ABSTRACT: From 1999-2002, companies, the stock markets, audit firms, the accounting profession, and federal regulators were shaken with near-daily revelations in the form of earnings restatements or confessions of financial instability by firms that had been certified as ongoing entities. A guilty plea by one auditor and the criminal conviction of his audit firm have resulted in statutory reform, new policies on financial reporting, and stricter regulatory requirements for audit firms. When all the reform dust settles, however, and the new statutes, regulations, and rules are implemented, auditors and those who educate them will still be left with the same question: why were auditors willing to allow the types of financial reports and reporting decisions that produced fundamentally unfair and inaccurate portraits of the companies they were auditing? The answer to this question requires exploration of ethics education in both business schools and schools of accountancy. While there are voids in that training, there are also seminal works that could be used to help future accountants and auditors understand the dilemmas they will face and how to resolve such dilemmas. These voids are explored through a review of the literature in business ethics with accompanying suggestions for future direction for research. More importantly, this review offers a suggested list and discussion of the key works all accounting students should study as part of a degree program in order to inculcate in them a strong sense of ethics as a professional.
INTRODUCTION: THE ROLE OF ACCOUNTANTS IN FINANCIAL COLLAPSE
The past three years have witnessed stunning financial collapses in many companies that were ranked among the most admired companies in America. Sunbeam, Enron, WorldCom, Tyco, and HealthSouth were lauded, imitated, and studied for their stunning performances. Now they are studied for their failures. What went wrong? How could so much go so wrong? And, the inevitable question, where were the auditors and the accountants as these financial statements of well-being were released?
This paper examines what happened in these companies as well as the role that accountants and auditors played. That examination will demonstrate that many accountants and auditors made poor ethical choices as they performed their roles in and for these companies. The question that arises from an examination of these cases is what form of ethics training did the involved auditors, accountants, and managers receive as they were earning their degrees? Answering this query about their training requires a critical look at the voids in business school curricula in terms of instructing accountants, auditors, and managers in ethical decision making. Given voids in that instruction, the final segment focuses on changing the approach to ethics study and training in business schools and schools of accountancy. Such a change would require moving from focusing on broad-based social responsibility to using six seminal works on ethics and decision making to help students understand the realities and pressures of ethical crossroads. Given that the generation of auditors, accountants, and managers present in these companies at the time of their collapses did not respond correctly or quickly enough when confronted with ethical dilemmas, the prevention of such conduct in the future requires a focus different from the past. Future ethics training and study for accountants, auditors, and managers must be refocused to help individuals make better ethical choices at critical junctures. The cases described here highlight that those involved were not unaware of the ethical issues, but that they simply did not have the fortitude to make ethical choices.
Accounting restatements presently involve nontrivial adjustments, and the list of companies affected is an extensive one. To demonstrate the magnitude of the problem, a partial list of companies with pending or resolved questionable accounting practices is presented in Exhibit 1. …