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The purpose of this chapter is to discuss the relationship between law and ethics in accounting. The primary arguments of the chapter are that law and ethics have between…
The purpose of this chapter is to discuss the relationship between law and ethics in accounting. The primary arguments of the chapter are that law and ethics have between intertwined historically, that concepts of morality and ethics have permeated law and that laws are based on ethical and religious principles. As a result, it is important for accounting students and practicing accountants to understand the close relationship between law and ethics. The chapter defines the meaning of “legal” and “ethical,” and draws distinctions between these concepts. It also discusses historical relationships between law, morality and ethics in major religious traditions. The concepts of ethics expressed in Aristotle’s Nicomachean Ethics, and how these concepts influenced the development of law and ethics in Western philosophy are then discussed. In particular, the ethical principles of independence, integrity and objectivity as embodied in the Code of Conduct of the American Institute of Certified Public Accountants (CPAs) are recognizable in Aristotle’s premise, that moral virtue is situated at the mean between deficiency and excess and that ethics is oriented toward practical implementation of the good life through human rationality. The final section of the chapter discusses the application of law and ethics to accounting and in particular to the detection of management fraud.
The purpose of this paper is to study the effects of financial accounting standards on the economic decisions of managers. The primary research question addressed in the…
The purpose of this paper is to study the effects of financial accounting standards on the economic decisions of managers. The primary research question addressed in the paper is whether the hedging behavior of corporate treasurers in France has been affected by the issuance of International Accounting Standard No. 39 and International Financial Reporting Standard No. 9 dealing with financial instruments and hedging.
In all, 48 semi-structured interviews were conducted with French corporate treasurers. The interview instrument is included as an exhibit to this paper. The interviews were recorded and transcribed. In addition, three interviews were conducted with representatives of Big 4 audit firms who are experts in accounting for financial instruments. The empirical findings are interpreted using a theoretical framework derived from Jean Baudrillard who argues that the “map” (accounting results) tends to define the “territory” (economic decision-making) in a period of “hyperreality” (when the underlying economic reality is confused). In other words, accounting standards, and the reported numbers that result from such standards, can influence the economic decisions of managers and not merely represent the outcome of economic decisions already taken.
Corporate treasurers often make decisions based on earnings impact. This finding is similar to findings in prior literature regarding the effects of accounting standards on economic decisions taken by managers. A fear of increased earnings volatility is central to the treasurers’ concerns. Also key is the complexity of the process for qualifying financial instruments for hedge accounting treatment. The authors also find that the behavior of corporate treasurers is neither stable nor homogeneous. The behavior appears to be the outcome of a collective learning process in which the corporate treasurer is only one actor.
The type of qualitative research undertaken in this study has its limitations. It cannot be demonstrated that the findings are generalizable. There is a contextual specificity to the treasurer’s function, which reinforces a particular focus on accounting results. The CFO is simultaneously the superior of the treasurer and responsible for financial reporting, and consequently subject to a conflict of interest that does not necessarily apply to other types of managers. Therefore the findings cannot apply to all managerial functions.
The authors found that corporate treasurers focus on accrual-based earnings despite engaging in a function that is supposed to focus on cash flows. Even if the IASB believes that accounting standards should be used primarily by investors and creditors, they should acknowledge that there is a fear of earnings volatility by managers, and that there is an temptation toward increased use of other comprehensive income as an alternative to reporting volatile earnings numbers.
The research provides support for those who argue that international accounting standards that require fair value accounting for financial instruments have had a negative pro-cyclical impact on the real economy.
This paper is a qualitative research study conducted in an area of research where there have previously been only quantitative studies. The access to a large number of French corporate treasurers is unique. The study supports prior findings regarding the influence of accounting standards on managerial behavior, but with an added theoretical interpretation related to Baudrillard’s arguments regarding the nature of the “map” and the “territory” in complex economic systems.
As in other countries, the accounting profession in the United States strives to hire and keep qualified professionals, who possess the technical competence and ethical…
As in other countries, the accounting profession in the United States strives to hire and keep qualified professionals, who possess the technical competence and ethical character essential to accounting practice. The reputation of the profession has been periodically tarnished by a lack of ethical behavior on the part of some Certified Public Accountants (CPAs). This suggests a misfit between those in the profession and the ethical values toward which the profession strives. When CPAs commit unethical behavior, doing so creates a major problem for the profession. Research has shown that the congruity of personal values with organizational values, person–organization fit (P–O fit), is an important factor in the hiring, socialization, and retention of employees. This research compares the personal values of US accounting students with the personal values of leaders in the accounting profession. Personal value priorities were measured with the Rokeach Value Survey (RVS). The findings indicated that these samples of accounting leaders (N = 193) and accounting students (N = 516) significantly differed in the priority given to 24 of the 36 personal values. This result suggests a lack of P–O fit between accounting students and the accounting profession. These findings have implications for CPA firms in the United States, specifically with regard to hiring ethically “fitting” staff and fostering an ethical culture in accounting firms.
This chapter examines the integration of Giving Voice to Values (GVV) into an accounting ethics course. GVV has received a great deal of interest by business educators in…
This chapter examines the integration of Giving Voice to Values (GVV) into an accounting ethics course. GVV has received a great deal of interest by business educators in the past decade and, more recently, by those accounting faculty who teach accounting ethics in a standalone course or as part of another course. This chapter describes GVV assumptions and principles that are helpful for any faculty considering adopting GVV. After a brief review of different instructional approaches for teaching accounting ethics, GVV literature relating to accounting ethics is examined. The integration of GVV builds on the Kelly (2017) integration of leadership topics in an accounting ethics course and synergistically promotes moral motivation and moral character that contributes to ethical behavior. To facilitate the integration efforts, this chapter presents specific learning objectives, GVV background materials, case recommendations, and application/assessment approaches. This chapter concludes with a discussion of GVV and its possible role in assurance of learning efforts.
The authors’ examination of corporate social responsibility (CSR) scores in dual-class firms provides a window on firms’ CSR performance when insulated from external…
The authors’ examination of corporate social responsibility (CSR) scores in dual-class firms provides a window on firms’ CSR performance when insulated from external pressure. Dual-class ownership confers greater voting rights on a superior class of shares held by insiders; consequently, managers of dual-class firms are insulated from external pressure from inferior class shareholders and, potentially, from society. The authors compare CSR scores in dual- and single-class firms and investigate the association between CSR scores and cash flow rights in dual-class firms. This analysis reveals that dual-class firms have lower CSR scores than their single-class counterparts and that CSR scores in dual-class firms are positively related to the relative cost of CSR borne by the superior class of shares. The findings suggest that external accountability encourages CSR performance, and CSR performance is higher when the superior class bears a smaller portion of the cost of CSR activities. It follows that the analysis suggests the importance of governance structures for encouraging CSR, and the dampening impact of cost to CSR performance.