Ethics in Accounting: An Indispensable Course?

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ABSTRACT

Following the unmasking of billion-dollar earnings manipulations at corporations such as Enron and WorldCom in the early 2000s, the accounting profession has had to reexamine ethics and its implications (Duska & Duska, 2003). Shortly after, the National Association of State Boards of Accountancy (NASBA) proposed adding two required ethics courses to the accounting curriculum (Shawver, 2006). NASBA backed off on the recommendation due to pressure from the accounting profession and accounting educators. While nearly all college accounting programs integrate ethics into accounting courses to meet the public demand for ethical accountants, schools in Texas are required to offer a 3-hour stand alone course. Conflicting research exists regarding whether requiring a separate ethics course instead of integration has a significant effect on accounting students' ethical reasoning abilities. In this paper, the ethical reasoning abilities of accounting students in an Ethics in Accounting course were compared to the ethical reasoning abilities of accounting students who had ethics discussions integrated into their accounting courses instead of a required course. Ethical reasoning abilities were tested using an instrument called the Defining Issues Test-2. The students who took an Ethics in Accounting course before graduation did seem to have higher ethical reasoning abilities than those students who had ethics integrated into their accounting courses. Based on the results of this study, it is recommended that NASBA reconsider its decision to eliminate the requirement of a 3-hour course on Ethics for accounting majors.

INTRODUCTION

It is well known that companies such as Enron and WorldCom engaged in unethical earnings manipulations such as falsely recording expenses as assets and hiding debt in complicated off balance sheet financial arrangements. Such practices led many to unknowingly invest in corporations that were on the brink of bankruptcy. In the aftermath of these companies' failures, the accounting profession has had to reexamine ethics and its implications (Duska & Duska, 2003). In 2002, the Sarbanes-Oxley Act and Statement of Auditing Standard 99 (SAS 99) were enacted to clarify issues related to ethics and fraudulent financial reporting and to help restore investor confidence in financial statements (Shawver, 2006). The Sarbanes-Oxley Act created new standards for corporate accountability as well as suffer penalties for noncompliance including imprisonment for up to twenty years (Klutz, 2006). SAS 99 aimed to further integrate the auditor's consideration of fraud into the audit processes developed for a publicly traded company. In response to the Sarbanes-Oxley Act and SAS 99, accounting profession regulators began to look at enhancing ethics training for current and future accounting professionals (Ramos, 2003).

ETHICS AND ACCOUNTING EDUCATION

The issue of how ethics should be integrated into the accounting curriculum and to what degree state professional boards of accountancy should influence such curriculum decisions is of great interest to the accounting profession. State Boards of Public Accountancy determine the educational requirements needed for a candidate to sit for the Uniform Certified Public Accountant (CPA) examination and CPA licensure. Individual state boards look to the National Association of State Boards of Accountancy (NASBA) for guidance in setting these educational requirements (Mastracchio, 2008).

In 2003, NASBA addressed the ethics content of the education requirement and initially determined that two stand-alone courses should be included. It later developed the Rules 5-1 and 52 Exposure Draft (2005) which suggested the addition of two required 3-hour courses, Ethical and Professional Responsibilities of CPAs and Ethical Foundations and Applications in Business, to the accounting curriculum. Topics to be incorporated into these courses included:

* The nature of ethics

* Differences in rule-based versus principle-based approaches to ethics

* Compliance with fundamental ethical principles of integrity, objectivity, commitment to professional competence and due care and confidentiality

* Professional behavior and compliance with technical standards and laws

* Concepts of independence, skepticism, conflicts of interest accountability and public expectations

* Social responsibility

* Nature of professional fiduciary responsibilities

* Ethical dilemmas and consequences of unethical behavior to the individual, to the profession, and to society at-large

* Corporate governance and public interest. …