Accounting
Professionalism &
Ethics in Accounting
Education
Dr. imad faour,*
Chairperson, of Accounting and Marketing department, A U L.
A fter Enron, WorldCom, and a seemingly endless roster of
additional accounting scandals, the public, and their elected
representatives, want to know what has happened to ethics in
accounting? Has the profession become less ethical? or have
the recent economic downturn and related bankruptcies simply
brought to light ethically questionable practices that have been
going on for a long time?
What can we do to stem the tide? Similar questions have been
raised approximately every ten years, whenever the economy
slumps and bankruptcies, often accompanied by financial fraud
increase.
Every decade, when financial frauds of enormous proportions
are exposed, questions are also raised about accounting
education.
Are we not teaching our students enough ethics? Can ethics
be taught? If so, how do we best teach ethics to accounting
students?
Professionalism
What is a profession, and what makes it different from other
for-profit endeavors? Sociologists tell us that professions share
certain attributes including expertise, monopoly, public interest,
and self-regulation.
Expertise, or special knowledge, is acquired through higher
education and extensive training. The knowledge is of an
academic, theoretic nature. Hence, professionals sell advice,
not things. The expertise is also characterized by the fact that
it requires professional judgment, not just technical skills. If
answers could always be found by reference to written materials,
such as laws, codes, or detailed standards, the individual would
be technician, not a professional.
* imad.faour@auf.edu.lb
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Society is generally happy to have experts in its midst because
the expertise helps make society, or some of its members, better
off. But society does not want non-experts claiming to possess
the expertise and mislead the general public.
But society now becomes nervous. Knowledge is power. A small
group of experts possess certain knowledge and society gives
them even more power by granting them a monopoly. How does
society know the power will be used to benefit, not harm it, some
members of the profession will not follow the code of ethics.
Society deems professionals, themselves, to be best suited to
recognize and weed out these “bad apples.” So society grants
the privilege of self-regulation to the profession if and only if
the profession takes it seriously, as a duty. If society believes
the profession is not doing a good job at self-regulation, it will
take back the privilege, usually by increasing legislation and
litigation.
Three levels of ethics
1. The macro level:
Students today cannot escape hearing references in the financial
press and classroom to such watershed events as the bankruptcy
of Enron, the demise of Arthur Andersen, or the enactment of the
Sarbanes-Oxley Act of 2002 (Sarbox). How do we help them
put these events into an historical perspective; especially one
that emphasizes recent changes in the accounting profession?
In the 1970s, for example, the economy experienced a downturn,
accompanied by a rash of bankruptcies: Equity Funding, Penn
Central, Four Seasons Nursing Homes, etc. In addition, the
press disclosed illegal and improper payments by some large
and prestigious corporations. The public cry, “Where were the
auditors?” could be heard all the way to Washington?
In 1976 Congressman John Moss (D-Calif.) issued a report
advocating regulatory reform that, among other things, called for

the following:
• Uniform accounting principles should be prescribed by the SEC
• Auditors should attest to the quality of internal controls
• Corporate Boards of Directors should have a majority of
members unrelated to management.
Within a year Senator Lee Metcalf (D-Mont.) issued a staff report
calling for even greater reforms, including the following:
• The federal government should directly establish financial
accounting standards
• The federal government should specifically prohibit direct or
indirect representation of clients’ interests and performance of
non-accounting management advisory services by auditors for
their public or private clients.
The AICPA formed the Commission on Auditors’ Responsibilities
(Cohen Commission) in response to the same factors that resulted
in congressional investigations of the profession. The Cohen
Commission addressed the “expectations gap” between what
the public expects and what auditors understand their role to be
relative to the finding of financial fraud. The Cohen Commission,
like the Moss report, recommended that management report
on their companies’ internal control systems and auditors
should report on whether or not they agree with managements’
assessment of internal controls. The commission also asserted
that audits should be designed to provide reasonable assurance
that the financial statements are not affected by material fraud.
Early in the 1990s the Public Oversight Board (POB) issued a
comprehensive report, titled “In the Pubic Interest,” on issues
Accounting
confronting the profession. The report contained extensive
recommendations to enhance self-regulation. Soon after the
report was issued, however, Walter Schuetze, chief accountant
at the SEC, gave a scathing speech at an AICPA conference.
He was particularly critical of auditors who do not stand up to
their clients on financial accounting and reporting issues, and
went so far as to call auditors “cheerleaders for their clients.”
In response, the POB appointed an “Advisory Panel on
Auditor Independence,” and that panel issued a report titled
“Strengthening the Professionalism of the Independent Auditor.”
The primary recommendations of the advisory panel were as
follows:
• The Board of Directors, not management, is the audit “client”
• Auditors should express to the Audit Committee their
independent judgments about the appropriateness, not just
acceptability, of the accounting principles used and the clarity of
financial disclosures
• The Audit Committee should hear directly from the auditors
whether managements’ choices of accounting principles are
conservative, moderate, or extreme
• The auditors should meet with the Audit Committee at least
annually without management present.
In the mid 1990s the Government Accounting Office (GAO)
issued a comprehensive report, requested by Congressman
Dingell, titled “The Accounting Profession: Major Issues,
Progress, and Concerns.” Its stated purpose was to identify major
recommendations from 1972 to 1995 and identify unresolved
issues.
The report identified the following issues as unresolved:
• Auditor independence,
• Responsibility for detecting fraud,
• Reporting on internal controls,
• Public participation in standard setting,
• Timeliness and relevance of accounting standards,
• Maintaining independence of the FASB.
The remainder of the decade saw an intense effort on the part of
the SEC to strengthen auditors’ independence and to strengthen
audit committees of boards of directors.
If students have a sense of the historical trends facing the
profession and observe the development of major themes
(e.g., expectations gap, consulting for audit clients, role of audit
committees) they will understand why the Sarbanes-Oxley Act
of 2002 (Sarbox) focused on the issues it did. Much of the
content of Sarbox had been debated in the halls of congress
for three decades. As a result of Sarbox, the accounting
profession has lost much of its power to self-regulate. Some
would say the profession itself, as a collective, has lost its
ethical moorings.
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 Accounting
2. The level of the firm
In addition to macro, or global ethical issues, accountants and
their ethical decisions are affected by the structures, systems,
and culture within which they work. Students are not well
educated if they leave the university ignorant of the power of
corporate culture, especially the tone at the top, in shaping
attitudes, belief systems, and behaviors. Case studies may be a
particularly useful tool to convey different corporate cultures.
For example, many recent articles and books have exposed a
particularly cut-throat and arrogant culture at Enron, and others
attempt to document a change in culture at Arthur Andersen over
the past two decades. Those cultures might be contrasted with
that of Johnson & Johnson, where the corporate “Credo” infuses
a sense of mission and purposefulness, other than greed, in its
employees.
In addition to corporate culture, firm structures, beginning with
governance structures, are powerful tools in promoting ethical
behavior. What are the proper roles for audit committees? What
makes one audit committee strong and another weak? What
organizational structures make internal auditors strong or weak?
What systems promote ethical behavior? Reward systems, in
particular, shape behavior. It is unrealistic to ask employees
to act ethically while rewarding them for enhancing the bottom
83 THE CERTIFIED ACCOUNTANT 3rd Quarter 2008 ‫ ـ ـ‬Issuse #35
line “at any cost.” At Arthur Andersen, David Duncan, partner in
charge of the Enron audit, had final say with regard to technical
accounting issues, not the technical experts in the firm. What
would have happened to his career and $700,000 salary if he
had insisted that Enron consolidate its special purpose entities
and, as a result, lost the client? He should not have been put
in a position to make that decision. Firm structures and reward
systems can be formed to enhance or defeat ethical decision-
making.
3. The micro level
Most ethics courses at the collegiate level focus on ethics at the
level of the individual. In particular, they concentrate on helping
students develop critical thinking skills in a moral context. Critical
thinking skills, however, are only one component of ethical
behavior.
According to James Rest, there are four components of ethical
behavior:
• Ethical sensitivity (spotting the issues)
• Ethical reasoning (thinking it through)
• Ethical motivation (desire to act ethically)
• Ethical behavior (carrying through)
As educators, we must help our students spot the ethical issues
before they become so embroiled in them that their action
choices are limited. Ethical sensitivity can be enhanced in all
accounting courses by talking about ethical issues germane to
the technical issues being covered.
Ethics cases and problems at the end of textbook chapters might
also be utilized to help enhance ethical sensitivity.
Ethical reasoning skills can be enhanced in a number of ways:
Philosophy courses, specialized accounting or business ethics
courses, courses in critical thinking, or even the study of great
literature. The majority of research studies on ethics education in
accounting concentrate on this component of ethical behavior.
Ethical motivation, the desire to act ethically, is not a cognitive
skill, but accounting academics still have a role in enhancing it
in their students. In the field of Dentistry, Bebeau has shown
that ethical motivation is enhanced when students identify with
their profession. Hence, developing a sense of professionalism
and enhancing pride in the profession are powerful motivators.
One way to enhance pride in the profession is to tell stories
about “accounting heroes.” In its December 30, 2002 issue,
Time Magazine featured three women as “Persons of the Year”:
Cynthia Cooper of WorldCom, Coleen Rowley of the FBI, and
Sherron Watkins of Enron. Two of the three were accountants.
Exhortation can also be a powerful tool used by academics to
help increase students’ desire to act ethically. We are sometimes
reluctant to “preach” to students, but we should not be shy about
exhorting them to uphold high ethical standards and to aspire
always to protect the public interest.

Today’s students are tomorrow’s leaders. The public interest
requires leaders of the accounting profession to understand
their unique role as professionals and to embrace their
responsibility to act in the public interest. But being responsible
leaders does not end with personal ethical choices. Ethical
leaders will also recognize the need to create organizations
where ethical decisions are not undermined but are supported
and encouraged, even when painful. Leaders of the profession
will also recognize the need to work at a global level, through
professional societies and/or together with governmental
organizations, to create systems designated to protect and
enhance the public interest.
Accounting curricula need to systematically convey these
concepts to students. An example of such a systematic approach
Back to Basics "Economy Requires"
Cash Flow Approach
The last time you turned on the TV, the reporters were
screaming about the doom and gloom economy. The
newspaper headlines are focused on how this awful
economy is impacting your local area. And that stock
ticker you peeked at the other day made you sick to your
stomach.
You’re not alone. But this is not “new” news to small
business owners like you. You work hard to keep your cash
flowing and fight to make sure the bottom line is out of the
red each and every day.
There’s never much rest for small business owners who
want to make their business a success. But this time the
impact is worse than we’ve seen for a long time. With huge
companies failing and banks struggling to stay afloat, the
trickle down affect could surely reach your business.
So what do you do?
It’s time to get back to basics. The last thing you should
be doing right now is the same old thing and expecting
different results. Here’s where you need to begin:
Accounts Receivable - Take a hard look at who owes
you money and how long it’s been pending. If all of your
receivables are up to date, there’s no action for you to take
here. But I suspect that’s not the case.
Many small business owners let their receivables become
lax because they don’t want to become a collection company.
But the reality is that the longer a customer takes to pay
you, the less chance you will have of getting that payment.
Accounting
might include the following: A course in ethics taught by the
philosophy department required of accounting students in the
sophomore or junior year, ethics cases/problems/discussions in
every accounting course, an applied ethics course in the senior
year, taught by accounting faculty, covering accounting ethics
at the micro and macro levels, and finally a graduate course in
the fifth year, taught by accounting faculty, covering ethics at the
level of the firm.
References:
- Business Ethics – A philosophical Reader, by Thomas I. White
- Internal Auditing – The Practice of Modern Internal Auditing
- The CPA Journal Online
- www.scu.edu
It’s time to make a list of all receivables that are older than
30 days. Then contact those customers with outstanding
balances and get a clear payment commitment.
Accounts Payable - What goes out of your business every
month makes a huge difference in your bottom line. And if
you’re like most small business owners, there’s probably a
bit of fat in there somewhere.
Time to make another list.
Look at your financial reports, check register and credit
card statements and list every single thing you are spending
money on. Then get out your scalpel and start cutting. For
every item on the list ask yourself how it contributes to the
bottom line of your business. If it doesn’t add value to the
services you provide to your customers or create a return
on investment for your business, it needs to go.
Once you have your incoming and outgoing financials in
shape, you need to stay on top of them. There’s no better
way to keep track of how much cash you need flowing
through your business than to create and monitor a cash
flow budget. Your budget should include an outlook of
at least six months that details cash on hand, projected
income and expenses.
Staying on top of what your business needs to stay afloat
financially will go a long way in helping you make your
business a success. And it will help you sleep better at
night too.
Denise O’Berry
Small Business Expert
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