Personal versus professional judgment in decision-making contexts

Accounting - Ethics

PERSONAL and PROFESSIONAL ETHICS in ACCOUNTING

Accounting is a field rife with potential for ethical dilemmas addressed in great detail, both in the private sector and in public (government) sector by the American Institute of Certified Public Accountants (AICPA) Code of Professional Responsibility and the generally accepted government auditing standards (GAGAS) defined by the U.S. Comptroller General in the U.S. Government Auditing Standards (GAS), AKA "the Yellow Book," published annually by the U.S. General Accounting Office (GAO).

According to the AICPA, the fundamental ethical obligation of the Certified Public Accountant (CPA) is expressed in the AIPCA Code of Responsibility, Section 55 - Article IV -- Objectivity and Independence, as follows:

member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services" (AICPA 2008). [Emphasis supplied.]

According to the GAO, the fundamental GAGAS of professional ethics is expressed in GAS Section 3.03, pursuant to which, "The general standard related to independence is: In all matters relating to the audit work, the audit organization and the individual auditor, whether government or public, should be free both in fact and appearance from personal, external, and organizational impairments to independence." (GAO 2008). [Emphasis supplied.]

Further, the GAO GAGAS recognizes the AIPCA ethical standards and specifies, in GAS Section 1.09, that GAGAS may be used in conjunction with the "professional standards used by other governing bodies" including the AIPCA. To the extent there is any discrepancy between the GAGAS provisions and those of any other applicable standards, GAS Section 1.10 specifies that government auditors rely on GAGAS when multiple standards are used. The Logic of Applying Professional Judgment Instead of Personal Judgment to Resolving Ethical Dilemmas in Matters of Professional Accounting:

In private personal judgments, we are free to assign value to human behavior and motivation, as well as to the worth or worthlessness of vocational choices; we may also give credit for certain choices of conduct or behavior. If professional accounting standards allowed for personal judgments, our natural predisposition might be to reward benevolence or charitably-motivated actions, for one example, even if strict technical application of tax codes or auditing standards disallowed a deduction. Likewise, we might allow more latitude to institutions affiliated with causes close to our own sentiments, causes, and religious orientation.

The purpose of requiring the application of professional standards rather than personal ethical values in professional accounting and auditing is precisely, to ensure that all entities are regulated and evaluated impartially and without regard to any subjective beliefs or philosophical perspectives of the individual rendering professional accounting services or conducting audits. Whereas the AICPA Code of Responsibility actually incorporates the word objectivity (in addition to the word independence), the GAS GAGAS uses only the latter, but, in fact, either denotes the same concept, that objectivity is an essential professional obligation of accounting and auditing

The mechanical or computational aspects of accounting are, by nature, purely objective and not inherently susceptible to subjective interpretation or application, in general principle. However, the actual practice of accounting and auditing leaves considerable room for subjective belief, such as where the professional must make an independent determination of what degree of truth may be presumed in the case of explanations, assurances, or characterizations unsupported by independent corroboration.

A professional applying a personal ethical perspective to a client's circumstances might very carefully and appropriately apply objective technical rules and codes while inappropriately allowing his personal beliefs and opinions about the client to influence his subjective determinations with respect to elements where professional accountants ordinarily rely on personal judgment, such as in deciding the degree of veracity to assign to client statements and representations, as illustrated by example above.