“Judge a man by his questions rather than by his answers.” Voltaire
Are we asking the right questions of ourselves, of our employees, and of our clients? What is the economic substance of what we are recording and presenting? What is our intent? All of these questions lead us to the idea of principle-based guidelines in accounting and business rather than setting bright-line rules to follow. Intent is the starting point.
Ethical considerations are important for creating an environment in which people will look forward to coming to work. Ethics are unenforceable and are generally based on normative or “should” statements. We can also view ethical principles as guidelines for making good decisions.
We need to create an environment in which employees will ask the right questions about their choices and not rationalize their answers. On one side of the spectrum, we can establish rules without regard to consequences. On the other side of the spectrum, we can look at the consequences of following the rules and then ask ourselves how we can make rational decisions behind what John Rawls calls the “veil of ignorance.” The “veil of ignorance” concept means that we make the most ethical decisions with objectivity based on the merits of good decision making. We should consider the consequences of established rules and foster an environment that encourages employees to challenge rules when they do not feel that they are ethical for a specific circumstance.
Instead of insisting that a client change something about the presentation of a financial statement item, we should consider working though these types of issues with our clients. Management may know that the company will dispose a significant asset, but it does not want to announce the intention yet to the public. When challenged with whether the specific classification of that asset is appropriate based on the business circumstances, Management may reconsider its decision in more of a principled-based framework. Regardless of what is allowed under accounting rules, would users of the financial statements make different decisions if they knew that a significant asset was held for disposal?
When we feel comfortable talking about ethical decision making with our employees and clients, we make ethics a habit and a way of how our clients and we conduct everyday business.
About the Authors:
George is an instructor for the AuditSense team, specializing in providing ethics and core-level staff training. Since 1976, George has worked in many areas of accounting, focusing on Auditing and Accounting Education. In 1976, he participated in the Internal Auditor Intern Program at the Clark Equipment Company. While working for the public accounting firm of Deloitte, Haskins, and Sells, George served as a Senior Assistant Auditor and a Comprehensive Business Services Consultant.
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Elizabeth Pittelkow is an Accounting Manager at ArrowStream, and she works in the areas of accounting, taxes, and financial reporting. Elizabeth previously worked in Finance at Motorola and in Assurance at PricewaterhouseCoopers. While at PricewaterhouseCoopers, she audited large public-accelerated GAAP filers, IFRS filers, private equity-owned companies, and non-profit businesses.
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