Accounting Ethics

Iris Stuart is Professor of Auditing in the Department of Accounting, Auditing and Law at NHH (Norwegian School of Economics), Bergen, Norway.

The many accounting scandals involving high-profile companies, such as Enron, WorldCom, Arthur Andersen, and Parmalat, have called into question accounting practices and have undermined public confidence in the accounting and auditing professions.

Preface ix Acknowledgments xi PART I PURPOSE, BACKGROUND, AND APPROACH 1 Chapter 1 The Technical and Ethical Responsibilities in Accounting 3 Accounting, Ethics Reform, and You 3 A Brief History of Accounting Ethics in Higher Education 7 The Authors' Perspective 9 Accounting Education: Training for Competency and Moral Philosophy as a Resource 13 Accounting Theory and Ethics 15 Accounting Discourse: Knowledge Production and Communication 17 Accounting as Practice: The Realization of Internal Goods and Virtues 20 Chapter Review Questions 23 References 24 Chapter 2 Decision Making in Accounting 26 The General Nature of Decisions and Decision Making in Accounting 27 Making a Decision Under Conditions of Uncertainty 28 The Learning of Technical Competency in the Classroom and Mentored Work Experience 29 The Goal of Accounting: The Production of Financial Reports for Various Stakeholders 30 A Working Definition of Ethics 36 Utilitarianism 39 Deontology 40 Virtue Ethics 41 Social Contract Theory 43 A Decision Model for Accounting Ethics 45 Outline of the Book 53 Chapter Review Questions 55 References 55 PART II A DECISION MODEL FOR ACCOUNTING ETHICS 57 Chapter 3 Defining the Problem -- From an Accounting and an Ethical Point of View 59 Introduction 60 Problem-Definition: Finding and Formulating the Problem 61 The Accounting Problem and the Ethical Problem 63 Finding the Problem in Accounting Ethics 68 Formulating the Problem in Accounting Ethics 73 Summary 77 Chapter Review Questions 78 Cases 78 Chapter 4 Accounting Standards for Financial Statements: Resources for Decision Making 81 The Objective of Financial Statements 82 Using Rules for Financial Statement as a Resource to Make Accounting Decisions 83 The Conceptual Framework 84 The Financial Statements 85 Accounting Rules for Recording Transactions and Valuing Accounts 88 Quality of Information 92 Ethical Issues Associated with the Profit or Loss Statement and the Statement of Financial Position 93 Fraud and Ethics 101 Chapter Review Questions 104 Cases 104 Chapter 5 Moral Philosophy and Ethical Reasoning: Resources for Decision Making 116 Toward an Ethical Framework in Accounting Practice 117 Using Moral Philosophy Principles as a Resource to Make Accounting Decisions 119 The Philosophical Traditions, Duties, and Virtues 120 The Elements of Moral Philosophy Embedded in Accounting Practice: Utilitarianism 121 Summary 123 The Elements of Moral Philosophy Embedded in Accounting: Deontology 124 The Deontological View of Human Nature: Reason, Freedom, and Autonomy 125 Virtue Ethics and Accounting 133 Chapter Review Questions 143 Cases 144 References 149 Chapter 6 Professional Ethics as a Resource for Decision Making 151 Accounting and Professional Ethics 152 Professional Ethics as a Resource to Make Accounting Decisions 152 Accounting as a Profession 153 Professional Ethics 156 Codes of Ethics as Tools for Decision Making 159 The Code of Ethics for Professional Accountants 160 Using Professional Ethics in Decision Making in Accounting 166 Summary 169 Review Questions 170 Cases 170 Chapter 7 Stakeholders in Accounting Ethics: Pressures and Conflicts of Interest 178 Accounting and Stakeholders 179 Stakeholders and their Influence on Accounting Decisions 180 Characteristics of Stakeholders 182 Classifying Stakeholders in Practice 185 Pressures on the Accountant in the Decision-Making Process 189 Conflicts of Interest 190 Summary 193 Chapter Review Questions 194 Cases 194 Cash Fraud 195 Long-Term Debt Fraud 196 Misappropriation of Assets 196 The Auditors 196 References 202 Chapter 8 Generating and Assessing Decision Alternatives: Practical Wisdom and Action 203 Introduction 204 Reflections on Our Decision Model 205 Year-End Adjusting Process, Adjusting Entries, Bad Debt Expense Estimates 206 A Violation of Accounting Standards? But Not an Ethical Problem? 213 Internal Controls and Embezzlement 215 To Bribe or Not to Bribe: That is the Question 216 Reflections on Case Analysis: Practical Wisdom and Deliberative Judgment 221 Human Motivation and Behavior: Incentives and Support for Ethical Action 224 Chapter Review Questions 225 Cases 225 References 232 PART III ACCOUNTING IN SOCIETY 233 Chapter 9 Auditing Ethics 235 The Role and Responsibilities of the Auditor 235 Values, Standards, and Virtues in the Professional Codes of Conduct 236 Audit Judgment 242 Appendix 260 Chapter Review Questions 263 Cases 263 References 269 Chapter 10 The Accountant in Society: Deciding for Ethical Action 270 Chapter Themes 271 The Individual Accountant: Making Ethical Decisions 271 The Social Context for the Accountant's Decision Making: The Ethical Domain 272 The Moral Structure of Accounting: Economic Events and Accounting Discourse 274 The Perception that Accounting is Only a Technical Craft, But Not an Ethical Practice 276 Professionalism in Social Context 277 The Accountant and the Profession in the Market and Society 279 The Mixed Good of Accounting Discourse: Market Values and Accounting Ethics 283 Market Values and Accounting Values: The Social Domain of Accounting Ethics 284 Market Values and the Function of Accounting 285 Social Contract Theory 288 Corporate Social Responsibility 291 Chapter Review Questions 293 References 294 Index 297