Incorporating Professional Ethics Throughout an Accounting Curriculum

By Katrina Mantzke, Gregory Carnes, and William Tolhurst

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Ethics has always been significant for accounting professionals and the constituencies they serve. CPAs have developed a reputation as trusted business advisors, in part due to the general perception that accounting professionals behave ethically. These reputations are not, however, beyond reproach. Recent years have seen the dimming of reputations that took decades to develop and nurture, due to well-publicized lapses in judgment by CPAs in positions of significant responsibility. Not surprisingly, incorporating ethics into accounting curriculums has become a hot topic for accounting programs across the nation.

The Association to Advance Collegiate Schools of Business International (AACSB) has recently reemphasized the importance of teaching ethics to business students. The AACSB’s accreditation standards for accounting programs also stress that ethics is a necessary part of a well-rounded accounting curriculum. Accounting programs should emphasize ethics above all other business school programs because accounting students are being trained to enter a profession founded on a code of conduct. A distinguishing characteristic of a profession is the existence of a code of ethics that sets forth expectations regarding the behavior of its members.

While the need to infuse more ethics content into accounting programs is broadly accepted, ethics is only one of the many demands upon accounting curriculums. In addition to the need for strong technical knowledge, the accounting firms have continuously urged that accounting programs help students develop other skills and competencies related to verbal and written communication, teamwork, technology, and problem solving. Accounting educators face difficult choices when designing their courses to cover all these demands, and requirements to add one more area to their courses can be frustrating.

Responding to the call from Jane B. Romal and Arlene M. Hibschweiler (“Improving Professional Ethics,” The CPA Journal, June 2004), this article will discuss a modular approach to adding ethics to the accounting curriculum. Depending on how the module is structured, it can take as little as one class period from the essential technical content of the course. The modular approach also achieves a variety of pedagogical goals simultaneously: Students become aware of the ethical standards that govern the profession; they gain a useful framework for evaluating ethical dilemmas; and they have the opportunity to address an ethical dilemma, make an ethical judgment, and defend their decision. Depending on how the module is structured, educators can also foster the development of other professional skills.

What Educators Can Accomplish

At a minimum, incorporating ethics into a curriculum introduces students to the codes of conduct that govern accountants’ behavior. While students may become familiar with the AICPA Code of Professional Conduct in their pursuit of CPA certification, they may be unaware of the other, equally important codes of conduct, such as ethical requirements in state and federal laws and regulations, the AICPA Statements on Standards for Tax Services, IRS Circular 230, the Institute of Management Accountants (IMA) Standards of Ethical Conduct, the Financial Executives International (FEI) Professional Ethics, and the Institute of Internal Auditors (IIA) Code of Ethics. Exposure to these standards should raise students’ awareness of the rules they must abide by during their careers.

It is difficult for students to apply philosophical ethics to real-life situations. Thus, providing students with a practical framework for evaluating ethical dilemmas is an important part of the ethics module. With such a framework in hand, students are asked to evaluate an ethical dilemma and recommend a course of action. The final recommendation must include a viable solution to the ethical dilemma, with references to both the relevant codes of conduct as well as the evaluation framework.

Evaluation Framework

Educators face the daunting task of providing a clear account of what ethics is. The definition of “ethics” differs depending on the situation. In some contexts, ethics is synonymous with moral philosophy, the area of philosophy that pursues answers to theoretical questions concerning the nature and rationality of morality. In other contexts, it refers to morality, which is aptly described by the ethics theorist Michael Davis as “those standards of conduct that everyone (at their rational best) wants everyone else to follow, even if that means that they have to follow them too” (Profession, Code and Ethics, Ashgate, 2002). In other cases, “ethics” refers to the special codes of conduct that apply to members of a profession.

While it may be useful to consider philosophical theories in classes devoted entirely to ethical issues, this is of dubious value in classes dealing primarily with technical matters. An adequate explanation and discussion of the theories generally requires more time than is available for an ethics module. Because course schedules generally have little discretionary time, superficial explanations of the theoretical underpinnings of moral philosophy merely confuse students and impede their ability to think clearly about the issues. It has been more beneficial to touch briefly on the theoretical underpinnings of ethics in the introduction to the ethics module and to focus more on the practical evaluation of ethical dilemmas via a user-friendly framework.

This framework has two main components: a simple decision-making framework, embedded with a set of tests for evaluating potential solutions for the ethical dilemma (Michael Davis, Ethics and the University, Routledge, 1999). The framework consists of the following steps:

• Check the facts.
• State the problem.
• Identify the morally relevant factors.
• Develop a list of alternative solutions.
• Test the alternatives: evaluate the alternatives against the benchmarks of relevant professional and moral standards of conduct.
• Choose the best alternative.

Testing the alternatives is typically the most difficult to execute. It is important to have benchmarks against which to measure proposed solutions. To help students evaluate the alternatives, a number of tests adapted from Davis’ Ethics and the University focus on the moral evaluation of the options under consideration. These tests hinge on relevant professional standards of conduct and commonsense morality, rather than on philosophy. The rules test—where students answer the question “Does this option violate the rules or codes of conduct that govern my profession?”—is primary. The other tests help focus ordinary moral thinking; for example, the publicity test (Would I want my choice reported on the news?), the harm test (Does my choice do less harm than another option?), the defensibility test (Could I defend my choice to my peers or parents?), and the reversibility test (Would I approve of my choice if I were among those adversely affected?).

Other tests can be devised and should be used when appropriate. Nevertheless, this simple list provides students with a number of standards for evaluating alternative solutions. Armed with these tools, students should be better equipped to deal with ethical dilemmas, both in class and in their personal lives.

Modular Approach

Over the past few years, the authors have included an ethics project in two courses, using a modular approach that runs parallel to the technical course work. The ethics module consumes about four 50-minute class sessions. For the instructors of courses that do not have four class sessions to dedicate to the module, the in-class presentations can be omitted and three of the four class sessions can be retained for the course’s technical content.

During Week 2 of the class, the instructor introduces the ethics module by discussing the basics of ethics. This discussion touches briefly on the theoretical underpinnings of ethics and focuses on the practical evaluation of ethical dilemmas. The students are introduced to the decision-making framework and to the commonsense tests for evaluating potential solutions for an ethical dilemma. In the same session, the instructor discusses the relevant rules of professional conduct that govern accountants’ actions. The ethics case is then distributed, and the instructor discusses the requirements for the module. To satisfactorily complete the ethics module, the student recommendations must discuss how the solutions conform to the rules that are relevant to the situation. The recommendations must also reference the evaluation framework, demonstrating how the framework helped the students arrive at their conclusions.

Because the ethics cases used are works in progress, the authors have asked their students to submit information requests to further clarify facts and issues. Information requests are due by Week 4. The instructor evaluates the information requests and responds to reasonable requests by the end of Week 5. In addition, because students are working in groups for the module, they are asked to enter into a contract that establishes responsibilities within the group for the completion of the project. Finalized contracts are due by Week 4. The deadline for finalizing the group contract forces students to address project-management issues early on. Contracts can be modified as needed to accommodate changes in circumstances during the semester.

The groups work together outside of class to develop recommendations for how the hypothetical accountant in the fact pattern (the stakeholder) should deal with an ethical dilemma. By Week 9, each group must make a formal recommendation to the stakeholder. Because there is no definitive answer on how each ethical dilemma should be handled, students must make persuasive arguments within their group and in the final document to present viable and realistic recommendations.

By Week 12, each group receives a written critique of its recommendation from another group. This gives students a second opportunity to practice the art of persuasion through constructive criticism. The receiving group chooses whether to revise its recommendation based on this feedback. The course culminates in Week 14 with presentations of each group’s recommendations. Following each presentation, the instructor discusses the recommendations, adding other points for consideration by the class.

Experience with the Modular Approach

To date, the authors have included this ethics module in one class in each of their two graduate programs. All of their graduate students have had an experience with the ethics module. The decision to include the module in only two courses has allowed the authors to effectively address any problems in implementing the module and to refine it for future semesters. Nevertheless, this module could be used in numerous courses within a program to provide students with multiple, reinforcing experiences with ethical decision making.

In the Master of Accounting Science (MAS) program of Northern Illinois University, the authors have incorporated the ethics module into the accountancy capstone course. This course gives students the opportunity to develop strategies and make solid business decisions on the basis of their accumulated accounting knowledge and their understanding of other relevant business issues. Most students join the MAS program immediately after finishing their undergraduate program. The module gives the authors the opportunity to ensure that their students have a solid understanding of the relevant standards of professional conduct before entering the profession. Likewise, the module requires students to engage in the same type of ethical decision making that they will likely encounter at some point in their careers.

In Northern Illinois University’s Master of Science in Taxation (MST) program, the authors have built the ethics module into the professional tax research course. In introducing students to the legal research methodology, the tax research course also reinforces their understanding of the relevant standards of professional conduct for the tax field. Most students currently enrolled in the MST program are working professionals. As a result, the students can draw on their own professional experiences to develop richer and more realistic approaches to the ethical dilemmas than their capstone counterparts.

The authors have used numerous cases over the years, with varying degrees of success. An important aspect is to balance the realism of the case with the information constraints that exist in a hypothetical classroom situation. In striking the appropriate balance, it is also important not to distill the case into a simple, two-alternative problem. For students to truly engage in ethical decision making, it is important to present a range of viable alternatives, much like those found in real-life ethical dilemmas.

One case that has worked well for the authors is a transfer-pricing case adapted from a problem in Cost Accounting: A Managerial Emphasis, 10th Edition (Horngren, Foster, and Datar; Prentice Hall, 2000). In this case study, a senior management accountant requests that an accountant on her staff change the price of a product that will be transferred to another division within the corporation. The increased transfer price will lead to higher profits for the division, which will translate into larger bonuses for the division’s employees. In computing the transfer price, the senior accountant argues that the variable costs have not been computed properly and requests that these costs be increased by 10%, thereby increasing the transfer price. The staff accountant has two immediate concerns with this request. First, such a change would be a departure from the method used to compute the transfer price in the past. Second, implementing this request would increase division profits just enough to meet the requirements for a division bonus. The staff accountant discusses these concerns with her manager, telling her that the reasons given to increase the transfer price could justify at best a 4% increase. The manager continues to insist that the change be implemented.

Students are asked to advise the staff accountant on how best to deal with this uncertain situation. Those students recommending that the staff accountant increase the transfer price judge that the manager’s reasons for the increase are justified. They also note that the use of a different method in the past does not imply that another method is improper. In contrast, those students recommending no change in the transfer price do not consider it a coincidence that the increase chosen by the manager is just enough to trigger bonuses for the division.

Determining the “right” answer is not the point. Rather, the case provides a vehicle for students to think about possible courses of action and discuss each approach’s advantages and disadvantages. Because there is no definitive answer, this case has proved effective in achieving the primary learning objective of the module—that is, for students to apply a decision-making process that can be used to deal with similar ethical dilemmas.

Overall, the authors have been pleased with how the students have performed in this module. Many have gone beyond the minimum expectations and given life to their case studies. While the standard requirements include the written recommendation, the written critique, and a final presentation of these two items, some groups have developed videotapes or short dramatic skits to illustrate the viable alternatives and their respective advantages and disadvantages.

Work in Progress

The authors continue to refine the modular approach they have used since 2002 to infuse more ethics content into the curriculum. Despite inevitable missteps along the way, they are pleased with this approach because it allows different faculty members to adapt the module to accommodate both the technical content of their courses and their individual course schedules. In addition to increasing coverage of ethics and giving students useful tools for evaluating ethical dilemmas, this approach allows students to practice their teamwork, problem-solving, communication, and professional presentation skills (see the Sidebar). Thus, the ethics module has provided an efficient way to achieve a variety of instructional goals simultaneously.

Although it is impossible to know what impact teachers have on their students’ future ethical behavior, the authors believe ethics should be an integral part of an accounting curriculum. They hope that by providing an understanding of the relevant codes of professional conduct and a useful framework for evaluating ethical dilemmas, their students will be better equipped to begin their professional careers.