A … From an accounting education perspective, students should be made aware of it, but the other two schools of thought should be emphasized. The third cardinal virtue suggested by Plato is justice. Virtue ethics emphasizes the importance of having the character and motivation to do the right thing (an “agent-based approach to ethics”), in contrast to utilitarianism [iii] and rights theory which are rules-based and focus on the reasons for ethical actions (Mintz, 2006, p. 97). Start now! The principal divisions within normative ethics are teleological ethical theories, deontological ethical theories, and relativistic ethical theories. The last two decades saw some of the worst accounting scandals in history. Ethical Egoism: The ethical egoism is a teleological theory that posits, an action is good if it produces or is likely to produce results that maximize the person’s self-interest as defined by him, even at the expense of others. … However each person is completely ignorant of the position that he would hold in society…” (Flower 2010, p. 37). First, utilitarianism requires a set of assumptions: the utility of an individual can be measured, that the utility of one individual is comparable to another individual’s utility, and the utility functions of all individuals are the same. Approximately half of the people (or at least those surveyed) believe that business is unethi… ETHICS IN ACCONTING ETHICS Ethics, sometimes known as philosophical ethics, ethical theory, moral theory, and moral philosophy, is a branch of philosophy that involves systematizing, defending and recommending concepts of right and wrong conduct, often addressing disputes of moral diversity. (McPhail and Walters 2009) This is similar to Kant’s position regarding a moral person having a good will. From an ethical perspective, how do consequentialist-based theories help us determine the rightness or wrongness of a decision? Search for more papers by this author. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs. The utilitarianism approach requires that you decide what course of action needs to be done and evaluate the outcomes of each action. This is the idea that, as an auditor, you must be totally objective and must be without ties to or relationships with the client since that could potentially impair your judgment and impair the overall course of the audit work. In some cases, this could lead to the loss of a client or the loss of a job. From a sociological theoretical perspective, according to Abbot (1983) there are three non-mutually-exclusive theories of professional ethics: (1) functionalist theory, which is derived from the fiduciary nature of a profession, [ii] (2) monopoly theory, and (3) “high status” theory. Consequently, it would preclude business activities such as false advertising, exploitation of employees, and from an accounting perspective, the creation of intentionally misleading transactions and financial statements. Consequentialism, or Teleological ethics, focuses on the actual outcomes of a decision and not the rightness or wrongness of the decision process. In fact, for centuries, philosophers have come up with theoretical ways of telling right from wrong and for giving guidelines about how to live and act ethically. management. In this section of the paper, we limit our discussion to three ethical theories that have been frequently applied in accounting and business: consequentialism, deontology, and virtue ethics. Such power also involves the potential and possibilities for abuse of information or manipulation of numbers to enhance company perceptions or enforce earningsCash Earnings Per ShareCash earnings per share (cash EPS) is the operating cash flow generated by a company divided by the number of shares outstanding. Several often-cited works that are used to examine accounting ethics, and which accounting instructors could benefit from referring to in planning ethics course work, include Kohlberg (1958, 1979) and Rest (1979, 1983, 1986, 1994). Ethical Theories Definition: The Ethics is the branch of philosophy that deals with the principles of morality and the well-defined standards of right and wrong that prescribe the human character and conduct in terms of obligations, rights, rules, benefit to society, fairness, etc. (McPhail and Walters 2009), From a business and accounting perspective, deontology is a viable approach to support ethical decision-making. Integrity and due care – Audit work must be done thoroughly, diligently, and in a timely manner. Pakaluk and Cheffers (2011) describe three different subclasses of prudent judgments: enduring, occasional, and particular. Ethical accounting practices ensure that your tax forms will be completed in a way that keeps your conscience clear and keeps you out of trouble. The major criticism of this approach is whether decision-makers are actually capable of adopting the moral imagination necessary to place themselves into the original position behind a veil of ignorance. In such an audit, they will be looking for corruption, conflicts of interest, bribery, extortion, asset misappropriation, financial fraud, Public companies are obligated by law to ensure that their financial statements are audited by a registered CPA. Each one of these theories looks at our ethical behavior in different ways. Cash earnings per share (Cash EPS) is different from traditional earnings per share (EPS), which takes the company’s net income and divides it by the number of shares outstanding. The term ethics may refer to the philosophical study of the concepts of moral right and wrong and moral good and bad, to any philosophical theory of what is morally right and wrong or morally good and bad, and to any system or code of moral rules, principles, or values. There are always threats and situations that can reduce the level of independence. We've received widespread press coverage since 2003, Your UKEssays purchase is secure and we're rated 4.4/5 on reviews.co.uk. Rest’s model of ethical decision making has four components: (1) recognizing an ethical dilemma, (2) prescriptive reasoning (which is about determining what should be done), (3) deliberative reasoning (which is about determining what one intends to do), and (4) choosing a moral action or behavior (Thorne, 2000). Furthermore, this formulation provides support for increasing the transparency necessary for limiting the amount of information asymmetry among the different stakeholders. This is not an example of the work produced by our Essay Writing Service. We're here to answer any questions you have about our services. This is mainly because these theories represent opinions from people who seek guidance as they attempt to make decisions. Educators aiming to incorporate ethics into accounting classes should consider the scope of coverage of various theoretical ethical frameworks that are relevant to accounting ethics. Matching principle: This principle requires that all transactions associated with a particular type of revenue be kept together and reported as a unit. Did you catch that? The party turns out to be extremely luxurious and you also receive a nice watch as a gift. Confidentiality – Auditors must not disclose any information regarding the client to outsiders. Deontological ethics, in philosophy, ethical theories that place special emphasis on the relationship between duty and the morality of human actions. Furthermore, there has been much written about the business and accounting application of ethical theories. Looking for a flexible role? Perception. In this section of the paper, we limit our discussion to three ethical theories that have been frequently applied in accounting and business: consequentialism, deontology, and virtue ethics. Do you have a 2:1 degree or higher? Consequently, it takes a prudent individual to render truly just decisions. Philosophy Kant defined three formulations of his categorical imperative to aid us in making moral decisions. These three core statements are intricately of individuals and entities. The term deontology is derived from the Greek deon, “duty,” and logos, “science.”. VAT Registration No: 842417633. There have been many virtues posited over the centuries. Deontology is mostly associated with Kant. Without meeting the requirements of auditing and accounting ethics, an audit must instantly be paused. You can view samples of our professional work here. When compared to consequentialism and deontology, virtue ethics is another viable approach on which to base business and accounting ethical decision-making. (McPhail and Walters 2009; Flower 2010) Most of these theories are based on philosophy, dating back to Plato and Confucius, and ancient religions, e.g., Buddhism, Hinduism, Judaism, and Taoism. The last problem can best be demonstrated by the example of the first person, in our two-person society, deriving a great deal of pleasure by torturing the second person. Essentially, Smith viewed the impartial spectator as a conscience.  Egoism creates complications because there are going to be times within your career when you are not the best person to help a client. Ethics and ethical behavior refer more to general principles such as honesty, integrity, and morals. *You can also browse our support articles here >. Independence in fact refers to any factual information such as whether you, as an auditor, own any shares or other investments in the client firm. • Recognize issues in accounting that have ethical implications. However, in this case, consequentialism has been used to justify abhorrent things such as torture and slavery. Given that Rawls assumed that all human beings are self-interested, he felt that the only way that society could be just was to have decision-makers adopt his original position behind the veil of ignorance so that they could indeed become an objective and impartial spectator. There are four major ethical theories: deontology (or duty), utilitarianism, rights, and virtue. Under the matching principle theory, expenses are always reported in the same period, such as a month, quarter or year, and the associated income is recorded. In this, Certified Banking & Credit Analyst (CBCA)™, Capital Markets & Securities Analyst (CMSA)™, Financial Modeling & Valuation Analyst (FMVA)®, Contingent fees are not allowed – For example, audit fees that are based on a percentage of the net income figure or a percentage of a bank loan received. According to Bowie (1999, p. 87), “Loosely put, this formulation of the categorical imperative says that you should act as if you were a member of an ideal kingdom of ends in which you were both subject and sovereign at the same time.” This formulation effectively describes a Kantian-based moral community where all stakeholders have equal rights and duties and further, they must follow the same universal laws. Business ethics theories include the moral principles or codes a company implements to ensure that all individuals working in the company act with acceptable behavior. This type of reasoning could help explain some of the recent accounting scandals. Cognitive Moral Development theory assumes that as individuals develop morally they become less self-interested and more altruistic; this is in contrast to Rational Choice Theory [RCT] [i] which assumes that individuals make rational choices based on self-interest regarding material well-being (Roberts, 2010). (Pakaluk and Cheffers 2011), The second cardinal virtue, temperance, deals with an individual doing everything in moderation. No plagiarism, guaranteed! These facts are usually easy to determine. The application of this imperative simply ensures that the underlying principle that we use to make an ethical decision can be generalized to a higher rule. Paul Kirkwood, a tutor at Kaplan, reviews and explains the core ethical theories in Paper P1 In these complex cases, Kant provided no guidance as to how one would go about making a moral decision. If the accounting profession had followed this formulation, the vast majority of the accounting scandals may have been avoided. Unlike consequentialism and deontology, virtue ethics does not necessarily help us judge the rightness or wrongness of a particular decision. The code of professional conduct, however, is a specific set of rules set by the governing bodies of chartered accountants. There have been many different theories posited in ethics, for example, virtue ethics, deontology, consequentialism, egalitarianism, libertarianism, social contract theory, stakeholder theory, human rights theory, and postmodernism. Copyright © 2003 - 2020 - UKEssays is a trading name of All Answers Ltd, a company registered in England and Wales. These attributes enable professional auditors to have an important role in society. Cash earnings per share (cash EPS) is the operating cash flow generated by a company divided by the number of shares outstanding. … The new hires fear very strongly for their job.” (Callahan 2004, p. 145) In some extreme cases, the accountant may morally find themselves in the position of becoming a whistleblower. Instead, the question becomes does the decision reflect the virtues of a moral person. One thing I think the ethical theories fail to address, however, is the fact that Tohsiba willingly hired an independent investigation committee to investigate their accounting practices, whi ch … Unlike consequentialism and deontology, virtual ethics focuses on the characteristics or virtues that a moral person should possess. The three financial statements are the income statement, the balance sheet, and the statement of cash flows. Ethics in Accounting 1. Rules should simply be operationalizations of principles. Courage, the first virtue, addresses how one handles fear. It simply means we would no longer be able to know whether someone would break a promise or not. Most real-world decisions tend to involve multiple stakeholders and multiple criteria that must be considered at the same time. A simple example is whether it is ethical to break promises. Types of Teleological Ethical Theories. Although the rules set out by different bodies around the world are unique, some rules are universal. Let’s take a closer look at some of these important rules. Again, this provides us with very little guidance. Rule deontology is a deontological theory and is basedon a duty to a moral law. For example, an accountant may be required to refrain from engaging in aggressive accounting, even when a particular type of aggressive accounting is not illegal. These firms are the four largest professional services firms in the world that provide audit, transaction advisory, taxation, consulting, risk advisory, and actuarial services. These theories are the utilitarianism and deontological ethics theories. Virtue ethics is one of the oldest schools of ethical thought. In an attempt to advance the deontological position, Rawls (1999) created a set of ethical constructs that is useful in assuring compliance with Kant’s categorical imperative and, even though he did not seem to be aware of Smith’s impartial spectator, provides a way to operationalize the impartial spectator. Both aspects (moral capacity and moral reasoning) imply a need for considering ethics in an academic setting: to guide and enhance cognitive-moral development, and to provide a context for “practicing” moral reasoning skills. Generally, the major ethical drivers of accounting are an appropriate practice and a good standard of professionalism. 48% disagreed. “The new hire has no power to say ‘no.’ Their job is on the line to get a ‘yes’ answer. Consequently, Aristotle developed the idea of the mean where a moral person would keep the emphasis on each virtue in the middle between the potential extreme values. Considering these criticisms, utilitarianism as a basis for ethical decision-making is questionable. As Aristotle pointed out, it is possible for an individual to go to an extreme on any given virtue. A Forensic Audit is a detailed audit of a company's records to be used in a court of law in a legal proceeding. In the first two cases, the problem is with regards to the allocation of resources. For example, according to Van Hise and Massey (2010), since students need to be familiar with a set of principles in order to make principles-based decisions they begin their ethics course by covering a review of four classic philosophical approaches to ethics: consequential, nonconsequential, virtue, and justice theories. This concern is the underlying purpose of this virtue. That is not to imply that consequentialism has no benefit as a school of ethical thought. Not because it is the law; but simply because it is right. , however, is a deontological theory and is basedon a duty to a moral.... 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