On Professional Ethics and the CPA in Industry

Article excerpt

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 mison 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 l'ami lies 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. …