Ethical Statements as Smokescreens for
Tony Puxty
Sectional Interests: The Case of the
UK Accountancy Profession
ABSTRACT. The UK accountancy industry has traded upon
its professional status as a means of expanding and legiti-
mating its activities. Extensive appeals are made to ethical
codes and disciplinary arrangements as part of its claim to
professional status. This study examines some recent events
relating to audit failures and alleged unprofessional conduct
by accountancy firms and their partners in the UK with a
view to assessing the validity of the claims to professional
status. It concludes that the rhetoric of the claims is belied by
the failure/inability of the professional accountancy bodies
to take effective action against the offending firms or their
partners.
Introduction
In advanced industrial societies, the public is ex-
pected to defer to the authority of the professions.
Professionals know best because they are assumed to
Austin Mitchell After an early career as a university lecturer he
became a televisionjournalist and since 1983 has been a Member
of Parliament. He was the Labour Party's Trade and Indus W
spokesman from 1987-1989. He published a number of books
and many articles in the press.
Anthony Puxty has since 1987 been professor of Accounting and
Finance at the University of Strathclyde. He has published some
seven books and more than seventypapers and articles.
Prem Sikka is a professionally qualified accountant. He is currently a
Principal Lecturer at the University of East London. He has
published two research monographs and more than seventy five
articles.
Hugh Willmott is currently a Senior Lecturer in the Manchester
School of Management, having worked previously at the Univer-
sity of Aston and the Copenhagen Business School. He has
published seven books and contributed numerous articles to
leading management, accounting, finance, and social science
journals.
Journal of Business Etkics 13: 39--51, 1994.
© 1994 Kluwer Academic Publishers. Printed in the Netherlands.
Austin Mitchell
Prem Sikka
Hugh Wiltmott
have a coherent body of theoretical knowledge,
altruistic motives, ethical codes, and arrangements
for disciplining fellow professionals who abuse their
authority (Haskell, 1984). With such claims, experts
pronounce upon what is valid or bogus and seek to
set the very terms, definitions, parameters and
agendas within which some social issues are debated
(Dingwall and Lewis, i 983).
Are such claims justified? The purpose of this
paper is to scrutinise the UK accountancy profes-
sion's ethical and disciplinary claims. This is highly
appropriate as the accountancy profession's activities
now affect a variety of social constituencies through
its influence on the measurement of income, dis-
tribution of wealth, assessment of risk, the worldngs
of markets, the provision of hospitals and play-
schools (Puxty, 1990). Furthermore, accountants
enjoy a statutory monopoly of the external audit
function yet there are no laws which deal with
accountants implicated in audit failures. The state
refers the outcome of its investigations into frauds,
collapses, and scandals to the professional bodies
who are then expected to take action against the
firms and members implicated in such episodes.
We examine the UK accountancy profession's
claims of professionalism by focusing on record on
investigating (alleged) violations of ethical codes and
acdon against auditing firms whose work is found to
be deficient. First, we examine how the profession
has responded to the findings of reports undertaken
by the UK's Department of Trade and Industry
(DTI) into the affairs of errant companies. Many
of these reports directly criticise the actions (or
inactions) of the auditors. Despite the findings of
these reports, the evidence shows that the profession
has failed to adequately discipline the auditing firms
concerned. The overall standards of the firms criti-
cised in the DTI reports have not been investigated.
40 A. Mitchell et aL
No partner implicated in audit failures has been
barred from practice. One reason for this, we con-
jecture, is the reluctance of the DTI to exert effective
pressure upon the major accountancy bodies, notably
the Institute of Chartered Accountants in England
and Wales (ICAEW), I to give any teeth to their
disciplinary procedures. For the DTI depends upon
inspectors who are partners of the very firms that
have been the subjects of other investigations. This
relationship coupled with the state's efforts in pro-
rooting confidence in the objectivity of audited
financial information inhibits the willingness of the
DTI to either take direct measures against the firms
or exert effective pressure upon the accountancy
bodies to take effective action.
Secondly, in seeking to better understand the
dynamics of the regulation process, we focus in
detail upon a particular case in which there were
grounds for suspecting a conflict of interest. We
regard this as something of a 'test case' since: in
our view, it provides clear evidence of the way a
sustained questioning of the practical honouring of
ethical claims is effectively stonewalled and how the
ICAEW acts to absorb pressure while the DTI
refuses to intervene. The outcome, as we show, is
that a veneer of professional respectability and
independence is, for the moment, preserved as
abuses of professional power and privilege are
concealed from public inspection.
To present and review the evidence, this paper is
divided into five sections. The first section examines
the profession's claims of ethical codes and disci-
plinary arrangements. Against this background, the
second section considers the pmfession's record on
disciplining errant firms and their partners. The
third section focuses on a particular case study that
tests the profession's willingness to enforce its ethical
statements where an accounting firm appeared to be
pursuing conflicting interests. The fourth section
discusses the significance of our evidence for the
accountancy industry's claims of professionalism.
The paper concludes by arguing that ethical state-
ments have acted to protect the profession from
sustained scrutiny.
Claims of professionalism
Numerous occupational groups - from nurses to
soccer players - aspire to professionalism. Such
claims are highly problematic and are contestable.
The very use of the concept of a 'profession' conjures
up a set of images which seek to condense a number
of characteristics into a composite image. Such
images are a historical construct against which many
writers have tended to rank or evaluate the chal-
lenging groups (Timperley and Osbaldson, 1975).
High amongst the traits ascribed to professional
occupations is the view that the members of a
profession are altruistic, unselfishly promote the
public interest2 and adhere to a professional code
of conduct (Carr-Saunders and Wilson, 1933). In
return for the privileged consultation and 'insider'
status in social policymaking, professional bodies
promise to investigate allegations of malpractice and
take disciplinary action against incompetent or
dishonest members (Millerson, 1964).
At the heart of professionalism is the claim to
subordinate or, at least moderate self-interest in
service of the public interest. This, it is argued, can
be accomplished through a lengthy period of train-
ing in which an ethical code of conduct, backed up
by a disciplinary procedure capable of exposing and
penalising recalcitrant behaviour, is internalised by
its members. It is these features that 'professional'
bodies appeal when seeking to differentiate their
status from trade unions and other occupational
associations that are quite explicit in their pursuit of
their members' sectional interests (McNeil,3 1992).
Much of the accounting literature assumes that
accountancy is a profession (for example, see Mon-
tagna, 1974; Previts, 1985; Flint, 1988). The uncriti-
cal acceptance of such claims helps the profession to
legitimise and maintain its monopoly of the external
audit function and secure privileges, status and
rewards for its members whose activities have ex-
panded to encompass a diverse range of activities
(Willmott, 1986). The imagery of an altruistic
profession continues to be promoted by the state-
ments issued by the accountancy institutes (Institute
of Chartered Accountants in England and Wales,
1979; Chartered Association of Certified Account-
ants, 1984, 1991). Typical of their professional
pronouncements are that,
In accepting or continuing a professional assignment or
occupation a member should always have regard to any factors
which might reflect adversely upon his integrity and objectivity in
relation to that assignment or occupation (emphasisadded).