Cheating in college is prevalent as well.
The estimates of number of students engaging in some form of academic dishonesty at least once ranges from 50 to 70 percent. 17 In 1997, McCabe and Treviño surveyed 6,000 students in 31 academic institutions and found con- textual factors, such as peer influence, had the most effect on student cheating behavior. 18 Contextual appropriateness, rather than what is good or right, suggests that situations alter cases, thus changing the rules and principles that guide behavior. 19
A comprehensive study of 4,950 students at a small southwestern university identified neutralizing techniques to justify violations of accepted behavior. In the study, students rationalized their cheating behavior without challenging the norm of honesty. The most common rationale was denial of responsibility (i.e., circumstances beyond their control, such as excessive hours worked on a job, made cheating okay in that instance). Then, they blamed the faculty and testing procedures (i.e., exams that try to trick students rather than test knowledge). Finally, the students appealed to a higher loyalty by arguing that it is more important to help a friend than to avoid cheating. One student blamed the larger society for his cheating: “In America, we’re taught that results aren’t achieved through beneficial means, but through the easiest means.” The authors concluded that the use of these techniques of neutralization conveys the message that students recognize and accept cheating as an undesirable behavior but one that can be excused under certain circum- stances, reflecting a situational ethic. 20
Student Cheating and Workplace Behavior Some educators feel that a student’s level of academic integrity goes hand in hand with a student’s ethical values on other real-world events that present ethical challenges. 21 In other words, developing a sound set of ethical standards in one area of decision making, such as personal matters, will carry over and affect other areas such as work- place ethics.
Some educators believe that ethics scandals in the business world can be attributed to the type of education that graduates of MBA programs obtained in business schools. 22 In 2006, McCabe, Butterfield, and Treviño reported on their findings regarding the extent of cheating among MBA students compared to non-business graduate students at 32 uni- versities in the United States and Canada. The authors found that 56 percent of business students admitted to cheating, versus 47 percent of non-business students. 23
Several researchers have examined student cheating in college and the tendency of those students to cheat in the workplace. Lawson surveyed undergraduate and graduate students enrolled in business schools and found a strong relationship between “students’
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10 Chapter 1 Ethical Reasoning: Implications for Accounting
propensity to cheat in an academic setting and their attitude toward unethical behavior in the business world.” 24 Another study looked at the issue of graduate students cheating versus workplace dishonesty. Sims surveyed MBA students and found that students who engaged in behaviors considered severely dishonest in college also engaged in behaviors considered severely dishonest at work. 25
If students who cheat in the university setting subsequently cheat in the workplace, then ethics education is all the more important. Once a student rationalizes cheating by blaming others or circumstances, it is only a small step to blaming others in the workplace for one’s inability to get things done or unethical behavior.
Cultural Values Between 1967 and 1973, Dutch researcher Geert Hofstede conducted one of the most comprehensive studies of how values in the workplace are influenced by culture. Using responses to an attitude study of approximately 116,000 IBM employees in 39 countries, Hofstede identified four cultural dimensions that can be used to describe general similari- ties and differences in cultures around the world: (1) individualism, (2) power distance, (3) uncertainty avoidance, and (4) masculinity. 26 In 2001, a fifth dimension, long-term orientation—initially called Confucian dynamism—was identified. 27 More recently, a sixth variable was added—indulgence versus restraint—as a result of Michael Minkov’s analysis of data from the World Values Survey. 28 We briefly discuss Hofstede’s cultural variables in this chapter, and in Chapter 8, we extend it to Gray’s model, which overlies accounting values and systems and their linkage to societal values and institutional norms. Exhibit 1.2 summarizes the five dimensions from Hofstede’s work for Japan, the United Kingdom, and the United States, representing leading industrialized nations; and the so-called BRIC countries (Brazil, Russia, India, and China), which represent four major emerging economies. 29
Individualism (IDV) focuses on the degree that the society reinforces individual or col- lective achievement and interpersonal relationships. In individualist societies (high IDV), people are supposed to look after themselves and their direct family, while in collectivist societies (low IDV), people belong to “in-groups” that take care of them in exchange for loyalty. Imagine, for example, you are the manager of workers from different cultures and cheating/unethical behavior occurs in the workplace. A workgroup with collectivist values such as China and Japan (low IDV) might be more prone to covering up the behavior of one member of the group, whereas in the United Kingdom and United States (high IDV), there is a greater likelihood of an individual blowing the whistle.
Uncertainty Avoidance (UAI) is another cultural value that has important implications for workplace behavior, as it describes the tolerance for uncertainty and ambiguity within society. A high UAI ranking indicates that a country has a low tolerance of uncertainty
EXHIBIT 1.2 Hofstede’s Cultural Dimensions *
Countries/Scores
Cultural Variables Brazil Russia India China Japan U.K. U.S.
Power Distance (PDI) 69 93 77 80 54 35 40
Individualism (IDV) 38 39 48 20 46 89 91
Masculinity (MAS) 49 36 56 66 95 66 62
Uncertainty Avoidance (UAI) 76 95 40 30 92 35 46
Long-Term Orientation (LTO) 65 N/A 61 118 80 25 29
* High scores indicate a propensity towards the cultural variable; low scores indicate the opposite.
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and ambiguity. Such a society is likely to institute laws, rules, regulations, and controls to reduce the amount of uncertainty. A country such as Russia has a high UAI, while the United States and United Kingdom have lower scores (low UAI), indicating more tolerance for a variety of opinions. One implication is the difficulty of doing business in a country like Russia, which has strict rules and regulations about what can and cannot be done by multinational enterprises.
Other variables have important implications for workplace behavior as well, such as the Power Distance index (PDI), which focuses on the degree of equality between people in the country’s society. A high PDI indicates inequalities of wealth and power have been allowed to grow within society, as has occurred in China and Russia as they develop economically. Long-term orientation (LTO) versus short-term orientation has been used to illustrate one of the differences between Asian cultures, such as China and Japan, and the United States and United Kingdom. In societies like China and Japan, high LTO scores reflect the values of long-term commitment and respect for tradition, as opposed to low- LTO countries, such as the United Kingdom and United States, where change can occur more rapidly. Time can often be a stumbling block for Western-cultured organizations entering the China market. The length of time it takes to get business deals done in China can be two or three times that in the West. One final point is to note that Brazil and India show less variability in their scores than other countries, perhaps reflecting fewer extremes in cultural dimensions.
Our discussion of cultural dimensions is meant to explain how workers from different cultures might interact in the workplace. The key point is that cultural sensitivity is an essen- tial ingredient in establishing workplace values and may affect ethical behavioral patterns.
The Six Pillars of Character
It has been said that ethics is all about how we act when no one is looking. In other words, ethical people do not do the right thing because someone observing their actions might judge them otherwise, or because they may be punished as a result of their actions. Instead, ethical people act as they do because their “inner voice” or conscience tells them that it is the right thing to do. Assume that you are leaving a shopping mall, get into your car to drive away, and hit a parked car in the lot on the way out. Let’s also assume that no one saw you hit the car. What are your options? You could simply drive away and forget about it, or you can leave a note for the owner of the parked car with your telephone number. What would you do and why? Your actions will reflect the character of your inner being.
According to “virtue ethics,” there are certain ideals, such as excellence or dedication to the common good, toward which we should strive and which allow the full development of our humanity. These ideals are discovered through thoughtful reflection on what we as human beings have the potential to become.
Virtues are attitudes, dispositions, or character traits that enable us to be and to act in ways that develop this potential. They enable us to pursue the ideals we have adopted. Honesty, courage, compassion, generosity, fidelity, integrity, fairness, self-control, and prudence are all examples of virtues in Aristotelian ethics. A quote attributed to Aristotle is, “We are what we repeatedly do. Therefore, excellence is not an act. It is a habit.” 30
The Josephson Institute of Ethics identifies Six Pillars of Character that provide a foundation to guide ethical decision making. These ethical values include trustworthiness, respect, responsibility, fairness, caring, and citizenship. Josephson believes that the Six Pillars act as a multilevel filter through which to process decisions. So, being trustworthy is not enough—we must also be caring. Adhering to the letter of the law is not enough; we must accept responsibility for our actions or inactions. 31
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12 Chapter 1 Ethical Reasoning: Implications for Accounting
Trustworthiness The dimensions of trustworthiness include being honest, acting with integrity, being reli- able, and exercising loyalty in dealing with others.
Honesty Honesty is the most basic ethical value. It means that we should express the truth as we know it and without deception. In accounting, the full disclosure principle supports transparency and requires that the accounting professional disclose all the information that owners, investors, creditors, and the government need to know to make informed deci- sions. To withhold relevant information is dishonest. Transparent information is that which helps one understand the process followed to reach a decision. In other words it supports an ethical ends versus means belief.
Let’s assume that you are a member of a discussion group in your Intermediate Accounting II class, and in an initial meeting with all members, the leader asks whether there is anyone who has not completed Intermediate I. You failed the course last term and are retaking it concurrently with Intermediate II. However, you feel embarrassed and say nothing. Now, perhaps the leader thinks that this point is important because a case study assigned to your group uses knowledge gained from Intermediate I. You internally justify the silence by thinking: Well, I did complete the course, albeit with a grade of F. This is an unethical position. You are rationalizing silence by interpreting the question in your own self-interest rather than in the interests of the entire group. The other members need to know whether you have completed Intermediate I because the leader may choose not to assign a specific project to you that requires the Intermediate I prerequisite knowledge.
Integrity The integrity of a person is an essential element in trusting that person. MacIntyre, in his account of Aristotelian virtue, states, “There is at least one virtue recognized by tradition which cannot be specified except with reference to the wholeness of a human life—the virtue of integrity or constancy.” 32 A person of integrity takes time for self-reflection, so that the events, crises, and challenges of everyday living do not determine the course of that person’s moral life. Such a person is trusted by others because that person is true to her word.
Going back to the previous example, if you encounter a conflict with another group member who pressures you to plagiarize a report available on the Internet that the two of you are working on, you will be acting with integrity if you refuse to go along. Integrity requires that you have the courage of your convictions. You know it’s wrong to plagiarize another writer’s material. Someone worked hard to get this report published. You would not want another person to take material you had published without permission and proper citation. Why do it to that person, then? If you do it simply because it might benefit you, then you act out of self-interest, or egoism, and that is wrong.
Reliability The promises that we make to others are relied on by them, and we have a moral duty to follow through with action. Our ethical obligation for promise keeping includes avoiding bad-faith excuses and unwise commitments. Imagine that you are asked to attend a group meeting on Saturday and you agree to do so. That night, though, your best friend calls and says he has two tickets to the basketball game between the Dallas Mavericks and San Antonio Spurs. The Spurs are one of the best teams in basketball and you don’t get this kind of opportunity very often, so you decide to go to the game instead of the meeting. You’ve broken your promise, and you did it out of self-interest. You figured, who wouldn’t want to see the Spurs play? What’s worse, you call the group leader and say that you can’t
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attend the meeting because you are sick. Now you’ve also lied. You’ve started the slide down the ethical slippery slope, and it will be difficult to climb back to the top.
Loyalty We all should value loyalty in friendship. After all, you wouldn’t want the friend who invited you to the basketball game to telephone the group leader later and say that you went to the game on the day of the group meeting.
Loyalty requires that friends not violate the confidence we place in them. In accounting, loyalty requires that we keep financial and other information confidential when it deals with our employer and client. For example, if you are the in-charge accountant on an audit of a client for your CPA firm-employer and you discover that the client is “cooking the books,” you shouldn’t telephone the local newspaper and tell the story to a reporter. Instead, you should go to the partner in charge of the engagement and tell her. Your ethical obligation is to report what you have observed to your supervisor and let her take the appropriate action.
A Word about Whistleblowing There are limits to the confidentiality obligation. For example, let’s assume that you are the accounting manager at a publicly owned company and your supervisor (the controller) pressures you to keep silent about the manipulation of financial information. You then go to the CFO, who tells you that both the CEO and board of directors support the controller. Out of a misplaced duty of loyalty in this situation, you might rationalize your silence as did Betty Vinson. Ethical values sometimes conflict, and loyalty is the one value that should never take precedence over other values such as honesty and integrity. Otherwise, we can imagine all kinds of cover-ups of information in the interest of loyalty or friendship.
Internal whistleblowing typically is appropriate to clarify the positions of your superi- ors and bring matters of concern to the highest levels within an organization, including the audit committee of the board of directors. In fact, the ethics of the accounting profession [Interpretation 102-4 of the AICPA Code of Professional Conduct] 33 obligates the CPA to do just that. The prior example may represent a situation where you may be tempted to take the matter outside your employer or circumvent the firm-employer relationship to air your concerns. You should be careful if you choose to do this; get legal advice before acting. Informing parties outside an entity violates confidentiality. While acting out of conscience and a sense that the right thing to do is the highest ethical choice one can make, it is important to be aware of the consequences of one’s actions before taking the ultimate step of external whistleblowing. Exhibit 1.3 describes the ethical standards for CPAs under Interpretation 102-4. More will be said about whistleblowing in Chapter 3.
Notice that the process is clearly defined and requires bringing any concerns to higher- ups in the organization, including the audit committee, and preparing an informative memorandum that would summarize the various positions, including that of members of top management. The memo should help provide a defense of due care and compliance with ethical standards in case it becomes a regulatory or legal matter.
While attending a Josephson Institute of Ethics training program for educators, one of the authors of this book heard Michael Josephson make an analogy about loyal behavior that sticks with him to this day. Josephson said: “Dogs are loyal to their master, while cats are loyal to the house.” How true it is that dogs see their ultimate allegiance to their owner while cats get attached to the place they call home—their own personal space. Now, in a business context, this means that a manager should try to encourage “cat” behavior in the organization (sorry, dog lovers). In that way, if a cover-up of a financial wrongdoing exists, the “cat loyalty” mentality incorporated into the business environment dictates that the information be disclosed because it is not in the best interests of the organization to hide or ignore it. If we act with “dog loyalty,” we will cover up for our supervisor, who has a say about what happens to us in the organization. Recall our discussion of cultural
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values, and that someone from a country or group with a low score on individualism (a collectivist society) is more likely to hide a damaging fact out of loyalty to the controller and her superiors, while someone from a more individualistic society is more likely to come forward with information about the wrongdoing. A cover-up may be an understand- able position because of internal pressures that work against voicing one’s concerns, but it is unethical all the same. Moreover, once we go along with the cover-up, we have started the slide down the ethical slippery slope, and there may be no turning back. In fact, our supervisor may come to us during the next period and expect us to go along with the same cover-up in a similar situation. If we refuse at that point, the first instance may be brought up and used as a threat against us because we’ve already violated ethical standards once and don’t want to get caught. It is important to emphasize that we should not act ethically out of fear of the consequences of hiding information. Instead, we should act ethically out of a positive sense that it is the right way to behave.
Often when we cover up information in the present, it becomes public knowledge later. The consequences at that time are more serious because trust has been destroyed. We have already discussed the Penn State scandal and forfeiture of trust by Joe Paterno for failing to take steps to stop child abuse. Another example is Lance Armstrong, who for years denied taking performance-enhancing drugs while winning seven Tour de France titles. In 2012, he finally admitted to doing just that, and as a result, all those titles were stripped away by the U.S. Anti-Doping Agency. Or consider former president Richard Nixon, who went along with the cover-up in the Watergate break-in only to be forced to resign the presidency once the cover-up became public knowledge.
No adjustment
Still no adjustment
No
Yes
Possible material misstatement of financial statements?
NO ACTION REQUIRED
Express concerns to supervisor
ADJUSTMENT MADE
PREPARE INFORMATIVE MEMO
SEEK LEGAL ADVICE
Consider the following steps:
continued employment responsibilities to external auditors responsibilities to outsiders
Bring concerns to higher levels
EXHIBIT 1.3 Ethical Responsibilities of Industry CPAs to Avoid Subordinating Judgment *
* A depiction of the requirements of Interpretation 102-4 developed by Steven Mintz.
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Respect All people should be treated with dignity. We do not have an ethical duty to hold all people in high esteem, but we should treat everyone with respect, regardless of their circumstances in life. In today’s slang, we might say that respect means giving a person “props.” The Golden Rule encompasses respect for others through notions such as civility, courtesy, decency, dignity, autonomy, tolerance, and acceptance. 34
By age 16, George Washington had copied by hand 110 Rules of Civility & Decent Behavior in Company and Conversation. They are based on a set of rules composed by French Jesuits in 1595. While many of the rules seem out of place in today’s society, Washington’s first rule is noteworthy: “Every Action done in Company, ought to be with Some Sign of Respect, to those that are Present.” 35
Washington’s vernacular was consistent with the times as indicated by the last of his rules: “Labour to keep alive in your Breast that Little Spark of Celestial fire Called Conscience.” 36 We have found many definitions of conscience, but the one we like best is the universal lexical English wordnet used for research and developed by the Cognitive Sciences Laboratory at Princeton University. The definition is: “Motivation deriving logically from ethical or moral principles that govern a person’s thoughts and actions.” 37
As a member of the case discussion group in the previous example, it would be wrong to treat another member with discourtesy or prejudice because you have drawn conclusions about that person on the basis of national origin or some other factor rather than her abili- ties and conduct. You would not want to be treated unfairly because of how you dress or walk or talk, so others should not be judged based on similar considerations. We should judge people based on their character.
The Nobel Peace Prize–winning activist Dr. Martin Luther King said it best in his “I Have a Dream” speech, delivered on the steps at the Lincoln Memorial in Washington, D.C., on August 28, 1963. Dr. King said the following in reference to the true meaning of the nation’s creed: “‘We hold these truths to be self-evident; that all men are created equal.’ . . . I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.” 38
Responsibility Josephson points out that our capacity to reason and our freedom to choose make us mor- ally responsible for our actions and decisions. We are accountable for what we do and who we are. 39
A responsible person carefully reflects on alternative courses of action using ethical principles. A responsible person acts diligently and perseveres in carrying out moral action. Imagine if you were given the task by your group to interview five CPAs in public practice about their most difficult ethical dilemma, and you decided to ask one person, who was a friend of the family, about five dilemmas that person faced in the practice of public accounting. Now, even if you made an “honest” mistake in interpreting the requirement, it is clear that you did not exercise the level of care that should be expected in this instance in carrying out the instructions to interview five different CPAs. The due care test is whether a “reasonable person” would conclude that you had acted with the level of care, or diligence, expected in the circumstance. The courts have used this test for many years to evaluate the actions of professionals.
Fairness A person of fairness treats others equally, impartially, and openly. In business, we might say that the fair allocation of scarce resources requires that those who have earned the right to a greater share of corporate resources as judged objectively by performance measures should receive a larger share than those whose performance has not met the standard.
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16 Chapter 1 Ethical Reasoning: Implications for Accounting
Let’s assume that your instructor told the case study groups at the beginning of the course that the group with the highest overall numerical average would receive an A, the group with second highest a B, and so on. At the end of the term, the teacher gave the group with the second-highest average—90.5—an A and the group with the highest average—91.2—a B. Perhaps the instructor took subjective factors into account in deciding on the final grading. You might view the instructor’s action as unfair to the group with the highest average. It certainly contradicts his original stated policy, is capricious and unfair, especially if the instructor does not explain his reason for doing this. As Josephson points out, “Fairness implies adherence to a balanced standard of justice without relevance to one’s own feelings or inclinations.” 40
Caring The late Edmund L. Pincoffs, a philosopher who formerly taught at the University of Texas at Austin, believed that virtues such as caring, kindness, sensitivity, altruism, and benevo- lence enable a person who possesses these qualities to consider the interests of others. 41 Josephson believes that caring is the “heart of ethics and ethical decision making.” 42