Author Archive
In today’s world, communication modes run the gamut from “in person” to social media. In between, we can communicate via phone, email, texting, and snail mail. The question we want to answer is what method is most effective to achieve our objectives. Purposeful communication can ensure that all parties are on the same page, and communication touch points may thwart opportunities for unethical behavior.
“In person” interaction is a preferred method of communication overall. You can discern non-verbal signals from other people that complement or do not match what they are telling you verbally. We establish more meaningful connections “in person”, and we are able to better observe that what people are telling us is true. This “in person” communication is especially essential for growing a business, when meeting new clients and vendors.
Phone calls are excellent, too, because you can hear whether a person is sincere for the result that you are trying to achieve. When setting a date to meet, phone calls may be the most efficient method instead of back and forth emails or text messages. Phone calls are also smart for follow ups to interviews. Additionally, we may not know if an email or text has been received by the other party, and we can receive confirmation with a phone call. It is important to think about what information you want to convey in a voice mail before you call. For example, you should leave (1) your name, (2) phone number, and (3) a concise message, in that order. Have you ever listened to a lengthy voice mail and missed the quick phone number at the end? Did you really want to listen to the entire voice mail again?
Emails tend to be the most utilized method of communication in business. All email programs should have a confirmation message that asks senders if they really want to send emails that they have written. That is, “Warning! Warning! Are you sure that you want to send this? Think about the consequences.” When replying to an email with multiple recipients, consider who should be receiving your response. Do not just hit REPLY TO ALL.
Usually, most snail mail communications can be more efficiently sent via email. However, snail mail may be more appropriate to send an original signed document and to add a more personal touch to a thank-you note, birthday communication, or invitation.
Texting is popular for personal communications, and it also may be efficient in a business setting. For example, if you are meeting someone, you can confirm an appointment time or receive a quick clarification. You should not use texting, twitter or any other social media for play-by-play accounts of your life (i.e. what you are eating for lunch while you are actually eating it, how many traffic lights you sat through this morning, etc.). It is also not appropriate, especially in a business setting, to be on a mobile device during meetings or when gathered with other people in conversation. Additionally, refrain from using your mobile device while driving, walking, or where you could be disturbing others.
The point of choosing the right communication method is to be more effective and efficient with the time and resources belonging to you and others. It is important to find a safe place when using mobile devices. Self-defense classes teach us to be aware of our surroundings, and mobile devices impair our abilities to respond to any situation. This warning also applies to business meetings. You may miss an important and even fraudulent detail if you are paying attention elsewhere.
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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In the book, I Robot, three rules of robotics are key. We can dissect these rules and apply them to our role as ethical accountants.
- A robot may not injure a human being or, through inaction, allow a human being to come to harm.
In accounting, we are concerned with omission and commission. It is harmful for accountants to allow omission in financial statements and tax returns, and it is equally harmful for accountants to include misleading information in financial statements and tax returns. For example, when completing taxes, it is important to let clients know the impact of taking an aggressive tax position. Materiality can be defined as the point at which the decision-making process may be altered. If an accountant omits a fact or includes misleading information that would have changed the decision, a user would have violated this first law. - A robot must obey the orders given to it by human beings, except where such orders would conflict with the First Law.
As accountants, we must follow the rules set forth by the AICPA, IRS, and other governing bodies unless the rules do not adequately portray the nature of the transaction(s) that we mean to describe. We cannot purposely mislead financial statement or tax return users, even if the rules allow us to take a deceptive position or are silent on how to report the transactions. Professional judgment can be defined as being prudent and skeptical. We must not blindly follow rules; we must be sure to question their applications. Knowing the rules does not make someone ethical. It is how we apply the rules that is important. If we take a position that is not well defined by the rules, it is crucial that we explain our reason for the position or can defend it if questioned. Transparency and well-documented support are key to understanding a position. - A robot must protect its own existence as long as such protection does not conflict with the First or Second Laws.
As accountants, we balance our self-interest with the interest of others. We introduced this concept of self-interest and interest of others in the first ethics blog post on this site. Our self-interest may be to make our clients happy instead of representing the financial statements and tax forms in the most truthful and transparent way possible. We must remember that our service is for the benefit of the users of financial data.
Remember that if you are wondering if a position is ethical or not, it is definitely worth a reexamination of the facts of the transaction and rules applying to the transaction. You should also consider a consultation with someone in your company or in the accounting industry that you trust to give you honest feedback. The AICPA even has an ethics hotline and e-mail that is free for members to access: 888-777-7077 and ethics@aicpa.org.
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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“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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“Merger possible. Jail certain.” John G. Johnson telegraphed this famous quote to his robber-baron clients when his client asked for a merger that would have violated the Sherman Anti-Trust Act.
As CPAs, we need to possess integrity, and we also need to consider the integrity of our clients in both the client acceptance and client retention processes. Integrity means intending to do the right thing in all situations.
“I am looking for a new accountant because my accountant will not take a deduction for something I want to deduct. My sister’s hairdresser’s brother said that I should get this tax break.” As silly as that reasoning sounds, prospective clients bring up these types of issues all of the time. Ethically, what is appropriate for one client may not be the right advice for another client. One question that CPAs should always consider is why a prospective client is looking for a new accountant. A prospective client may not have a strong relationship with its current accountant or may be looking for an accountant to take an aggressive and possibly incorrect financial statement or tax position. Warning signs include when a prospective client:
- wants to defer income to a future period for a more favorable future year
- listens to his/her friends regarding tax treatment of transactions
- retires and still wants to deduct “business expenses” (e.g. personal car)
Taking on these types of clients is not worth it if your personal ethics are challenged. Client acceptance and retention should always be a priority in our work as ethical CPAs.
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.
Read More
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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A key to understanding how people make decisions is knowing that people are motivated by incentives. For example, Lawrence Kohlberg presents three level of incentives:
- Preconventional – “There is no morality.” People make decisions based on fear of punishment. People do not steal inventory for fear of getting arrested or fired.
- Conventional – “I did nothing wrong!” “Everyone else does it!” People act to conform their behavior to the expectations of the groups to which they belong. It is against the law to speed on the way to work, but everyone else does it.
- Postconventional – “I did the right thing” regardless of what people think or say. People understand the reasoning behind a moral principle. A CPA should turn down a lucrative client because he/she knows that the client may ask the CPA to do things that do not follow the CPA’s ethical code.
Employees work at their jobs because their employers pay them. This example is a positive incentive. A CFO of a public company may not inflate financials for fear of being jailed. This example is a negative incentive.
As CPAs, we must balance the incentive of maintaining the public trust and maintaining our clients’ interests, which may not be the same. A client may want to report investments at historical costs if the values have declined, but the public would like to know the fair value of what those investments are worth today. It is important for CPAs to act with a postconventional framework and do the right thing for the public, even if the client does not agree. For example, if a client asks the CPA to change the method of accounting, the CPA needs to examine the reasons behind the change. Although the change may be permitted under accounting guidance, it may purposely inflate or deflate a number that the client is trying to manage. In other words, a change maybe 100% legal, but only 10% ethical when examining the different stakeholders.
It is impossible for all CPAs to act with a postconventional framework. Therefore, the government has imposed rules upon our independence and objectivity, and the AICPA and state CPA societies have developed ethical committees to investigate unethical behavior by CPAs. These rules and watchdog activities will help curtail the behavior of those CPAs acting at the preconventional and conventional levels, but we challenge you to consider your own professional and personal situations with a postconventional view.
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.
Read More
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.
Read More