State of the Art in
Accounting Ethics Education
A Philosophical Foundation for Teaching Ethics
James Gaa
University of Alberta
August 8, 2015
This Session
Basic concepts underlying a moral point of view
Psychological aspects of ethical behavior that relate to how we make
moral judgments and the role of ethical theory in making them
We need to understand the underlying psychology of how people
make moral judgments
Then we can address how to overcome our cognitive limitations
Which involves rational thinking and appeal to ethical theory and
ethical principles
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The Core of Ethics
Robinson Crusoe
Two situations
Robinson Crusoe alone
Robinson after his man Friday arrives
Without Friday: Robinson Crusoe needs to make decisions
He needs: food, water, shelter, clothing, etc.
He must make value judgments and choices – relating to what is
important to him and what will benefit him most
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The Core of Ethics
Robinson Crusoe
But he doesn’t need ethics:
Alone, he doesn’t need to take into account the interests of others
He does not
Harm or benefit others
Require or benefit from cooperation with others
Compete with others
He has no rights and no duties to others
Any ethical character traits (e.g., honesty) are irrelevant
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The Core of Ethics
Robinson Crusoe
When Friday arrives, lots of things change
Crusoe’s actions have an impact on Friday’s welfare,
and vice versa
Crusoe and Friday need to find a way of cooperating
Crusoe becomes responsible for Friday’s welfare
Note: Friday becomes Crusoe’s servant
But not a slave – Crusoe had owned slaves earlier
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Ethics: Limitations
on Self-Interested Behaviour
What will I do if:
I’m pressured or coerced by others to act unethically?
Very common in organizations
CGMA study: 37% of accountants encounter this
IESBA standard in the final stages
Provides guidance, not answers
What I believe I ought to do may harm me and my family?
No one can observe my self-interested behaviour?
There are no penalties for my self-interested behaviour?
An old question: The Ring of Gyges (Plato’s Republic)
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Digression: Trust and the Ring of Gyges
Trust as an attitude or state of mind:
“… the willingness of a party to be vulnerable to the actions of
another party
based on the expectation that the other party will perform a
particular action important to the trustor,
irrespective of the ability to monitor or control that other party.”
(Mayer et al., 1995)
Clearly Trust and trustworthiness are central to the practice of
accounting and auditin
BUT: not mentioned in IESBA Code of Ethics for Professional
Accountants – and other codes
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Psychological Egoism
People, as a matter of fact, act in their self-interest to the
exclusion of the interests of others
It drives a lot of economic/finance research
It “works” to some extent
But, it’s false.
People do (and should) act in their self-interest – that’s
obvious
But they frequently consider the interests of others, and
sometimes give them priority
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Economic Egoism
It’s economically rational to act in one’s self-interest and to ignore the
interests of others
It’s supposed to be a winning strategy – take advantage of others
before they take advantage of you
to defend against their self-interested behaviour
A world without trust
It’s commonly believed in business schools by faculty and taught to
students – e.g., principal-agent theory
dominates research and teaching in accounting
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Adam Smith
Considered to be a champion of competitive market economies – “The
Wealth of Nations”
The “invisible hand” theorem: the best outcome results from
competition between self-interested individuals without the
interference of government
Smith wrote another book: The Theory of Moral Sentiments
We judge actions from the position of a disinterested spectator who
takes a sympathetic view of the recipient of the action – and in
judging our own actions, we must overcome the distortions of selfinterest
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Ethical Egoism
It is ethically acceptable to act in one’s self-interest, to the
exclusion of the interests of others.
Libertarianism: an ethical/political theory that advocates selfinterested behaviour
E.g., cooperate with others only when it is in your selfinterest to do so
Basic problem with economic and ethical egoism:
It’s ultimately self-defeating
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Why Teach Accounting Ethics?
To make accountants better people – or better accountants?
to turn “bad people” into “good people”?
Recent research: ethicists are not more ethical than other
philosophers or academics
Because some State Boards of Accountancy (USA) and professional
bodies around the world require it?
To help accountants identify and deal with ethical issues in the practice
of accounting?
To help accountants act in the public interest?
The most basic principle of accounting ethics
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Basic Perspective
of an Ethical Orientation
Most people want to do “the right thing”
to act as they ought
to act in accordance with fundamental ethical principles
Why do good people fail to do what they ought / do what they ought
not?
Is this because they act irrationally?
How can good people improve the chances of doing as they ought?
To what extent is this about rational behavior?
Can teaching improve people’s ability to act ethically?
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What is Required in Order to
Understand Ethical Behavior?
Psychology – theories and evidence about
How people
Do make moral judgments about value and action
Do decide what they or others ought to do
Ethical theory – concepts and principles
How people
Ought to make moral judgments about value and action
Ought to act
Ought to live
We need to incorporate both perspectives into our teaching
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Ethics and Rationality
Traditional view: People are or are capable of being rational when they
make moral judgments and decisions
They appeal to fundamental ethical concepts and principles to:
Justify their moral judgments
Decide what they ought to do – and do it
Justify their actions to themselves and others
In short: They make rational decisions about what they and others
ought to do
This is commonly believed as an empirical matter
But it is controversial
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A Rational Method
for Making Moral Judgments
1. Identify the ethical aspects of a situation
2. Define the norms, principles, and values relevant to the
situation.
3. Identify the alternative courses of action.
4. Gather relevant information
5. Evaluate each course of action with respect to:
1. norms, principles, and values
2. consequences for everyone of each course of action
6. Make a rational, justified moral judgment
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The Role of Ethical Theory
Steps 2 and 5 (and maybe 1) suggest an appeal (explicit or implicit) to
an ethical theory, and one or more ethical principles
Round up the usual suspects:
Consequentialist theories
Duty-based and Rights-based theories
Theories relating to fairness and following rules (including law,
regulation, codes of ethics)
Virtue theories
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The Problematic Role
of Ethical Theory and Rationality in Teaching
The problem (in my experience):
In discussing cases, students seldom appeal to ethical theory
It’s not natural
even when pushed, they do so only haltingly
without confidence, conviction, or credibility
Why? Two possibilities:
Lack of preparation or practice
People just don’t think that way naturally
or at least not all the time
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Psychology of Ethical Behavior
Dual Process Theory:
System 1 Cognition
Quick (even instantaneous)
Intuitive
Low effort
Possibly impulsive
Process 1 thinking has evolved
we use it most of the time
and it works most of the time
But it’s subject to many biases
Claim: Many moral judgments are made this way
People often make intuitive judgments very quickly
Often, they can’t explain their judgments
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Dual Process Theory:
System 2 Cognition
Slow
Analytic
Logical
High effort
Reflective
We use system 2 only when we need to
when system 1 thinking doesn’t provide adequate answers
Reflective moral judgments are made this way
Relies on explicit appeal to
ethical concepts and principles
the interests of others
alternative courses of action (identifying and comparing)
May also be subject to bias
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Social Intuitionism
(Jonathan Haidt)
A fundamental challenge to the rationalistic approach to ethical
decision making
We make many moral judgments intuitively without active
thinking (process 1)
Often, people can’t explain or justify their judgments
Process 2 thinking is irrelevant to them
Judgments may be influenced by all sorts of rationally
irrelevant considerations – e.g., sight and smell
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Non-cognitive Biases
Some factors that have been shown to influence moral judgments:
Used paper tissue
Fart spray
Lysol, Windex
Authority
e.g., Milgram, Obedience to Authority
Major issue in hierarchical organizations
Accountants’ codes of ethics are silent on this (currently)
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Social Intuitionism
(Jonathan Haidt)
Moral judgment (process 2) doesn’t cause behavior
it is usually a social construct ex post to rationalize a
judgment already made non-rationally
Again, I’ve seen this in my students most of the time when
discussing cases
They are often unable to provide a decent justification ex
post (i.e., in class)
Important: Haidt doesn’t deny that sometimes moral problems
must be dealt with via process 2 thinking
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Ethically Relevant Cognitive Biases
Self-serving bias
more responsible for successes than failures
judgments of ambiguous situations more in favor of self
Framing
decisions are sensitive to description of situation
Fundamental attribution error
too much or too little weight on personal characteristics vs. situation
Incrementalism
gradual deterioration in ethical behavior
slippery slope, boiling frog
Loss aversion
asymmetric weighting of losses vs. gains
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Bounded Ethicality
We judge ourselves and our actions more favorably then we do others and their
actions.
One standard for ourselves, and one for others
We justify our own actions that we would not regard as justifiable if done
by others
Lots of research: our ability to make “objective” or “neutral” ethical judgments
is clouded by psychological biases
Especially judgments that favor our self-interest
We may think we’re acting in the interest of others
But it really may be in our self-interest
We deceive ourselves about our motivations and intentions
We rationalize our actions as in the interest of others (Process 2)
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Motivated Blindness
We see what we want to see
Often, what is in our self-interest
Ethical fading: The ethical aspects of our situation fades from
consciousness due to characteristics of the situation
organizational goals, compensation plans, control
systems, corporate culture generally
we get used to unethical behavior in the workplace
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The Role of Ethical Theory and
Process 2 Thinking
in Practical Ethics
The Value of Process 2 Thinking:
The Role of Ethical Theory
Being reflective and analytic is often necessary:
Personal level:
for very difficult issues, where the “answer” is not clear
this is common
to make implicit assumptions, values and rules explicit
to battle self-interest bias – e.g., explicitly consider the interests of
others
Organizational level:
to explain and justify your judgments to others
to sway others to your view
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What Should We Instructors be Doing?
Recognize the importance of process 1 moral thinking
Especially: Develop the ability to recognize ethical issues
Process 1 judgments are often right, but not always
Encourage students to recognize when process 1 judgments are
not sufficient
Develop students’ ability to engage in process 2 thinking
Appeals to fundamental principles, codes of ethics, laws, etc.
In general, develop ability to recognize and counter psychological
biases that color our thinking – especially self-interest
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What Should We Instructors be Doing?
Process 1: We need to understand our biases that influence our intuitive
judgments
Be aware of cognitive and non-cognitive biases
Move in the direction of process 2 thinking, as appropriate
Process 2: We need to understand our ability to rationalize intuitive
judgments
Otherwise, we haven’t really moved beyond the judgments
made
by process 1 thinking
WE NEED RATIONALITY, NOT RATIONALIZATION
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Ethical Theories
The Practical Role of Ethical Theories
Ethical theories are rigorous formulations of the ways we think
about ethical situations
In practical situations:
they help us organize and structure our thoughts, and
make a judgment that can be justified to others
In different situations, we may appeal to different types of
concepts and principles (i.e., theories)
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There’s Not a Unique Correct
Ethical Theory
You don’t have to decide which one is “best” or “correct”
Each major theory emphasizes an important aspect of situations in which our
actions affect the welfare of other people
In practice, we can decide which theory relates to the central issues of practical
situations, and use it
This is not the same as sophistry – finding clever arguments to rationalize
our preconceived beliefs
Using ethical theory to rationalize our choices is not appropriate
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Ethical Theories
How We Think About Ethics
We choose our actions – decide what to do -- based on:
1. Their expected consequences
2. Obligations to/from others – e.g.,
Promises
Duties
Rights
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How We Think About Ethics
We choose our actions – decide what to do -- based on:
3. Characteristics of actions and states of affairs – e.g.,
Fairness
Legality
4. Characteristics of People – e.g.,
Character / Virtue
Trustworthiness
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1. Consequentialism
Consequentialism: a type of ethical theory
Utilitarianism: a specific type of consequentialism
Need: a conception of value – what is important to people
Then: actions are to be judged and chosen ethically on the basis
of their expected consequences
in relation to a person’s objectives and values
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2a. Deontological (Duty) Theories
Duty: an act is
Obligatory and should be done, or
Forbidden and should not be done
We often judge actions in terms of our duties to others
So, the ethical principles underlying the situation relate to duty
Important: in its pure form (e.g., Kant), this means that
the consequences of actions are not relevant at all in judging actions
Codes of ethics emphasize duties
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2b. Rights Theories
Talk of rights is common
Rights are important in relation to information
Generally: A right is an entitlement
(a) to possess certain things
(b) to act in a certain way
(c) to be treated in a certain way
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Rights and Duties
Hohfeldian theory: 4 kinds of rights
Privileges
Claims
Powers
Immunities
Critical point: If one person or group has a right of one sort, that
implies a duty on the part of another person or group
Duty to act / not act:
An obligation to act or not act
An act is required or forbidden
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3. Law and Ethics
Laws capture our basic ethical beliefs about activities and
relationships
But “the Law” – including codes of professional ethics – at any
point in time does Not DEFINE what is ethical
If it did, abortion and same-sex marriage wouldn’t continue to
be ethical controversies
And laws would change as our ethical values
change
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3. Ethics and Following Rules
(Legal, Professional, and Others)
Why Following Rules Is Not Always Enough
Sometimes they
are incomplete – judgment is required
conflict with each other
are mistaken or unethical
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4. Virtue (Character) Theories
Virtues are character traits that guide us in our actions
The focus is on people and their characteristics
rather than on abstract principles or consequences of actions
The basic questions for Aristotle:
how should one live?
what sort of person should a person be?
not: how should one act?
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Codes of Professional Ethics and Regulations
“Judgment-based”
Duty: Professional accountants are responsible for acting (have a duty to act) in
accordance with fundamental principles
Fundamental principles based on character traits: integrity, honesty, objectivity
How would/should a professional accountant who has integrity
act?
Consequences: Professional accountants should consider the consequences of
their actions
“Rule-based”: Professional accountants are required to act in accordance with
specific directives in laws, regulations and codes
IESBA Code contains 83 pages (out of 151) on independence
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Professional Ethics
Codes of Professional Ethics are mostly explicitly about a
professional’s duties to others to act or not to act in a certain way
Implicit: The rights of the others to have a professional act or not to
act for their benefit
Sometimes professionals have certain rights – and no duty
A basic issue for professional ethics:
Do members of a profession have special rights and duties that a
non-professional does not have
e.g., duty of confidentiality or duty to disclose
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Selected Readings
Dual Process Theory
Daniel Kahneman (2011) Thinking, Fast and Slow. Doubleday.
Moral Cognition
Jonathan Haidt (2001) “The Emotional Dog and Its Rational Tail: A Social Intuitionist Approach to Moral Judgment”,
Psychological Review 108(4), 814-834.
Jonathan Haidt, (2010) “Morality” Handbook of Social Psychology
Joseph M. Paxton and Joshua D. Greene (2010) “Moral Reasoning: Hints and Allegations.” Topics in Cognitive Science: 1-17.
James R. Rest (1986) Moral Development: Advances in Research and Theory. New York: Praegar
Bahavioral Ethics
Max H. Bazerman and Ann E. Tenbrunsel (2011a) Blind Spots: Why We Fail to Do What’s Right and What to Do about It.
Princeton University Press.
_____ (2011b) “Blind Spots: The Roots of Unethical Behaviour at Work” Rotman Magazine (Spring)
_____ (2011c) “Ethical Breakdowns” Harvard Business Review (April)
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Selected Readings
Doris, John and Stich, Stephen, "Moral Psychology: Empirical Approaches", The Stanford Encyclopedia of Philosophy (Spring
2014 Edition), Edward N. Zalta (ed.), URL = <http://plato.stanford.edu/archives/spr2014/entries/moral-psych-emp/>.
Alfano, Mark and Loeb, Don, "Experimental Moral Philosophy", The Stanford Encyclopedia of Philosophy (Summer 2014
Edition), Edward N. Zalta (ed.), forthcoming URL = <http://plato.stanford.edu/archives/sum2014/entries/experimentalmoral/>.
Teaching Materials relating to Behavioral Ethics
Muel Kaptein (2013) Workplace Morality: Behavioral Ethics in Organizations. Kingley, UK. Emerald Group Publishing Ltd.
Robert Prentice, et al. (n.d.) “Ethics Unwrapped” University of Texas http://ethicsunwrapped.utexas.edu/ (including videos on
Giving Voice to Values)
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Selected Readings
Ethical Theory
Alexander, Larry and Moore, Michael, "Deontological Ethics", The Stanford Encyclopedia of Philosophy (Winter 2012 Edition),
Edward N. Zalta (ed.), URL = <http://plato.stanford.edu/archives/win2012/entries/ethics-deontological/>.
Gert, Bernard, "The Definition of Morality", The Stanford Encyclopedia of Philosophy (Fall 2012 Edition), Edward N. Zalta (ed.),
URL = <http://plato.stanford.edu/archives/fall2012/entries/morality-definition/>.
Gowans, Chris, "Moral Relativism", The Stanford Encyclopedia of Philosophy (Spring 2012 Edition), Edward N. Zalta (ed.), URL
= <http://plato.stanford.edu/archives/spr2012/entries/moral-relativism/>.
Hursthouse, Rosalind, "Virtue Ethics", The Stanford Encyclopedia of Philosophy (Fall 2013 Edition), Edward N. Zalta (ed.), URL
= <http://plato.stanford.edu/archives/fall2013/entries/ethics-virtue/>.
Jeske, Diane, "Special Obligations” (role obligations), The Stanford Encyclopedia of Philosophy (Spring 2014 Edition), Edward N.
Zalta (ed.), URL = <http://plato.stanford.edu/archives/spr2014/entries/special-obligations/>.
Sinnott-Armstrong, Walter, "Consequentialism", The Stanford Encyclopedia of Philosophy (Spring 2014 Edition), Edward N.
Zalta (ed.), URL = <http://plato.stanford.edu/archives/spr2014/entries/consequentialism/>.
Wenar, Leif, “Rights”, The Stanford Encyclopedia of Philosophy (Fall 2011 Edition), Edward N. Zalta (ed.), URL =
<http://plato.stanford.edu/archives/fall2011/entries/rights/>. Especially section 2.1.
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