Virtues and Ethical Obligations of CPAs
Aristotle’s Virtues Ethical Standards for CPAs
Trustworthiness, benevolence, altruism Integrity
Honesty, integrity Truthfulness, non-deception
Impartiality, open-mindedness Objectivity, independence
Reliability, dependability, faithfulness Loyalty (confidentiality)
Trustworthiness Due care (competence and prudence)
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22 Chapter 1 Ethical Reasoning: Implications for Accounting
resolve ethical issues in business. Instead, we present them to aid in resolving ethical dilemmas in accounting. Exhibit 1.5 summarizes the basis for making ethical judgments for each of the major moral philosophies. The discussion that follows elaborates on these principles and applies them to a common situation in accounting.
Teleology Recall that telos is the Greek word for “end” or “purpose.” In teleology, an act is considered morally right or acceptable if it produces some desired result such as pleasure, the realiza- tion of self-interest, fame, utility, wealth, and so on. Teleologists assess the moral worth of behavior by looking at its consequences, and thus moral philosophers often refer to these theories as consequentialism. Two important teleological philosophies that typically guide decision making in individual business decisions are egoism and utilitarianism.
Egoism and Enlightened Egoism Egoism defines right or acceptable behavior in terms of its consequences for the individual. Egoists believe that they should make decisions that maximize their own self-interest, which is defined differently by each individual. In other words, the individual should “[d]o the act that promotes the greatest good for oneself.” 55 Many believe that egoistic people and companies are inherently unethical, are short-term-oriented, and will take advantage of others to achieve their goals. Our laissez-faire economic system enables the selfish pursuit of individual profit, so a regulated marketplace is essential to protect the interests of those affected by individual (and corporate) decision making.
There is one form of egoism that emphasizes more of a direct action to bring about the best interests of society. Enlightened egoists take a long-range perspective and allow for the well-being of others because they help achieve some ultimate goal for the decision maker, although their own self-interest remains paramount. For example, enlightened ego- ists may abide by professional codes of ethics, avoid cheating on taxes, and create safe working conditions. They do so not because their actions benefit others, but because they help achieve some ultimate goal for the egoist, such as advancement within the firm. 56
Let’s examine the following example from the perspectives of egoism and enlightened egoism. The date is Friday, January 17, 2014, and the time is 5:00 p.m. It is the last day of fieldwork on an audit, and you are the staff auditor in charge of receivables. You are wrapping up the test of subsequent collections of accounts receivable to determine whether certain receivables that were outstanding on December 31, 2013, and that were not con- firmed by the customer as being outstanding have now been collected. If these receivables have been collected and in amounts equal to the year-end outstanding balances, then you will be confident that the December 31 balance is correct and this aspect of the receivables audit can be relied on. One account receivable for $1 million has not been collected, even though it is 90 days past due. You go to your supervisor and discuss whether to establish an allowance for uncollectibles for part of or for the entire amount. Your supervisor contacts the manager in charge of the audit, who goes to the CFO to discuss the matter. The CFO says in no uncertain terms that you should not record an allowance of any amount. The CFO does not want to reduce earnings below the current level because that will cause the company to fail to meet financial analysts’ estimates of earnings for the year. Your supervi- sor informs you that the firm will go along with the client on this matter, even though the $1 million amount is material. In fact, it is 10 percent of the overall accounts receivable balance on December 31, 2013.
The junior auditor faces a challenge to integrity in this instance. The client is attempting to circumvent GAAP. The ethical obligation of the staff auditor is not to subordinate judg- ment to others, including top management of the firm.
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