Ethics in Accounting

EthicalDecisionsinAccounting

AlfonsoOddoNiagaraUniversity

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EthicalDecisionsinAccounting

LearningObjectives

Afterstudyingthismoduleyoushouldbeableto:

1. Understandtheimportanceofethics2. Knowthehistoryofethicsinaccounting3. Incorporateethicsintoyourdecisionprocess4. Knowethicalstandardsforaccountingprofessionals5. UnderstandethicalimplicationsoftheU.S.transitiontoIFRS6. Appreciatelessonslearnedfromrecentbusinessscandals

22010JohnWileyandSons,Inc.

SECTION1TheImportanceofEthicsEthics is an important part of your accounting education and it will play an increasinglyimportant role inallaspectsofyourprofessional life.Thismodule is intended togiveyouanoverview of the study of ethics. It is a starting point for the discussion of ethics that willcontinuethroughoutallofyouraccountingstudies.Wewillbeginwithadefinitionofethicsandthenreviewsomeethical theories thatprovidea framework fordevelopingethicalstandardsforaccountingstudentsandprofessionals. Finally,wewilldiscusswhyethics is important toyouasyouprepareforacareerinaccounting.DefinitionofEthics

Whatexactlyisethics?AccordingtoWebstersDictionaryethicsisadisciplinedealingwithgood and evil andmoral duty, andwithmoral principles and practice. Accounting ethicsbasically involves applying moral principles to accounting and business decisions. Businessethics is a more general form of applied ethics that relates moral principles to businesssituations. Business ethics examines behavior toward the outsideworld considering ethicalprinciplesandbusinesscodesofethics.

Simplyput,ethicsisdoingtherightthing.Itisnoteasytodefineethicsbecauseethicscan

bedifferentfordifferentpeople.Youhaveyourownpersonalvaluesandthesevaluesareveryimportantinthedecisionsyoumake.Whenyouareinbusinessyouwillberequiredtofollowcodesofconduct thatareestablishedbyyourcompanyandbyanyprofessionalassociationsthatyoubelongto.Followingtheethicalstandardsoftheseorganizationsisimportant,butyoushouldalwaysbringyourownpersonalvaluesintoyourbusinessmodel.EthicalTheories

Philosophers have developed many theories to provide a framework for making ethicalbusiness decisions. These theories provide a point of reference for developing codes ofconductforcompaniesandprofessionalassociations.Mostethicalcodesinbusinessarebasedonthefollowingmoraltheories:

Rightstheory.Themoralchoiceisthechoicethatbestprotectsandrespectsthemoralrights of those involved with a decision. This theory suggests that humans have adignitythatisbasedontheirhumannatureandtheirabilitytofreelychoosewhattheydowiththeirlives.Thereforetheyhavearighttobetreatedasendsandnotmerelyasmeanstootherends.

Utilitariantheory.Theethicalactionistheactionthatprovidesthemostgoodordoestheleastharm.Theethicalbusinessactionistheonethatproducesthegreatestgoodand does the least harm for all who are affected business stakeholders such ascustomers,employees,shareholders,thecommunity,andtheenvironment.

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Commongood theory. The relationshipsof societyare thebasisofethical reasoning

and respect and compassion for others is the basis formoral decisions. This theoryaddressesthecommonconditionsthatareimportanttothewelfareofeveryone.

Virtue theory. Ethicalactionsshouldbeconsistentwith idealvirtues thatprovide for

the full development of humanity. Honesty, courage, compassion, generosity,tolerance, love, fidelity, integrity, fairness, selfcontrol,andprudenceareexamplesofvirtues.

Fairnesstheory. Ethicalactionstreatallhumanbeings fairlybasedonsomestandard

that isdefensible. Wemightpaypeoplemore,basedonthedifficultyoftheirworkorthegreateramountthattheycontributetoacompany.

ImportanceofEthics

Information provided by accountants and auditors is relied upon by people who makedecisionsaboutcompaniesandorganizations.Forexample,ifyouareconsideringbuyingstockin a company you need accurate and reliable information upon which you can base yourdecision. Lenders such as banks and financial institutions need reliable information todetermine if theywill loanmoney to companies.Government agencies such as the InternalRevenue Service collect taxes based on the financial information provided by companies.People relyon theaccountantswhoprepare financial reports. Knowledgeofethicswillhelpyoutomakegooddecisionsthatwillgiveproper informationtothosewhorelyonyou. Withproperinformation,betterdecisionswillbemade.

Businessdecisionscanaffectmanypeopleorstakeholders.Forexample,whenyoumakeadecisionforyourcompanyitcanaffecttheownersandemployeesofthecompany,bankswhoprovideresources to thecompany,customersof thecompany,andpeople in thecommunitywherethecompany is located. Inadditiontotheeffectofyourdecisionontheprofitsofthecompany,yourdecisionmayalsohaveothernonfinancialfactorsthathave importanteffectsonstakeholders.Whatifyouwereconsideringtwoalternativeprojectsforyourcompany:(1)aprojectthatwouldmakesignificantprofitforyourcompanyandalsopollutetheenvironmentwith harmful chemicals; (2) another project thatwould earn less profit butwould have nonegative effects on the environment andwould not harm any stakeholders. Which projectwouldyouchoose?

Shouldnonpecuniaryfactorsenterintothedecisionprocess?Ifyouconsiderfactorsthatarenotfiscalonlyinnature,thenhowdoyoumeasurethem?Often,themostimportantfactorsina decision are the ones that cannot be easily measured. Because some things cannot bemeasuredeasily,however,doesnotmeanthatweshouldnotconsiderthem inourdecisions.


Thatisthemainpointabouttheimportanceofethicsinaccountinganawarenessthatethicsisan importantpartofbusinessdecisions. Weoftenuse thecostbenefitdecisionmodel toevaluatebusinessprojects.Welistthecostsononesideandthebenefitsontheothersideandthegreaternumberoftendecides theproject. If thebenefitsaregreater than thecostsweaccepttheproject;ifthecostsexceedthebenefitstheproject isrejected. Wheredoesethicsfitintotheprocess?

Ethical issuesdeserveaplace in thecostbenefitmodel.Itisreallyquitesimpleyouconsiderthepossible costs andbenefitsofethical issues andplace them on the scale alongwith other costsand benefits. Because ethical issues often aredifficultorimpossibletomeasuredoesnotmeanthat theyarenot importantor that they shouldnotbeconsideredinthedecision.Amoreethicaldecision is likelytoresult ifethicalfactorsareatleast brought into the picture when makingbusiness decisions. Again, awareness of theethical implications of business decisions is thekeytogoodbusinessdecisions.

Not all decisions use the cost benefitmodel. Some decisions involve choosing different

courses of action, such as recording accounting transactionswhen different alternatives areavailableundergenerallyacceptedaccountingprinciples. Youwillneedtochoosethecorrectactionaccordingtothecircumstances involved,andnotbasedsolelyontheamountofprofityour company can make. As the U.S. moves toward adopting international accountingstandards,theaccountingguidancewillbebasedmoreonprinciplesthanonspecificrules.Theuseofjudgmentwilllikelyplayamoreprominentroleinmakingaccountingchoicesandethicalprincipleswillplayanevenmoreimportantroleinbusinessdecisions.

DiscussionQuestions

1. Soonyouwillgraduatefromcollegeandgeta job. Whatethicalcodesofconductwillyou have to follow? How will your personal values affect your business decisions?Whatpenaltiesarethereforfailuretofollowethicalstandards?

2. Look at the ethical standards of the AICPA or the IMA included in section 4 of this

module.Whatprincipleswillguideyouinmakingaccountingchoices?SECTION2TheHistoryofEthicsinAccountingIn the wake of recent, highprofile accounting scandals, you might think that ethics is arelativelynewtopictothefieldofaccounting. Actually,ethicshasbeenan importantpartofaccounting sincemethods of keeping financial records gainedmomentum in the thirteenth

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century.Acodeofethicsnowappliestoallaccountingprofessionalsandethicshasbecomeanintegralfeatureofaccountingeducation.

BriefHistoryofEthicsinAccountingLuca Pacioli, an Italian mathematician and Franciscan friar, described a method of keepingfinancialaccountsin1494whenhepublishedhisfirstbookSummadeArithmetica,Geometria,Proportioni, et Proportionalita (translated everything about arithmetic, geometry, andproportions). Inthisbookhewroteaboutmanytopics, includingthefirsteverdoubleentrybookkeeping system, cost accounting and accounting ethics. Over the years, ethicalstandards have been developed by many different professional associations, governmentagencies,andprivatecompanies. Theseorganizationscreatedethicalcodesofconductwhichtheir members or employees are expected to follow when they perform their professionalwork.

AnimportantorganizationintheearlydevelopmentofaccountingethicalstandardswastheAmericanAssociationofPublicAccountants (AAPA)whichwas created in1887. During thatyear,accountingbecameaprofession,oragroupofpeoplewhosemembersmustmeetcertainstandardstoengageinthepracticeofaccounting.In1907,theAAPAincorporatedprofessionalethics into its membership rules. However, membership in the AAPA was voluntary andthereforetheethicalstandardsoftheAAPAcouldnotbeenforcedonawidespreadbasis.TheAAPAwas later renamed to theAmerican InstituteofCertifiedPublicAccountants (AICPA).ThecodeofethicsoftheAICPAisamajorforceinappliedaccountingethicsintodaysbusinessworld. Theethical standardsof theAICPA are fullydescribed in Section4of thismoduleEthical Standards for Accounting Professionals. Members of the AICPA are Certified PublicAccountants(CPAs)whomustcomplywiththeAICPAsethicalstandards.NoncompliancecouldresultinlosingalicensetopracticeasaCPA.


EthicsintheAccountingProfession

In themiddle of the twentieth century the Commission on Standards of Education andExperienceforCertifiedPublicAccountantsidentifiedsevencharacteristicsofaprofession:

1. Aspecializedbodyofknowledge2. Aformaleducationprocesstoacquirethespecializedbodyofknowledge3. Astandardofprofessionalqualificationstoentertheprofession4. Astandardofconduct5. Recognitionofstatus6. Anacceptanceofsocialresponsibility7. Anorganizationdevotedtotheadvancementofthesocialresponsibility

Characteristic 4requiring a standard of conduct and characteristic 6accepting social

responsibility, relatemost directly to accounting ethics. What standards of conduct shouldaccountants follow andwhat is the social responsibility accountantshave toward thepublicthey serve? Standards of conduct and accounting codes of ethics as developed by currentprofessionalaccountingorganizationsaremore fullyaddressed in section4of thismoduleEthical Standards for Accounting Professionals. A professional must accept a moralresponsibility to act in thebest interestsof thepublic. Thismeans thatbusinessmust lookbeyondprofitstothecommongoodandbesurenottoharmthepublicgood.

Thepurposeofbusiness is tomakeaprofit,butprofitshouldnotbe theonlymotive for

business. Adam Smith maintained that business should seek a profit within the ethicalprinciplesof justiceand fairness. Therefore,abusinessprofessionalmustprotect thepublicinterestwhilepursuingtheprofitmotive.Manywouldarguethatactinginthebestinterestofthe public is also in the best interest of the company. In other words, ethics is good forbusinessandmakes thecompanysuccessfulevenas thecompany looksout for thecommongood.EthicsinAccountingEducation

Colleges anduniversities in theU.S.have includedethics in their curricula sinceHarvardUniversitywasfoundedastheoldestinstitutionofhigherlearningintheUnitedStates.Manycollegessincethenhave includedethicscourses intheir liberalartsprograms. Inthe1980s,however, applied accounting ethics really gainedmomentum andmany colleges in theU.S.started incorporatingethics intoaccountingandbusinessclasses. This incorporationofethicsintobusinessandaccounting iscalledappliedethicsbecausetheethicalprinciples learned inthephilosophyclassesisappliedtopracticalaccountingsituationsinaccountingclasses.Withappliedethics, studentsget toaddanewdimension to theirbusinessdecisionprocesssoftethicalissuesinadditiontothehardnumberstraditionallyusedtoevaluatebusinessprojects.

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DiscussionQuestions

1. Some argue that ethics cannot be taught in college because students have alreadyformedtheirvalueswhentheycometocollege.Doyouthinkethicsshouldbeincludedintheaccountingcurriculumincollegesanduniversities?

2. Doyoufeelthatgoodethicalbehaviorisgoodforcompanyprofits?Describeasituation

in which making a decision in the interest of the public good would increase theprofitabilityofabusinessinthelongrun.

SECTION3EthicsintheDecisionProcessWhileyouare incollegestudyingaccountingyouwillneedtodevelopathinkingprocessthatwillguideyou inmakingbusinessdecisions. Whenyougraduate fromcollegeandenter theaccountingprofessionyouwillusetheknowledgeyoulearnedincollegetohelpyourcompanybe successful and to create abetter society. Learning accounting isnot just about learningnumbers,butalsoaboutlearningtomakegooddecisions.EthicsinAccountingEducation

How can you incorporate ethical decisionmaking when you study accounting? Manyorganizationsexist thatprovideguidance touniversities regardinghow to incorporateethicsinto accountingeducationprograms. In addition, there aremany tools students canuse tosolveanethicaldilemma. Someethicstoolswith linkstogoodwebsitesareprovidedattheendofthissection.Themainwayyoucanbringethicsintoyourdecisionprocess,however,issimplytobeawareofethicalissuesinaccountingsituationsandtoconsidertheseethicalissuesaspartofyourdecisionmodel.

Theneed forethics ineducation isapparent in lightof recenthighprofilebusiness fraudcases.IntheUnitedStates,theAmericanAssemblyofCollegiateSchoolsofBusiness(AACSB)istheaccreditingbodyforbusinessschools.AACSBmakestheeducationstandardsforbusinessschools, and the AACSB standards do include ethics. Because ethical values differ amongcountriesandcultures,thereisnouniversallyacceptedcodeofethics.Nonetheless,therearebasic ethical principles that cross international borders, and International Federation ofAccountants(IFAC)hasattemptedtoprovidesomeguidanceforteachingethicsinallcountries.

InternationalEducationStandards (IES)prescribe standardsofgenerallyacceptedethicalprinciplesintheeducationofaccountingstudents.Thestandardsexpressthebenchmarksthatyouareexpectedtomeetinyouraccountingeducationprogram.Theyestablishtheessential


elementsofthecontentandprocessofeducationanddevelopmentatalevelthatisaimedatgaining international recognition, acceptance and application. The standards cannot legallyoverridelocallawsandregulationsbutwillprovideanauthoritativereferenceforinformingandinfluencinglocalregulatorsregardinggenerallyacceptedethicalprinciples.

The International Accounting Education Standards Board (IAESB) recognizes the widediversityofculture,language,andeducational,legal,andsocialsystemsinthecountriesofthememberbodies andof the varietyof functionsperformedby accountants. Therefore,eachindividualmemberbodywilldeterminethedetailedrequirementsoftheeducationprograms.InternationalEducationStandards forProfessionalAccountantsare intendedtoestablishonlythe essential elements on which ethical principles for all professional accountants andaccountingstudentsshouldbebased.

The IAESBhas issuedeight InternationalEducationStandards. Thesestandardscover theentry requirements for accounting education programs, as well as the experience andcontinuingprofessionaldevelopment requirements youwillbe required to followwhen youbecomeanaccountingprofessional:

InternationalEducationStandards(IES)IES1: EntryRequirementstoaProgramofProfessionalAccountingEducationIES2: ContentofProfessionalAccountingEducationProgramsIES3: ProfessionalSkillsIES4: ProfessionalValuesEthicsandAttitudesIES5: PracticalExperienceRequirementsIES6: AssessmentofProfessionalCapabilitiesandCompetenceIES7: ContinuingProfessionalDevelopment:AProgramof Lifelong LearningandContinuing

DevelopmentofProfessionalCompetenceIES8: CompetenceRequirementsforAuditProfessionals

IES4prescribestheprofessionalvalues,ethicsandattitudesyoushouldacquireduringyoureducation program. The aim of this standard is to ensure that you are equippedwith theappropriateprofessionalvalues,ethics,andattitudestofunctionasaprofessionalaccountant.IFAC recognizes that the accountancy profession throughout the world operates inenvironments with different cultures and regulatory requirements. IFAC has, nevertheless,establishedan internationalCodeofEthicsforProfessionalAccountants. Professionalvalues,ethicsandattitudesrelatedirectlytoIFACsmissiontodevelopandenhancetheprofessiontoenableittoprovideservicesofconsistentlyhighqualityinthepublicinterest.

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IES4requiresthatuniversityaccountingprogramsshouldprovideyouwithaframeworkofprofessionalvalues,ethics,andattitudesforexercisingprofessionaljudgmentandforactinginanethicalmannerthatisinthebestinterestofsocietyandtheprofession.Therequiredvalues,ethics,andattitudesofprofessionalaccountantsincludeacommitmenttocomplywithlocalcodesofethicswhichshouldbeinconformitywiththeIFACCodeofEthics.Thecoverageofethicsinaccountingeducationprogramsshouldinclude:

thenatureofethics differencesofrulesbasedandprinciplesbasedapproachestoethics compliancewithfundamentalethicalprinciples professionalbehaviorandcompliancewithtechnicalstandards conceptsofindependence,accountability,andpublicexpectations socialresponsibility ethicsandlaw consequencesofunethicalbehaviortotheindividual,theprofession,andtosociety ethicsinrelationtobusinessandgoodgovernance whistleblowing,conflictsofinterest,ethicaldilemmasandtheirresolution

IES 4 recommends that thepresentationof ethicsmaybe treated, at least initially, as a

separate subject in the accounting program. As you progress through your accountingcurriculumandgainawiderknowledgeofothersubjects,yourbusinesscurriculumwill likelyintegratethevarioustopicscoveredinotherbusinesscourses.Thiswillencourageyoutolookforthepossibleethicalimplicationsofproblemsbeingdiscussedinyouraccountingclassesandinotherbusinessclassesyouaretaking.

Asanaccountingprofessional youwillalsoneed tounderstand relevant codesofethics.YoucanstudyethicalstandardsforaccountingprofessionalsusingtheAICPAcodeofethicsandtheIMAethicalstandards.Youalsocanexaminetheethicalstandardsofotherprofessionsanddiscussotherpotentialapproaches forethical standards in theaccountancyprofession. Youknow fromyourownaccountingeducationprogram thatyouoften learnbestwhenyouareactivelyinvolvedlearningprocess,usingtechniquessuchas:

casestudies roleplaying discussionofselectedreadingsandvideos analysisofreallifebusinesssituationsinvolvingethicaldilemmas discussionofdisciplinarypronouncementsandfindings seminarsusingspeakerswithexperienceincorporateorprofessionaldecisionmaking

Suchactivelearningstrategiesgiveyouagreaterawarenessoftheethicalimplicationsand

potential conflicts that may arise from having to make difficult accounting decisions. It isimportantforyouto learnfromyourethicalexperiences. Youshouldconsideranexperience,


whatwentwell,whatdidnotwork,andwhatapproachmaybetaken inthefuture insimilarcircumstances.Inthisway,youwilldevelopadecisionmodelforethicalaccountingchoices.

Allaccountingprofessionalassociationshavecodesofethics thatyouwillbe required tofollow.Unfortunately,fraudandethicallapsespersistinthebusinessworld.Whatcanyoudoto improveethicalbehavior? Awarenessofethical issuesandabusinessdecisionmodelthatincorporatesethicswillhelpyoutoapplyethicsinyourbusinessdecisions.Justasyoulearntoapplyfinancialmodels inyourbusinessdecisions,youcanalso learnethicalmodelsandapplythem to business decisions. When you practice ethical situations in your accounting andbusinessclassesincollegeyouwillbebetterpreparedtomakegoodethicaldecisionsafteryougraduateandentertheaccountingprofession.

Howcanaccountingprofessionalsincorporateethicalthinkingintotheirbusinessdecisions?Accountantsaregoodatworkingwithnumbers,but theyneed to lookbeyond thenumberswhenevaluatingbusinessprojects. Ethical issuesoftenarenoteasilymeasureable indollarsbuttheir impactonaccountingandbusinessdecisionsmaybesignificantandvery important.The firststep in theprocess is tobeaware that theremaybesomeethical issues thatcouldaffectyourdecision.Again,awarenessisthekey.Whenyoubringethicalconsiderationsintothe decision process then at least you are considering the possible ethical implications forpeoplewhomaybeaffectedbythedecisionyoumake.

AccountingprofessionalswhoareCPAsmust fulfillcontinuingeducationrequirements tomaintaintheirCPAlicense.Continuingeducationinethicsisrequiredinmoststates.ManyCPAfirmsandlargecompanieshaveethicsspecialiststoprovidetrainingandserveasresourcestoaddressethicalissues.

EthicsTools

Whataresometoolsthatyoucanuserightnowasanaccountingstudenttohelpyousolveethicaldilemmasanddevelopaprocessformakingethicallygooddecisions?Onetoolmightbetofollowadefinedsetofstepsinmakinganethicaldecision.TheMarkkulaCenterforAppliedEthicsatSantaClaraUniversitysuggeststhefollowingprocessformakinganethicaldecision:

Recognizeanethicalissue Getthefacts Evaluatealternativeactions Makeadecisionandtestit Actandreflectontheoutcome

There are alsomanyweb siteswith resources thatwillhelp you learn and apply ethicalprinciples.Herearesomewebsitesyoucanreviewthroughoutyouraccountingcareer:

EthicsToolkitwww.ethics.org/page/ethicstoolkit

CyberStudentswww.scu.edu/ethicscenter/cydent

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Toolbox,Quiz,andMorehttp://cba.lmu.edu/academicprograms/centers/ethicsandbusiness/toolbox.htm

AFrameworkforThinkingEthicallyhttp://www.scu.edu/ethics/practicing/decision/framework.html

EthicsCases

www.scu.edu/ethics/practicing/focusareas/cases.cfm?fam=BUSI

DiscussionQuestions

1. As an accounting student, how are ethical issues addressed in your accountingcurriculum?Howcanyouincludeethicalissuesinacostbenefitdecisionmodel?

2. Howshouldethicalissuesbeconsideredinmakingbusinessdecisions?Inotherwords,becauseethicalfactorsoftencannotbemeasured,howwouldyouevaluatetheeffectofethicalissueswhenyouaremakingabusinessdecision?

SECTION4EthicalStandardsforAccountingProfessionals

Havingdiscussedtheimportanceandhistoryofethicsinaccountingandsomeethicaltheoriesthatformthebasisofaccountingethics,wenowturnourattentiontotheethicalstandardsofprofessionalorganizations.Theseare the rules thatyouwillneed to followasanaccountingprofessional. Wewill startwithapreviewofprofessionalassociationsofpublicaccountantsand management accountants. Then we will look at the American Institute of CertifiedProfessional Accountants Code of Professional Ethics and the Institute of ManagementAccountantsstatementofethicalprofessionalpractice.

ProfessionalAssociations

Asanaccountingprofessionalyouwillbelongtoaprofessionalaccountingassociationsuchas theAmerican Institute of Certified ProfessionalAccountants (AICPA) or the Institute ofManagementAccountants(IMA). Professionalaccountingorganizationshavecodesofethicsthatyouwillberequiredtofollowasamemberofthatorganization.Violationsofethicalcodescanresultindisciplinaryaction,lossofyourprofessionallicense,andpossiblelegalprosecution.In addition to the national accounting organizations, states also have licensing bodies andprofessionalassociationsthathavecodesofethicalconduct.TheNationalAssociationofStateBoardsofAccountancy(NASBA)promotesethicalstandardsthroughitsCenterforPublicTrust,www.centerforpublictrust.org. Of course, in addition to the ethical standards of professionalassociations, you also will be required to follow your companys code of ethics and yourpersonalvaluesystem.AICPACodeofProfessionalConduct

Itisimportanttoknowthatfollowingethicalstandardsdoesnotmeansimplyfollowingthelaw. Youneedtodistinguishbetweenethicalstandardsand legalrules. AsaCPAwhenyou


acceptmembershipintheAICPAyouassumeanobligationofselfdisciplineaboveandbeyondtherequirementsoflawsandregulations.

TheCodeofProfessionalConductoftheAICPAconsistsoftwosections(1)thePrinciplesand (2) the Rules. The Principles provide the framework for the Rules, which govern theperformanceofprofessionalservicesbymembers.

PrinciplesThe six principles of the AICPA code express the profession's recognition of itsresponsibilitiestothepublic,toclients,andtocolleagues.1. ResponsibilitiesIncarryingouttheirresponsibilitiesasprofessionals,membersshould

exercisesensitiveprofessionalandmoraljudgmentsinalltheiractivities.2. Thepublic interest Members should accept the obligation to act in a way that will

serve the public interest, honor the public trust, and demonstrate commitment to professionalism.

3. Integrity To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity.

4. ObjectivityandindependenceA member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services.

5. DuecareA member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability.

6. Scope and nature of services A member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided.

RulesThebylawsoftheAmericanInstituteofCertifiedPublicAccountantsrequireitsmemberstoadheretotheRulesoftheCodeofProfessionalConduct. MembersmustbepreparedtojustifydeparturesfromtheseRules. Rule 101Independence. Amember in public practice shall be independent in the

performanceofprofessionalservicesas requiredbystandardspromulgatedbybodiesdesignatedbytheAICPA.

Rule102Integrityandobjectivity. Intheperformanceofanyprofessionalservice,amembershallmaintainobjectivityandintegrity,shallbefreeofconflictsofinterest,andshallnotknowinglymisrepresentfactsorsubordinatehisorherjudgmenttoothers.

Rule201General standards. Amember shallcomplywith thegeneral standardsofprofessional competence, due professional care, planning and supervision, andsufficientrelevantdata.

Rule 202Compliance with standards. A member who performs auditing, review,compilation,management consulting, tax, or other professional services shall complywithstandardspromulgatedbybodiesdesignatedbytheAICPA.

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Rule203Accountingprinciples.Prohibits amember fromexpressing anunqualifiedopiniononfinancialstatementsthatcontainamaterialdeparturefromGAAP.

Rule 301Confidential client information. A member in public practice shall notdiscloseanyconfidentialclientinformationwithoutthespecificconsentoftheclient.

Rule302Contingentfees. Amembershallnotchargeafeeonconditionthatnofeewillbechargedunlessaspecificfindingorresultisattained.

Rule501Actsdiscreditable. Amembershallnotcommitanactdiscreditabletotheprofession.

Rule502Advertising andother formsof solicitation. Amember inpublicpracticeshallnotseektoobtainclientsbyadvertisingorotherformsofsolicitationinamannerthatisfalse,misleading,ordeceptive.Solicitationbytheuseofcoercion,overreaching,orharassingconductisprohibited.

Rule 503Commissions and referral fees. A member shall not for a commissionrecommendorrefertoaclientanyproductorservicewhenthememberalsoperformsanauditforthatclient.

Rule505Formoforganizationandname.Amembermaypracticepublicaccountingonly in a form of organization permitted by law or regulation whose characteristicsconformtoresolutionsoftheAICPA.

IMAStatementofEthicalProfessionalPractice

The IMA ethical standards are based on the overall principles of honesty, fairness,objectivity, and responsibility. Members must act in accordance with these principles andencourageothersintheirorganizationtodoso.BasedontheseprinciplestheIMArequiresitsmemberstoadheretothefollowingethicalstandards:

Competence1. Maintain an appropriate level of professional expertise by continually developing

knowledgeandskills.2. Performprofessionaldutiesinaccordancewithrelevantlaws,regulations,andtechnical

standards.3. Provide decision support information and recommendations that are accurate, clear,

concise,andtimely.4. Recognize and communicate professional limitations or other constraints thatwould

precluderesponsiblejudgmentorsuccessfulperformanceofanactivity.

Confidentiality1. Keepinformationconfidentialexceptwhendisclosureisauthorizedorlegallyrequired.2. Inform all relevant parties regarding appropriate use of confidential information.

Monitorsubordinates'activitiestoensurecompliance.3. Refrainfromusingconfidentialinformationforunethicalorillegaladvantage.

Integrity


1. Mitigateactualconflictsof interest;regularlycommunicatewithbusinessassociatestoavoidapparentconflictsofinterest.Adviseallpartiesofanypotentialconflicts.

2. Refrainfromengaginginanyconductthatwouldprejudicecarryingoutdutiesethically.3. Abstainfromengaginginorsupportinganyactivitythatmightdiscredittheprofession.

Credibility1. Communicateinformationfairlyandobjectively.2. Disclose all relevant information that could reasonably be expected to influence an

intendeduser'sunderstandingofthereports,analyses,orrecommendations.3. Disclosedelaysordeficienciesininformation,timeliness,processing,orinternalcontrols

inconformancewithorganizationpolicyand/orapplicablelaw.

WhenyouencounteranethicaldilemmatheIMArecommendsthefollowingproceduretoresolvetheethicalissue:

1. Discuss the issue with your immediate supervisor except when it appears that thesupervisor is involved. In that case,present the issue to thenext level. Ifyou cannotachieveasatisfactoryresolution,submittheissuetothenextmanagementlevel.Ifyourimmediatesuperioristhechiefexecutiveofficerorequivalent,theacceptablereviewingauthoritymaybeagroupsuchastheauditcommittee,executivecommittee,boardofdirectors, board of trustees, or owners. Contact with levels above the immediatesuperiorshouldbeinitiatedonlywithyoursuperior'sknowledge,assumingheorsheisnot involved. Communication of such problems to authorities or individuals notemployed or engaged by the organization is not considered appropriate, unless youbelievethereisaclearviolationofthelaw.

2. ClarifyrelevantethicalissuesbyinitiatingaconfidentialdiscussionwithanIMAEthicsCounselororotherimpartialadvisortoobtainabetterunderstandingofpossiblecoursesofaction.

3. Consult your own attorney as to legal obligations and rights concerning the ethicalconflict.

EthicsonProfessionalExaminations

WhenyougraduatefromcollegeyoumaytakeaprofessionalcertificationexamsuchastheCPAorCMA. Ethics iscoveredonmostprofessionalexams including theCPAexamand theCMAexam. Forexample,ethicsandprofessionaland legalresponsibilitiesare included intheRegulation section of theCPA exam, accounting for 15% to 20% of the exam content. Thetopicsincludecodesofprofessionalconduct,independence,ethicsintaxpractice,licensinganddisciplinarysystems, legal responsibilities,andprivilegedcommunicationsandconfidentiality.Youwillmost likely cover these topics in your accounting and law classes, and you shouldconsidertakingaprofessionalCPAreviewcoursetobetterprepareyoufortheCPAexam.

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TheCMAexamalsoincludescoverageofethics.ThenewtwopartformatoftheCMAexamincludesethicalprinciplesandpracticalconsiderationsonbothPart1andPart2oftheexam.InPart1oftheexam,ethicsistestedfromtheperspectiveoftheindividual,andPart2oftheexamaddressesethical issues fromtheperspectiveofbusinessandaccountingorganizations.Professionalethicsmakesup5%oftheexamcontentinPart1andanother5%ofthecontentinPart2oftheCMAexam.

DiscussionQuestions

1. DiscussthesimilaritiesanddifferencesbetweentheAICPACodeofProfessionalConductandtheIMAStatementofEthicalProfessionalPractice.

2. Asanaccountingprofessionalyouwillbeguidedbyacodeofconductforthecompany

orfirmyouworkfor,andalsobytheethicalcodesofprofessionalassociationsyouareamember of. Discuss any potential conflicts between the codes and how youwouldresolvethem.

SECTION5TheU.S.TransitiontoIFRSIntheprevioussectionwepresentedtheethicalcodesoftheAICPAandtheIMA.ThesearetheethicalstandardsofthemajoraccountingassociationsintheUnitedStates.Overthenextfewyears, theUnitedStateswillmove toward theadoptionof InternationalFinancialReportingStandards (IFRS). Inthissectionwewilltakea lookathowthistransitionto IFRSmayaffectethical standards of accounting in theU.S. Wewill start by looking at countries that havealreadyadopted IFRS,andthendiscussthedifferencebetweenstandardsthatarerulebasedand standards that based on principles. Finally, we will look at another code of ethicsdevelopedbytheInternationalFederationofAccountants(IFAC)andtheimplicationsthismayhaveforaccountingstudentsandaccountingprofessionalswhentheU.S.adoptsIFRS.CountriesUsingIFRS Asof2010,about120countrieshaveadoptedIFRS,includingallcountriesintheEuropeanUnion. Whathasbeen theirexperience,whatethical issueshave they faced,whataresomeadvantages and disadvantages, and how has the IFRS principlesbased system worked forthem? Because IFRS provides general guidance based on broad principles, accountants areallowed more flexibility to properly report financial transactions according to the uniquecircumstances thatmay apply. Rather than having to follow specific rules thatmay not fitexactlytoaparticularsituation,accountantscanusemorejudgmenttodecidethebestwaytoaccountforatransaction.Theprinciplesbasedsystemreliesmoreonthesubstanceandintentofatransactionthanonpreciserulesthatmustbefollowed.Rulesbasedvs.principlesbased


Asyoucan see from theprevious section, theethical standardsofU.S.organizationsarelargely based on detailed rules of conduct (rulesbased). The global business community isconvergingtowardacommonsetofinternationalaccountingstandards.Whilemanycountrieshave already adopted International Financial Reporting Standards (IFRS), some countries,including theUnited States, still requirenational accounting standards. Most countries thathavenotyetadoptedIFRShavemadeacommitmenttoadoptIFRSinthenearfuture.

Whatimplicationswillinternationalaccountingstandardshaveforglobalaccountingethics?Standard setting organizations in more than 100 countries have adopted the InternationalFederationofAccountants' (IFAC)CodeofEthics forProfessionalAccountants,whileothersare in theprocessof convergingwith the code. The code applies toprofessionals inpublicpractice,business, academia and government. The IFAC codeuses a conceptual framework(principlesbased) approach to evaluate circumstances that may raise ethical issues. As anaccountantyouwill identifyandanalyzethreatstoyour independenceandapplyappropriatemeasuresthateliminatethosethreatsorreducethethreatstoanacceptable level. The IFACcodeaddressesmanyofthesameareasastheAICPAcode,suchasobjectivity,independence,duecareandconfidentiality.

TheIFACcodehasbecomemorerelevantforU.S.accountantsandaccountingstudentsasbusiness has become increasingly global and as the American Institute of Certified PublicAccountants(AICPA)hasbeguntheprocessofconvergingitsCodeofProfessionalConductwiththe IFACguidance. IFACrequiresthat itsmemberbodiesagreetohavestandardsofconductthatarenotlessstringentthanthoseofIFAC.IFACCode

TheIFACcodeofethicsrequiresyoutoadheretofivefundamentalprinciples: Integrity A professional accountant should be straightforward and honest in

performingprofessionalservices. Objectivity A professional accountant should not allow bias, conflict of interest or

undueinfluenceofotherstooverrideprofessionalorbusinessjudgments. ProfessionalCompetenceandDueCare Aprofessionalaccountanthasa continuing

dutytomaintainprofessionalknowledgeandskillatthelevelrequiredtoensurethataclient or employer receives competent professional service based on currentdevelopments. Aprofessionalaccountantshouldactdiligentlyand inaccordancewithapplicabletechnicalandprofessionalstandardswhenprovidingprofessionalservices.

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Confidentiality A professional accountant should respect the confidentiality ofinformationacquiredasaresultofprofessionalandbusinessrelationshipsandshouldnotdiscloseanysuchinformationtothirdpartieswithoutproperandspecificauthorityunlessthereisalegalorprofessionalrightordutytodisclose.Confidentialinformationacquiredasa resultofprofessionalandbusiness relationships shouldnotbeused forthepersonaladvantageoftheprofessionalaccountantorthirdparties.

ProfessionalBehaviorAprofessionalaccountantshouldcomplywithrelevantlawsandregulationsandshouldavoidanyactionthatdiscreditstheprofession.

TheIFACcodewasrevisedinJuly2009.TherevisedCode,whichiseffectiveonJanuary1,

2011,includesthefollowingchangestostrengthenindependencerequirements: Extending the independence requirements for audits of listed entities to all public

interestentities Requiring a cooling off period before certain members of the firm can join public

interestauditclientsincertainspecifiedpositions Extendingpartnerrotationrequirementstoallkeyauditpartners Strengtheningsomeoftheprovisionsrelatedtotheprovisionofnonassuranceservices

toauditclients Requiringapreorpostissuancereview iftotalfeesfromapublic interestauditclient

exceed15%ofthetotalfeesofthefirmfortwoconsecutiveyears Prohibitingkeyauditpartnersfrombeingevaluatedonorcompensatedforsellingnon

assuranceservicestotheirauditclients

The revised code maintains the principlesbased approach supplemented by detailedrequirementswherenecessary,resultinginacodethatisflexibleenoughtoaddressthediversecircumstancesencounteredbyprofessionalaccountants.Theprinciplesbasedapproachshouldalsohelptofacilitateglobalconvergence.

ConceptualFramework Sowhatdoes thismean toyouandhowcan ithelpyou tomakebetterethicaldecisionswhenyoubecomeanaccountant?Theprinciplesbasedsystemusesaconceptualapproachtohelpyouevaluatesituationsthatyoumaybeinvolvedinsoyoucanmakegooddecisions.Youwillbaseyourdecisionson fundamentalethicalprinciplesandusetheconceptual frameworkmodeltoevaluateandeliminateanythreatstotheethicalprinciples.

Theconceptualframeworkhelpsyoutoidentifythreatstofundamentalprinciples,evaluatethe threats, and apply safeguards to eliminate or reduce threats. The conceptual approachhelpsyoutocomplywiththeethicalrequirementsofthecodeandtomeetyourresponsibilitytoact in thepublic interest. Becauseaccountingdecisionsareoftenunique, theconceptualframeworkapproach accommodatesmany variations in facts and circumstances. Therefore,


eventhoughthespecificcircumstancesmayvary,youcanbesurethatyouare followingthefundamentalethicalprincipleswhenyoumakeaccountingdecisions.

Whenyou identifythreatstocompliancewithafundamentalprincipleandyoudeterminethat the threats are not at an acceptable level, you can determine whether appropriatesafeguardscanbeappliedtoeliminatethethreatsorreducethemtoanacceptablelevel.Youexerciseprofessional judgmentandtake intoaccountwhetherareasonablethirdpartywouldconclude that the threats can be eliminated and the fundamental principles are notcompromised. Youevaluate threatswhenyouknowofcircumstances thatmaycompromisecompliancewiththefundamentalprinciples.

DiscussionQuestion

1. Internationalfinancialreportingstandardsshouldmakefinancialreportsmoretransparentandunderstandable across national borders. Do you think that the move toward internationalaccountingstandardswillacceleratetheadoptionofglobalethicalprinciples?

SECTION6LessonsLearnedfromBusinessScandalsWhatcanwetakeawayfromallofthis? Wehave lookedatethicsandwhy it is importanttoaccounting students and accounting professionals. We have reviewed the codes of ethicalstandardsdeveloped in theU.S. andby the International FederationofAccountants. Yet inspiteofall thegoodwork thathasbeendone in theareaofbusinessandaccountingethics,therecontinuestobe instancesoffraudanddeception inviolationoftheseethicalprinciples.Inthisfinalsectionwewilltrytolearnsomelessonsfrombusinessscandals.Wewillstartwithadiscussionofsomehighprofilebusinessscandalsthathappenedinrecentyears,andthenwewill think about some lessonswe can learn from the scandals. Finally,wewill look at theSarbanesOxleylegislationthatresultedinresponsetothescandals.BusinessScandalsLetsstartbylookingatsomebusinessscandalsinrecentyears.Whatexactlyhappened,whatethicalruleswereviolated,andwhowasaffected?

Enron. Thisscandal involvedthegiantenergycompanyEnron. Basicallythecompanyoverstateditsrevenuestoshowabetterstockprice.Asyoulearnedinyouraccountingclasses,revenueisrecognizedwhenitisearned.Ifyousellaproductthatyouownyourecordthefullrevenueandsubtractthecostoftheproducttocomputeyournetprofit.Ifyouareanagentwhoisjusttransferringaproductthatyoudonotactuallyown,thenyou should only record your net fee revenue instead of the total revenue. Enronrecorded the full revenueeven though itwasanagent inmany transactions, therebyoverstatingitsrevenues.So,theaccountingruleofrevenuerecognitionwasnotapplied

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WorldCom. WorldComwasthesecond largestphonecompany intheU.S.afterAT&T.

TheWorldComstoryinvolvedcapitalizingsomecoststhatshouldhavebeenrecordedasexpenses.Whenyoudothisyoumakeyourincomestatementandyourbalancesheetlookbetterthantheyactuallyare.Assetsareoverstatedandexpensesareunderstated profits are inflated. WorldCom capitalized the cost of using other companiescommunication lines when they should have recorded these line costs as currentexpenses. The accountingmatching principlewas not followed and the accountantsknewthatthewaytheyaccountedforlinecostswasnotcorrect.Theethicalprinciplesofprofessionalcompetenceandprofessionalbehaviorwereviolated.Stockholderslosteverything,andcreditors lostabout70centsonthedollarfor loanstheyhadmadetothecompany.

Madoff. BernardMadoff committed the largest investor fraudeverbyan individual,

estimated at about $65 billion. This fraud involved a Ponzi scheme, named afterCharlesPonziwhocommittedthiskindoffraudinthe1920s.Madofftookmoneyfromone investorandgive it toanother investor, calling itprofitor returnon investment.But he really was just recycling money and there were no real profits on theinvestments. Of courseMadoff knewwhathewasdoing so theethicalprinciplesofhonesty and integrity were not followed, and the generally accepted method ofrecognizingrevenuewasviolated.Hegotawaywiththisfraudforsometime,butintheend,therealprofitswerenotthereandthefraudwasdiscovered.

Savingsandloanscandals.Banksuseinvestorsmoneytomakeloanstootherpeople.

Theygiveareturntoinvestorsandhopetoearnmoreontheloanssotheycanmakeaprofit. But ifthe loansarebadthenthe investorscan losetheirmoney. Inthe1980sand1990s,manysavingsandloancompaniesmadebadloansresultinginlossesofover$150billion,mostofwhichwaspaidforbytaxpayersthroughgovernmentbailouts.Therootproblemwiththebad loanswastakingtoomuchriskon loansthatpeoplecouldnotaffordtorepay.Somearguethatthegovernmentsharessomeoftheblameherebybackinguptheloansandbailingoutthebanks.Theethicalvaluesofobjectivityandduecare were not properly followed in evaluating the credit rating of customers whoappliedforloans,andtheaccountingprinciplesofassetmeasurementandconservatismwerenotprudentlyapplied.

Realestatescandals. Thistypeofscandaloften involvesoverstatingthevalueofreal

estate tomake an unreasonable profit, leaving borrowers and bankswith the losseswhenthetruevalueofthepropertyisrevealed.Youlearnedinyouraccountingclassesaboutmeasuringassetsatfairmarketvalue,but ifyouoverstatethevalueofanassetthensomebodywill losewhen thetruevalueof theasset isdiscovered. Forexample


LessonsLearned

Whatlessonscanwelearnfromtherecentbusinessscandals?Whatethicalprincipleswere

violatedandwhatcanbedone to lessen thechanceof futurebusiness scandals? TherearemanyfactorsthatcontributedtothehighprofilebusinessscandalssuchasEnron,WorldCom,Madoff,realestate,andthesavingsand loanfailures. Someofthesefactorsandthe lessonswecanlearnfromthemare:

1. Lackoftoneatthetoplevelsofanorganization.Ethicalbehaviorinbusinessbeginsatthetopmanagementmustsetanexampleofethicalbehaviorandmakeitknownthatethics is important in the organization. The top officials in recent scandals actedimproperly and therefore set a tone indicating that ethics does not matter in thecompany. If the top people in an organization feel that ethics is important thenemployeeswillfollowtheleadandconsiderethicalissuesintheirbusinessdecisions.

2. Conflict of audit and consulting roles of accounting firms. CPA firms are no longer

permittedtobebothanauditorandaconsultantforacompany.Auditorindependenceis more closely scrutinized under the new regulations that took effect after theaccountingscandals.

3. Responsibilityoftopofficers. Newaccountingregulationsthatwereestablishedafterthebusinessscandalsrequirethatthetopofficialsofcompaniessignastatementthatthey assume responsibility for the accuracy of the financial statements and for theinternalcontrolsofthecompany.Beforethenewlegislationsomeofficersclaimedthatthey had no knowledge of improper financial activities being conducted by otheremployees in the company. Now, it is the responsibility of top management toresponsibilityforandknowledgeofallfinancialmattersofthecompany.

4. Governmentregulationcannotpreventfraud.TheSecurityandExchangeCommission(SEC)hadextensiveregulationandreportingrequirements,buttherequirementswerenotabletopreventthefraudthatoccurredinrecentbusinessscandals.Whilethefraudwas eventually detected, it was not prevented. Some would question whetherincreasinggovernmentregulationisneededinlightoftheinabilityofcurrentregulationtopreventfraud.

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5. Fraudcanhappenevenwhengoodcontrolsareinplace.Ifsomeoneisinclinedtodosomethingthatisunethicalorillegal,theymaybeabletogetawaywithitatleastforawhile. Investors and others who rely on financial information should be alert forunusualorunreasonableinformationwhichmaybeinaccurate.

Having learnedsome lessonsfromrecentbusinessscandalswemaybebetterpreparedto

understandhowtheyhappenedandwhatcanbedoneto improvethesituation inthefuture.Congresspassednewlegislationinresponsetothelatestroundofbusinessscandals.Themostimportant legislationwas theSarbanesOxleyActof2002whichaddedmany regulations forcompanies and auditors. This is not the first time that the government has stepped in toregulate the accounting profession. For example, the Securities and Exchange Commission(SEC)was established to regulate the stockmarket after some unethical business practices.Afterthestockmarketcrashof1929,theSECwascreatedin1934torestorepublicconfidenceinthecapitalmarkets.LetstakealookatthelatestlegislationSarbanesOxley.SarbanesOxley

AsaresultofthebusinessscandalsCongresschangedtherulesforaccountantsbypassingtheSarbanesOxleylegislation.TheSarbanesOxleyActof2002containsthefollowingsections:

1. PublicCompanyAccountingOversightBoard2. AuditorIndependence3. CorporateResponsibility4. EnhancedFinancialDisclosures5. AnalystConflictsofInterest6. CommissionResourcesandAuthority7. StudiesandReports8. CorporateandCriminalFraudAccountability9. WhiteCollarCrimePenaltyEnhancements10. CorporateTaxReturns11. CorporateFraudandAccountability


ThePublicCompanyAccountingOversightBoard(PCAOB)addedmanynewregulationsforcompaniesthattradestockonthepublicstockexchanges.ThedutiesofthePCAOBareto:

registerpublicaccountingfirmsthatprepareaudit establishauditing,qualitycontrol,ethics,independence,andotherstandardsrelatingto

thepreparationofauditreports conductinspectionsofregisteredpublicaccountingfirms conduct investigationsanddisciplinaryproceedingsand imposeappropriate sanctions

onregisteredpublicaccountingfirms promotehighprofessionalstandardsand improvethequalityofauditservicesoffered

byregisteredpublicaccountingfirms enforcecompliancewiththisAct setthebudgetandmanagetheoperationsoftheBoard

TheU.S.SupremeCourtisreviewingtheSarbanesOxleylegislationandmaydecidereduce

the authority of the PCAOB. If any Supreme Court rulings do affect the SarbanesOxleylegislationthenCongresswouldneedtochangetheregulations.Perhapsanoveralllessonfromthebusinessscandalsisthatethicalbehaviorcannotbelegislated.Whileethicalstandardsandeffective internal controls can increase the likelihood of ethical behavior,making rules andregulationscannevercompletelypreventfraud.

DiscussionQuestions

1. InwhatwaysdoyouthinkthePCAOBwillhelptolessenthechanceoffraudulentbusinesspractices?HowwouldyouimprovetheSarbanesOxleylegislation?

2. Howcancompaniesimprovetheethicalbehaviorofemployeeswithintheorganization?

Doyouthinkthatethicalbehaviormakesacompanymoresuccessful?

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AdditionalresourcesandreferencesAICPAcodeofethicshttp://www.aicpa.org/about/code/index.htmIMAcodeofethicshttp://www.imanet.org/about_ethics_statement.aspIFACcodeofethicshttp://www.ifac.org/ethics/Businessethicslinkshttp://www.scu.edu/ethics/links/links.cfm?cat=BUSIStudentCenterforPublicTrusthttp://www.centerforpublictrust.org/index.php?option=com_content&view=article&id=114Ethicaldecisionmakinghttp://www.scu.edu/ethics/practicing/decision/Improvingprofessionalethicshttp://www.nysscpa.org/cpajournal/2004/604/essentials/p58.htmAGlobalStandardforAccountingEthics,16thAnnualInternationalConferencePromotingBusinessEthics,NiagaraUniversity,October2830,2009Ethics,CatholicValues,andProfessionalCodesofEthicsintheBusinessCurriculum,15thAnnualInternationalConferencePromotingBusinessEthics,St.JohnsUniversity,October2224,2008EthicsinManagementAccounting,apresentationataconferenceonEthicsandResponsibleLeadershipinBusiness,OdetteSchoolofBusinessandCMAOntario,Windsor,Ontario,Canada,March7,2008ApproachestoTeachingEthicsinAccountingEducation,2ndAnnualConferenceoftheBusinessResearchConsortiumofWesternNewYork,St.BonaventureUniversity,NY,April2021,2007EthicsDisclosuresinFinancialReports,13thAnnualInternationalConferencePromotingBusinessEthics,NiagaraUniversity,NY,October2527,2006AFrameworkforTeachingBusinessEthics,JournalofBusinessEthics16:293297,KluwerAcademicPublishers,theNetherlands,1997Section3andSection4photocourtesyofwww.istockphoto.com.

Rule 102Integrity and objectivity. In the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others. Rule 201General standards. A member shall comply with the general standards of professional competence, due professional care, planning and supervision, and sufficient relevant data. Rule 202Compliance with standards. A member who performs auditing, review, compilation, management consulting, tax, or other professional services shall comply with standards promulgated by bodies designated by the AICPA. Rule 203Accounting principles. Prohibits a member from expressing an unqualified opinion on financial statements that contain a material departure from GAAP. Rule 301Confidential client information. A member in public practice shall not disclose any confidential client information without the specific consent of the client. Rule 501Acts discreditable. A member shall not commit an act discreditable to the profession. Rule 502Advertising and other forms of solicitation. A member in public practice shall not seek to obtain clients by advertising or other forms of solicitation in a manner that is false, misleading, or deceptive. Solicitation by the use of coercion, over-reaching, or harassing conduct is prohibited. Rule 503Commissions and referral fees. A member shall not for a commission recommend or refer to a client any product or service when the member also performs an audit for that client. Rule 505Form of organization and name. A member may practice public accounting only in a form of organization permitted by law or regulation whose characteristics conform to resolutions of the AICPA.

Documents

Ethics in Accounting