Professional accountants need to develop ‘moral courage’ too

Preceded by the accounting scandals of Sunbeam, Waste Management, Rite-Aid, Cendent, McKesson, Xerox and Enron between 1997 and 2001, the floodgates opened in 2002. At least 17 additional major companies had some sort of accounting-related scandal since 2002, including Global Crossing, Halliburton, Merck, WorldCom, Adelphia, ImClone, Lucent and Tyco.

Questions were raised about the integrity of the accounting profession including how financial markets were regulated, how the accounting profession was managed, and whether educators were doing a proper job of preparing students for the ethical challenges of the accounting and business world.

Congress made sweeping changes to the way public companies were audited with the passage of the Sarbanes-Oxley Act and the creation of the Public Company Accounting Oversight Board. Prior to the implementation of SOX, the audit market was regulated by the profession. But the passage of SOX took the responsibilities for regulating the audits of publicly traded companies away from the American Institute of CPAs and gave it to the PCAOB, which is under the control of the SEC.

Other changes in ethics regulation came from the states. Each state Board of Accountancy sets the requirements to hold a CPA license. There are requirements to sit for the CPA exam and Continuing Professional Education requirements to maintain a license. State boards of accountancy have increased emphasis on ethics. Only a few states now require specific ethics education to sit for the exam, but most now require ethics CPE. Today, Michigan and 21 other states require an average of two hours per year of ethics training. Only Minnesota and Mississippi require more. Eight states have no ethics training requirement, and the remaining states require one hour per year. While these numbers may seem inconsequential, they are a sea change from 2002.

The AICPA developed a professional code of conduct in its present form in 1974 and has made annual modifications. Following the accounting scandals and enactment of SOX, the AICPA developed a proposed code of conduct that retains and expands the rules of the current code, but emphasizes principles required to maintain the integrity of the profession. It is expected to be adopted in 2014.

The Association to Advance Collegiate Schools of Business, the accrediting body for 672 schools of business, now put ethics education on the front burner. Many observers of business suggested that business schools were indoctrinating students to a “profit above all” culture. The AACSB took this to heart and, in 2004, published a white paper, “Ethics Education in Business Schools.” The paper explains there is a symbiotic relationship between businesses and the society in which they function. For businesses to succeed, they require a healthy environment in which to operate. For society to flourish, it requires successful businesses to generate wealth for the community. Thus, it is in businesses’ best interests to contribute to the social welfare of the community in which it operates.

The AACSB white paper also suggested business schools take a look at the ethics curriculum and how ethics is taught. Prior to the white paper, most business schools taught a general business ethics class, often from a management professor’s perspective. The AACSB suggested students would gain a better understanding of the requirements of their field if they took a discipline-specific ethics class. Finally, and somewhat surprisingly, the AACSB said it is not enough for schools of business to simply teach the students what they should do but should help them to develop “moral courage.” Business people not only need to know what the right thing to do is; they need to have the tools, character and fortitude to do it.

At the Seidman College of Business, in 2002, we offered one business ethics course from the management department. Today, we have a core of about 10 professors who teach ethics classes in the accounting, economics, management, marketing and finance areas. We have a business ethics center, headed by professor of philosophy Michael DeWilde. He and the business ethics faculty have regular roundtable discussions about ethical issues and how better to teach ethics to our students, and how to empower them to do the right thing.

Ten years after the meltdown of 2002, the climate for ethical behavior in the accounting profession has changed dramatically. Hopefully, the lessons from the corporate fiascos will not be forgotten and the ethical environment will continue to improve.

Bruce Bettinghaus and Steve Goldberg teach corporate governance and accounting ethics in Grand Valley State University’s Bachelor of Business Administration and Master of Science in Accounting programs, respectively.

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