October 2003

Incorporating Business Ethics into Introductory Accounting Courses
By Eric Rothenburg, CPA

The accounting profession faces two problems. First, we must regain the public’s confidence, as it was before financial disasters and scandals made corporate governance, Enron, WorldCom, SEC investigations, capitalizing expenses, auditor independence, and special purpose entities (SPE) enter the business vernacular. In my opinion, this will not be a major problem. Most probably, the solution will be rather short-term. The major question is how, in light of all that is going on, we can recruit new accounting majors to enter the profession.

Accounting enrollment at colleges and universities has been steadily declining across the country over the past 10 years. During the 1990s, the profession was not considered “glamorous.” Because the high-tech industry and the financial markets were more appealing to the graduating college student, we lost many potential accountants during this period.

Now, many such individuals are skeptical about entering a profession that has received enormous negative publicity. Students would rather enter fields that have been spared the flak that accounting and finance have borne. Also, most students haven’t figured out that the accounting profession is almost recession-proof. It is much easier to downsize middle management than senior accounting staff. The going-concern concept and government regulations make the profession even more economically secure. I think we can attract more students by showing that accountants generally are ethical people and that CPAs, by the profession’s very nature, are accountable to high standards and ethics.

Can Ethics Be Taught?

This is a difficult question. Some people suggest that under capitalism, profits and greed are the major motivating factors. Therefore, ethics cannot be taught but are part of one’s personality or culture. Others suggest that ethics can be taught. I am somewhat in the middle of the road, as I think that, through case studies, we can indirectly teach business ethics.

One of my favorite cases is found in Needles, Powers, Mills, and Anderson’s Principles of Financial Accounting (7th Edition, 1999, page 165). In this scenario, a junior accountant is working on financials to be presented to secure a bank loan. They must be completed by 5:00 p.m. to meet a critical deadline. The trial balance is off by $1,320. No mention is made of the number’s materiality. The accountant cannot find the error within the time constraint, and considers plugging the difference to retained earnings, hoping no one will notice. While this is a rather rudimentary case meant for introductory accounting majors, it is, in fact, an ethics matter that should be incorporated into beginning coursework.

Critics say that a huge portion of the auditing course devotes itself to professional and business ethics. But these courses generally are taken in the third or fourth year, by which point many accounting majors have lost interest in the profession. Business ethics should be incorporated into the first accounting course, where students quickly learn the difference between an asset and an expense. One could incorporate a case study of how WorldCom classified $4.5 billion of expenses as assets. For a 14-week standard semester, perhaps one to two weeks of ethics, intermingled with financial accounting (not taught as a separate topic), would be sufficient.

Unfortunately, most schools’ required coursework covers accounting’s “nuts and bolts” (e.g., journal entries, adjusting entries, accounting theory, and tax law) and generally ignores ethics. Critics argue that the wealth of information covering just GAAP has grown exponentially over the last 10 years, with no time left for case studies.

I recently examined the course requirements and course descriptions of 16 randomly chosen colleges with accredited accounting programs, all in the northeast United States. Twelve offer bachelor’s degrees in accounting, while four offer associate degrees. The results are not very encouraging. Only five of the 16 colleges integrate business ethics into their first accounting course. All five are four-year schools; none of the junior colleges integrate ethics into the introductory accounting course.

Only one college required students to take a business ethics course as part of their major. Eight of the 16 offered electives in business ethics, mostly taught through the philosophy department. Unfortunately, many such classes require a prerequisite philosophy course or were not offered on a regular basis due to insufficient enrollments. Also, the study curriculum for an accounting major (under the current 120-credit system) is crammed, with little or no room for student electives. The likelihood of a student taking a business ethics course as part of undergraduate study is therefore slim.

Making Ethics Mandatory

To attract more accounting students, colleges should reconsider offering mandatory courses in business ethics and integrating the subject into their introductory accounting courses. Prospective accounting students would realize that accountants can and must make decisions independent of their clients’ or employer’s wishes. The impact of choosing an ethical vs. an unethical path could be shown in both quantitative and qualitative matter. This treatment would make accounting study a more dynamic field, with gray areas to be explored through case studies. In the long run, this will attract more and better-qualified candidates into the profession.

Eric Rothenburg, CPA, is an associate professor of accounting at Kingsborough Community College of the City University of New York.

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