Ethics Applied to the Accounting Firm

Accounting as a Business
Consider what it would mean if a businessperson truly believed that there was no such thing
as business ethics. He will think it's okay to be dishonest in his dealings with you, sell you the
wrong product to make more money for his company, or break the books if it helps profits.
Good business ethics is generally good business. When good ethics is not good business a
situation that occurs but is rare – then business interests must be subordinated to ethical
interests. For example, in a situation where doing what is ethical would jeopardize profit, a
businessman with integrity would put off pursuing profit in order to do what is right.
However, if the claim that business ethics is an oxymoron is nonsense.
II The Social Responsibility of Business
Contemporary ideas about business as a social institution have evolved from the perception
that its fundamental concern is profit seeking. The manufacture of products and services is
being replaced as the main goal of business and only as a tool to generate profits. Social
benefits are ends that justify the pursuit of profit. The pursuit of profit cannot stand as an end
in itself. The unrestricted and exclusive pursuit of self-interest can hurt others. So, it is not
always true that pursuing self-interest makes society better off. Audit firms are incentivized
by making money, but their goal is to serve the public. Public accountants, fulfilling their
public audit role, have goals assigned to them by the government. They are the supervisors of
the financial system. That is their role and responsibility. The purpose of auditing is to ensure
that the financial statements are accurate. Thus, social practice has its own purpose,regardless
of the motives of the people involved in the practice. If the goal is to make a profit, then a
business that continues to make healthy profits is a good business, no matter how it helps or
hurts people. But if the purpose of business is to provide goods and services, and it is for that
purpose that society allows business to exist, then we cannot judge a business solely by how
much profit it generates. Good business is a business that provides acceptable goods and
services for the benefit of society. Making a profit may be a necessary condition for a
business to survive, and it is certainly a motive for doing business, but it is not its ultimate
goal.
III Good Ethics is Good Business
The adage that good ethics is good business applies to the accounting profession. So, there
are four motivations for ethical behavior. Ethical behavior leads to
1. long-term benefits for the company,
2. integrity and personal satisfaction for individuals involved in the business,
3. honesty and loyalty from employees,
4. trust and satisfaction from customers.
Corporations must behave ethically, in part because it will have good consequences for the
company. Sometimes, management has to choose between what is right and what is
profitable. In general, however, it is wiser to be ethical than not. When the right choice is an
unprofitable one, we hope that the business will make an ethical decision because it has the
responsibility of over and above making a profit.
IV Ethical Responsibilities of Accounting Firms
What are the ethical responsibilities of business in general and accounting firms in particular?
Businesses, through their owners and managers, establish relationships with individuals and
groups; Relationships involve responsibility. Accounting is a service industry that has
emerged to benefit clients and society. Therefore, harming clients or the public in the name of
profit violates its explicit purpose. The accounting firm has a special function, which has
been licensed by the public. Its main function is to provide information about the company's
financial situation and to prove the accuracy of that information. Thus, a good accounting
firm must present as clear a picture as possible about the financial condition of the
organization, and/or prove the fairness of that picture. Any practice that violates that goal
goes against the essence of the company.
V The Accounting Profession in Crisis
The Arthur Andersen/Enron failure has made it abundantly clear that it is naive to think that
accounting firms are not being manipulated by the profit motive. There are problems within
the profession and between companies. The pressure to maximize profits has put the
contemporary accounting profession in crisis. 

We repeat the pessimistic Telberg's words, quoted at the beginning of this book: 

“In fact, we may be passed a time when independence was important. CPA firms have long
since become more like insurance companies – complete with their focus on risk-managed
assurance and auditing – than attesters. Auditors are backed by malpractice insurance in the
same way that reinsurers support insurance companies, so they become less like judges of
financial statements than underwriters weighing probability.

Some professions even argue that auditors should function less like the ultimate arbitrator of
financial facts and realities, and be allowed, instead, to function more like investment
bankers, and only provide "due diligence." So the CPA, who once valued fairness and
truthfulness in financial reporting, would promise little more than a nod and a wink, all
beyond the reach of any meaningful scrutiny. Whatever the form of accounting, the biggest
challenge is staying professional. That means as we've emphasized throughout this book,
putting the interests of clients, and especially the public, above those of private
interests. Bogle identified the main factors that pushed accounting away from dedication to
its professional goals into the arena of profit-maximizing operations. He observes that there
are numerous issues that pressure accountants and accounting firms to put profit
maximization ahead of professionalism, citing these five as the most important:

• adequacy of GAAP

• earnings management

• accounting for stock options

• overly aggressive tax shelters

• alternative business structures