| On
Professional Ethics and the CPA in Industry
AUGUST 2006 - I
have minor comments related to two thoughts in Lou Grumet’s
Publisher’s Column in April, “Professional Ethics
and the CPA in Industry”: 1) “Some of the ethical
dilemmas faced by CPAs in industry are very different from
those faced by CPAs in public accounting firms” and
2) “The public accounting firm’s purpose is crystal
clear. … It is their raison d’etre. But
who is the ultimate client for a CPA working in private industry?
The CPA’s employer, or the public?”
Is
there a basic difference in the critical nature of integrity
required by accountants regardless of the organizations
which provide their salaries? I wonder if there is a difference
in the attitude that should prevail. I am inclined to think
that there isn’t, although I haven’t explored
this thought extensively.
Isn’t
there always a public interest, possibly more subtle in
the case of an accountant in a privately owned company than
for an accountant in a public accounting firm? (The comments
of public accountants in moments of candid expression reflect
the powerful value of increasing the firm’s bottom
line through “giving the audit client what the client
wants.” Such a comment undermines what is perceived
to be required of public accountants.)
Management
accounting always seemed closely related to economics, which
I taught for many years. I always found the Employment Act
of 1946 identified a powerful economic goal. The declaration
of policy concludes with:
[T]o
foster and promote free competitive enterprise and the
general welfare, conditions under which there will be
afforded useful employment opportunities, including self-employment,
for those able, willing, and seeking to work, and to promote
maximum employment, production, and purchasing power.
Management
accounting is actually an implementation of microeconomic
principles. It has as its objective the maintenance of an
accounting system and related analyses that ensures an optimum
level of resource use in all companies, both public and
private. Many private companies provide some type of financial
information when they seek lines of credit or loans from
banks or venture capital groups. Many such companies do
have external audits; many don’t need them, especially
in communities where attentive bankers know their business
clients and trust what financial information such clients
present, although it may be minimal.
Accountants
employed in private companies also have a commitment to
integrity: They adhere to professional accounting standards
in classifying transactions and in preparing financial statements.
They are as sensitive to omissions and manipulation of financial
data as are external auditors. Some private companies, even
small ones, are owned by families that are not currently
involved in the entity’s day-to-day activities. Family
members depend on information and analysis that reflects
the reality of what is happening to keep informed about
their company.
The
circumstances may differ, but accountants grounded in respect
for high ethical standards are valuable in non–publicly
owned entities. For example, a private company whose accounting
manager is willing to record owners’ personal expenses
as business expenses may be denying employees higher wages
because the recorded costs may be too high to generate sufficient
profit to justify salary increases. Of course, if we had
a perfectly competitive model, which is one of the delightful
models for economic analysis, then the owner who was extracting
funds for personal expenses would undoubtedly continue his
high prices and soon a declining demand dooms his entire
business.
Ethical
accountants in all our businesses make a critical contribution
to providing the reality of financial status and financial
success. Managers then have reliable financial information
for making decisions, employees receive a just wage, and
the economy has products that reflect optimum use of resources
and fair prices. (I know I have oversimplified, but I hope
I haven’t distorted the situation.)
And
as I read the GAO bulletin of January 1997, Reliable
Financial Information: A Key to Effective Program Management
and Accountability, I am reminded of the critical need
for government accountants who are committed to an impeccable
quality of ethical behavior:
It
is also difficult to make fully informed budget decisions
when information on actual costs for programs is incorrect
or known.
The federal government has a responsibility—and
obligation—to American citizens to be a good financial
steward of and properly account for their tax dollars.
Decades of neglect and failed attempts to improve financial
management systems have left the federal government ill-equipped
and unprepared to adequately fulfill this responsibility.
The federal government continues to have—as related
to financial reporting—high-risk agencies. The redressing
of unbelievably unreliable financial reporting systems
has taken a long time.
The
New York State Society of CPAs is astute. Its Quality Enhancement
Policy Committee will be able to state that an accountant,
regardless of the entity for whom he works, has the same
basic ethical responsibility. As we read the disclosures
of alleged ethical violations among pharmaceutical companies,
news reporters, lawyers, doctors, CEOs, priests, and college
presidents, we realize the problem of insensitivity to the
value—and power—of ethical behavior. The NYSSCPA’s
committee has a challenging task.
Mary
Ellen Oliverio, PhD, CPA
moliverio@pace.edu
Note:
The writer is a former member of The CPA Journal’s
Editorial Board. She taught for many years, most recently
at the Lubin School of Business of Pace University, New
York, N.Y.
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