1. K.Ockree, IIA Ethics - Intermediate Acctg I K. Ockree ETHICS AND PROFESSIONALISM ETHICAL PROFESSIONAL CONDUCT PERSONAL MORAL JUDGEMENT PERSONAL MORAL JUDGEMENT

2. OUTLINE Introduction Introduction General views of ethics General views of ethics Group ethics Group ethics Accountants and ethics, specifics Accountants and ethics, specifics Conclusion Conclusion References References

3. CAN ETHICS BE TAUGHT/LEARNED? Yes –but need a common basis. At a minimum, professionals should: Be able to recognize an ethical situation Be able to identify the issues involved Be able to identify ALL the stakeholders Reach a reasoned ethical position AND be able to defend it. [ref. 4] Can we or should we all be whistleblowers? At least at a personal level – yes!

4. What Ethics Training Can DO 1. Help individuals understand rationales, ideas and vocabulary 2. Help individuals make sense of their own ethical environment 3. Provide intellectual ammunition to do battle with advocates of economic fundamentalism and others who violate ethical standards. And more

5. What Ethics Training Can DO continued 4. Enable employees to recognize and expose potentially unethical choices within a firm. 5. Enhance moral reflectiveness and strengthen moral courage. 6. Help one handle an unethical directive from a boss

6. VIEWS OF BUSINESS ETHICS Ethical Relativism Ethical Relativism “When in Rome” “When in Rome” Fundamentalism Fundamentalism Self-Righteousness Self-Righteousness Universal-Particularism Universal-Particularism “Who am I to say...” Ref. 3 “Who am I to say...” Ref. 3

7. ATTITUDES TOWARD ETHICS Amoral Amoral Business is business and law = ethics Business is business and law = ethics Ethically unaware (naïve) Ethically unaware (naïve) Business exists only to make money Business exists only to make money Immoral Immoral If you don’t get caught it isn’t wrong If you don’t get caught it isn’t wrong Unethical for the firm / Unethical against the firm Unethical for the firm / Unethical against the firm The Moral Employee The Moral Employee Ethically aware Ethically aware Proactive Proactive Code of conduct Ref. 4 Code of conduct Ref. 4

8. UNIVERSAL ETHICAL VALUES Honesty Honesty Integrity Integrity Promise-keeping Promise-keeping Fidelity Fidelity Fairness Fairness Caring Caring Respect Respect Responsibility Responsibility Striving for Excellence Striving for Excellence Accountability [ref.2] Accountability [ref.2]

9. STAGES of MORAL JUDGEMENT What is right Reason for doing right Point of View Level One Preconventional a. Obedience Avoid Punishment Egocentric b. Self-Interest Fair exchange Fair exchange Serve one’s own interests where others also exist No abstract awareness of right and wrong

10. ETHICS IS A PERSONAL RESPONSIBILITY “But who is responsible for increasing our ethical sensitivity – and how can they accomplish this?”

11. The responsibility rests first and foremost with us as individuals. Ethics is a personal matter and we cannot pass the buck to others. The individual must consciously focus on ethical concerns.

12. He or she must go beyond the rules, thinking about why the rules are necessary and written as they are – in other words, the substance behind the form.” He or she must go beyond the rules, thinking about why the rules are necessary and written as they are – in other words, the substance behind the form.” Ethical Issues in the Practice of Accounting, p.38 [ref. 2]

13. EVALUATING ETHICAL CHOICES Is the action you have arrived at one that lives up to your sense of moral integrity? Is the action you have arrived at one that lives up to your sense of moral integrity? [Could I do this and still look at myself in the mirror] [Could I do this and still look at myself in the mirror] Would it be the action chosen by someone you consider a moral model? Would it be the action chosen by someone you consider a moral model? [Could I feel good about telling my mother (father, minister, spiritual advisor, spouse, etc.) I took this action] Would you be comfortable if the action or its results were made public? Would you be comfortable if the action or its results were made public? [What if this became headline news?]

14. Other Evaluative Helps Is it Right ? Is it Right ? Is it Fair? Is it Fair? Who Gets Hurt? Who Gets Hurt? What would you tell your child to do? What would you tell your child to do? Is this action or decision I’m getting ready to take compatible with my concept of myself at my BEST? Is this action or decision I’m getting ready to take compatible with my concept of myself at my BEST?

15. ETHICAL CHOICES WITHIN ORGANIZATIONS START AND END AT THE TOP “The tone at the top” “The tone at the top”

16. FIRM/CORPORATE ENVIRONMENT FIRM/CORPORATE ENVIRONMENT ATTITUDE ATTITUDE LEADING BY EXAMPLE LEADING BY EXAMPLE FOLLOWING THROUGH FOLLOWING THROUGH CODE OF CONDUCT??? CODE OF CONDUCT???

17. ASKING KEY QUESTIONS What are the core values and beliefs of my organization? What are the core values and beliefs of my organization? Whose values, beliefs and interests may be at risk in this decision? Whose values, beliefs and interests may be at risk in this decision? Who will be harmed or helped by my decision or by the decision of my organization? Who will be harmed or helped by my decision or by the decision of my organization? How will my own or my organization’s core values and beliefs be affected or changed by this decision? How will my own or my organization’s core values and beliefs be affected or changed by this decision? How will I and my organization be affected by this decision. How will I and my organization be affected by this decision.

18. WHERE ACCOUNTANTS SHOULD BE IN THE ETHICAL SCHEME OF THINGS

19. SERVICE IN THE PUBLIC INTEREST INTEGRITY INTEGRITY ACCEPTABLE PROFESSIONAL BEHAVIOR ACCEPTABLE PROFESSIONAL BEHAVIOR OBJECTIVITY AND INDEPENDENCE OBJECTIVITY AND INDEPENDENCE DUE CARE DUE CARE Independent in substance and Independent in substance and in appearance in appearance Ref. 1, 2, 3

20. PRINCIPLES BASED ACCOUNTING? Conservatism Conservatism Never overstate assets or revenues Never understate expenses or losses Substance over form Substance over form Transactional reporting should present the actual nature of the occurrence NOT the legal form or other form in which it was written or presented

21. ACCOUNTANT’S ADDITION TO THE LIST OF UNIVERSAL VALUES Professional Personal Attributes Professional Personal Attributes Independent Independent Unbiased Unbiased Objective Objective Neutral Neutral Our work should be Relevant Relevant Reliable Reliable Verifiability Verifiability Representationally faithful [ref. 1, 3] Representationally faithful [ref. 1, 3]

22. References 1. AICPA Concepts Statements 2. Albrecht, W. Steve; Ethical Issues in the Practice of Accounting, 1992., South-Western Publishing, Cincinnati, Ohio. 3. Armstrong, Mary Beth; Ethics and Professionalism, 1993. Mary Beth Armstrong. South-Western Publishing, Cincinnati, Ohio. 4. Myers, Randy; Ensuring Ethical Effectiveness, Journal of Accountancy, February 2003. 5. Wallace, Wanda; “Commentary: Will Principle vs. Rules Become Substance vs. Form?, Accounting Today, January 27 – February 9, 2003, pp14-16. 6. Calmes, Jackie, “Minor Memos”, Wall Street Journal, January 25,2002, p.1 C5. 7. Watts, Duncan, “Unraveling the Mysteries of the Connected Age” The Chronicle of Higher Education, February 14, 2003, p.B7-B9. 8. Weiss, Joseph W. Business Ethics, A Stakeholder and Issues Management Approach, 2003, Southwest Publishing, Cincinnati, OH.

23. K.Ockree, IIA IIA Presentation, March 4, 2003 K. Ockree Intermediate Financial Accounting I

24. Stated Expectations for Professional Accountants Objectivity and Independence Objectivity and Independence In Fact – In Appearance – In Mental Attitude In Fact – In Appearance – In Mental Attitude Due Care – The Quest for excellence Due Care – The Quest for excellence  Competent technically and ethically  And ever improving  Ever increasing Quality of Service  Constant in professional responsibility

25. Financial Accounting Financial Accounting Process that produces financial reports on: Process that produces financial reports on: Organization as a whole Organization as a whole For use by internal and external parties For use by internal and external parties Users Users Investors and potential investors Investors and potential investors Creditors Creditors Managers Managers Unions Unions Government and other regulators Government and other regulators Employees Employees

26. ETHICS and Professionalism Principles Principles RESPONSIBILITIES RESPONSIBILITIES  Exercise sensitive professional and moral judgment in their professional activities  Public Interest  Serve the public interest  Honor the public trust  Demonstrate commitment to professionalism  Integrity  Maintain and broaden public confidence  Do what is right and just in the absence of rules  With highest sense of integrity

27. WHY ACCOUNTING STANDARDS Accounting Standards Accounting Standards IASC IASC FASB FASB PCOAB and Congress PCOAB and Congress SEC Oversight SEC Oversight

28. Why do we have accounting standards? Comparability, Consistency, Reliability Comparability, Consistency, Reliability GOAL: to present fairly, clearly and completely the financial condition of the firm GOAL: to present fairly, clearly and completely the financial condition of the firm

29. Where Accounting Standards Come From Congress Congress SEC SEC FASB [Funded by the FAF] FASB [Funded by the FAF] other sources/organizations CAP APB GASB AAA IMA FEI other sources/organizations CAP APB GASB AAA IMA FEI______________________ IASC IASC___________________________ CONGRESS CONGRESS Sarbanes Oxley Act -> PCAOB SEC SEC

30. Other Accounting Standard Issues Political Process Political Process Economic Consequences Economic Consequences Expectations Gap Expectations Gap

31. K.Ockree, IIA IIA Presentation, March 4, 2003 K. Ockree Financial Accounting Reports Income Statement Statement of Retained Earnings or Statement of Stockholders’ Equity Balance Sheet Statement of Cash Flows Notes to the financial statements Disclosures Audited Financial Statements In: Annual Report to Stockholders SEC Required reports10K annual report 10Q quarterly report