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.     

Ethical Exemplification and the AICPA Code of Professional Conduct: An Empirical Investigation of Auditor and Public Perceptions

This research applies the impression management theory of exemplification in an accounting study by identifying and measuring differences in both auditor and public perceptions of exemplary behaviors. The auditors were divided into two groups, one of which reported self-perceptions (A-S) while the other group reported their perceptions of a typical auditor (A-O). There were two separate public groups, which gave their perceptions of a typical auditor and were divided based on their levels of accounting sophistication. The more sophisticated public group was comprised of bank loan officers (LO) while the less sophisticated public group consisted of investment club members (IC). Comparisons were made on 30 behaviors contained in the AICPA Code of Professional Conduct, which served as the basis for the research instrument. Profile analysis, a special form of MANOVA technique, was used to analyze the results. A-S perceptions were the highest of the four treatment levels and were significantly higher (i.e., more exemplary) than the perceptions of both the A-O and LO groups. The more sophisticated user group (LO) provided the lowest perceptions of the four treatment levels. For at least four of the six measures, the LO treatment group perceived the typical auditor to be less exemplary than both the IC and A-O treatments. There were no differences in perceptions between the A-O group and IC. Additional analysis revealed that auditors overrated the degree to which the public relied on financial statements. However, both public groups reported a reasonably high level of reliance on financial statements when making decisions. Philip A. Brown is an Associate Professor and Directtor of the Accounting Program at Harding University in Searcy, Arkansas. He has a bachelor's degree from Harding University, an MBA from West Virginia University and a Ph.D. from the University of Mississippi. His research interests are in accounting ethics and in accounting education. He has published in Advances in Accounting, The Journal of Accounting and Finance Research, and others. He is a CPA in the State of Arkansas. Morris H. Stocks serves as the Dean of the Patterson School of Accountancy at the Universtiy of Mississippi. He received his undergraduate degree in accounting from Trevecca Nazarene University, his Masters degree from Middle Tennessee State University and his Ph.D. from the University of South Carolina. He is a Certified Public Accountant in the State of Mississippi. He is a behavioral accounting researcher and has published in Accounting, Organizations and Society, Accounting Horizons, Behavioural Research in Accounting, Decision Sciences Journal, Advances in Accounting, Advances in Accounting Information Systems, Advances in Behavioral Accounting Research, Accounting, Auditing and Accountability Journal, Advances in Taxation and others. W. Mark Wilder is KPMG Lecturer and Associate Professor of Accountancy at The University of Mississippi. His educational background includes a bachelor's degree in mathematics from The University of Alabama, an MBA from the University of South Alabama, and a Ph.D. in Accounting from Florida State University. He is a CPA in the State of Mississippi. Mark has published in Accounting Horizons, Advances in Taxation, the Journal of Applied Corporate Finance, the Journal of Computer and Information Systems, the CPA Journal, and others. In the past 2 years he has received several awards, including the top two campus-wide faculty awards at Ole Miss and also the MSCPA Outstanding Educator Award. In 2004 he was inducted into the Alabama Tennis Hall of Fame.     

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.     

Code and Conduct: Predictors of Irsih Managers' Ethical Reasoning

We analyse Irish managers' perceptions about the degree of wrongness of ten types of unethical conduct. In-person interviews with 348 managing directors of Irish-owned businesses who report their perceptions of the degree of wrongness of ten business ethics problems (the dependent variables) yield the data for our study. Predictors of managers' ratings include the existence of a business code of ethics, perceived frequency of occurrence of the given acts, company size and sector, union membership, Irish business ownership and independence (the independent variables). Results indicate that approximately 75% of those sampled are independent Irish owned businesses but few (only 22% of this sample) have a formal business code. Regression analyses reveal that small firms with a code of ethics predict higher wrongness ratings for managers in regard to the practices of unfair pricing and delayed payments (unethical behavior involving firms) but managers also consider such acts the least wrong overall. Wrongness ratings on the eight remaining unethical acts are explained by the manufacturing sector. However, manufacturing firms in Ireland also have a high percentage of unionised workers indicating that unions influence managerial thinking about social and employee ethics (e.g., discrimination, insider trading). The traditional adversarial Industrial Relations model is useful in noting that unions are important in setting ethical standards for indigenous Irish-owned businesses. Given this reality, management in small, manufacturing firms should work with unions to create a more formal ethics code in order to guard against corruption and to remain competitive in the international marketplace. Those without strong unions might articulate their own organisational values.     

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.     

Ethical Behavior in Higher Educational Institutions: The Role of the Code of Conduct

The report of the Treadway Commission suggests that all public companies should establish effective written codes of conduct in promoting honorable behavior by corporations. The need for written "codes of conduct" for businesses is evident in the current literature. However, there is not sufficient evidence regarding the implication of codes of conduct in a college. Academic dishonesty has become an important issue in institutions of higher education. Codes of conduct can also provide a basis for ethical behavior in colleges and universities. Survey respondents were generally supportive of the concept of codes of ethical conduct in colleges and universities. The results of this study indicate that college codes of conduct tend to follow a "low road" approach. The results also suggest the following needed improvements in college and university codes of conduct: (1) greater emphasis on preventing financial, scientific, and academic fraud; (2) more inclusion of the faculty in the process; and (3) establishment of a proper process for implementation of the code.     

The Methods Used to Implement an Ethical Code of Conduct and Employee Attitudes

In the process of implementing an ethical code of conduct, a business organization uses formal methods. Of these, training, courses and means of enforcement are common and are also suitable for self-regulation. The USA is encouraging business corporations to self regulate with the Federal Sentencing Guidelines (FSG). The Guidelines prescribe similar formal methods and specify that, unless such methods are used, the process of implementation will be considered ineffective, and the business will therefore not be considered to have complied with the guidelines. Business organizations invest enormous funds on formal methods. However, recent events indicate that these are not, by themselves, yielding the desired results. Our study, based on a sample of 812 employees and conducted in an Israeli subsidiary of a leading multinational High-Tech corporation headquartered in the US, indicates that, of the methods used in the process of implementation, one of the informal methods (namely, the social norms of the organization) is perceived by employees to have the most influence on their conduct. This result, when examined against employee tenure, remains relatively stable over the years, and stands in contradistinction to the formalistic approach embedded in the FSG. We indirectly measure the effectiveness of the percieved most influential implementation process methods by analyzing their impact on employee attitudes (namely, personal ethical commitment and employees' commitment to organizational values). Our results indicate that the informal methods (manager sets an example or social norms of the organization) are likely to yield greater commitment with respect to both employee attitudes than the formal method (training and courses on the subject of ethics). The personal control method (my own personal values) differs significantly from all the other methods in that it yields the highest degree of personal ethical commitment and the lowest degree of employees' commitment to organizational values.     

The Methods Used to Implement an Ethical Code of Conduct and Employee Attitudes

Media reporting of recent business scandals, ranging from systemic accounting fraud to individual executive greed, has shed new light on the urgent need for organizational ethics in corporate America. The essay argues that organizational ethics can foster virtuous organizations by developing their sense of stewardship and integrity. This approach can inspire the ethical decision-making processes and standards of conduct for personnel throughout the organization. Another crucial role for organizational ethics is to regain lost trust and to recover the confidence of our communities, whether we are discussing the business community or the health care community. Corporate America and organizations in health care need to win back the respect of skeptical customers, disheartened patients, and distrusting communities. But this task can be accomplished properly only when organizations and their business practices have a renewed commitment to ethics. The essay discusses how organizational ethics can permeate the entire organization in order to instill trust and confidence among its constituencies. Although the focus of the essay is upon the role of organizational ethics in health care, the argument also applies to the renewal of business practices in corporations across the nation.     

Corporate Codes of Conduct: The Effects of Code Content and Quality on Ethical Performance

Corporate codes of conduct are a practical corporate social responsibility (CSR) instrument commonly used to govern employee behavior and establish a socially responsible organizational culture. The effectiveness of these codes has been widely discussed on theoretical grounds and empirically tested in numerous previous reports that directly compare companies with and without codes of conduct. Empirical research has yielded inconsistent results that may be explained by multiple ancillary factors, including the quality of code content and implementation, which are excluded from analyses based solely on the presence or absence of codes. This study investigated the importance of code content in determining code effectiveness by examining the relationship between code of conduct quality and ethical performance. Companies maintaining high quality codes of conduct were significantly more represented among top CSR ranking systems for corporate citizenship, sustainability, ethical behavior, and public perception. Further, a significant relationship was observed between code quality and CSR performance, across a full range of ethical rankings. These findings suggest code quality may play a crucial role in the effectiveness of codes of conduct and their ability to transform organizational cultures. Future research efforts should transcend traditional comparisons based on the presence or absence of ethical codes and begin to examine the essential factors leading to the effective establishment of CSR policies and sustainable business practices in corporate culture.     

Leading by Example: Values-Based Strategy to Instill Ethical Conduct

Years of research clearly shows that relying on traditional organizational power bases is not effective when companies want to promote business ethics and performance. It is not only that the use of legitimate power to establish ethics codes and coercive power to punish employees who do not comply does not work; this study—based on a multi-method research approach in the retail industry—indicates that the classic iron fist leads to unethical business values and lower service performance. But there is a light at the end of the tunnel for forward-looking managers. The ethical attitudes and behaviors of employees within international organizations is a dynamic variable that is possible to change by the use of values-based leadership. Our extensive study of a large grocery store chain owned by a multinational corporation indicates that managers who lead by example will boost team values and commitment.     

Codes of Ethical Conduct: A Bottom-Up Approach

Developing and implementing a meaningful code of conduct by managers or consultants may require a change in orientation that modifies the way these precepts are determined. The position advocated herein is for a different approach to understanding and organizing the guiding parameters of the firm that requires individual reflection and empowerment of the entire organization to advance their shared values. The processes involved are discussed using four discrete stages that move from the personal to the work team and to the unit to the full company, followed by the board of directors’ evaluation. The hoped-for end product is dynamic, employee-driven, codes of conduct that recognize the systemic and far-reaching impact of organizational activities across internal and external stakeholders. Operational details for and some issues associated with its implementation are also provided.     

Professional Ethics Code Conflict Situations: Ethical and Value Orientation of Collegiate Accounting Students

Public accounting in the United States is generally guided by the Code of Professional Conduct of the American Institute of Certified Public Accountants (AICPA). It has been suggested that education in understanding and accepting their ethical code would increase accountants' adherence and ethicality. This study was designed to examine the level of consensus to AICPA ethical standards by accounting students (ethical orientation). Situation ethics provided the theoretical rationale for this study. The data were gathered by contacting colleges in the New York Metropolitan Area who offered curriculums which were registered by the State Education Department of New York State for Certified Public Accountancy preparation. The final sampling units for this study consisted of 306 beginning accounting students and 294 advanced accounting students. Included in the secondary sampling units were both private and public colleges, secular and non-secular colleges, and American Assembly of Collegiate Schools of Business (AACSB) and non AACSB-accredited colleges. Three instruments were used to collect data for this study: a student demographic questionnaire; the Rokeach Value Survey (RVS); and a researcher-adapted questionnaire, the Index of Ethical Congruence (IEC) which measured the level of consensus to the AICPA Code of Conduct (ethical orientation). T-tests were used to compare the levels of consensus to the Code (IEC score) between beginning and advanced accounting students, and between accounting students who had, or had not, taken a course in ethics. No significant difference in scores were found for those students who had been exposed to the Code or who had taken a course in ethics. Significant differences in IEC scores were found for those students who had attended AACSB-accredited colleges and meaningful differences for those students who had attended public colleges as compared to private colleges. Multiple regression analyses were used to test the relationship between the ethical orientation score (IEC) and personal values measured by the RVS. No relationship between personal values measured by the RVS and ethical orientation was found by this study. This study does not support the influence of situation on ethical orientation. The results indicate that ethical orientation is not significantly improved through exposure to the AICPA Code of Conduct in collegiate courses in accounting.     

Code of Conduct for Non-Executive and Supervisory Directors

After the corporate scandals at the beginning of the new millennium, corporate governance codes were drafted and implemented in national laws and regulations. Unfortunately, due to an ongoing supply of new financial scandals and societal deceptions, our society increasingly distrusts executive directors, non-executive directors and supervisory board members, as they often appeared to play a significant role in these scandals. Non-executive directors (NEDs) and supervisory directors (SDs) are often accused of having overlooked the important issues in their supervising role or having failed to intervene in company decision making. Previous research has shown that many NEDs and SDs operate on the basis of their own unwritten rules, which may very well be different from those of their colleagues. In this article we examine whether and how a code of conduct or code of ethics might help to further clarify how NEDs/SDs should act. We also investigated the views of NEDs/SDs themselves. It appears that current corporate governance codes are not sufficient to guide directors on behavioral aspects of their supervisory role. This article shows that a code of conduct could provide this guidance to NEDs/SDs on several issues. First, a code of conduct would compel the Supervisory Board to reflect on its own values. Second, it would compel NEDs/SDs to verbalize their unwritten rules. The results may be applied internationally and could have relevance to the experience of executive directors in addition. This article may serve as a discussion document for other jurisdictions in addition.     

Predictors of Ethical Code Use and Ethical Tolerance in the Public Sector

This paper reports the results of a survey of ethical attitudes, values, and propensities in public sector employees in Australia. It was expected that demographic variables, personal values, and contextual variables at the individual level, and group- and organisational-level values would predict use of formal codes of ethics and ethical tolerance (tolerance of unethical behaviour). Useable data were received from 500 respondents selected at random across public sector organisations in a single Australian state. Results supported the study hypotheses, but indicated that different mechanisms underlie each of the criterion variables. Use of ethical codes was determined primarily on the basis of a perception that others use the code, while ethical tolerance was determined by personal values. At an applied level, the research highlights the need for orgasnizations to establish a critical mass of code users, so that this operates as a normative influence on others in the organization.     

The Moral of the Story: Re-framing Ethical Codes of Conduct as Narrative Processes

This paper re-frames business ethical codes (BCEs) as narrative processes by reflecting critically on key ontological assumptions underpinning the existing research, and introducing new and relevant concepts based on alternative assumptions. The first section draws on recent decision-making research to develop a theoretical account of BCEs as complex, socially embedded sensemaking processes. The second section addresses the content of codes, and differentiates between narrative and logico-scientific modes of reasoning. The third section focuses on the quality of code communication and identifies several distinct types of narrative process. We provide research directions for how this new understanding of BCEs may be further developed, as well as implications for practitioners. In response to the call for new conceptual models (O’Fallon and Butterfield, in J Bus Ethics 59:375–413, 2005), the paper provides organizational researchers with a more nuanced understanding of how BCEs enable or constrain ethical behavior in organizations.     

Global Business Citizenship and Voluntary Codes of Ethical Conduct

This article describes the theory and process of global business citizenship (GBC) and applies it in an analysis of characteristics of company codes of business conduct. GBC is distinguished from a commonly used term, “corporate citizenship,” which often denotes corporate community involvement and philanthropy. The GBC process requires (1) a set of fundamental values embedded in the corporate code of conduct and in corporate policies that reflect universal ethical standards; (2) implementation throughout the organization with thoughtful awareness of where the code and policies fit well and where they might not fit with stakeholder expectations; (3) analysis and experimentation to deal with problem cases; and (4) systematic learning processes to communicate the results of implementation and experiments internally and externally. We then identify and illustrate the three attributes of a code of conduct that would reflect a GBC approach. The three attributes are orientation, implementation, and accountability. The various components of these attributes are specified and illustrated, using website examples from six global petroleum companies.     

Chief Financial Officers' Perceptions Concerning the IMA's Standards of Ethical Conduct

Do chief financial officers (CFOs) of publicly held corporations agree with the Institute of Management Accountants' (IMA) Standards of Ethical Conduct and are they willing to adopt them? To address these issues, a survey was conducted concerning the Standards. The IMA issued the Pronouncement of Standards in June, 1982. In November, 1992, 790 survey questionnaires were mailed to chief financial officers (CFOs) of corporations listed in Forbes. These CFOs held the positions of vice president of finance and controller. Completed questionnaires were received from 208 CFOs representing a 26.3% response rate. The questionnaire employed a 5-point Likert scale and included seven demographic questions to facilitate the interpretation of the findings. The surveyed CFOs agreed with the majority of the Standards. However, many CFOs commented that some of the Standards of Ethical Conduct were difficult to implement in the real world. The CFOs critically commented that all the Standards were too general, too vague, or did not cover the grey areas that occur in real world situations. Ironically, the more years of experience acquired by CFOs, the less they believed in the Standards. Surprisingly, only 41.3 percent indicated that their corporations experienced ethical issues or problems. From the survey, 98.6 percent consider the Standards reasonable, 96.6 percent comply with the them, and 88.4 percent have implemented their own code of ethical conduct standards within their organizations. Thus, 10.2 percent of the CFOs believe the Standards are reasonable but have not implemented any code of ethical conduct standards within their organizations. Also, 8.2 percent of the CFOs comply with the Standards but have not implemented them as policies in their organizations. Interestingly, 11.6 percent of the CFOs that have not implemented their own code of which 60 percent believed that their organizations should adopt a code of ethical conduct. The other 40 percent expressed no plans to adopt any code as policy. Evidence indicates that the less CFOs support the Standard to "Recognize and communicate professional limitations . . .", the more ethical issues and problems occur within their organizations. Also, the organizations with codes of ethical conduct support two particular Standards more than organizations without codes. Finally, CFOs with CPA certification supported the Standard to "Prepare complete and clear reports after appropriate analysis of relevant and reliable information" less than CFOs without the certification.     

The Role of Professional Codes in Regarding Ethical Conduct

This paper investigates the regulation of ethical behavior of professionals. Ethical perceptions of South African professionals operating in the business community (specifically accountants, lawyers and engineers) concerning their need for and awareness of professional codes, and the frequency and acceptability of peer contravention of such codes were sought. The existence of conflict between corporate codes and professional codes was also investigated. Results, based on 217 replies, indicated that the professionals believe that codes are necessary and are relatively aware of the contents of such codes. Despite these ethical tendencies, respondents (particularly lawyers) believe that their peers contravene their professional codes relatively often. No significant differences in ethical tendencies between professionals consulting to and those working in business were found. Many respondents were regulated by more than one code of ethics, but few experienced conflict between such codes. In the events of conflict occurring professionals chose to adhere to their professional code above others.     

The Positive Ethical Organization: Enacting a Living Code of Ethics and Ethical Organizational Identity

A vision of a living code of ethics is proposed to counter the emphasis on negative phenomena in the study of organizational ethics. The living code results from the harmonious interaction of authentic leadership, five key organizational processes (attraction–selection–attrition, socialization, reward systems, decision-making and organizational learning), and an ethical organizational culture (characterized by heightened levels of ethical awareness and a positive climate regarding ethics). The living code is the cognitive, affective, and behavioral manifestation of an ethical organizational identity. We draw on business ethics literature, positive organizational scholarship, and management literature to outline the elements of positive ethical organizations as those exemplary organizations consistently practicing the highest levels of organizational ethics. In a positive ethical organization, the right thing to do is the only thing to do. Amy Klemm Verbos is a Ph.D. candidate at the Sheldon B. Lubar School of Business, University of Wisconsin-Milwaukee, where she received a Chancellor’s Fellowship, Graduate Fellowship, Dissertation Fellowship, and C. Edward Weber Research Award. She co-authored ‚Positive Relationships in Action: Relational Mentoring and Mentoring Schemas in the Workplace’ in the forthcoming edited book, Positive Relationships at Work. Her work on positive organizing also has been presented at the Academy of Management Conference. Joseph A. Gerard is a Ph.D. student at the Sheldon B. Lubar School of Business at the University of Wisconsin-Milwaukee. He is a lecturer at the University of Wisconsin-Whitewater teaching organizational behavior, strategy, and accounting. He is a founding member of Ascent Organization Development LLC, which provides management consulting services to for-profit organizations in the areas of effectiveness and performance enhancement. Paul R. Forshey is a Ph.D. student in Organizations and Strategic Management at the Sheldon B. Lubar School of Business, University of Wisconsin-Milwaukee. His research interests include startup firms and firms in transition. Charles S. Harding is a Ph.D. student in Organizations and Strategic Management at the Sheldon B. Lubar School of Business at the University of Wisconsin-Milwaukee. Awarded a Chancellor’s Fellowship, his research interests include strategic decision-making and the role of value creation in strategy. Janice S. Miller is an Associate Professor at the Sheldon B. Lubar School of Business at the University of Wisconsin-Milwaukee where she has received the Business Advisory Council Award for Teaching Excellence. Her published work has appeared in Academy of Management Journal, Journal of Organizational Behavior, and Journal of Business Ethics among others. She received her Ph.D. in Human Resources Management from Arizona State University.