definition of the professional? One answer suggests that beyond there being a specialised body of knowledge, there is also a particular end that helps to define the accountant's practice. Medical practitioners have the preservation and encouragement of health as an end, lawyers have the pursuit of justice as an end. It can be argued that accountants have the presentation of truth, in a fair and accurate manner, as an end. Naturally enough there is cross-over between the professions. No one group can be so focussed as to ignore truth or justice in favour of, say, health. This is especially so when one realises that most matters involve one in engaging with a complex web of values. It should also be conceded that to talk of the 'presentation of truth' as being an important end of accounting may be to run the risk of ignoring other important factors.
The real point to be made is that accountants, as professionals, cannot rely exclusively on their rules to define who they are and what they will do when traversing the ethical landscape. Rules are a rough and ready guide when issues are clear. But they tend to let us down whenever we are faced with a genuine ethical dilemma. To refer back to the beginning of this paper, it is in precisely such circumstances that you need to dig a little deeper. At a certain depth the challenge is to look at ethics from the point of view that demands answers to the questions, "What sort of person do I want to be?' and "What sort of community do I want to help to create?".
Questions of this sort lead to contemplation about dispositions (to obey the rules, to ask difficult questions and so on). If a person's character is being consciously expressed by what he or she does, then it becomes especially important to consider whether proposed actions represent justifiable and consistent aspirations about personal identity. Does it really make sense to do anything to get the job done? Is it really in the interests of the client to do exactly what he or she wants?
One is forced to ask whether being a professional involves exercising judgement (and not just skill). Are professionals relied upon by society to act as 'gate-keepers' of sorts?
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.
The line being developed in this paper may seem to be incredibly idealistic. Perhaps it is. On the other hand, if idealism is scorned then a change in perspective may be forced on the professions by a public which has many members who are sick and tired of paying the price for the sake of those who decided that it was more profitable to be a 'gun for hire' than a 'gate-keeper".
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.
There are many factors that motivate people: natural dispositions to do what is right, the binding standards of the profession or, indirectly, the flow of sentiment arising from public pressure. Whatever the stimulus, there is evidence that change requires nothing more than a capacity and willingness in people to ask quite simple questions about the rightness of any proposed course of action.
It is this sense of awareness that ethical questions can and ought to be asked whenever we have a choice that really helps to define an approach that, in part, constitutes the role of the professional. To ask questions is not to seek to impose an answer on clients or colleagues. But, it is to seek to add a new dimension of significance to the decision-making process.
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).
In considering such matters, can you be sure 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 'sunlight test' of public scrutiny. 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. Your profession's disciplinary committee can apply many sanctions but none as harsh and as potentially harmful as the loss of one's good name.
To be a member of a profession is to be a member of a community. Ethical issues are not restricted to matters arising in relationships with clients and the community. There is also the very real question of how accountants relate to one another. This goes beyond being a matter of professional etiquette. Whilst matters of etiquette are important as an indication of mutual respect between members of a profession, there is a need to be aware of deeper obligations to one's colleagues. In particular, members of the profession have a responsibility to provide mutual support and encouragement so that it becomes absolutely unquestioned and natural for accountants to present the truth in a fair and honest fashion and in a spirit of public service. In such circumstances clients would probably think twice before seeking creative accounting solutions to particular problems. Some of the hesitation would be due to the fact that the days of shopping around for a compliant practitioner would be largely over. One would also hope that those accountants operating in business would find a greater acceptance of their role as professionals capable of providing considered advice that goes beyond matters of simple expedience.
Being consciously ethical in one's outlook, keeping one's eyes open and mind engaged on such matters is a taxing and frequently thankless task. Very few people openly appreciate being made to think about value questions when under pressure to get the job done. This remains so despite the fact that ethical blindness is a lot like colour blindness. In both cases defective vision can lead to accidents where injury to innocent third parties could have been avoided if warning signs had been seen and read. As young accountants you are the inheritors of a tradition in which people have been prepared to point out the warning signs, even when the driver has been unwilling to look up from the road (or, for that matter, without thanks from the pedestrian on the crossing). In the past, some have felt able to betray that tradition. Whether or not it can be preserved will depend on the kinds of decisions that individuals make when trying to answer that fundamental practical question, “What ought one to do?”.
To return to the question of the ethical dilemma. It is perhaps an unfortunate fact of life for us that there really are circumstances in which no system of rules can provide us with a sure and uncontroversial answer. On the other hand, it may be that the existence of ethical dilemmas provide us with two great boons; an opportunity to exercise our freedom and sense of personal responsibility and also to engage with others in exploring and developing traditions that provide guidance to communities.
- Australian Council of Professions, (1993) Professional Services, Responsibility and Competition Policy: a discussion paper prepared for the Permanent Advisory Committee, August 1993
- Davis, M & Elliston, FA (Eds) (1986), Ethics & the Legal Profession, New York, Prometheus Books
- Pound, R (1986) quoted in American Bar Association Commission on Professionalism, (1966), In the Spirit of Public Service: a blueprint for the rekindling of lawyer professionalism, American Bar Association