Accounting Ethics CH 1

1) Trustworthiness: -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. -lie and go to nba game, down the ethical slippery slope

Josephine Institution of Ethics identifies 6 PILLARS OF CHARACTER that provide a foundation to guide ethical decision making

1.Trustworthiness 2.Respect 3.Responsibility 4.Fairness 5.Caring 6.Citizenship -Josephine believes that 6 pillars act as a multilevel filter through which to process decisions.

Golden Rule

Do unto others as you would have them do unto you -formal principle that serves as the general basis for other principles we have in an ethical system

Liberty Principle

Kantian, provides for basic and universal respect for persons as a minimum standard for all just institutions

Laws are a collective of rules and regulations that come with penalties and punishments if not followed.

On the other hand: Ethics is a collection of societal or professional norms of behavior that are based on moral principles and values.

Student cheating - example of situational ethics

UNC sports paper classes scandal - suffered from ethical blindness. -blind spots happened because of SITUATIONAL ETHIC whereby those who perpetrated the fraud and covered it up came to believe their actions were for the greater good of those involved in the athletic program.

morals refers to

an individual's own principles regarding right and wrong and may be influenced by a religion or societal mores

Justice as Fairness

basis of the OBJECTIVITY principle in the AICPA code that establishes a standard of providing unbiased financial info.

1) Trustworthiness

being honest, acting with integrity, being reliable, and exercising loyalty in dealing with others.

Rule Deontology

believe that general moral principles determine the relationship between the basic rights of the individual and a set of rules governing conduct in accounting principles of AICPA code believe conformity to general moral principles based on LOGIC determines ethicalness exs: Kant's categorical imperative

ethics tends to be more practical than morals, conceived as shared principles promoting fairness in social and business interactions.

both ethics and morals influence ethical decision making.

Utilitarianism

concerned with consequences, but unlike the egoist, the utilitarian seeks to make decisions which bring about the greatest good for the greatest number of people. -utilitarians believe they should make decisions that result in the greatest total utility or the greatest benefit for all those affected by the decision 1st i dentify various courses of action that they could perform 2nd determine utility of the consequences of all possible alternatives and then select the one that has the greatest net benefit. first formulated 1800s english writer Jeremy Bentham and later by John stuart Mill Bentham sought an objective basis for laws in england "greatest good for greatest number"

Acts Discreditable

covers personal behavior as well as professional behavior includes behaviors that cause embarrassment to the accounting profession. ex: discrimination and harrassment

Teleology: 1) EGOISM

defines right or acceptable behavior in terms if its consequences for the individual. EGOISTS believe they should make decisions that maximize their own self-interest, which is defined differently by each individual. many believe egoists are inherently unethical because they ignore the moral point of view: they are shirt-term-oriented and will take advantage of others and their goals. 3 types of egoism ETHICAL EGOISM ENLIGHTENED EGOSIM RATIONAL EGOISM

field of ethics/moral philosophy involves

developing, defending and recommending concepts of right and wrong behavior -these concepts do not change as one's desires and motivations change. -they are not relative to the situation -they are immutable (unchangeable)

Immanuel Kant philosopher 17oos

each of us has a worth or dignity that must be respected. this dignity makes it wrong for others to abuse us or to use us against our will "Humanity must always be treated as an end, not merely as a means. to treat a person as a mere means is to use her to advance one's own interest. but to treat a person as an end is to respect that person's dignity by allowing each the freedom to choose for himself. "act only according to that maxim by which you can at the same time will that it should become universal law maxim means intention behind our acts... what am i doing and why truth can be a universal law, but lying cant. strong requirement for impartiality and equality for ethics

Ethics and morals relate to right and wrong conduct

ethics - how we should live generally morals - certain proper subset of how we ought to live

The golden rule is seen as a consistency principle

in that we should not act one way towards others but have a desire to be treated differently in a similar situation.

Principle of CPA conduct

integrity recognizes that the public trust is served by 1)being honest and candid with the constraints of client confidentiality 2) not subordinating the public trust to personal gain and advantage 3) observing both the form and spirit of technical and ethical standards 4) observing the principles of objectivity and independence of due care

Situation Ethics - 1966 Episcopalian priest Joseph Fletcher

is a body of ethical thought that takes normative principles - like virtues, natural law, and Kant's categorical imperative that relies on the universality of actions - and generalizes them so that an agent can "make sense" out of one's experience when confronting ethical dilemmas.

Situation ethicists

recognize the existence of normative principles but question whether they should be applied as strict directives or instead, as guidelines that agents should use when determining a course of ethical conduct.

Regulations exist to address the knowledge of imbalance btwn the client and the provider of services, who has professional expertise

regulation also helps when there are significant benefits or costs from the provision of accountancy sevices that accrue to 3rd parties, other than those acquiring and producing the services

1) Trustworthiness: -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. -go to supervisor if you find someone is cooking the books -if you tell your supervisor and the ceo agrees with supervisor to hide the info. don't get caught up like betty vinson> ETHICAL VALUES sometimes conflict, and LOYALTY is one that should never take precedence over the other values such as HONESTY and INTEGRITY.

A person of integrity will act out of moral principle and not expediency

that person will do what is right, even if it means the loss of job or client

Situationists

the CIRCUMSTANCES surrounding an ethical dilemma can and should influence an agent's decision-making process and may alter an agent's decision when warranted.

Greek Philosophers

the end eudaimonia is translated to "happiness" -ultimate goal of happiness meant more than satisfaction or pleasure. -ULTIMATE GOAL WAS TO ATTAIN SOME OBJECTIVELY GOOD STATUS, LIFE OF EXCELLENCE

Alasdair MacIntyre

the exercise of virtue requires "a capacity to judge and to do the right thing in the right place at the right time in the right way" as a fcn of possessing those dispositions/tendencies that enable choices to be made about what is good for people and by holding in check desires for something other than what will help achieve those goal

Virtue Ethics

there are certain ideas 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 the thoughtful reflection on what we as human beings have the potential to become.

Procedural Justice

there is strong employee support for decisions, decision makers, organizations, and outcomes, prc just is less important to the individual

VIRTUE THEORY

we should avoid aqcuiring bad cahracter traits such as cowardice, insensible, injustice, and vanity moral education good and developed in one's youth adults responsible ofr instilling in us

Aristotle

"We are what we repeatedly do. Therefor, excellence is not an act. It is a habit"

AICPA CODE OF CONDUCT PRINCIPLES

1) Responsibility 2) Public Trust 3) Integrity 4) Objectivity and Independence 5) Due Care 6) Scope and nature of services

Aristotle

equals should be treated equally, unequals unequally

Plato 4 virtues: wisdom courage temperance justice

other important virtues are FORTITUE GENEROSITY SELF-RESPECT GOOD TEMPER SINCERITY

INSTITUTE of Internal Auditors Code of Ethics Principles:

INTEGRITY OBJECTIVITY CONFIDENTIALITY COMPETENCY

INSTITUTE of Internal Auditors Code of Ethics Rules of conduct:

INTEGRITY OBJECTIVITY CONFIDENTIALITY COMPETENCY

1) Trustworthiness: -INTEGRITY

MacIntyre's account of Aristotelian virtue "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" -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. -true to her word -MEANS TO ACT ON PRINCIPLE rather than EXPEDIENCY. -if supervisor asks to do something wrong, could lead to ETHICAL SLIPPERY SLOPE

IMA Standards

COMPETENCE CONFIDENTIALITY INTEGRITY CREDIBILITY

Telos

Greek thinkers saw the attainment of a good life as the telos, the end or goal of human existence

Ethics derived from

Greek word ethikos -which was derived from ethos meaning "character"

Ancient Greeks believed that REASON and THOUGHT precede the choice of ACTION and that we deliberate about things we can influence with our decisions.

The ability to reason through ethical conflicts and act on moral intent is a necessary but sometimes insufficient skill to make ethical decisions.... this is hard because of the culture that favors the client's interest above the public interest create a barrier to act in accordance with those principles

Integrity

a person acts on principle - a conviction that there is a right way to act when faced with an ethical dilemma

in accounting, values of the profession are embedded in its codes of ethics that guide the actions of accountants and auditors in meeting their professional responsibility

accounting profession values are: independence, integrity, objectivity, professional skepticism, and due care.

2) Respect

all ppl should be treated with dignity -GOLDEN RULE encompasses respect for others through notions such as civility, courtesy, decency, dignity, autonomy, tolerance and acceptance. Washington copied the "Rules of Civility and Decent Behavior in Company and Conversation" based on French jesuits 1595 and the first rule: "Every action done in company, ought to be with some sign of respect, to those that are present" "Labour to keep alive in your Breast that Little Spark of Celestial fire called Conscience" best definition of conscience: "Motivation deriving logically from ethical or moral principles that govern a person's thoughts and actions.

Values

are basic and fundamental beliefs that guide or motivate attitudes or actions. -we conceive of it as something that is important to an individual (personal values) and to a community (professional values)

Ethical Egoism

claims that the promotion of one's own good is in accordance with morality. Strong version - it is held that it is always moral to promote one's own good, and it is Never moral not to promote it weak version - even though it is always moral to promote one's own good, it is not necessarily never moral to not. There are conditions in which the avoidance of personal interest may be a moral action. the conclusion is what brings the highest payoff to me will not, necessarily, bring the highest payoff to those helped. as a moral theory creates conflicts of interest that are difficult to resolve. -pursuing my own interest can conflict with another's interest - my actions may bring about a cost to others -ethical egoist could logically pursue their interest at the cost of others -egosim/ethical egoism is not an acceptable standard for decision making in accounting

Rule Utilitarianism

claims that we must choose the action that conforms to the general rule that would have the best consequences. actions are justified by appealing to rules such as "never compromise audit independence" follow correct moral rules everyone should follow for ex, the rule "to always tell the truth" in general promotes the good of everyone and therefore should always be followed, even if lying would produce the best consequences in certain situations. utilitarianism most hold to the general principle that MORALITY must depend on balancing the beneficial and harmful consequences of conduct

Deontology

derived form Greek "deon" meaning DUTY -refers to moral philosophies that focus on the rights of individuals and on the intentions associated with a particular behavior, rather than on its consequences. moral norms establish the basis for action -differes from RULE UTIL in that the moral norms (or rules) are based on reason, not outcomes. equal respect must be given to all persons. respect ppls rights phiplosophers claim rights and duties are correlative. *rights establish duties, duties correspond to the rights of others

Most ethicists reject the theory of moral relativism. Some philosophers criticize it because if it is true then one must obey the norms of one's society and diverge from them is to act immorally.

ex: women voting rights, cannot change belief from one to another, because then that would be immoral to break from the original cultural relativism

3D printing case

madison is asked to disclose 200k of income eventough the shipments havent been shipped

Rights Principle 17th century Thomas Hobbes and John Locke Immanuel Kant 1700s

right is a justified claim on others ex: if I have a right to freedom, then I have a justified claim to be left alone by others can also turn around and say others have a duty to leave me alone William Styron's "Sophie's choice" having to choose between a child at nazi camp in accounting we may have to differentioate btwn the rights of one party vs another and should rely on our duties/obligations to each under the principles in aicpa code

ethics refers to

rules provided by an external source, such as codes of conduct for a group of professionals (CPA)

Greeks question

what is the best sort of life for human beings to live?

Utilitarianism

is popular, however some difficulties in relying on it as a sole method for moral decision making because the util calculation require that we assign values to the benefits and harms resulting form our actions. difficult but not impossible to calculate utility

Ethical Relativism

is the philosophical view that what is right or wrong and good or bad is not absolute but variable and relative, depending on the person, circumstances, or social situation. Ex: Slavery, an immoral act that some might feel is ethically acceptable

Deonotology problem

it relies on moral absolutes -absolute principles -absolute conclusions rights theory requires you tell the truth to nazi soldiers about anne frank. whenever we are confronted with a moral dilemma, we need to consider whether the action would respect the basic rights of each of the individuals involved.

Reputation

judgements made about one's character contribute towards how another party views that person's reputation. -lance armstrong using steroids -one builds "reputational capital" through favorable actions informed by ethical behavior.

difference btwn JUSTICE and FAIRNESS

justice - usually has been used with a reference to a standard of rightness fairness - often has been used with regard to an ability to judge without reference to one's feelings or interests.

National Association of State Boards of Accountancy NASBA

provides a forum for discussion of the different st board reqmnts to develop an ideal set of regulations in the uniform accoutancy act

Benjamin Disraeli - english novelist 1800s

"When men are pure, laws are useless; when men are corrupt, laws are broken." laws will not prevent criminals such as Bernie Madoff duped investors by promising huge returns. and it was fake

James Rest (philosopher) points out that moral philosophies present guidelines for

"determining how conflicts in human interests are to be settled for optimizing mutual benefit of ppl living together in groups" however, there is no single moral philosophy everyone accepts

Act Utilitarianism

"if lying would produce the nest consequences in a particular situation, we ought to lie" -examine the specific action itself, rather than general rules governing the action, to assess whether it will result in the greatest utility.

Situation ethics holds that

"what in some times and in some places is ethical can be on other times and in other places unethical" Ex: Anne Frank

Gaa and Thorne define ethics as:

"The field of inquiry that concerns the actions of people in situations where these actions have effects of the welfare of both oneself and others" -we adopt that definition and emphasize that it relies on ethical reasoning to evaluate the effects of actions on others - THE STAKEHOLDERS

Enlightened Egoism Alexis de Tocqueville - "Democracy in America"

Americans voluntarily join together in associations to further the interests of the group and, thereby, to serve their own interests. "self interest rightly understood" he combines the right of association with the virtue to do what was right. -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. **enlightened egoism is advocated as a means rather than an end, based on the belief that for everyone to pursue their own interest will maximize general prosperity

5) Caring

Edmund Pincoffs, philosopher believed virtues such as CARING, KINDNESS, ALTRUISM, AND BENEVOLENCE enable a person who possesses these qualities to consider the interests of others. -empathy for others Josephson believes caring is the "heart of ethics and ethical decision making"

ethics and morals

Ethics leans towards decisions based upon individual character, and the more subjective understanding of right and wrong by individual, whereas morals emphasize the widely held communal or societal norms about right and wrong.

Arete

Greek word for excellence, the customary translation of which is "Virtues"

1) Trustworthiness: -HONESTY

HONESTY is the most basic ethical value -it means we should express the truth as we know it and without deception. -in accounting FULL DISCLOSURE principle supports honesty through TRANSPARENCY and requires that the accounting professional disclose all the information that owners, investors, creditors and the govt need to know to make informed decisions - to withhold relevant information is dishonest.

6) Citizenship

Josephson "citizenship includes civic virtues and duties that prescribe how we ought to behave as part of a community" -obey the laws, be informed about the issue, volunteer in your community and vote in elections. -accounting prof are part of a community specific ideals and ethical standards that govern behavior

Morals derived from

Latin word moralis, meaning "customs" -with the latin word mores meaning "manners, morals, or ethics"

Social Networking

The burden falls both on the employees, who should know better than to discuss company business online where anyone can see it, and employers, who have the responsibility to establish a culture that discourages venting one's feelings about the employer online for all to see. -organizational codes of ethics need to be expanded to create policies for the use of social networking sites, training to reinforce those policies and consequences for those who violate the policies.

When the facts are unclear and the legal issues are uncertain, an ethical person should decide what to do on the basis of well-established standards of ethical behavior

This is where MORAL PHILOSOPHIES come in and for accountants and auditors the ethical standards of the profession.

Teleology

an act is considered morally right or acceptable if it produces some desired result such as pleasure, the realization of self-interest, fame, utility, wealth, and so on. -assess the moral worth of behavior by looking at its consequences, and thus moral philosophers often refer to these theories as CONSEQUENTIALISM. Consequentialism is the theory about outcomes, not motives or intentions. 2 types of Teleological philosophies: EGOISM UTILITARIANISM

Deontology

argue there are things we should not do, even to maximize utility. -we should not deceive investors and creditors by going along with improper accounting even if it enables a client to gain needed financing, expand operations, add jobs to the payroll, and ultimately, earn greater profit for the company.

Justice

associated with issues of rights, fairness and equality. -just act represents your rights and treats you fairly. justice means giving each person what they deserve

Virtues are

attitudes, dispositions, or character traits that enable us to be and act in ways that develop this potential. -they enable us to pursue the ideas we have adopted -honesty, courage, compassion, generosity, fidelity, integrity, fairness, self-control and prudence are all examples of virtues in Aristotelian ethics.

Modern utilitarianism

describes benefits and harms in terms of satisfaction of personal preferences or in purely economic terms of monetary benefits over monetary costs.

Ethical Legalism

if an intended action is legal, it is, therefore ethical HOWEVER there are situations where doing the right thing may not be the legal thing and vice versa. ex: Slavery used to be legal ex: betraying the confidence of a friend

3) Responsibility

our capacity to reason and our freedom to choose makes us morally responsible for our actions and decisions. -we are accountable for what we do and who we are eleanor roosevelt "one's philosophy is not best expressed in words; it is expressed in the choices one makes... and the choices we make are ultimately our responsibility." in accounting: A responsible person carefully reflects on the choices before making a final decision. accounting responisibilities: -meet one;s ethical and professional obligations when performing services for an employer or client but never forgetting that it is the public interest that trums all other interests -act with DUE CARE bu gathering and evaluation relevant evidence in an audit and maintaining professional skepticism -accept responsibility of one's actions and be accountable for them

Rational Egoism

particular brand of ethical egoism that claims the promotion of one's own interest is always in accordance with reason. also called rational selfishness: principle that an action is rational if and only if it maximizes one's self-interest. Ayn Rand (1905-1982) Rand guided by reason -human survival is goal -opposite of altruism -rand believes altruism is of the past -humans must choose their own values, goals, and actions in order to maintain their lives -without ability to choose, there could be no morality because morality deals with issues open to man's choice (free will) -Rand's "The Virtue of Selfishness: A New Concept of Egoism" rationality is conceived of as man;s basic virtue, the source of all other virtues Virtue of rationality: recognition and acceptance of reason as one's only source of knowledge, one's only judge of values, and one's only guide to action. It means commitment to the reality of one's existence. -Rand's philosophy - Capitalism -teach to depend on no one but themselves -others believe it to be an idealized version of core american ideals: freedom from tyranny, hard work, and individualism.

Difference Principle

permits such inequalities and even suggests that it will be to the advantage of all, but only if they meet the two specific conditions. thus the principles are not strictly egalitarian, but they are not laissez-faire either. Ralws is location his vision of justice in between these 2 extremes

Virtue Ethics

posits that what is moral in a given situation is not only what conventional morality or moral rules require but also what a well-intentioned person with a "good" moral character would deem appropriate. less emphasis on rules, stress the importance of developing gooD HABITS OF CHARACTER such as kindness

Act Deontology

principles are or should be applied by individuals to each unique circumstance allowing for some space in deciding the right thing to do

Situationists ask:

should these norms, as generalizations about what is desired, be regarded as intrinsically valid and universally obliging of all human beings?

4) Fairness

subjective concept but typically involves issues of equality, impartiality, and due process. Josephson "Fairness implies adherence to a balanced standard of justice without relevance to one's own feelings or inclinations."..... the problem with that is what seems fair to one person or group seems unfair to another in accounting, fairness can be equated with objectivity. Objectivity means the financial and accounting information needs to be presented free from bias, that is, consistent with the evidence and not based solely on one's opinion about the proper accounting treatment. -objectivity helps ensure that financial statements are reliable and verifiable. -purpose of objectivity is to make fin statements more useful to investors and end users.

MORAL RELATIVISM is the view that moral or ethical statements, which vary from person to person, are all equally valid and no one's opinion of right and wrong is actually better than any others 3 types: Ethical Relativism Cultural Relativism Situation Ethics

there is no ultimate standard of good or evil, so every judgement about right and wrong is purely a product of a person's preferences and environment.

Ethical decision making requires that a decision maker be willing, at least sometimes, to take an action that may not be in his/her best interest.

this is called "MORAL POINT OF VIEW"

JUSTICE AS FAIRNESS john rawls

using Kantian and util philosophy behind the veil of ignorance the only safe principles will be fair principles, for you do not know whether you would suffer or benefit from the structure of any biased insittutions. -safest principles will provide for the higheest minimum standards of justuce in the projected society rational person would only choose to establish a society that at least conform to 2 rules: 1)each person is to have an equal right to the most extensive basic liberty compatible with similar liberty for others 2)social and econ inequal are to be arranged so that they are both: a) reasonably expected to be to everyone's advantage b)attached to positions and offices open to all

Difference btwn virtue theory and other moral philosophies

virtue considerations apply both to the decision maker and to the act under consideration by that party. moral phil focus on the act

Ethics is what should be done whereas laws deal with behavior that is compelled.

we have laws against stealing and kidnapping which are based on ethical standards

Distributive Justice

when ppl differ over what they believe shoud be given or when decisions have to be made about how benefits are burdens should be distributed among a group of ppl, questions of justice or fairness inevitably arise

Values are concerned with how a person behaves in certain situations and is predicated on personal beliefs that may or may not be ethical,

whereas Ethics is concerned with how a moral person should behave to act in an ethical manner.

Cultural Relativism

whether an action is right or wrong depends on the moral norms of the society in which is practiced -if cultural relativism is correct, then there can be no common framework for resolving disputes or for reaching agreement on ethical matters among members of different societies. Ex: bullfighting is an art, bull fighting is wrong