CPA Ethics Violations: Rules, Cases, and Consequences

Introduction: The CPA's Duty to the Public

If someone were to ask what the most deceitful profession was, certified public accountants would almost certainly not be the first to come to mind. That is because CPAs are known and respected for their honesty. The profession goes out of its way to project that image, and there is a certain amount of truth to it. However, not all CPAs are above reproach. Some behave quite dishonestly, placing a black mark on the image of the entire profession.

There is one area where the CPA profession has fallen short of protecting the public interest. There is a general duty that accountants owe to their clients and to other persons affected by their actions. Two elements compose the general duty of performance: skill and care. A further responsibility owed to clients and other persons is that accountants must observe a standard of ethical and social responsibility.

According to the American Institute of CPAs (AICPA), the Code of Professional Conduct sets the ethical framework within which all member accountants are expected to operate. Understanding that framework — and the consequences when it is violated — is essential for anyone entering the profession.

Ethics Education in Accounting Programs

One set of difficulties concerns ethics education's ability to instill the chosen values and to make them endure after the educational process is completed. Instruction in accounting ethics is directed at people whose character — or lack thereof — has largely been formed by the time instruction occurs. Even those who are positively influenced by ethics instruction may still behave irresponsibly if their careers or livelihoods require them to act in their client's financial interest (Fulmer, 1987).

Recent pressure to include more ethics instruction in the accounting classroom has placed an emphasis on developing individuals with a sense of moral responsibility. In the accounting ethics education literature, the benefits of teaching ethics have been greatly influenced by the following set of goals presented by Loeb (1988):

a) Relate accounting education to moral issues; b) Recognize issues in accounting that have ethical implications; c) Develop "a sense of moral obligation" or responsibility; d) Develop the abilities needed to deal with ethical conflicts or dilemmas; e) Learn to deal with the uncertainties of the accounting profession; f) "Set the stage for" a change in ethical behavior; and g) Appreciate and understand the history and composition of all aspects of accounting ethics and their relationship to the general field of ethics (Metzger, 1992).

Rule 102 – Integrity and Objectivity: The Case of Mr. Allgyer

An emphasis on codes of conduct may result in students' failure to "develop discretion and judgment . . . which are more than simply a matter of what acts are forbidden, which are required, and which are permissible" (Whiteck, 1992). Emphasis on rules may quickly become training in how to circumvent those rules while remaining technically legal. While students must be acquainted with professional codes of conduct as part of their career preparation, most researchers on ethics do not consider such material to be sufficient ethical training. The remainder of this essay focuses on documented ethics violations of accounting rules.

Research on accounting ethics consistently shows that rule-based frameworks alone are insufficient to produce consistently ethical professional behavior — a conclusion supported by the real-world cases examined below.