Read any news feed regarding current issues in business, money and finance, and you can see we are faced with a wave of white collar crime, self-dealing corporate executives, accounting scandals, financial crisis and corporate bailouts. Many corporate executives navigate business decisions like a game where anything goes and corporate greed takes over. While businesses need to be profitable to continue in existence, does this have to be at the expense of social and environmental responsibility?
There is no shortage of laws in the United State established to discourage business activity and behavior that society has deemed harmful. But, organizations have the power and responsibility to establish their own self-regulation by implementing an effective ethics program. The challenge is navigating through the gray areas where actions that aren’t illegal may still be unethical. Ethics education and implementation of a successful ethics program is crucial to recognizing ethical responsibility. Ethics education is not about learning right or wrong or even determining correct ethical action, but focuses to help employees make more informed business decisions, take responsibility and understand the effects of those decisions.
Ethics programs endeavor to identify ethical dilemmas, discussing rationale for decision alternatives, potential outcomes, legal issues and overall social responsibility. Organizations that develop and implement an ethics program help guide appropriate conduct, standards of behavior and accountability. This works with something as simple as a code of ethics. The code provides a basis for shared committed values and increases accountability by setting expectations. The code of ethics could be simply stated to convey general compliance with fundamental principles or can encompass rules based to address specific situations.
The bottom line is that organizations are responsible for preventing legal violations and unethical conduct of its employees. Companies need leaders who are committed to doing the right thing and set the tone for the entire group. Employee training in ethics awareness and preparation is vital in keeping employees engaged to be on the same page regarding the organizations ethics standards and beliefs.
Avoiding legal problems, fines and criminal prosecution are obvious benefits of companies behaving responsibly, but most of all employees and customers will recognize good conduct by remaining loyal. The company’s reputation will remain intact, and they will enjoy peace of mind knowing they are one of the good guys.
Selena Jefferies, CPA, is an Instructor of Accounting at Texas A&M University – Texarkana. Her background includes working as an audit manager in public accounting for 15 years, and then made the change into academia as a full-time faculty member of the University in 2012. She continues to practice as a professional accounting consultant for small businesses.
Selena has been an item writer for the Uniform CPA exam accepted by the AICPA for exam content. She received the Teaching Excellence Award from the Texas A&M University system in 2010. She currently serves on the TSCPA Board of Directors, TSCPA Ethics Committee and has held a variety other professional volunteer positions including President of the Texarkana Chapter of CPAs.
Selena is also a professional musician who performs in a band with her husband, Bryan, and helps run their family photography and video production business with their two daughters, Kayla and Kara.
It is amazing what a difference one word can make in a common question to CPAs.
The first version is “how should I account for something?” This sentence implies several things. It implies that they trust you know GAAP. It implies that they believe in your integrity. Finally, it implies that they want you to take into consideration the entire process from source data to controls to determine not only the best answer under GAAP, but also the most efficient, effective and repeatable process to get that answer month after month.
The second version is “how can I account for something?” This sentence takes us in a whole different direction. They are asking for options under GAAP. This will not only test the bounds of your knowledge, but the bounds of your integrity as well. It also implies that they are not asking for your input on the process or controls – only on researching possibilities under GAAP. This question is limiting and potentially dangerous at the same time.
So which question does your boss ask?
I recently attended a roundtable put on by the International Ethics Standards Board for Accountants (IESBA). The focus of the roundtable was proposed rules on reporting of suspected illegal acts by their clients and employers. On the surface this sounds like a no brainer – of course professional accountants should report illegal acts – but as usual, it is never that simple. Here are just a few of the complexities.
Are professional accountants supposed to be experts on all types of illegal acts? It’s one thing to ferret out fraudulent financial reporting. That is what a CPA is an expert at understanding. But what about areas that the CPA is not an expert such as employment law or OSHA violations – are CPAs expected t report any and all suspected illegal acts even in areas they don’t fully understand?
What if you think something might be wrong, but you are a junior accountant in the group. Should you report it anyway? What if you don’t have all of the facts that might be known to those higher in the chain of command that would clear up any concerns you might have? What if they don’t share that information because it is highly sensitive for other reasons and only those who need to know if the corporation are told? By bringing your concerns to a regulator you will cause needless activity in responding to them and maybe harm your employer’s competitive position.
What if you are hired to perform forensic work to evaluate the situation so the client can decide what to do? Would a client be willing to higher you if they know you have to report everything you find to appropriate authorities. Its for that exact reason that the concept of attorney-client privilege exists. Are we has the accounting profession going to say ethically we can’t tolerate such a concept?
What if the reporting is not covered by whistleblower protection and you only suspect something might be going on – you aren’t really sure? Do you just take the risk and report it because that is what the ethics code says you have to do?
Ethics sounds easy – just do the right thing – until you get into real life situations where the right thing may not be obvious and could even be the wrong thing because you don’t know all of the facts. Ethics codes should be there to help you decide what the right thing is, not make it harder. The question about the IESBA proposals is which is it. If you want to see more go to the IFAC website and check out the exposure draft and comment letters.
For years I always viewed the difference between tax accountants and GAAP accountants as a difference in objective. The objective of the tax accountant was to determine the best way to minimize the amount of legal tax owed. In a less kind way, one could say find every way to take advantage of the rules for your company. The CPA code of conduct even seemed to imply doing any less was not ethical. GAAP accountants, on the other hand, had to deal with a slightly different twist on the ethical view of their behavior. Ethics called on the GAAP accountant to not simply do whatever was allowed under the rules, but to also still ensure the answer actually reflected the underlying economics of the transaction (unless of course the rules didn’t allow that, but that is a topic for another blog).
This view of responsibilities is also rooted in a view that the company should put shareholders first in the decisions it makes; first above other stakeholders such as customers, employees and communities. That view is very much the 1980’s Wall Street greed is good mentality, but it has come under attack in the last three decades as being out of touch with what it really takes to create and sustain long-term value growth. Companies now issue sustainability reports and some are even moving toward integrated reports embracing the concept that a company exists to provide for all of its stakeholders even if the weighting may not all be the same.
It seems to be a natural extension then that the taxes a corporation pays to support the communities it operates in are coming under scrutiny. The question is becoming, are corporations weighting shareowner interests (pay the least tax legally possible) too heavily over community interests (pay a fair tax for where a corporation sells it goods) when developing their tax strategies. Just as corporations are already measured by customers and investors (ok, some, not all) on if they produce goods in sweat shops and exploit the environment, they are beginning to be measured on if they are paying their fair share of tax.
This new view of tax will create a whole new level of complexity for Boards, senior leaders and tax departments to deal with going forward. They are going to have to make strategic decisions on tax strategies that are no longer a single answer equation. Instead to simply looking to pay the least tax period, they are going to have to think about how to pay the least tax that seems fair to all of its stakeholders. The only thing I know for certain is that new decision is guaranteed to make an already complex task even more difficult.