Professional Responsibility and the Fate of Whistleblowers

By Alexander L. Gabbin and Robert C. Richardson

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APRIL 2006 - John Civic, CPA, believes in hard work, personal integrity, loyalty, and family. He has loved accounting ever since college. As a professional in a growing company, he just wants to do a good job for his employer and pursue a successful career as a CPA. But what will happen to Civic’s professional life if he inadvertently encounters material accounting transactions that have been reported incorrectly in the financial statements? What happens to his accounting career if he discovers that previously released financial statements are misleading? What should he do?

According to the AICPA Code of Professional Conduct (Ethics Interpretation 102-4), Civic should first express his concerns to the appropriate higher level of management. This communication with management might resolve the matter. But if management is involved in the misleading statements, Civic might not sleep well at night.

The fate that awaits whistleblowers is tough. They are unlikely to be called diligent CPAs, but rather “snitches.” They will not likely be portrayed as “team players,” but rather disgruntled employees. They often lose friends, lose careers, and endure significant personal stress. Some might argue that whistleblowers such as Sherron Watkins, of Enron, have benefited in lucrative speaking engagements and book deals, but Sherron Watkins’ situation is atypical.

CPA employees like John Civic are in a lose-lose position. If CPA employees follow interpretation 102-4, there is a significant possibility that they will be labeled snitches for doing their jobs and will suffer as an employee. But if they choose to be silent, CPAs violate their consciences and the ethical standards of the accounting profession.

While acknowledging that CPA employees and their families may encounter hardships, the AICPA’s position is that whistleblowing is necessary to meet the high ethical standards of the CPA profession. But this is naïve. If the AICPA promotes an expectation that loyal, dedicated CPA employees should blindly and willingly ruin their careers, it should come as no surprise that “one of the most common ethics violations by CPAs in business and industry relates to Ethics Interpretation 102-4 on Subordination of Judgment.” (AICPA Ethics Decision Tree)

The AICPA has provided guidance to whistleblowers in the form of a decision tree. The decision tree is useful in that it gives guidance on what party to talk to next. But providing the current decision tree to a CPA who finds misrepresentations in financial statements is like handing a tourist a map of New York City and wishing him luck. A tourist needs more than a map; he needs practical advice on how to negotiate the city, and warnings of possible pitfalls. Likewise, CPAs need practical advice on how to negotiate the decision tree and how to be alert to the possible dangers, before they begin this monumental task. Their careers and personal lives are at stake.

The authors do not advocate that CPAs neglect their responsibility under Ethics Interpretation 102-4, but we do believe that CPAs need more guidance on following the process outlined in the interpretation. While recognizing that some of that advice may ultimately come from independent legal counsel, very few people will take that drastic step before initially talking to their manager. However, they need guidance before they speak with their manager, because the first step in the AICPA process (communicating with management) is treacherous if management is involved in wrongdoing.

Expecting CPA employees to serve as sacrificial whistleblower lambs is grossly unfair and unrealistic. CPAs who encounter financial statement misrepresentations need to be informed about the workplace challenges they will face and the options available to them for coping with this complex ethical situation before they subject themselves to retaliatory actions by their employers and hostility from coworkers. Additionally, the AICPA needs to take the lead in educating the public on the distinction between being a snitch and being a loyal CPA employee. By providing CPAs with guidance that properly balances their personal welfare with their professional responsibility, and working to change an unfair characterization of loyal employees as whistleblowers, the AICPA would promote fewer ethics violations and encourage more transparent reporting in financial statements.

Alexander L. Gabbin, PhD, CPA, is the KPMG LLP Professor of Accounting, and Robert C. Richardson, PhD, CPA, CFE, an assistant professor, both in the school of accounting at James Madison University, Harrisonburg, Va.




















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