Brian Strugats Accounting Ethics Dr.

Brian Strugats

Accounting Ethics

Dr. Nathan Slavin

The Role of College Ethics Classes in the Reduction of Professional Accounting Scandals

Ethical values provide the foundation on which a civilized society exists. Without the foundation, civilization collapses." (Smith)

The ability to choose right or wrong, or good vs. evil, is a part of the human condition. While some decisions are smaller than others, like stealing a pack of gum, some are larger and have more severe consequences. In the business world, the bottom line is often the only criteria for success or failure. People are tempted to sometimes take shortcuts or intentionally omit certain information in order to speed their climb up the corporate ladder. In the accounting profession these shortcuts or intentional omissions are unacceptable. They violate public trust and damage corporate reputations as we have seen in the past decade with several well-known accounting scandals (Evans, 2003).

There has been a considerable amount of attention placed on corporate moral responsibility and the responsibility of accountants to ensure continued public trust. There has also been considerable attention to the role that academics can play in the prevention of accounting scandals. The purpose of this research will be to examine the role and importance of ethics classes in college and their ability to reduce professional breeches in public trust among those in the accounting profession.

Background

Morality is determined by society, culture, and religion. Moral responsibility is the price that humans must pay as a result of their ability to possess intellect and free will. However, this concept becomes clouded when one tries to apply it to corporations, or other formal groups of people. Recently, several scandals have raised the question of collective, or corporate responsibility. The most famous case was the Enron scandal, which compromised the trust of the American citizens, their employees and their shareholders (Webb, 2001).

Defining Moral Responsibility

Moral responsibility is the result of societal norms and expectations. The formal definition of society is a group of people that agree to live by a certain set of rules. They agree on punishments if the rules should be broken. The purpose of these rules is to keep the peace and allow everyone within this society to live in relative happiness (Bentham, 1996). Like individuals, corporations have their own personalities and internal culture. This unique culture is defined by the way they dress, the hierarchical structure, and communication styles to name a few.

Like general society, people who work within the corporation are expected to adhere to the established cultural norms. Therefore, it appears that the corporation is a society within a society and that employees have a moral responsibility to adhere to the norms of the corporation. Corporations have a larger responsibility to take actions that ensure and promote the public trust (Coffee, 1998). The terms "ethics" and "morals" are often used interchangeably. However, the term "ethics" tends to refer to an individuals sense of right and wrong, whereas "morals" tends to refer to societal norms of right and wrong. The significance of this difference is slight as far as this research is concerned and the two terms will be used interchangeably.

Rationale

It appears that corporations represent a society within the context of the larger society. Corporations have characteristics of both an individual and a society at the same time. This paradox is the crux of the conundrum concerning whether a corporation could be considered to have moral responsibility just as an individual does, or whether moral responsibility is the sole realm of the individual. Now let us turn our attentions to the word "responsibility." We found that society has certain expectations of the individual and that the individual is obligated to attempt to meet these expectations. This constitutes that individual's responsibility to society.

If one considers the legal definition of a corporation then they have some of the same rights as individual. They can act as individuals, for instance, they have the right to own property and can enter into legal contracts. Therefore, one could consider the corporation an extension of the individual. This means they would have some level of moral responsibility as well.

We have mentioned the term "responsibility," but what exactly do we mean by this term? Responsibility is the sense that one must strive to obtain a good result in a certain endeavor. Responsibility implies that a person is interested with achieving or maintaining a certain outcome (Levy, 2003). A sense of responsibility is different than causal responsibility. Causal responsibility means that something is attributed to a certain outcome, but it may not make a conscious choice. For instance, someone may say that the earthquake was responsible for the damage. However, this type of responsibility must be differentiated from responsibility that stems from a conscious act.

Another type of responsibility is official responsibility (Radzik, 2001). This typically refers to duties that are a part of one's job or office. There are many who have used this type of responsibility to justify actions that they knew were wrong. Someone may use the excuse, "it was my job" to justify something that they knew was wrong. Often morals and official responsibility conflict with one another and a person must choose whether to follow their own ethics or act in accordance with what they perceive their duties to be at that time.

We have found that although corporations represent the collective actions, morals, and ideals of individuals, their responses are often similar to that of the individual (Radzik, 2001). We found that businesses must hold to certain standards in order to fulfill their obligations to society. Many cases, including the Enron scandal brought the idea of corporate fraud into the realm of business ethics. Fraud is an intentional deception for the purpose of unfair gain. Individuals within a corporation can commit fraud (Graafland and Smid, 2004).

However, this adds an interesting angle to our discussion on moral responsibility. Fraud must be committed by a single individual. A corporation cannot commit fraud, only the individuals within it. In this case the corporation acts as a collection of individuals, who have the ability to commit fraud in order to gain an unfair advantage. A corporation can have moral responsibility, but they cannot commit fraud. Fraud has an element of intent in the action. The intended action must cause harm to another person in order to be considered fraudulent. Fraud involves a false representation.

Our definition of fraud differs from our definition of moral responsibility because only the individuals within a corporation can commit fraud. It may be noted that when a person within a corporation commits fraud, it could also mean a breach in corporate moral responsibility. However, if a majority of the persons within the corporation do not agree with this act and take action to stop it that it will have no effect on the moral responsibility of the corporation. In order for the corporation to fulfill its moral responsibility there must be measures in place to make certain that its members act in an ethical manner. A business can do something, but an individual must perform the action itself. If one considers this angle then a business can have a moral responsibility and act in an ethical manner based on the actions of the individuals within it.

Moral responsibility requires intent which is typically associated with an individual. In order to act intentionally one must be able to understand the significance of their actions (Dwyer, 2003). They must be able to predict the outcomes and weigh the decision to take the action or not. Corporations lack a conscious and therefore cannot grasp the consequences of an action. However, a corporation can act intentionally, by collective agreement of the individuals. A corporation can make a goodwill gesture to the community or another corporation.

The focus of this study is to examine how individual decisions and morals affect their feeling regarding honesty in the business world. It will take the standpoint that individual decisions will be the driving force of corporate ethics in the future. It will address the issue through a survey conducted among college students regarding their past history of cheating and how important the role of ethics classes and knowledge of corporate responsibility would have changed their decisions in the past and how it might affect them in the future.

Hypothesis and Research Questions

The purpose of this study is to examine the role of college ethics course in changing the actions of professional accountants when they enter the field. It will support the hypothesis that ethics classes in college will reduce the feelings that students will commit conscious immoral professional acts when they enter the accounting field. It will examine the factors that have the greatest impact on their decision.

In addition to the primary hypothesis, the research will examine the following research questions.

What percentage of college students will admit to cheating?

How many have committed what could be considered an ethical act on the job?

What acts are considered immoral among the sample population?

How many have taken a college ethics course?

What effect did a college ethics course have on the willingness to cheat in college and on the job?

Do college students feel compelled to report the incident if they become aware than a college has cheated or intends to cheat on an exam?

These research questions will help to shed light on the motivations and cultural aspects of cheating in college. They will also examine the importance of ethics classes in college. They will pave the way for future research into actions that can be taken to address the problems that currently exist within the accounting profession. They will play an important role the improvement of college curriculums so that they can be better prepared to meet ethical and moral challenges of their chosen profession. This study represents the first step to understanding the connection between college curriculum and the ability to maintain ethical standards in the accounting profession.

CHAPTER 2 - LITERATURE REVIEW

In order to further establish a solid theoretical basis for the research at hand, we will examine the body of literature that exists on the topic at hand. The literature review will examine literature from many different, but closely related areas in order to examine many sides of the issues. For the most part, research will be recent, within the past five years. However, in some cases older works will be consulted if it is felt that they contribute to an overall understanding of ethics in the accounting profession.

Relationship Between The Individual and The Corporation

In order to understand how individuals contribute to corporate ethics we will examine the development of theory in this field. Feinberg (1968) describes four distinct types of collective or group moral responsibility arrangements. These are group liability without fault, group liability with noncontributory fault, contributory group fault: collective and distributive, and contributory group fault: collective but not distributive.

According to the group liability without fault arrangement, the entire group bears responsibility for the actions of one or several of its members. This is what we saw in the Enron scandal where the entire group was punished for the actions of a few, even if the punishment was nothing more than a loss of trust in the public eye. In the liability with noncontributory fault arrangement the entire group is held responsible for every member of the group even though it is the faulty behavior of a few that results in harm to others.

Feinberg's third model, contributory group fault: collective and distributive, says that because the blame is associated with the actions of each individual there is no amount left over that can be attributed to the group independently of its members. This concept has been proven by psychologists studying group behavior. One of the most well-known examples was a person in a major city who was stabbed multiple times in plain sight and no one stepped in to stop it (May, 1987).

The final model of collective responsibility is the only type in which the responsibility is not reduced to the individual. The contributory group fault: collective but not distributive. In this case, group moral responsibility is independent of the responsibility to any or all of its individual members. The group itself is at fault independent of any fault that is attributable to any individual member. One of the most profound examples of this is the atrocities of Nazi Germany. This group model leads to the statement, "I was only doing my job." It serves as an excuse for its members to do what is necessary in accordance to the group.

Feinberg's models are important because they demonstrate that there are different viewpoints on group and individual responsibility. Various corporations may exhibit characteristics of any one of these models. This is considered a part of the corporate culture of the organization. One can find examples to support any one of these models within the corporate world. Understanding this helps us to further develop our model of moral responsibility in corporations because it makes a point that there is no single answer to this question. The answer is different for each and every organization.

There are various viewpoints on the individuality and moral responsibility of corporations. Velasquez (1983) pointed out that corporate actions are the result of policies and procedures that are intentionally designed by the members of the corporation. Therefore, when harm occurs individuals are responsible to the degree that each one participated in the decision.

Another group of philosophers disagrees, for instance, Ladd (1970) emphasizes the constraints that corporations place on individual members. He sees the corporation as a "machine" that is only capable of responding in a way that is consistent with the programmed behavior set by its collective. Ladd's argument would eliminate free will from the organization, and therefore would eliminate moral responsibility. In a famous experiment, Dan-Cohen (1986) replaced employees with computers and found that the computers could perform all of the daily functions of the corporation without human intervention.