Teaching CPAs About Serving the Public Interest

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JANUARY 2005 - A continuing deluge of articles, editorials, and speeches addresses the need of ethics education in the curriculum of accounting majors. One must wonder, however, if teaching ethics at the college level is too late. Have we become immunized against ethical behavior? Are the primary criteria for behavior whether or not one will be better off, and the chances of being caught? As youngsters, do we learn at the dinner table
that the family vacation was funded by expense-account padding? And do we hear our parents talking about overstating their tax deductions? Are simple laws, such as speed limits and parking rules, expected to be ignored in our society? Do our baseball heroes cork their bats and use steroids? Do our political leaders question “what the definition of ‘is’ is”? Are cheating on school exams and plagiarizing papers via the Internet common occurrences? Are examples of child abuse prevalent among those supposedly dedicated to religious service?

If the answer to these questions is yes, then how can we expect those who choose accounting as a career to be exceptions to the rule? Are they a higher caliber of individual than those who choose a religious life? Did the decision-makers at Enron and WorldCom not know that what they were doing was wrong? Did they need a course that would have taught them not to conduct business the way they did? We read that the guards at the Abu Ghraib prison in Iraq were not trained in the Geneva Conventions. Did the guards need a course to learn that the way they treated the prisoners was wrong?

What Can Help?

At best, one can only hope that education can help. Accounting students should be well grounded in ethics; however, society’s attitude must also change. Perhaps a sound basic foundation in ethics, which teaches methods of measuring the consequences of decisions in ethical terms, can help.

In taxation, there is a difference between tax evasion and tax avoidance. Surely no one would suggest that each of us should pay taxes by deciding what our fair share should be. So we learn that minimizing our taxes is acceptable as long as we do not violate the law.

Unfortunately, the attitude toward teaching “ethics” in most curricula consists primarily of learning rules. Acting ethically then becomes merely not violating particular rules. An auditing course may go further, listing the AICPA rules of professional conduct, but still say little about how protecting the public interest is a CPA’s responsibility. Some legal discussions may occur in a business law course, or a tax course may include some discussion of tax ethics. With the ethical compass that this attitude fosters, one is able to work at WorldCom and rationalize capitalizing line costs to apply them against future revenues. Shoehorning an accounting treatment into a GAAP principle is considerably easier for auditors than asking themselves whether stakeholders are receiving a fair picture of the company: “After all, everyone manages earnings.”

The National Association of State Boards of Accountancy (NASBA) responded to the recent scandals by forming a task force to investigate the extent of education in protecting the public interest. The American Accounting Association (AAA) agreed to cosponsor a survey of educators on the issue of ethics education on campus. The following results were obtained:

  • 46% of the schools offered a separate course in ethics.
  • 68% of those offered the course in the school of business.
  • 18% offered the course in the accounting department.
  • 56% indicated that the course provided separate coverage for protecting the public interest.
  • Where offered, 51% stated it was a requirement for accounting majors.
  • Where offered, 45% stated it was a requirement for other business majors.
  • 90% indicated that protecting the public interest was covered in the auditing course.

For those survey participants that opted to identify their affiliation, a syllabus of the courses was obtained. Some institutions had a good, solid ethics course, but most courses designated as ethics courses were related to business law, included only a brief look at ethics, and, with a few exceptions, did not provide adequate coverage of ethics, values, and appropriate professional conduct.

Considering the results of this survey and the audit and accounting failures of the past few years, it appears that a contributing factor may be a failure in the effectiveness of ethics education. An individual’s value system is affected by numerous influences long before college and is probably already well formed by that age. There must, however, be an appreciation of the foundation for ethics and values in philosophical thought, as well as a general understanding of expected business and professional behavior, including the responsibility to protect the public interest. It is apparent that most individuals will receive little or no education in this area in an institution of higher learning.

Academia’s Role in a Solution

Academia should recognize a need for education in the broad philosophical concepts of ethics. This should be followed by the application of these principles in the world of business and accounting. This education should begin as early as possible in a student’s academic career.

Two methods are in use by those few schools that attempt to provide this education. The education is either presented in separate courses or integrated throughout the business education. The advantages and disadvantages of these methods are discussed below.

Integrated Program

Advantages. The perception is fostered that ethics is a consideration in all aspects of accounting and business. The program can be implemented without significant additional resources.

Disadvantages. Instructors may lack expertise in ethics education. Compliance is difficult to measure.

Separate Courses

Advantages. The preliminary philosophical basis of ethics and values can be taught in the liberal arts program by professors that have the appropriate expertise. This can be followed by one or two courses in business- and accounting-related ethics issues. Compliance is easy to measure.

Disadvantage. The program must be implemented slowly due to the need to change the curriculum and add business or accounting courses in what is often already a full curriculum.

This writer believes that the best method for ethics education is to require undergraduate students to complete a liberal arts ethics course in the first two years of college, followed by a business ethics course in the junior or senior year, and an accounting ethics course that is part of the additional 30 hours in the 150-hour program.

An effective integrated program has merit, but there remains a need to provide recognition of underlying concepts, which is best handled in the liberal arts department. Some institutions have taken the integrated approach, and one hopes that they have identified ways for their business and accounting faculty to effectively bring ethics and the concept of protecting the public interest into the classroom.

This writer believes that state boards of accountancy should mandate extensive ethics education as a component of the 150-hour requirement. Ethics education must be reinforced and strengthened, and the concept of protecting the public interest must be a vital component. To accomplish this goal, nine semester credit hours of ethics education should become a requirement for taking the Uniform CPA Examination. Three credit hours in ethical foundations should be required in the liberal arts program; three credit hours in business ethics should be required in the business program; and three credit hours should specifically address ethical issues in accounting.

Separate courses in ethics education are preferable, but for institutions that integrate ethics into their accounting and business curricula, a separate three-credit-hours liberal arts course in ethical foundations should be required. In addition, these institutions should incorporate a minimum of 90 class hours in business ethics, with a minimum of 45 of these class hours in ethics issues in accounting. These hours should be identified in the syllabi, and a proportionate portion of the grade for the course should be based on ethics tests, papers, and discussions.

Nicholas J. Mastracchio Jr., PhD, CPA, is an associate professor of accounting at the University at Albany and a partner in the CPA firm of LCS+Z.




















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