September 2002

Biblical and Talmudic Basis of Accounting Ethics

By Harold Gellis, CPA, Kreindy Giladi, CPA, and Hershey H. Friedman, PhD

The Hebrew Bible, especially the Pentateuch (Torah), is replete with precepts that deal with business ethics, and can be used as a starting point for those interested in developing higher moral standards in business.

Jewish oral law elaborates on the written law contained in the Pentateuch. The Talmud is the compilation of ancient Jewish oral law, and consists of the Mishna and the Gemara. The two versions of the Talmud are the Jerusalem Talmud, a product of the academies in Israel, and the Babylonian Talmud, a product of the academies in Babylon.

The Talmud is concerned with halacha (Jewish law), and also provides a detailed record of the beliefs, philosophy, traditions, culture, and folklore of the Jewish people. The Midrash, a separate scripture, is a record of the views of the Talmudic sages, mainly devoted to the exposition of Biblical verses.

Although they were developed in an agricultural society, many of the ideas of the Pentateuch and the Talmud can be extended to modern industrial society. In fact, the first accountant may have been Joseph. In Genesis, the verse, “And it came to pass on a certain day, when he [Joseph] went into the house to do his work” (39:11), is interpreted by Onkelos, an early translator of the Bible into Aramaic, as “to examine the book of accounts.” Joseph must have been a superb accountant, because several years later, as the official in charge of the entire food supply, he made sure that Egypt survived seven years of famine.

Auditing in the Pentateuch

Even when the Israelites were in the desert, Moses recognized the importance of keeping accurate records. The Israelites had contributed various precious metals to the construction of the Tabernacle, and Moses took scrupulous care to record the total amount of precious metals used. Keeping honest records was so important that the Bible enumerates the quantities of gold, silver, and copper that were donated and how they were used. The Bible states, in Exodus: “These are the accounts of the Tabernacle, the Tabernacle of the Testimony, as they were calculated according to the commandment of Moses” (38:21-31).

Moses realized the importance of making a full accounting of all contributions, and commanded others to, in effect, do a proper audit so that the Israelites would not suspect that any gold was stolen. Moses was probably the first individual to use an outside auditor. The Midrash notes in Exodus Rabbah, “though Moses was the sole treasurer, yet he called others to audit the accounts with him” (51:1).

Ensuring That One Is Above Reproach

The Bible states: “and you shall be innocent before God and Israel” (32:22). From this verse the Talmud derives the principle that one must behave in a manner that does not give rise to suspicions on the part of others. For instance, the Babylonian Talmud, in Pesachim, states that the overseers in charge of the soup kitchen were not allowed to purchase surplus food for their own needs if there were no poor people to distribute it to. Surpluses could be sold only to others so as not to arouse suspicion that the charity treasurers were profiting from public funds (13a). The Talmud relates how the family of Garmu, which made the showbread for the Second Temple, was especially careful to be above suspicion; the children were never seen with fine bread (Yuma 38a). According to the Babylonian Talmud, in Shekalim, those who entered the temple chamber to collect the money needed for sacrifices did not wear clothing with pockets or other receptacles “because a person must be above suspicion before people as well as before God” (3:2).

Accountants should encourage clients to behave in a manner that does not cause others to be suspicious. Thus, financial statements issued by firms should clearly state all assumptions made, and be as honest and understandable as possible. Auditors must truly be outsiders who are not afraid to blow the whistle if a company’s books are questionable.

Avoiding Deceptive Practices

The Biblical prohibition of stealing, the eighth of the Ten Commandments, is discussed more in Leviticus, which states: “Do not steal, do not deny falsely, and do not lie to one another. Do not swear falsely by My name … Do not cheat your fellow and you shall not rob” (19:11-13). The Bible also states, in Exodus: “Distance yourself from a false matter” (23:7). This last verse can certainly be seen as an admonition to accountants and auditors to be careful what they certify. Signing a tax return or financial statement that is obviously filled with inaccuracies would be a violation of this precept.

The Babylonian Talmud, in Bava Metzia, considered various retailing practices as deceptive, and thus prohibited (60a). For instance, painting animals or utensils in order to fool prospective buyers into thinking they were younger or newer, or deceiving customers by placing better-quality merchandise on top of a bin, and lower-quality merchandise below, was prohibited. Accountants that “paint” a financial picture for a firm that is deceptively more positive than the facts warrant, is no better than the dishonest retailer.

Maintaining honest weights and measures is an explicit precept of the Bible. The Bible states, in Leviticus: “Just scales, just weights, just dry measures, and just liquid measures you shall have” (19:35-36). According to the Babylonian Talmud, in Bava Bathra, market commissioners were appointed to supervise businesses using weights and measures (89a). The Talmud was so concerned with honest weights and measures that shopkeepers were instructed to clean their scales after every weighing (88a), and not to pour liquid rapidly from a great height because this generates foam and decreases the amount of liquid (89b). The prohibition of false weights and measures was so strong that one was not permitted to keep an inaccurate weight or measure in his house, even if it was to be used as a chamber pot (89b). Honest weights and measures would also seem to include keeping honest accounting records. Indeed, the amounts that a storekeeper can steal using a dishonest scale are insignificant compared to what a corporation can steal with the help of a dishonest accountant.

Obviously, all types of deceptions and misrepresentations are inappropriate, and in many cases illegal, for an ethical firm. Accountants have a moral obligation to avoid deceptive acts and practices and ensure that clients maintain a high level of ethical behavior. Accounting firms should not teach their clients how to behave in a duplicitous manner. Furthermore, accountants should not work for firms that have dubious ethical values and are not averse to deceiving customers and investors.

Placing a Stumbling Block Before the Blind

The Bible states, in Leviticus: “You shall not place a stumbling block before the blind; you shall fear your God—I am your Lord” (19:14). In addition to the literal meaning, the word “blind” is interpreted metaphorically to represent any person that is unaware or unsuspecting. Thus, according to Midrash Sifra, in Leviticus, one is prohibited from giving bad advice to another person (19:14). The Midrash explains that human beings do not know whether advice proffered to them by friends is good or bad. Only God knows the true motive of the advice giver. In addition, the Babylonian Talmud, in Pesachin, says the above verse is a prohibition that includes helping or causing another to sin (22b).

Accountants and auditors that are not careful with financial statements, and thereby mislead others (e.g., investors or creditors) are guilty of this “placing a stumbling block before the blind.” Investors and creditors rely on financial statements, and have a right to assume that they are accurate. Furthermore, accountants that purposely “cook the books” are guilty of helping others to sin.

Maintaining Honest and Stable Prices

The Talmud was very concerned with ensuring that prices remained stable and that goods were sold at their fair market value. From the verse in Leviticus, “If you sell something to your neighbor or buy something from your neighbor’s hand, you shall not wrong one another” (25:14), the Talmud derived the prohibition of overcharges and undercharges. The Babylonian Talmud, in Bava Metzia, ruled that if an overcharge is more than one-sixth, the sale is null and void (50b). Similarly, if an individual is unaware of the true value of an item, one must not take advantage of the seller’s ignorance and underpay. Accountants asked to establish the fair market value of a business should be especially careful when setting a price. Accountants should encourage clients to price their goods and services fairly, and avoid overcharging, and indeed, accounting firms themselves should be scrupulous about charging fair prices for their services.

The Babylonian Talmud extended these laws against price fraud, and instituted laws against excessive markups on necessities (Bava Bathra 90a). The Babylonian Talmud, in Bava Bathra, was extremely critical of those who hoarded food in order to resell it at a higher price (90b). In ancient times, when ships carrying necessities did not come in every day, someone could easily purchase a shipment of food, hoard it, then sell it at an exorbitant profit. The ninth blessing of the prayer known as the “amida” reads as follows: “Bless on our behalf, O Lord our God, this year, and every species of its produce, for the best; and bestow a blessing upon the face of the earth and satisfy us from its bounty.” Although there is no direct reference in this prayer to hoarders, price predators, or cunning profiteers, the Babylonian Talmud, in Megilla, claims that this prayer was established as a prayer for divine protection against individuals who would raise prices unjustly (17b).

The Babylonian Talmud, in Bava Bathra, was very critical of those engaged in such unethical business practices as hoarding food in order to resell it at a high price, usury, tampering with weights and measures, and raising prices unjustly (90b). The Talmud states that the prophet Amos had the above four groups of dishonest business people in mind when he said, “The Lord swears that he will never forget what they have done” (8:5-7). Accounting firms should not only be concerned with ensuring that clients avoid fraudulent pricing practices, but should strive to ensure that clients keep prices stable, especially for necessities.

Following “the way of the pious” is the Talmud’s highest expression of ethical behavior, in business or otherwise. Rabbi Yehudah stated in Bava Kama in the Babylonian Talmud that one who wishes to become pious must be very careful to observe the laws of damages and torts, and be especially careful never to cause anyone any harm, physically or financially (30a). Rava says that one who wishes to become pious should observe the principles contained in Avot, also known as Ethics of the Fathers, a tractate of the Talmud dealing with morals, ethics, and proper conduct. One important idea mentioned in this tractate is that the philosophy of the pious person is “mine is yours and yours is yours” (5:10), the antithesis of the wicked person who claims that “mine is mine and yours is mine.”

Accounting firms must adopt the “way of the pious,” and be careful that financial statements do not cause harm. Clients should be encouraged to disdain the philosophy of “yours is mine” and embrace, as much as possible, the philosophy of “mine is yours.” Making a profit is certainly important, but so is living the way of the pious. As Hillel said in the Babylonian Talmud, in Avot, “If I am not for myself, who will be for me? And if I care only for myself, what am I?” (1:14). Firms that are only for themselves may one day have to answer the question “What am I?”

Harold Gellis, CPA, is an associate professor of accounting at York College of the City University of New York. Kreindy Giladi, CPA, is an assistant professor of accounting, and Hershey H. Friedman, PhD, a professor of business and marketing, both at Brooklyn College of the City University of New York.

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