“It is our choices that show what we are, far more than our abilities.” – Harry Potter and the Chamber of Secrets by J.K. Rowling.
‘Ethics’ is derived from the Greek “ethos,” meaning character. Ethics is the study of how we make decisions. Ethics really looks at the relationships between people and the environment around them.
Understanding ethics is about understanding people’s decision-making process. People are forced to make decisions because they face trade-offs. For example, what can you be doing with your time now instead of reading this blog? This concept is also known as opportunity costs. If you spend your resources on one project, what other project could benefit from those resources?
The major trade-off ethically is the promotion of self-interest versus other people’s rights. Have you ever asked someone in a movie theater to turn off a smart phone? No matter how nicely you pose the question, inevitably, the person sees it as an encroachment on his/her personal rights. To him/her, the self-interest is using the phone for texting, playing games, etc., but you have paid to see the movie, and you have the right to see it without distractions. If you could agree with the other person that no smart phones should be used in the theater, then we would have no need for laws (Coase’s Theorem).
CPAs are faced with trade-offs when working with client financials. Clients prefer to have higher income when presenting financials to investors and banks, but then also want to show lower income when reporting to the IRS. What is the best way to represent financials?
The best way to represent financials is in the most ethical way possible using the appropriate accounting guidance. If a client asks you to inflate or deflate numbers, you should think about the reasons why and remember that your ultimate responsibility is to the readers of the financials and not to your client. This concept may be difficult to grasp, as it is your clients that maintain the working relationship with you and pay you. It is imperative that you remain independent and objective, as the reputation of the CPA profession falls squarely upon all of our shoulders. When the public doubts the assurance from CPAs, the government steps in and establishes more legislation to police our profession.
In addition to representing financials in the most ethical way possible, it is important for CPAs to stay educated on the ethical rules of our profession. Reading ethical blogs like this one, taking ethics CPE training courses, and discussing ethical dilemmas with fellow CPAs will strengthen our collective ethical behaviors.
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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