Ethical Expectations for Accounting Professionals

According to the Occupational Handbook 2010-2011 published by the U.S. Bureau of Labor Statistics (BLS), accountants and auditors are expected to experience much faster than average employment growth through 2018. Job opportunities should be most favorable for those with a professional certification such as Certified Public Accountant (CPA). According to the BLS study, about 279,400 new jobs will be created during the next ten years as the economy rebounds, the increase in new businesses, changing financial laws (Dodd-Frank Financial Reform Act) and corporate governance regulations (Sarbanes-Oxley Act), and increased accountability imposed on accountants to protect an organization's stakeholders. Another factor is the continued globalization of business that will lead to more demand for accounting expertise and services related to international trade and accounting rules and international mergers and acquisitions. Additionally, there is a growing movement towards International Financial Reporting Standards (IFRS), which uses a judgment-based system to determine the fair-market value of assets and liabilities, which should increase demand for accountants and auditors because of their specialized expertise. To access the full report go to the following link: http://www.bls.gov/oco/ocos001.htm#outlook. 

I have previously blogged about the transition from U.S. GAAP to IFRS in the United States (see: http://www.ethicssage.com/2010/12/international-accounting-standards-for-almost-40-years-a-movement-has-been-underway-to-establish-one-set-of-international-ac.html). The ongoing effort to converge the two sets of standards is supposed to lead to full IFRS adoption in the U.S. about 2015. CPA firms need to gear up in the next few years to meet the need for accountants and auditors who are educated in IFRS compliance. I teach an International Accounting course in the Masters of Accountancy program at the California Polytechnic State University at San Luis Obispo. I am mindful of the need for our graduates to be well-versed not only in how IFRS standards differ from U.S. GAAP but also how cultural dimensions influence business and accounting practices, and ethics standards around the world.

The accounting profession has a high set of ethical standards. Those standards are best illustrated by the following statement from the landmark ruling in United States v. Arthur Young & Co., 465 U.S. 805 (1984):   "By certifying the public reports that collectively depict a corporations financial status, the independent auditor assumes a public responsibility transcending any employment relationship with the client. The independent public accountant [465 U.S. 805, 818] performing this special function owes  ultimate allegiance to the corporation's creditors and stockholders, as well as to the investing public. This "public watchdog" function demands that the accountant maintain total independence from the client at all times and requires complete fidelity to the public trust."

In order to meet the ethical expectations embodied in the Supreme Court decision, auditors must put the interests of the public ahead of those of the client, an employer, and one's self-interests. The accounting profession is the only profession where the public interest trumps all others. Lawyers owe their ultimate allegiance to the client and doctors to their patients. Therefore, information about these groups is confidential and must not be disclosed although reporting obligations do exist for doctors and lawyers when the public health and safety is at risk.

Accounting graduates need to be sensitized to their ethical obligations as professionals. These include acting with integrity and not allowing the client or one's employer to make the final call about what should and should not be included in the financial statements and how it should be reported. Courage is the ethical value that enables accountants and auditors to withstand client pressures to manipulate financial statement numbers.

The public places its trust in accountants and auditors to act with honesty and integrity. Most investors do not understand the complexities inherent in GAAP. They expect accounting professionals to ensure that the financial statements accurately portray financial position, results of operations, and changes in cash flows.

Increasingly, accounting students are expected to be educated in ethics at the university level to meet state board of accountancy educational requirements to sit for the CPA Exam. Several states, including Colorado, Maryland, Nebraska, New York and Texas, have laws on the books requiring three units of ethics education. California has gone beyond those states in SB 819 that calls for ten units of ethics education starting in 2014. I am a member of the state board committee to define the scope and content of those units. It's a daunting task to say the least, but we recognize that the public must be protected from future ethics meltdowns that existed in the financial crisis of 2008 and the failure of companies such as Enron and WorldCom.

Here's my advice to accounting students who aspire to become accounting professionals. Understand your ethical responsibilities and the virtues needed to meet those obligations. You should incorporate them into everything you do beginning with developing sound work habits in college. The ancient Greeks identified virtues as positive traits of character that inform decision making. We develop these virtues through practice and reflection. It should become a habit and influence all actions and decisions both in your personal and professional lives.

Blog by Steven Mintz, aka Ethics Sage, April 30, 2011