Chapter 3 Ethics and CG

Technical and Ethical
Responsibilities in Accounting
Chapter 1
www.wiley.com/college/stuart
©2014 John Wiley and Sons
Agenda
• Why accounting ethics?
• What is accounting?
What is ethics?
• How do accounting and ethics relate?
• About the course and our approach to
accounting ethics
Why Should we Study
Accounting Ethics?
Why Accounting Ethics?
• Firms that experience accounting scandals have a drop
in stock prices amounting to 27 % of the pre-scandal
stock price.
• Auditors who are complicit in (or fail to recognize) the

fraud of their clients lose credibility and trust among
current and potential clients (cf. Arthur Andersen)
• Individuals (accountants, auditors and other decision

makers) who are complicit in accounting fraud – or fails to
detect it in their firm – are held personally accountable.
Why accounting ethics?
• Accounting and auditing – like other professional fields – are not purely
technical enterprises.
• Accounting and auditing practice consists of complex decision making

processes where economic and non-economic values are at stake for
multiple stakeholders.
• Accountants and auditors are responsible for how their professional

decisions influence other stakeholders in society.
• To meet this responsibility accountants should have a dual

competence: both knowledge about the technical and professional
standards of accounting and auditing and ethical competence that
enables them to identify, judge and act according to the relevant ethical
principles and standards for the profession.
Role of Accounting Ethics in the Education
Process?
• In the past, accounting ethics has had a small role in educating
accountants. Students are usually given some information
about the Professional Code of Conduct (the ethics code for
the profession), but the code of conduct was not tested on the
professional licensing exam until 2014 in the U.S.
• Accounting scandals in the early years of the 21st century have

led to an increased interest in accounting ethics.
• If you are taking this course, it is probably a result of the recent

interest in improving the ethical awareness of accounting
students.
What is Accounting?
• Accounting is a technical enterprise bound to accounting standards
designed to record the transactions of companies. The principles,
rules, and prescribed decision procedures set the patterns for
appropriate accounting practice.
• Company accountants must record financial information according

to the accounting standards.
• Auditors review these financial statements using the requirements

of the auditing standards and seek evidence to verify their accuracy.
– Auditors issue an opinion stating whether or not companies
have prepared financial statements that comply with
accounting standards.
What is Ethics?
• Ethics is the systematic reflection on good and bad, right and
wrong, wise and unwise.
• Ethics seeks to develop principles, standards, rules or

frameworks for distinguishing between what is justifiable and
what is not justifiable.
• Numerous ethical perspectives (utilitariansim, deontology,

virtue ethics, social contract ethics) provide us with a
vocabulary and a framework for making ethical assessments
of behaviors, situations and persons. We will discuss these
ethical perspectives in later chapters of the text.
How are Accounting and Ethics Linked?
• The technically proficient accountant has gained the
knowledge of accounting standards and learned the skills of
accounting decision making.
• This knowledge includes the basic vocabulary and concepts

of accounting, its fundamental principles and specific rules
for recording financial information, and the decision
procedures of accounting practice.
• To be technically proficient means the accountant has the

ability to apply accounting standards and to make accounting
decisions based on knowledge-informed judgments.
How Accounting and Ethics Relate?
The ethically sensible accountant makes use of several intellectual and
moral capacities:
1. An ability to recognize moral problems and dilemmas in accounting

situations;
2. The insight to identify the key features of an ethical dilemma;
3. The capacity to determine and choose among alternatives in

resolving ethical dilemmas; and
4. The motivation to act ethically; that is, “to do the right thing” as the
fulfillment of one’s own responsibility.
Technical Proficiency and Ethical
Sensibility
Accounting Theory
• The systematic and logical analysis of the practice
of accounting.
• Describes how the rules apply and considers

whether particular accounting practices reflect the
principles and rules of the profession.
• This field considers the role of accounting in

society and evaluates the effectiveness of current
practice.
Accounting Discourse
• Accounting discourse is knowledge production and
communication…..the production of financial statements and
the communication of these statements to outsiders.
• Discourse is the development of a special language used by

members of a profession to produce and communicate
knowledge to those who will use it.
• In accounting, this discourse includes the specialized written

texts of financial statements, reports, and audit opinions that
communicate accounting knowledge about a company to
interested users.
Accounting Discourse
• In the process of generating financial statements, accountants process
financial information to produce knowledge.
• Accountants are responsible for creating intelligible forms of

communication to represent business transactions and the financial
status of companies.
• Accountants order information into clear, meaningful patterns

expressed in written texts so that this knowledge can be used for
decision making.
• Using specialized forms of reporting (financial statements) accountants

examine and classify financial data in the process of creating explicit
knowledge about the tangible and intangible assets of companies.
Accounting as a Practice
• Accounting is a practice. The members of this practice
demonstrate distinctive character traits as they fulfill the goals of
the practice.
• A practice reveals itself through the actions of its participants as

they create the “internal goods” of the profession.
• The internal goods are the things produced by the profession that
contribute to the ultimate realization of the community goals.
• The financial statements are the internal goods produced by the

profession. Outsiders rely on the internal goods produced by the
profession to make decisions about the company.
Accounting Ethics Conclusions
• Accounting ethics requires both technical proficiency and ethical
sensibility. In the past, the profession has emphasized technical
competency over ethical sensibility.
• Accounting ethics is based on technical standards and professional

codes, but these are not on their own sufficient to ensure ethical
practice in accounting
• Sound decision making with regard to ethical issues in accounting

requires an understanding of…
1. Resources available to the accountant (standards and principles, codes of
conduct, principles from moral philosophy); and
2. The relevant characteristics of the environment that influence the decision
making processes of accountants and auditors.
Decision Model Used in the Text
THANK YOU FOR YOUR ATTENTION!

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Chapter 3 Ethics and CG

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Technical and Ethical

• Auditors who are complicit in (or fail to recognize) the

• Individuals (accountants, auditors and other decision

• Accounting and auditing practice consists of complex decision making

• Accountants and auditors are responsible for how their professional

• To meet this responsibility accountants should have a dual

• Accounting scandals in the early years of the 21st century have

• If you are taking this course, it is probably a result of the recent

• Company accountants must record financial information according

• Auditors review these financial statements using the requirements

• Ethics seeks to develop principles, standards, rules or

• Numerous ethical perspectives (utilitariansim, deontology,

• This knowledge includes the basic vocabulary and concepts

• To be technically proficient means the accountant has the

1. An ability to recognize moral problems and dilemmas in accounting

2. The insight to identify the key features of an ethical dilemma;

3. The capacity to determine and choose among alternatives in

• Describes how the rules apply and considers

• This field considers the role of accounting in

• Discourse is the development of a special language used by

• In accounting, this discourse includes the specialized written

• Accountants are responsible for creating intelligible forms of

• Accountants order information into clear, meaningful patterns

• Using specialized forms of reporting (financial statements) accountants

• A practice reveals itself through the actions of its participants as

• The financial statements are the internal goods produced by the

• Accounting ethics is based on technical standards and professional

• Sound decision making with regard to ethical issues in accounting

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