Ethics in Accounting
Case:
Patty, a high school student, began a summer job working at the local park collecting a $10 entry at the
park gate. With little training, Patty began work. After two weeks of sitting alone in her booth, it
occurred to Patty that no one was watching. Since she was a little short on money, she snatched $10.
The next day, she took $20 more. A few more weeks passed and Patty continued to steal small amounts
of money. Suddenly, one day an accountant showed up unannounced. By counting her cash and
comparing it with the receipts, the accountant found Patty had stolen more than $200. The accountant
offered Patty a deal. If she gave him $100 he would not report her to the owner.
1. Was Patty's behaviour unethical and/or criminal? Why? Should she be charged?
2. Was the accountant's behaviour unethical and/or criminal? Why?
3. If you were Patty, what would you do?
Business Ethics
Every day accountants and business people in general make decisions. Decision-making is the
primary job of a manager, entrepreneur and accountant. Some of these decisions may involve
ethical dilemmas. For example: a manager may consider laying off workers. This is an ethical
decision, as well as a business decision since it involves the livelihood of workers who have
families to support. Below are some definitions regarding ethics;
Ethics – moral principles; rules of conduct in a particular group/culture; values relating to human
conduct; right, wrong, good, bad. (e.g., I shall not kill, I shall not steal, respect others, do unto
others as I would want them to do unto me, etc.)
Ethical behaviour – legal behaviour with implications from a variety of variables including the
individual, social, and corporate priorities.
Ethical dilemmas – situations faced by managers every day; choice between alternatives in a
situation that may result in personal/organizational benefit or may minimize losses to “save
face.”
Why should accountants behave ethically?
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it is required by the accounting governing bodies, including the Institute of Chartered
Accountants (ICAO), and practicing professionals could lose their license if they behave
unethically;
new societal push for corporate responsibility in this information age;
improved public image;
government and professional regulation will not need to increase;
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employee/community pride will increase (less employee turnover); and
finally, and perhaps most importantly, as humans we should have respect for each other and
treat others as we would want to be treated.
Ethical Decision-Making Model
1.
2.
3.
4.
Define the dilemma or problem.
List the facts including the stakeholders affected.
List your options or alternatives.
Evaluate and test the options: Is it legal? Does it meet the ICAO standards of professional
conduct? Is it right?
5. Select an option.
6. Reflection. What would others close to me think out about my decision? How will the Institute
of Chartered Accountants react to my decision?
7. If uncomfortable with your decision, then your moral conscience is talking to you. You need to
go back and select another option.
Here are some examples of the thousands of ethical considerations businesses must deal with
every day.
Rights of Workers: Do we, as part of management, try to take advantage of employees to the
point that we are denying employees a life away from work, or a safe working environment?
Responsible Use of Power: Do we take advantage of developing nations to benefit our
company?
Responsible Stewardship of the Earth: Do we pollute in order to improve the bottom line or to
eliminate our competitors through price wars? Are our company objectives and advertising
promoting excessive waste?
Non-violence: Are we concerned about the treatment of employees?
Moral Conscience: As a professional accountant, you must be able to live with the decisions you
make. It is your reputation, name, and ultimately your livelihood which are at risk. Professional
accountants found guilty of professional misconduct or illegal activities, lose their right to
practice in Canada.
Example of an Ethical Dilemma
Below is an example of how to incorporate the ethical decision-making model. Carefully read
the scenario and the accompanying solution. Pay careful attention to the steps required to arrive
at a decision. In this unit, you will be required to complete an ethical case using the model.
Candice Crown, a Chartered Accountant (CA), is considering a request to audit the accounts of a
local registered charity. It is Candy's policy not to charge an audit fee to any local charities.
Candy has found this policy to be good in obtaining new clients; the cost is not significant, as
there are few charities in this small community. In addition, she is considering an arrangement
with the charity; she will donate $250 for each new client who club members refer to her
practice.
1. Dilemma or Problem:
Should Candice provide “free” auditing to clients? Should she donate $250 to the charity for
each client referral?
2. Facts and stakeholders:
– Stakeholders include; Candice, Candice's Clients, The Charity, Club Members, Other local
accountants, ICAO members.
– No audit fee requested but Candice is looking for new clients.
– Is she doing this out of charity or to obtain new clients?
– There is very little cost for Candice to complete these audits.
– She lives in a small community. Will word of mouth about the referral impact on her business
and her image?
– It is implied that Candice has been doing the audits for a few years?
– Referral donation of $250 is something new.
3. Options:
A. Continue to complete audits for free without a donation referral.
B. Implement the donation referral.
C. Discontinue doing the charity audits.
D. Continue to do charity audits but without the motive of obtaining new clients.
4. Evaluate and Test Options:
Option A: Continue to complete audits for free without a donation referral.
This option would not impact on the stakeholders since she has been doing this for some time.
However, according to the Rules of Professional Conduct, ICAO does not allow the providing of
services without fee unless for charitable purposes. Candice's motive is profit-driven.
Option B: Implement the donation referral.
The donations referral is legal but is it ethical?
Rules of Professional Conduct: ICAO does not allow the providing of services without fee
unless for charitable purposes. This is a case of conditional fees.
Client Solicitation: The donation violates the ICAO rule about paying a commission to obtain
clients.
Professional Misconduct: Word of mouth in the town may spread that Candice is doing the
audits to benefit her business and not out of pure compassion. In a small town, this may
negatively affect her business. She may also make other local accountants angry.
Responsible Use of Power: As a professional, you are seen as an honourable and trustworthy
person. In this case, Candy is using the cloak of professionalism to misrepresent her actions.
Moral Conscience: Candy is living the letter of the law and not the spirit of the law. While the
work is charitable within ICAO guidelines, she is financially benefiting from this activity. Her
moral conscience may over time cause her to regret this decision.
Option C: Discontinue doing the Charity Audits.
Discontinuing the charity audits may negatively impact on her business since the community
may feel she is selfish and she will no longer receive referrals from the charity.
Option D: Continue to do charity audits but without the motive of obtaining new clients.
This option requires that Candice complete the audits out of compassion and community
stewardship. It may also require her to turn down work that has come from her charitable audits
due to a conflict of interest.
5. Decision:
Option D: Candice should continue to offer the audits without offering the referral donation or
accepting clients as a result of the charitable audits. This would comply with ICAO principles, and
maintain her standing in the community.