1. Ethics

2. Ethics About using judgement, to make choices about what one should do
No formula – applying judgement to a specific situation

3. Rationalizations to justify unethical behaviour - Gellerman (1986):
Pretending the behaviour is not really unethical or illegal.
Excusing the behaviour by saying it's really in the organizations or your best interest.
Assuming the behaviour is okay because no one else would ever be expected to find out about it.
Expecting your superiors to support and protect you if anything should go wrong.

4. Ethics Does trust matter?
Why is ‘controlling’ how people behave so hard?
Causes of unethical behaviour
Impact on regulation – think beyond accounting standards and types of regulation

5. Is Accounting Life or Death
Can accountants ruin your life?
Enron
Enron employees lost their jobs and retirement savings
28,000 employees at Andersens US lost their jobs
1,750 partners lost their entire savings
JP Morgan and Citigroup suffered steep losses
Ken Lay – chief exec died during the trial
Andrew Fastow and Jeff Skilling – served long prison sentences

6. Does Trust/Ethics Matter?
Macro Level
Would profession exist without trust?
Micro Level
Accountants face ethical issues during careers
Who is directly/indirectly effected by this accounting decision?
If I was in their position how would I feel about the accounting decision in terms of fairness?

7. Does Trust/Ethics Matter?
Accounting Profession status – damaged (Turner 2002)
Enron
Worldcom
Parmalat
“Many of the examples of reporting failure evidence a failure to act ethically by at least some of the participants” 2003 IFAC task force
Self regulation – no regulation?
Regulation – or ethics
Accounting Education – part of professional training?

8. What’s so hard? Individual Guidelines Family Parents Professional
Religion
Social Group
Religion
Culture
Peer Group

9. Reasons for unethical behaviour by accountants – Jackling et al 2007
Self interest
Failure to maintain objectivity and independence
In appropriate prof judgement
Lack of ethical sensitivity
Improper leadership and culture
Failure to withstand advocacy threats
Lack of competence
Lack of organisational and peer support
Lack of prof body support

10. Implications to regulators
Objective is to ensure Relevant and Faithfully Represented financial information is produced
Integrity of the accounting profession is integral to achieving objectivity
Presence of unethical behaviour will
Raise the cost of capital for organisations
May impact whole market – liquidity and share price volatility
Implications for the content but also the application of accounting standards

11. IFAC Fundamental Principles …..
‘ A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest …’
A professional accountant shall comply with the following fundamental principles:-
Integrity
Objectivity
Professional Competence and Due Care
Confidentiality
Professional behaviour

12. Accounting standards – A start or the answer?
Accounting standards – production is the start, application is what matters?
“To attribute US accounting failures to a deficiency in US GAAP was totally inappropriate” Imhoff 2003
“ Corporate governance is much more than the accuracy of the balance sheet” EIU (2002)
Can accounting regulation achieve globally consistent standards
Cultural differences, may result in different user needs and apply the same ethical criteria when assessing results e.g. some countries may put more emphasis on employees and the community
Current standards heavily biased towards western attitudes

13. Application of practice – Earnings management
Companies as well as business-unit manager have been found to engage in earnings management (Healy and Wahlen 1999)
Earnings Management – ‘Probably the most important ethical issue facing the accounting profession’ Levvitt
‘Overall consequence of earnings management is the erosion of trust between shareholders and companies’ Levvitt 1998
Alternative view
Dye 1988, Kaplan 2001 – current shareholders have a positive demand for earnings management - Merchant and Rockness 1994
Parfet 2000 ‘ Earnings management is a logical result of flexibility in financial reporting options’

14. Application of practice – Earnings management
Regulator – tried to address the issue of earnings management.
Debate as to whether earnings management is an issue
Debate as the to extent to which additional regulation is the answer
Increased focus on ethics may be more effective(Amat and Growthorpe 2005)

15. Implications to the regulator – the bigger picture
Shortcomings of capitalism results in negative behaviours - Low et al, 2008
Corporate transparency
Corporate values and behaviour
Money culture
Vices of a capitalistic society
Legalistic culture

16. Ethics Does trust matter? Role of Accounting Information
Role of an accountant
Impact on regulation – think beyond accounting standards and types of regulation

17. Reading
Elliott and Elliott– chapter 11
VLE for articles