Ethical frameworks in accounting: deontology versus utilitarianism

DEONTOLOGY & UTILITARIANISM in the ACCOUNTING PROFESSION

Understanding Utilitarianism and Deontology

Examination of Reasoning Process of Accountants

Accounting Ethics: Deontology vs. Utilitarianism

The Problem with Utilitarianism

Ethics and Obligations of the CPA under the AICPA

DEONTOLOGY & UTILITARIANISM in the ACCOUNTING PROFESSION

The object of this work is to describe in detail the ethics systems of deontology and utilitarianism and to evaluate each system in respect of the organizational culture of the accounting profession and the AICPA Code of Professional Conduct. Logical arguments will be presented for the ethics system that is the most appropriate for the accounting profession.

Deontology can be defined as adherence to duty relating to morals laws and codes while utilitarianism is an ethical position that does not acknowledge any pre-existing laws or codes but instead the notion of utility is derived by applying a weight according to what is believed to be the greatest utility of all concerned.

LITERATURE REVIEW

II. EXAMINATION of REASONING PROCESS of ACCOUNTANTS

Adams, James and Malone (1994) report having conducted a study: "...to determine which reasoning process governs the behavior of CPAs in resolving an ethical dilemma involving confidential client information..." (1994) Surveys were mailed to 100 CPAs through random selection form the AICPA membership directory that contained three scenarios. Each of the scenarios required two responses as follows: (1) to inform or not inform a third party of confidential client information; and (2) to indicate which response was given in question 1 as whether it was considered 'good ethical behavior' if the Code was disregarded. Respondents were also asked to justify the answers they gave on the survey question. The findings of this study state an indication "that CPAs usually adhere to the Code (rule deontology) in resolving issues involving confidentiality. However, such decisions are not always in accord with what they perceive as 'good ethical behavior'."(Adams, Malone and James, 1994)

The work of Dolfsma (2005) entitled: "Accounting as Applied Ethics: Teaching a Discipline" states that accounting '...often regarded with a degree of cynicism...is sometimes perceived merely as a particular way of controlling processes in businesses, even of allowing for a facilitating exploitive relationships." (Dolfsma, 2005) Dolfsma states that an "important distinction within ethics is between deontological and consequentialist perspectives. The first one stresses the rights that people have, and the necessity for other people to respect other people's rights. Doing good means respecting these rights and living by ethical rules whatever the consequences. The latter perceives as of the good as that which holds the well being for society." (Dolfsma, 2005)

III. ACCOUNTING ETHICS DEONTOLOGY vs. UTILITARIANISM

The work of Duska and Duska (2003) entitled: "Accounting Ethics" states that a major problem with utilitarian theory "is the distribution problem. The phrase 'The greatest good for the greatest number of people' is ambiguous." The example provided by Duska and Duska is one in which there are "fives units of pleasure to distribute to five people." In this case Duska and Duska states that these five units will be "five pickles" and ask according to the formula of utilitarianism how should these pickles be distributed?" (2003) Duska and Duska state: "The easiest answer seems to be, give each one a pickle. Then supposedly each would get one unit of pleasure and we would have distributed to the greatest number of people, five. But supposed two people passionately love pickles and two people don't care one way or another about pickles. Then wouldn't it make sense to give two apiece to those people who passionately loved pickles and none to the two who don't care? This can be represented as follows:

2 pickles - 2 units of happiness

2 pickles = 2 units of happiness

1 pickle = 1 unit of happiness

0 pickle = 0 unit of happiness recipients units of happiness

As one can see within the framework of the utilitarian theory, there are five resulting units of happiness in this scenario however, when the pickles are divided evenly the following results:

1 pickle = 1 unit of happiness recipients units of happiness

Duska and Duska relates that "in the case of B. you distribute to the greater number of people but don't create the greatest amount of happiness, whereas in a you crate the greatest amount of happiness, but don't distribute to the greatest number of people. This is the problem of distributive justice: a problem of fairness, a problem of how the goods and the burdens of the world are to be distributed." (Duska and Duska, 2003)

IV. The PROBLEM WITH UTILITARIANISM

Another "quandary with utilitarianism is the problem of predicting the future. To decide whether an action is right by looking at the consequences means you have to look into the future and try to predict what will happen." (Duska and Duska, 2003) Duska and Duska relate that there is criticism of utilitarianism, which is the "problem of illicit means." (2003) Therefore, "utilitarians are accused of letting the ends justify the means, even if the means are immoral. The example of misrepresenting assets to the bank is one such example. Even if we justify the misrepresentation by saying that no harm will be done, since the company will survive and the bank will not get hurt, it is still lying." (2003) Duska and Duska note the statement of W.D. Ross who speaks of the 'essential defect' in utilitarianism stating:

The essential defect of utilitarianism is that it ignores, or at least do not do full justice to, the highly personal character of duty. If the only duty is to produce the maximum of good, the question who is to have the good - whether it is myself, or my benefactor, or a person to whom I have made a promise to confer that good on him, or a mere fellow man to whom I stand in no such special relation - should make no difference to my having a duty to produce that good. But we are all in fact sure that it makes a vast difference." (Ross in Duska and Duska, 2003)

V. ETHICS and OBLIGATIONS of the CPA UNDER the AICPA

Duska and Duska go on to examine another approach to ethics referred to as "the ethics of virtue or character" which is stated to address the question of "what one should be or become." (Duska and Duska, 2003) the word virtue is stated by Duska and Duska to derive from the "Latin 'virus' meaning 'power' or 'capacity' and virtus was used to translate the Greek word ar te, which means excellent." (2003) the goal of the accountant is "to respond as truthfully as possible." (Duska and Duska, 2003)

Duska and Duska state that the accountant has three obligations:

1) to be competent and know about the art and science of accounting;

2) to look out for the best interests of the client; avoiding the temptation to take advantage of the client; and 3) to serve the public interest. (2003)

These responsibilities are clearly stated in the AICPA code of ethics, which states:

Competence is derived from a synthesis of education and experience. It begins with a mastery of the common body of knowledge required for designation as a certified public accountant. The maintenance of competence requires a commitment to learning and professional improvement that must continue throughout a member's professional life. It is a member's individual responsibility. In all engagements and in all responsibilities each member should undertake to achieve a level of competence that will assure that the quality of the member's services meet the high level of professionalism required by these principles." (Duska and Duska, 2003) second obligation of the accountant is the obligation "too look out for the best interest of the client." (2003) the AICPA states:

distinguishing mark of a professional in an acceptance of its responsibility to the public. The accounting professional's public consists of clients, credit grantors, governments, employers, investors, the business and financial community and others who rely on the objectivity and integrity of certified public accountants to maintain the orderly functioning of commerce."

The work of Duska and Duska states that the responsibility of accountants is to present the "most truthful and accurate financial pictures possible of the organization they are portraying, or, as auditors, a responsibility to evaluate other accountants' picture and attest to their truthfulness and accuracy." (2003) the accounting profession code of conduct is useful in six ways according to Duska and Duska, which are those as follows:

1) a code can motivate through using peer pressure, by holding up a generally recognized set of behavioral expectations that must be considered in decision-making;

2) a code can provide more stable permanent guides to right or wrong than do human personalities or continual ad hoc decisions;

3) Codes can provide guidance, especially in ambiguous situations;

4) Codes not only guide the behavior of employees, they can also control the autocratic power of employers;

5) Codes can help specify the social responsibilities of business itself; and (6) Codes are clearly in the interest of business itself, for it businesses do not police themselves ethically, others will do it for them." (Duska and Duska, 2003)

The AICPA Code is comprised by two sections with the first "treating the principles" and the second "treating the rules." The AICPA Code makes specific reference to "three constituencies to whom accountants have ethical responsibilities" which are: (1) the public; (2) clients; and (3) colleagues. (2003) Contained within the AICPA Code are six principles which "express the profession's recognition of its responsibilities to the public, to clients and to colleagues." (Duska and Duska, 2003) the six principles contained in the AICPA Code are those as follows:

In carrying out their responsibilities as professionals, member should exercise sensitive professional and moral judgments in all their activities;

Members should accept the obligation to act in a way that will serve the public interest, honor the public truth, and demonstrate commitment to professionalism.

To maintain and broaden public confidence, members should also perform all professional responsibilities with the highest sense of integrity;

member should maintain objectivity and be free of conflicts of interest in discharging the professional responsibilities;

member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability; and member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided. (Duska and Duska, 2003)

In relation to the measure to be used in determining what is right or just it is stated in the Code that "in the absence of specific rules, standards, or guidance, and in the face of conflicting opinions, a member should test decisions and deeds by asking: "Am I doing what a person of integrity would do?" (Duska and Duska, 2003)

SUMMARY and CONCLUSION

While the ethics contained in Utilitarianism are held by many to be the most just form of ethics, the truth is that unless one is able to travel instantaneously to the future to determine the consequences of actions under this theoretical framework, there is no manner by which to determine whether this ethical theory is supported in facts. The certified public accountant has specific duties and obligations as related to ethics in their profession and toward this end, the AICPA codes provide the best knowledge base for making ethical decisions required by those in the Certified Accountant Profession.