Influencing Ethical Development: Exposing Students to the AICPA Code of Conduct

Although the AICPA Code of Professional Conduct emphasizes the importance of education in ethics, very little is known about how and when the Code and the topic of ethics can be presented to enhance the effectiveness of ethics-oriented education. The purpose of this research was to provide preliminary evidence about the ethical development of students prior to, and immediately following, such courses. We found that: (1) accounting students, after taking an auditing course which emphasized the AICPA Code, reasoned at higher levels than students who had not taken the course; (2) there were no differences in moral reasoning levels when accounting and non-accounting majors were compared prior to an auditing course; and (3) there was a significant relationship between the Seniors' levels of ethical development and the choice of an ethical versus unethical action. It was concluded that an auditing course emphasizing the 'spirit' of the Code can have a positive impact on the ethical behaviour of some of the future members of the accounting profession.     

A critical examination of the AICPA Code of Professional Conduct

The American Institute of Certified Public Accountants (AICPA) is responsible for the Code of Professional Conduct that governs the actions of CPAs. In 1988, the Code was revised by the AICPA, but a number of issues still remain unresolved or confounded by the new Code. These issues are examined in light of the profession's stated commitment to the public good, a commitment that is discussed at length in the new Code.Specifically, this paper reviews the following issues: (1) client confidentiality and whistleblowing, (2) limited liability, and (3) auditor independence. We argue that, in each of these areas, the AICPA promotes a position that is potentially harmful to the public good.Allison Collins is an Assistant Professor in the Department of Accounting and Taxation at Colorado State University. She has been a Certified Public Accountant since 1982. She has published previously inJournal of Business Ethics.Normal Schutz is an Associate Professor in the Department of Accounting and Taxation at Colorado State University. He has published in such journals asJournal of Business Ethics, EDP Auditor Journal andInternal Auditor.     

In Support of Public or Private Interests? An Examination of Sanctions Imposed Under the AICPA Code of Professional Conduct

The American Institute of Certified Public Accountants (AICPA) monitors the misconduct of its members using the AICPA Code of Professional Conduct (CPC). To accomplish this task, the AICPA relies on various stakeholders to report known violations of its CPC. We examine the full population of sanctions imposed by the AICPA on its members under its CPC from 2008–2013 to identify recent trends in the misconduct of accounting professionals. While we find that multiple stakeholders identify and report violations, we also find that the most common types of violations remain consistent with those reported in the 1990s. Further, we develop a taxonomy based on prior accounting literature to determine whether the AICPA CPC is being enforced to defend the public interest and/or the private interests of the accounting profession. In contrast to prior studies, our results suggest that as the accounting profession emerges from a recession and period of intense public scrutiny, the AICPA CPC is largely being enforced to defend the public interest. This public interest focus was most pronounced during the recessionary years of 2008–2010, as evident from misconduct reported by parties such as the Internal Revenue Service, Securities and Exchange Commission, Public Company Accounting Oversight Board, and state boards of accountancy. Although key stakeholders have recently focused on reporting misconduct that threatens the public interest, we believe there are still areas in need of improvement, especially around the level of detail provided in the AICPA’s sanction records. We propose some possible solutions to improve public transparency.     

Functionalist and Conflict Views of AICPA Code of Conduct: Public Interest vs. Self Interest

The sociological models of functionalism and conflict are introduced and utilized to analyze professionalism in the accounting profession as it is manifest in the American Institute of Certified Public Accountant's Code of Conduct. Rule 203 of the Code and provisions of the Code related to the public interest are examined using semiotic analysis to determine if they are most consistent with the functionalist or conflict models. While the analysis does not address intent of the Code, it is determined that the Code contains semantic defects which result in different interpretations of the Code to different readers. The defects found are most consistent with the conflict model of professionalism. This has implications for the public and for individuals within the profession, making the Code less useful to both groups. The defects are seen as a potential battleground for the self-interest vs the public interest orientation of the accounting profession.     

Self Interest Among CPAs May Influence Their Moral Reasoning

In 1990, the Federal Trade Commission (FTC) issued a consent order to the American Institute of Certified Public Accountants (AICPA). The order decreed the AICPA to lessen its longstanding ethics code which had until then banned the receipts of commissions, referral fees and contingent fees. The FTC alleged that the AICPA banned receipt of the fees as an attempt to restrain trade (FTC, 1990).In the present study, we sought to determine if CPAs' preference for bans on commissions, referral fees and contingent fees is related to their moral reasoning whereby CPAs perceive the bans to serve as a means of resolving ethical issues. While determining this matter cannot prove whether the bans did or did not actually result in restrained trade, it can offer insight into the perceived ethical importance to CPAs of the overturned rules. Based on a random sample of AICPA members and using Rest's Defining Issues Test (DIT) to measure moral reasoning, we did not find a CPA's moral reasoning to be related to his/her preference for ethics rules which ban commissions, referral fees or contingent fees. However, our results did indicate that most CPAs prefer banning commissions, referral fees and contingent fees, with those CPAs holding a higher financial stake in public accounting, namely partners, favoring banning referral fees and contingent fees significantly less than CPAs with a lesser stake. Further, we noted a significant negative relationship between financial stake and moral reasoning. These results seem to suggest that self-interest among CPAs may influence their moral reasoning.Further study is needed to examine the relationship between self-interest of CPAs and their moral reasoning. If self-interest clouds moral judgments made by CPAs, capital markets are in danger. Rendering an independent audit opinion must exclude self-interest.     

Deficiencies in the Code of Conduct: The AICPA Rhetoric Surrounding the Tax Return Preparation Outsourcing Disclosure Rules

In this article, we examine the American Institute of Certified Public Accountants’ (AICPA) efforts to conceal the offshoring of tax return preparation services by U.S. Certified Public Accountants (CPAs) through recommending an inadequate disclosure format for this type of work. We draw on Giddens’ theory of trust and expert systems, the professionalism literature, and Flyvbjerg’s concept of power to analyze the underlying agenda behind the revised ethics rulings (AICPA Ethics Ruling No. 112 under Rule 102, No. 12 under Rule 201, and No. 1 under Rule 301). Specifically, we examine (1) the AICPA leadership’s stated professional justifications for outsourcing and its recommended client disclosures, (2) risks associated with outsourcing tax return preparation work overseas and the trust issues that result, and (3) the resistance to the AICPA leadership’s recommended outsourcing disclosure rules within the rank and file of the CPA profession. We argue that our analysis reveals the AICPA’s on-going promotion of their private interests, thus continuing to raise systemic concerns regarding the public’s trust in the U.S. public accounting profession.     

Establishing an ethic of accounting: A response to Westra's call for government employment of auditors

The central question in Westra's (1986) search for an ethic of accounting concerns to whom the accountant owes loyal agency: to the client or to the public interest. The authors argue that the accountant's master has already been defined as the public interest. An ethic of accounting is identified through analysis of the accoutant's master and through examination of the accountant's ethical obligations under the Code of Professional Conduct (AICPA, 1988). Potential conflicts between professional and organizational loyalties are analyzed with respect to the real-life problem used by Westra to support her argument. Finally, the implications of government employment of auditors are discussed.Elaine Waples is currently a doctoral student at the University of Nebraska.Michael K. Shaub, Ph.D., C.P.A., is Assistant Professor of Accountancy at the University of Nebraska. His research interests include auditors' ethics and audit judgment issues.     

Ethics and the Auditing Culture: Rethinking the Foundation of Accounting and Auditing

Although the foundation of financial accounting and auditing has traditionally been based upon a rule-based framework, the concept of a principle-based approach has been periodically advocated since being incorporated into the AICPA Code of Conduct in 1989. Recent high profile events indicate that the accountants and auditors involved have followed rule-based ethical perspectives and have failed to protect investors and stakeholders – resulting in a wave of scandals and charges of unethical conduct. In this paper we describe how the rule-based traditions of auditing became a convenient vehicle that perpetuated the unethical conduct of firms such as Enron and Arthur Andersen. We present a model of ten ethical perspectives and briefly describe how these ten ethical perspectives impact rule-based and principle-based ethical conduct for accountants and auditors. We conclude by identifying six specific suggestions that the accounting and auditing profession should consider to restore public trust and to improve the ethical conduct of accountants and auditors.     

Tax Practitioners' Ethical Sensitivity: A Model and Empirical Examination

Ethical sensitivity triggers the entire ethical decision-making process (i.e., recognition of ethical content in work situations). In this article, five factors are examined that affect tax practitioners' professional ethical sensitivity. The five factors that were examined include role conflict, role ambiguity, job satisfaction, professional commitment, and ethical orientation. Ethical content in work situations is examined in relation to professional ethics as enumerated by the American Institute of Certified Public Accountant's (AICPA) Statements on Responsibilities in Tax Practice (SRTP). Utilizing Hunt and Vitell's (1986, 1993) General Theory of Ethics, a model of ethical sensitivity was constructed and empirically tested. Role conflict negatively and job satisfaction positively influenced tax practitioners' ethical sensitivity. Also, the covariates of the tax practitioner's professional risk level and type of employer were found to be significant. The significant factors are job specific. The tax firm may have the best opportunity to positively change a tax practitioner's ethical recognition abilities. Professional accounting organizations may need to evaluate if resources should be used to formulate, maintain, and publicize codes of conduct because of the lack of significance of professional commitment.     

Exporting an Inherently Harmful Product: The Marketing of Virginia Slims Cigarettes in the United States,Japan, and Korea

In recent years, and in close connection with a number of well-known financial malpractice cases, public debate on business ethics has intensified worldwide, and particularly in ethics-unfriendly environments, such as Spain, with many recent fraud and corruption scandals. In the context of growing consensus on the need of balancing social prosperity and business profits, concern is increasing for introducing business (and particularly accounting) ethics in higher education curricula. The purpose is to improve ethical behaviour of future business people, and of accounting professionals in particular. In this study, from a sample of 551 business students at a Spanish university, the importance of accounting ethics is investigated. The aim of this paper is twofold. First, we attempt to examine students’ overall perceptions of business ethics in unfriendly environments and, specifically, their views on the importance and goals of accounting ethics education. Second, we intend to investigate whether potential differences in such perceptions depend on previous business ethics courses taken, gender, and age of students. Our results show that those students who have previously taken an ethics course are especially prone to considering that accounting education should include ethical considerations, and show greater interest in further introducing this subject in their curricula. These facts should encourage universities offering business degrees in ethics-unfriendly environments to extend the implementation of ethics courses in their curricula. Besides, significant differences in students’ perceptions on the importance of accounting ethics are found depending on their gender and age. In line with previous research findings, female and older students show more ethical inclinations than, respectively, male and younger students. Thus, ethics-unfriendly environments can be treated as contexts where general trends on students’ ethical attitudes are also clearly visible. This fact, together with the evidenced impact of ethics courses on students’ ethical inclinations, places ethics-unfriendly environments as crucial research settings for further inquiring into the nuances that help explain students’ attitudes towards accounting ethics and the role of ethics courses in business degree curricula.     

Truth or Consequences: A Study of Critical Issues and Decision Making in Accounting

This study applies a theoretical framework, the theory of reasoned action, to the examination of unethical decision making in job-related situations encountered by CPAs. A survey methodology was employed in which respondents were asked to use both self-reported and randomized response techniques for reporting unethical behavior. The results indicate that individuals are unwilling to accurately report either unethical behavior or intention, particularly in situations where there is no question as to the unacceptability of the action or the potential penalty as presented in the AICPA Code of Professional Conduct. Implications for the accounting profession and research are discussed.     

Ethics,Moral Development,and Accountants-in-Training

This research investigates how ethical stages of development, locus of control, age, and gender separately and jointly affect ethical decision-making. Senior- and graduate-level university accounting students are used to examine the link between moral development and ethical responses. Four accounting-environment vignettes are used in the survey. Two of the vignettes are more closely linked to the Code of Professional Conduct; the other two vignettes describe ethical dilemmas that are less code-driven. The expectation is that moral development, as measured by the Defining Issues Test (DIT), will indicate a link to expected responses on the vignette items not specifically covered by the Code.Because an individual's locus of control (LOC) may also be expected to have an impact on ethical decision-making, a LOC variable is examined. Based on a review of the LOC and ethics studies, the expectation is that internal LOC respondents would respond more ethically. Much of the ethical research has also included an examination of gender and age differences. However, the results have indicated conflicting evidence. This research also examines the gender and age issues within the senior-graduate student accounting context.Results indicate that gender is insignificant in the analysis. The LOC variable is significant on one of the vignettes. Additionally, the DIT P score is significant in another of the vignette decisions. Possible reasons for the results are discussed.     

The effectiveness of a complaint-based ethics enforcement system: Evidence from the accounting profession

Many professions, in order to enforce their ethics codes, rely on a complaint-based system, whereby persons who observe or discover ethics violations may file a complaint with an authoritative body. The authors assume that this type of system may encourage ethical behavior when practitioners believe that a punishment is likely to result from a failure to adhere to the rules. This perceived likelihood of punishment has three components: detection risk, reporting risk, and sanction risk. A survey of potential violation witnesses related to the accounting profession revealed that the profession's complaint-based enforcement system may not provide practitioners with the necessary disincentive to refrain from code violations.S. Douglas Beets is an Assistant Professor of Accounting at Wake Forest University. He is also a Certified Public Accountant, licensed in the state of Tennessee. Dr. Beets served on the accounting staffs of Armco Steel Corporation, Eastman Kodak Company, and Russell and Purkey, CPAs. Recently, he was selected as a faculty intern for Arthur Andersen and Co.Larry N. Killough is the Peat Marwick Professor of Accounting at Virginia Polytechnic Institute and State University. Dr. Killough is a Certified Public Accountant and served on the staff of Arthur Young and Company. His articles have appeared in numerous academic and practitioner journals.     

Policy Issues Raised by For-Profit Spinoffs from Professional Associations: An Evaluation of a Recent AICPA Initiative

This paper provides an evaluation of the spinoff of a for-profit company from the American Institute of Certified Public Accountants (AICPA), a nonprofit professional association. The evaluation is based on a review of the literature on public policy issues surrounding organizational conversions from nonprofit to for-profit legal status. Many criticisms of this for-profit spinoff were voiced by professional leaders and accounting regulators, and we demonstrate that these criticisms are grounded in widely recognized policy principles relating to nonprofit conversions. The public policy issues raised by this study have implications for the governance of professional associations in all disciplines.     

The Accounting Profession: Substantive Change and/or Image Management

The accounting profession’s image and reputation is built upon the members of the profession acting with the “highest sense of integrity” in “the public interest” (AICPA, 2003, www.aicpa.org/about). The Enron debacle initiated the latest crisis facing the profession regarding its image and reputation. The American Institute of Certified Public Accountants (AICPA) is the largest professional body representing the accounting profession and the one to which regulators have looked in establishing and upholding professional standards relating to the public practice of accounting and auditing. One of the AICPA’s responsibilities is to “promote public awareness and confidence in the integrity, objectivity, competence and professionalism of CPAs ....” (AICPA, 2003, www.aicpa.org/about). We analyze the public statements issued by the AICPA (i.e., press releases, speeches of officers, testimony, published articles) during this ethical and identity crisis beginning with the AICPA’s first public statement on the Enron debacle (AIPCA 2001) and concluding with the AICPA recognizing the need for a “new accounting culture” (Melancon 2002). In order to better understand the public discourse, we use image restoration theory (Benoit, 1995), because it provides a typology of strategies for dealing with the public face of crises. We identify the three most common strategies the AICPA employs during this period. Proposals for taking corrective action represent the most commonly employed strategy, but the analysis also indicates an attempt to evade responsibility by claiming defeasibility and to reduce the offensiveness of the situation by employing a bolstering strategy. A second analysis using DICTION, a software package useful in revealing latent dimensions in a text, indicates that early statements tend to use language related to accomplishing specific action while the later statements tend more toward general language that relates to peoples’ everyday lives. The findings raise questions as to substantive nature of the changes proposed by the AICPA, and thus, the extent to which the public interest is being served by them.     

Sexual Harassment in the Public Accounting Profession?

Federal discrimination laws have defined two distinct types of activity that constitute sexual harassment – "hostile environment" and "quid pro quo." The Civil Rights Act of 1991 and more recent Supreme Court rulings make it easier for workers to win lawsuits claiming they were sexually harassed in the work environment.While the public accounting profession continues to address gender-related problems, it remains vulnerable to claims of sexual harassment. In an attempt to better understand the underlying risk the public accounting profession faces, this study focuses on identifying (1) the extent of sexual harassment in the public accounting profession, (2) the type of harassing behavior that is most common, and (3) where the harassment occurs.The research questions are addressed through a survey of female public accounting professionals who are members of the American Institute of Certified Public Accountants (AICPA). Their responses provide evidence that public accounting firms are exposed to significant internal risk. Sexual harassment and a sense of frustration in coping with this issue is evident in the data.Public accounting firms and their respective clients must pause and evaluate their working environment. The responsibility to design and establish a business atmosphere that will encourage and maintain professional relationships between colleagues lies with these firms.     

Factors that Influence the Moral Reasoning Abilities of Accountants: Implications for Universities and the Profession

The need to maintain the public trust in the integrity of the accounting profession has led to increased interest in research that examines the moral reasoning abilities (MRA) of Certified Public Accountants (CPAs). This study examines the MRA of CPAs practicing in small firms or as sole practitioners and the factors that affect MRA throughout their working careers. The results indicate that small-firm accounting practitioners exhibit lower MRA than expected for professionals and that age, gender and socio-political beliefs affect the moral reasoning abilities of small-firm practitioners. We also find that completion of an ethics course in college has a positive impact on MRA. Also, the survey respondents indicate overwhelming support for including ethics courses within the business curriculum. Finally, the fact that those accountants with the lowest MRA are the least supportive of ethical training may indicate the need for mandatory, rather than optional, training in ethics both in university and Continuing Professional Education courses.     

Student Honor Codes as a Tool for Teaching Professional Ethics

Today's business students have grown up in a society where distinctions between right and wrong have become blurred and where unethical behavior is observed and even expected in high-profile leaders. Especially troubling is the impression educators have that many students no longer view cheating as morally wrong (Pavela and McCabe, 1993). By contrast, the general public is demanding higher ethics of businesspeople. In this environment, educators are challenged to instill ethical norms in business students, especially when recent research indicates that students intending to enter business fields are more likely than any other group of students to engage in cheating and other forms of academic dishonesty (McCabe and Trevino, 1995). One of the major future roles of accounting students depends on their honesty, however. For audits to have economic value, the auditors must be perceived by the public as acting with independence, integrity, and objectivity. Public accountants have adopted a Code of Professional Conduct in order to protect the integrity of the profession. In an effort to teach accounting students the importance of ethical professional conduct, the author has developed a class project wherein groups of students write proposals for a student honor code at Niagara University.     

Confidentiality decisions: The reasoning process of CPAS in resolving ethical dilemmas

As in other professions, such as law and medicine, accounting has a Code of Professional Conduct (Code) that members are expected to abide by. In today's legalistic society, however, the question of “what is the right thing to do,” is often confused with “what is legal?” In many instances, this may present a conflict between adhering to the Code and doing what some may perceive as proper ethical behavior. This paper examines (1) the reasoning process that CPAs use in resolving ethical issues related to confidentiality; and, (2) whether or not there is a perceived conflict in adhering to the Code and the moral values of some CPAs. The results indicate that although most CPAs sampled resolve ethical issues in accordance with the Code, such decisions do not always reflect their belief of what is morally right. Although the results are useful in understanding how some CPAs reason in making moral choices involving confidentiality decisions, care should be exercised in drawing further inferences from this study due to the limited sample size.     

Ethical Audit Decisions: A Structuration Perspective

The public accounting profession has long relied on its reputation for integrity and veracity as justification for its professional status and monopoly privilege predicated on claims of acting in the public interest. If such status and privilege are to be justified and sustained, serious consideration of what constitutes ethical behavior, how such behavior is motivated as well as an explicit recognition of the rights and interests of affected parties constitutes an ethical imperative for the profession. Traditionally, work on ethics and auditing is quite narrow, failing to recognize the social context of individual actions, failing to identify the relevant constituencies of the profession, and failing to articulate processes through which the constituencies interests can be identified. Generally, the accounting literature has taken a cognitive perspective on ethical decision making which views the resolution of ethical dilemmas as primarily a function of the moral makeup of the actor responding within the context of the Code of Professional Conduct. The purpose of this paper is to broaden the theoretical base of ethical research, specifically within the area of professional accounting and more generally in the area of business. We propose the application of structuration theory in conjunction with stakeholder theory and a responsibility ethic. The application of stakeholder theory is a means for identifying affected constituencies. A responsibility ethic recognizes the situatedness of an individual within an ongoing professional community. Structuration theory provides a theoretical framework for articulating and investigating both the structures within which action is carried out as well as the interaction between the social structures and the actors. Taken together, the theories allow for an enhanced ability to define ethical behavior within a business context and to understand the contextual antecedents and consequences of ethical acts.