Question

1. Please discuss the American Institute of Certified Public Accountants (AICPA) and their Code of Professional Conduct as it relates to ethics in accounting.

2. Please describe the six stages of moral development developed by Lawrence Kohlbert and relate them to ethics in accounting.

3. Please describe and critique the core philosophy of consequentialism and deontology and relate them to ethics in accounting.

4. Please discuss the core elements of the distributive justice philosophies developed by Aristotle and Rawls and relate them to ethics in accounting.

Answer 1

1. American Institute of Certified Public Accountants (AICPA)

AICPA is a non- profit organisations of Certified Public Accountants in the United States. It was established in 1887, and its role is to create and grade the Certified Public Accountant (CPA) examinations. AICPA was the first organisation to create original financial accounting standards under GAAP before handing over the role to the Financial Accounting Standards Board (FASB). It is the largest member association of the world, with over 418000 members in 143 countries.

Code of Professional Conduct as Realates to Ethics:-

The Code of Professional Conduct of AICPA was originally adopted on January12, 1988 which states the principles and guidelines, that the members have to adhere. The code of professional conduct specifies the ethical requirements or ethical ways to resolve ethical conflicts.

An Ethical conflict arises when a member encounters one or both of the following:-

(a) Obstacles to following an appropriate course of action due to internal or external pressures.

(b) Conflicts in applying relevant professional standards or legal standards.

Once an ethical conflict encountered, a member may be required to take steps to best achieve compliance with rules and laws. In weighing alternative courses of action, the members should consider factors such as following:-

(a) Relevant facts & circumstances, including applicable laws and regulations,

(b) Ethical issues involved

(c) Established internal procedures.

The member should also be prepared to justify any departures that the member believes were appropriate in applying the relevant rules or laws. If a member is unable to resolve the conflict in a way that permitted compliance with the applicable rules and laws, the member may have to address the consequences of any violations.

Before pursuinga course of action, a member should considerconsulting with appropriate persons within the firm or organization that employs the member. The member should also documenting the substance of the issue, the parties with whom the issue was discussed, details of any discussions held and any decisions made concerning the issue.

2. Stages of Moral development :-

Lawrence identified 6 stages of moral development which are identified with 3 levels of moral reasoning. The 3 levels are -- Preconventional, conventional and Post-conventional.

Level 1:- Preconventional:- Throughout preconventional level, a child's sense of morality is extremely controlled.

Stage 1:- Obedience and Punishment Orientation:- It focuses on child's desire to obey rules and avoid being punished. For example:- an action is perceived as morally wrong as prepetrator is punished. The worse the punishment for the act, the more 'bad" the act is perceived to be.

For an example:- when any financial reporting is not in accordance with their respective laws, penalities are laid down. The severe the misstatement, the severe the penalty.

Stage 2:- Instrumental Orientation:- It expresses "What is not for me?" position, in which right behaviour is defined by whatever the individual believes to be in their best interest. It shows the limited interest in the needs of others, only to the point where it might further the individual's own interests.

Example of this in accounting would be, in this stage, an public accountant can be asked to give a report on specified point or matter by offering him an incentive or by giving him an allowance.

Level 2:- Conventional:- Throughout the conventional lavel, a child's sense of marality is tied to personal and societal relationships.

Stage 3:- Interpersonal Accord & Confirmity:- Here, the children and adults want the approval of others and act in ways to avoid disapproval. Emphasis is placed on good behaviour and people being "nice" to others.

As regards to ethics in accounting, a conflict can arise as accountant is performing his works in such a way that he has not to face disapproval of management or Those charged with Governance.

Stage 4:- Law & Order Orientation :- Here the child blindly accepts rules and conventions because of their importance in maintaining a functioning society. Mostactive members of societyremain at stage four, where morality is still predominantly dictated by an outside force.

Thus, laws and acts made for the purpose of guiding and keeping an eye on the work of businesses have to abide by the accountant. Laws and orders made are external factors which guide the work of accountant.

Level 3:- Post-Conventional:- Throughout this stage, a person's sense of morality is defined in terms of more abstract principles and values. People now believe that some laws are unjust and should be changed.

Stage5:- Social - Contract Orientation:- Here the world is viewed as holding different opinions, rights and values. Laws are regarded as social contracts rather than rigid edicts.

Democratic government is theoretically based on stage 5 reasoning.

Stage 6:- Universal-Ethical-Principal Orientation:- Generally, the chosen principles here are abstract rather than concrete nd focus on ideas such as equality, dignity, respect. People chose the ethical principles they want to follow and if they violate these ethics, they feel guilty.

Thus, from above stages it can be concluded that in accounting, at initial stages there are pressures from side of management of entity, laws or rules made by external forces, but later on as experience is gained, one may adopt their own ethical values.

3.Consequentialism & Deontology:-

Philosophy of Consequentialism:- Consequentialism is based on 2 principles:-

• Whether an act is right or wrong depends only on the results of that act
• The more good consequences an act produces, the better or more right that act.

In practice,people don't assess the ethical consequences of every single act because they don not have time. Instead they use ethical rules that are derived from considering the general consequences of a particular type of acts.

From an ethical purpose, Consequentialism has the potential to encourage the behaviour that is incompatiable with the purpose of accounting. For example:- many of the accounting firms may use risk-driven approach, which are Consequentialist in nature, in deciding whether to perform an engagement.

Philosophy of Deontology:- This ethical school of thought is mostly associated with Kant. Kant's approach to ethics is based on his belief in deductive reasoning and respect for other individuals. Under this, the underlying requirement for ethical decision making is called as good will. An individual with a good will has a sense of moral duty and with this sense of duties individuals make more moral decisions.

For business & accounting purpose, Deontology is a viable approach to support ethical decision making. Having business & accounting decision- makers attempt to place themselves into original position behind a veil of ignorance to become an impartial spectator enable them to better appreciate the ramifications of different accounting practices.

4. Aristotle's Distributive Justice:-

Aristotle was of opinion that this form of justice is the most powerful law to prevent anyrevolution, as the justice believs in proper and proportionate alloaction of offices, honours, goods and services as per their requirement being a citizen of the state. This justice is more concerend with political privileges. He advocated that every political organisation must have its own distributive justice. He permitted the alloaction of offices to virtuous only owing to their highest contributions to the society, because the virtuous people are few.

Accounting & Distributive challenges the basic assumptions on which the current practice of financial reporting is based. It argues that the objective of financial reporting should be to contribute to the achievement of distributive justice and not the optimal allocation of resources. It explains in non-technical terms that a firm has a miral responsibilty to seek distributive justice in its dealings with its shareholders, employees,suppliers, customers and other people with whom it has dealings, who are considered to be firm's stakeholders. Sometimes, the accounting & distributive justice both provides a philosophical foundation and a practical game plan for the future of a more sustainable accounting practice.