ACCOUNTING & INTEGRITY CAPACITY
ACCOUNTABILITY
Dr. Joseph A. Petrick
Executive Director
Institute for Business Integrity
Wright State University
2007 Dayton Accounting Show
The Ohio Society of CPAs
May 23, 2007
Raj Soin College of Business
Wright State University
• The only Accounting Department in
the country whose students have won
the IMA National Case Competition on
5 different occasions.
• Business student teams won the
National Intercollegiate Ethics Bowl in
2002 and in 2004 were National
runner-up champions.
Agenda
A.
B.
C.
D.
Accounting and Rebuilding Stakeholder Trust
Integrity Capacity Model for Professional Development
1. Accounting Process Integrity Capacity
2. Accounting Judgment Integrity Capacity
3. Accounting Developmental Integrity Capacity
4. Accounting System Integrity Capacity
Microeconomic and Macroeconomic Improvements
1. Improved Microeconomic Moral Accountability
2. Improved Macroeconomic Moral Accountability
New Agenda for Responsible Leadership in Accounting
Organizations & Accounting Ethics
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•
•
•
•
•
•
•
AICPA Standards & JEEP
IMA Standards
Global & Industry Standards
SEC Standards
SOX Accounting Oversight Board
Independence Standards Board (ISB)
State Societies of CPAs & NASBA
Others: GAO, DOL, ASB, FASB
among others.
Corporate Reporting Supply Chain
(DiPiazza: PricewaterhouseCoopers, 2002)
Rebuilding Accounting Stakeholder Trust
1. Renewed Spirit of Transparency and Assurance
a. Tier 1: Global GAAP
b. Tier 2: Industry-Based Standards
c. Tier 3: Company-Specific Information
2. Culture of Accountability
3. People of Integrity
Integrity Capacity Theoretical Model
The individual and collective capability
for repeated process alignment of
moral awareness, deliberation,
character and conduct that
demonstrates balanced judgment,
enhances sustained moral
development, and promotes
supportive systems for moral decision
making.
Instrumental Value of
Integrity Capacity
Accounting Integrity
Capacity
Reputational
Capital
Sustainable Competitive Advantage,
Public Trust & World-Class
Performance
Dimensions of Accounting
Integrity Capacity
1. Accounting Process Integrity Capacity
2. Accounting Judgment Integrity Capacity
3. Accounting Developmental Integrity
Capacity
4. Accounting System Integrity Capacity
Accounting Process Integrity Capacity
The alignment of individual and/or
collective accounting moral awareness,
deliberation, character, and conduct on a
sustained basis, so that enhanced
reputational capital results.
Accounting Process Integrity Capacity
MORAL AWARENESS
Perception
Sensitivity
MORAL DELIBERATION
Analysis
Resolution
MORAL CHARACTER
Cognitive Readiness to Act
Volitional Readiness to Act
MORAL CONDUCT
Responsible
Sustainable
Virtues That Build Professional &
Organizational Character
1.
2.
3.
4.
5.
Intellectual Virtues
Moral Virtues
Social Virtues
Emotional Virtues
Political Virtues
Accounting Judgment
Integrity Capacity
The balanced and inclusive use of key
ethics theories and their subordinated
cognate theoretical resources in the analysis
and resolution of individual and/or collective
accounting moral issues.
Accounting Judgment Integrity
Capacity (R2C2)
Flexibility
Build
Virtuous
Character
Enhance
Supportive
Contexts
Internal
External
Follow
Right
Rules
Achieve
Good
Results
Control
Positive & Negative Zones of Accounting
Professional Moral Judgment Integrity (R2C2)
Negative Zone
Abdicates
Authority
Positive Zone
Shows Consideration
Character
Wastes Energy
Context
Envisions Changes
Slows
Production
Acquires
Resources
Facilitates
Interaction
Disrupts
Continuity
Negative Zone
Amoral
Professionalism
Collects
Information
Rules
Initiates Action
Neglects
Possibilities
Destroys
Cohesion
Maintains Structure
Stifles
Progress
Provides Structure
Offends
Individuals
Results
Accounting Judgment Integrity Capacity
Based on Four Human Nature Drives
Negative Zone
Context
Positive Zone
Character
DRIVE TO
BOND
DRIVE TO
LEARN
Negative Zone
Amoral
Professionalism
DRIVE TO
DEFEND
Rules
DRIVE TO
ACQUIRE
Results
ACCOUNTING PARTNER EXTREME CONCERN FOR PROFITS
Flexibility
Context
(ADAPTABILITY)
Character
(INVOLVEMENT)
Internal
External
Results
(EFFECTIVENESS)
Rule
s
(CONTINUITY)
Control
DILBERT CEO LACK OF JUDGMENT
INTEGRITY CAPACITY
Ranges of Moral Judgment
Evaluation using R2C2 ™
Quantitative
Ranges
0–1
2
3
4
5
6
7
8
9 – 10
Qualitative Anchors
Extremely Unacceptable
Under-emphasis
Unacceptable Under-emphasis
Minimally Acceptable Emphasis
Below Average Emphasis
Average Emphasis
Above Average Emphasis
Optimal Emphasis
Unacceptable Over-emphasis
Extremely Unacceptable
Over-emphasis
Judgment Integrity Capacity Graph &
Global Accounting Ethics Communication
Accounting Developmental
Integrity Capacity
The organizational and extra-organizational
cultural cognitive improvement of individual
and/or collective accounting moral
reasoning capabilities from a stage of selfinterested connivance, through a stage of
external conformity, and onto a stage of
internalized commitment to moral principles.
Accounting Cultural Context:
Moral Development Stages
Principled Integrity
HOUSE OF INTEGRITY
Democratic Participation
(Commitment)
Allegiance to Authority
HOUSE OF COMPLIANCE
Popular Conformity
(Conformity)
Machiavellianism
HOUSE OF MANIPULATION
Social Darwinism
(Connivance)
Accounting System Integrity Capacity
The development and alignment of the moral
infrastructure within the organization and the
shaping of the external moral environment of
the accounting organization to provide a
supportive context for sound moral decision
making.
Internal System Integrity Capacity
Organizational Moral Environment
• Compliance-Based Systems
•
•
•
•
Prevent Criminal Misconduct
U.S. Federal Sentencing Guidelines
Sarbanes-Oxley Act
Professional Association Standards
• Integrity-Based Systems
• Enable Responsible Conduct
Compliance-Based Organization
Internal Systems
1. Establish compliance standards and
procedures
2. Assign high level individuals to oversee
program
3. Exercise due care in delegating
discretionary authority
4. Communicate and train
Compliance-Based Organization
Internal Systems
5. Monitor, audit, and provide safe
reporting system
6. Enforce appropriate discipline with
consistency
7. Respond to offences and prevent
further misconduct
8. Comply with SOX requirements
9. Comply with professional standards
Integrity-Based Organization
Internal Systems
1. Moral Leadership at the Top
2. Ethics Needs Assessment &
Compliance Standards in Place
3. Ethics in Strategy and Structure
4. Integrity Steering Committee
5. Statement of Values/Written
Code of Conduct
6. Ethics Policy and Procedure Manuals
Integrity-Based Organization
Internal Systems
7.
Ethics in Selection, Socialization, and
Performance Subsystems
8. Ethics in Appraisal,
Rewards/Recognition/Incentive,
and Development Subsystems
9. Ethics in Communication Processes
and Work Attitudes
10. Ethics Training and Education Programs
11. Ethics in Decision-Making/Meeting
Processes
Integrity-Based Organization
Internal Systems
12. Organizational Integrity Advisor
Responsibilities
13. Ethics Reporting, Whistleblower
Protection and Conflict Resolution
Processes
14. Enforcement Processes of Ethical
Standards
15. Ethics Monitoring, Auditing &
Improving Subsystems
16. Ethics System and Quality Work
Process Control and
Improvement
External System Integrity Capacity
1. Domestic External Moral Environment
• Corruption Elimination and/or Control
• Industry & Professional Standards
• Proactive Positive Stakeholder Relations &
Triple Bottom Line Accountability
2. Global External Moral Environment
• Corruption Elimination and/or Control
• Industry & Professional Standards
• Proactive Positive Stakeholder Relations &
Triple Bottom Line Accountability
Improved Microeconomic Moral
Accountability
A. Individual Accountability Improvement
1. Demonstrated Process Integrity
Capacity
2. Demonstrated Judgment Integrity
Capacity
B. Partner Accountability Improvement
1. Demonstrated Developmental Integrity
Capacity
2. Demonstrated System Integrity
Capacity
Improved Macroeconomic Moral
Accountability Improved Macroeconomic
Moral Accountability
A. Professional Association/Industry
Accountability Improvement
1. More rigorous quality control & enforcement
2. Partner with competent stakeholders for reform
3. Strengthen accounting professional education
B. Political Economy Accountability Improvement
1. Financial markets & statistical variation
2. Types of capitalism/forms of economic
democracy
3. International accounting harmonization
New Agenda for Responsible
Leadership in Accounting
• National commission with task forces on
improving microeconomic levels of
integrity capacity accountability
• International commission with task
forces on improving macroeconomic
levels of moral accountability
• Integrity capacity building skills in
mainstream accounting professional
education
ACCOUNTING & INTEGRITY CAPACITY
ACCOUNTABILITY
Dr. Joseph A. Petrick
Executive Director
Institute for Business Integrity
Wright State University
2007 Dayton Accounting Show
The Ohio Society of CPAs
May 23, 2007