ETHICS
A 2-hour CPE Presentation
for The AASHTO Audit Conference
July 26, 2011
By You and Me!
Rick Crosser, CPA: Chair & Professor of
Accounting
• Ph.D. dissertation had a conceptual framework
based in social-psychology:
– Cheating, Deterrence Theory, Penalties (in a tax
context)
• 1989 – 1994 facilitated graduate course,
– Accounting Ethics & Professional Conduct
• 2007 sabbatical
– Certificate in Business Ethics (UNM)
– Designed & launched @ Metro State an undergrad
ethics course
• CCEP (Certified Compliance & Ethics
Professional) 2009
New Stuff
• for 2010-11 Reporting period for CPAs
– 4 hours of ethics will be required among
the 80 hours (no more than 2 hours may
be Colorado Rules and Regulations)
– Old Categories A and B go away
– Only 16/80 hours can be professional
development
• Ethics is included in Accounting Area
• No limit, just a 4-hour minimum every 2 years
• CMAs, CFEs, CIAs remain @ 2
hours/year
More New Stuff
• For CPAs, Colorado is now
“Substantially Equivalent” to other
states (July 2010); 150-hour state
– Full implementation 1/1/2015 to certify
– Same rules to sit for exam
• To Certify
– BS/BA (in any discipline)
– 150 minimum semester hours of credit
Course Requirements for
Certification
– 27 hours upper division ACC hours (+ 6
hours of principles courses) = 33
• 6 hours of auditing/assurance courses
• 3 hours of accounting ethics
– 27 hours business courses
• 3 hours of communications, i.e. accounting and
/or business communications
Master of Professional
Accountancy Program
• 30 Semester hours of graduate courses
• Required courses (12 hours)
– Accounting Ethics
– Fraud Awareness (qualifies for “audit”)
– Accounting Communications & Research
– Accounting Theory
• Electives (18 hours)
– Fraud/Forensic track
– Tax track
– Accounting & Auditing track
Today’s Agenda
1. What is Ethics?
–
–
Describe the meaning of ethical behavior!
Do not comment, yet.
2. Can ethics be taught? …or learned?



Kohlberg studies;
James Rest and the DIT;
What really happened at Enron? … or Qwest, or
WorldCom, or Parmalat, or Tyco, or ??
3. What are the barriers to ethical
behavior?
Your First Exercise
On a piece of paper please write
your answer to ONE of the following:
1. Define “ethics” ….or
2. What is ethical behavior?
Please do not talk or discuss, yet.
If -- Through Life’s
Experiences You Obtain
Adequate Moral Fiber
• Then you are prepared for ethical
situations in which you are confronted.
• So, with the proper inputs……
– outcomes are predictable.
– But there are many barriers.
• “In any moment of decision, the best
thing you can do is the right thing.”
Theodore Roosevelt
Can Ethics Be Taught?
• Do not comment, yet.
• …just reflect.
Consider Taking a WineTasting Course
• What if the course was pure textbook
and lecture?
• You would have to imagine how the
wines taste, but not actually taste them.
Ethics – Your First Dilemma
A light rail train is barreling down the tracks and is
about to jump the tracks and hit a small
group of people standing on a waiting platform.
A Magic Button
The holder of the button is instantly given the power
to press the button and the light rail train will not hit
the group of people.
However, There Are Other
Consequences
• ONE Person • Instead of the
Group • Is hit by the
train.
• What Do You
Do?
What Are the Alternatives?
• Push the Button
– Save the Group
– At the Expense of One
• Don’t Push the Button
– Lose the Group
• Pass the Button
– Now it’s not your problem
Who are the Stakeholders?
• That is, who is/are affected by
the Alternative Actions?
The Dirty Hands Problem
• Choices are hard and can be painful.
• Utilitarian – Outcomes with the highest
benefit or least harm for the greatest
number. (Jeremy Bentham & John
Stuart Mill)
• Immanuel Kant – Utilitarian approaches
or philosophies are all right, but not at
the expense of humans.
Back to the Question: What is
“Ethics?”…or, “Ethical
Behavior?”
• Accepted standards of behavior
• Practices of those in a profession
• Laws
• Expectations of society
What are the Expectations of
Society?
– What are the standards of behavior? *
– What are the accepted practices of a
profession? *
• What is the Code of Ethics of
AASHTO? *
Aristotle (384 BC – 322 BC)
Aristotle’s Virtues




Trustworthiness,
benevolence, altruism
Honesty, integrity
Impartiality, openmindedness
Reliability, dependability,
faithfulness
AICPA: Code of Professional
Conduct
Principles:
 Professionalism & exercise
moral judgments,
 Serve public interest & trust,
 Integrity,
 Objectivity & Independence,
 Due care,
 Scope & Nature of services.
Rules: (Applicability & Definitions)
 Independence, Objectivity,
 Integrity, & Confidentiality
 Acts discreditable
Integrity
• Acts of a person with Integrity
– Truthfulness
– Courage
– Sincerity
– Honesty
• Courage to stand by principles even in
face of pressure
• Virtuous
The Golden Rule
“Do unto others as you would them do unto
you”
Universality in World Religions
•Buddhism
•Christianity
•Confucianism
•Hinduism
•Islam
•Judaism
•Taoism
•Zoroastrianism
Ethics and Morality
• Ethics – derived from Greek meaning
custom or character (Ethos - showing
moral character)
• Morals – derived from Latin meaning
customs, manners, character
• Are “Ethics” and “Morals” the same?
Definitions of “Ethics”
1. the discipline dealing with what is good and
bad, with moral duty and obligation.
2. a: set of moral principles; a theory or system of
moral values
b: the principles of conduct governing an
individual or a group, i.e. professionals
c: a guiding philosophy
d: a consciousness of moral importance
•
Merriam-Webster Dictionary
The Law
1.
Is being “ethical” the same as being
legal?
2.
Is it possible to be within the law, but
not be “ethical?”
Moral Compass versus Ethical
Behavior
• ...just me
• Morals, or the Moral Compass
represent those beliefs or philosophies
that are part of one’s internal being;
• Ethics, or Ethical Behavior represents
the actions of one’s life, i.e. what we
actually do….
– Society for Corporate Compliance & Ethics
– …doing is “compliance."
Can Ethics Be Taught?
1.On your sheet of paper, please answer this
question.
2.Briefly explain your answer.
3.Do not comment, yet.
Kohlberg’s Theory of Moral
Reasoning
Lawrence Kohlberg used “Heinz and the Life Saving Drug”
situation to determine the reasoning that subjects use to
defend her/his position. That is, “how the subjects made
decisions.”
• Heinz’s wife is dying.
• Drug form of radium might save her.
• Druggist is charging 10 x the cost.
• Heinz can raise only half the price.
• Heinz asks the druggist to let him have drug for half or let
him pay later
• Druggist refused.
• Heinz stole the drug.
1. Should Heinz have done that?
3. Was the theft justified?
2. Was the theft right or wrong?
Kohlberg’s Stages of Moral Reasoning
Development:
Six stages (within 3 Levels): from self-oriented thinking…to an abstract
principled orientation.
Level 1, external authority for Morality definition **Bad,
Bad** …Pre-conventional Morality – deals with
selfness.…
Stage 1. Obedience and Punishment orientation - decisions
made to avoid punishment. Rules are fixed and absolute.
Stage 2. Self-interest orientation: self-gratification –
personal rewards. An individual point of view; how
actions serve individual needs. Reciprocity is possible, but
only if it serves one’s own interests.
“You scratch my back and I’ll scratch yours.”
Level 2, Social group – Conventional level of Morality
Stage 3. Interpersonal relationships and
conformity Reasoning process determined by
expectations of family and community and
approval of others, i.e. role expectation.
“Good girl – good boy” orientation; fairness
to others
Stage 4. Social-order-maintaining orientation -one begins to consider a society as a
whole…adherence to norms, laws, and
behaving in such a way to maintain order.
Respect for authority.
Level 3, inner conscience: Post-conventional Morality
Orientation
Stage 5. Social contract with Individual Rights
orientation –
At this stage, people begin to account for the
differing values, opinions, and beliefs of other
people. Just (fair) rules determined by
consensus and are understood they are
necessary for maintaining a society. Liberty and
fairness.…
Stage 6. Universal ethical principles orientation–
Self chosen, internalized ethical principles –
concern for justice, human dignity, and equality determines moral reasoning process, even if
conflicts with laws and rules.
At What Stage(s) do
Accountants Reason?
• Studies in 1990s, accountants reason
primarily at stages high 3 and 4
• Implies that a larger percentage of
accountants may be overly influenced
by
• Peers, superiors, and clients (stage 3)
• By rules (stage 4)
How Development Occurs
Discussion,
debate,
challenges, and
questioning of current views.
Education.
•These are models of reasoning,
not beliefs.
Each successive stage represents:
• higher level of reasoning about
what is right and wrong,
and
• is indicative of a
person’s ability to reason
more ethically.
Progression - to a next stage
•requires exposure to an
environment
•which stimulates moral reasoning.
At what stage is the majority of the
population?
James Rest & DIT2
•Accounting graduates resemble
the general population more than
the average university graduate.
•Interventions
involving discussions
About controversial moral dilemmas
equate to about 4-5 years
of natural growth.
Can Ethics be Learned?
• Based on the works of
Kohlberg and Rest….
– education is the key.
• What are the barriers to
ethical behaviors?
–Make a note on your paper….
“Obedience to Authority:
An Experimental View”
(1974) Stanley Milgram
Video => in a few minutes
First conducted in 1961;
19 different iterations/variations.
The Experimental Construct
• 3 players
E = Experimenter (wears a white/light blue
jacket); he knows what is going on. An actor.
In the original, this was Stanley Milgram’s
role.
T = Teacher (clothing, off-the-street); this
person is the subject of the experiment.
L = Learner (hidden behind a wall initially); an
actor not really present during the actual
experiment. Sounds are tape recorded.
• The purported (false) experiment was to
examine if learning improves if punishment
(shock) is inflicted.
Results
• Before the actual experiment, Yale
students & faculty responded that only
1.2% would inflict maximum voltage..
• ?? % of subjects administered the
maximum, 450-volt shock (1961 1974)..
• Now the video (2007 ABC News):
watch the body language of the subject
(Teacher)…What are the subjects
saying?
• Conclusions?
Ethics is tougher than you
think…
• If it is easy, we wouldn’t have courses!
Decision-Making Processes
• You all have processes in place.
• …as individuals and as a group.
• Let’s discover what they are!
$20 – Who gets it?
• The $20 sitting here is for one of you –
and only one.
• Your choice of who receives it… may
not be contingent on a promise (i.e.,
NO strings attached).
• Please take the next few minutes
together to determine who should get
the money, and why….
$20 – Who got it?
• How did you decide?
• Is this how you would decide other
business challenges or dilemmas?
• Would you have decided differently if
the amount were $1,000?
• With regard to your other business
decisions, what might work about the
processes you used, and what might
not work?
How would you have
responded if I had required
the “most ethical possible
decision-making process?”
• Now, why are bad decisions made?
Maybe it depends on
– The rules of the game?
– http://www.youtube.com/watch_popup?v=A
hg6qcgoay4&vq=medium#t=46
The moonwalking bear, otherwise
known as “in-attentional blindness”
• Cell phones can divert attention from drivers.
• Airline pilot paying too much attention to
controls, and miss another airplane nearby.
• Failure to see key information during a
decision-making process.
• Also, “Change Blindness”
– Gradual change over time
– Arthur Andersen failed to see all that was
happening at Enron.
Can Ethics be Learned?
The actions involved in doing what is right.
1. The level of one’s reasoning matures
through challenge and questioning of
ones current reasoning. (Kohlberg &
Rest)
2. Consider the influence of authority.
(Milgram)
3. Peer pressure affects conformity.
(Asch)
4. Roles in an organization influences
behavior. (Zimbardo)
What really happened at
Enron?
• Tone at the Top!
“Earnings can be pliable as putty when a
charlatan heads the company reporting them.” -Warren Buffet
• Influences from authority figures and
peers.
What could employees and staff
have done to prevent or
mitigate?
The End
• Thank you!
“Have the courage to say no.
Have the courage to face the truth.
Do the right thing because it is
right.
These are the magic keys to living
your life with integrity”…….
W. Clement Stone (1902-2002)