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Chapter 16 - Professionalism, ethics, and career planning. When you''ve finished studying this chapter, and completing the activities at its conclusion, you should be able to: List and discuss characteristics of a professional, explain how those characteristics apply to the accounting profession, define ethics, discuss various models/schools of ethical decision making, explain how to resolve ethical dilemmas.
Chapter 16 Professionalism, Ethics, and Career Planning Copyrightâ2016McGrawưHillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGrawưHillEducation Outline ã Learning objectives • Professionalism • Ethics • Cases 162 Learning objectives List and discuss characteristics of a professional Explain how those characteristics apply to the accounting profession Define ethics Discuss various models/schools of ethical decision making Explain how to resolve ethical dilemmas 163 Professionalism • Definition (www.dictionary.com) A vocation requiring knowledge of some department of learning or science • Characteristics of a professional – Bell – McDonald 164 Professionalism • Characteristics of a professional (Bell) – Communicates effectively – Thinks rationally, logically, and coherently – Appropriately uses technical knowledge – Exhibits ethical professional behavior – Recognizes the influence of political, social, economic, legal, and regulatory forces – Actively seeks additional 165 Professionalism • Characteristics of a professional (McDonald) – Specialized knowledge base – Complex skills – Autonomy of practice – Adherence to a code of ethical behavior 166 Ethics • • Ethics have always been important in the • accounting profession But, the • profession placed renewed emphasis on them after the corporate scandals of • Definition of ethics Ethics issues in accounting Schools of ethical thought Ethical decision-making model the late 20th century 167 Ethics • Definitions (Boss, 2014) – Ethics is a set of standards that • Differentiates right from wrong • Is established by a particular group • – Is imposed on members of the group to regulate behavior Ethics is a discipline that • Studies values and guidelines for living • Considers the justification for those values 168 Ethics Table 16.1 Ethics issues in accounting Area Revenue recognition Earnings smoothing Asset valuation Fair value accounting Ethical questions Is it ethical to boost revenue at the end of the year by shipping unordered goods to customers, telling them that they can send them back after the new fiscal year starts? Is it ethical to use accounting policies (such as depreciation methods) to ensure that earnings not fluctuate much from one year to the next? Is it ethical to raise / lower an estimated discount rate to change the price of an acquired asset? How much discretion should managers have in determining an asset’s fair value for accounting purposes? 169 Ethics • Schools of ethical thought – Almost no-one wakes up in the morning thinking “I’ll behave unethically today.” – But, people have differing views on what constitutes ethical behavior – One way to differentiate those views is through schools of ethical thought 1610 Ethics Table 16.2 Schools of ethical thought School Ethical egoism Utilitarianism Deontology Virtues Principles People have an ethical obligation to behave in their own self-interest Ethical actions are those that result in the greatest good for the greatest number Individuals have rights; ethical norms are “universal truths” that consider those rights Ethical behavior is a natural product of being fundamentally ethical and virtuous 1611 Ethics • Langenderfer & Rockness (1989) proposed a practical, wellrespected model for making ethical decisions in accounting Identify the facts Identify the ethics issues and the stakeholders involved Define the norms, principles, and values related to the situation Identify the alternative courses of action Evaluate the 1612 Ethics • Langenderfer & Rockness (1989) proposed a practical, well- respected model for making ethical decisions in accounting Decide the best course of action consistent with the norms, principles, and values If appropriate, discuss the alternative with a trusted person to help gain greater perspective regarding the alternatives Reach a decision as to 1613 Cases • • Here are a few • cases that involved ethics issues in accounting Charles Ponzi Adelphia Communications Corporation • Enron / Arthur Andersen • Bernie Madoff • Olympus Camera contexts 1614 Cases • Charles Ponzi – Early 20th century – International postal reply coupons – Used new investors’ money to pay off old investors 1615 Cases • Adelphia Communications Corporation – Family-based business owned by the Rigas brothers – Deceptive accounting practices – Personal loans from the company – Comingled personal and business assets 1616 Cases • Enron / Arthur Andersen – – Multiple accounting & auditing related issues • Mark-to-market accounting • Auditor independence • Use of special purpose entities • Off balance sheet debt Primary impetus for the Sarbanes-Oxley Act of 2002 (SOX) 1617 Cases • Bernie Madoff – Investment advisor with BMIS (Bernie Madoff Investment Securities) – Perpetrated multi-billion dollar Ponzi scheme – Turned in by his sons – Example of affinity fraud – Pled guilty to 11 felonies in March 2009 – Projected release date in 2139 1618 Cases • Olympus Camera – Japan-based manufacturer of cameras and other optical devices – Michael Woodford, from Great Britain, appointed president in April 2011 – M & A activity called into question in the press in July 2011 – Dismissed as president in October 2011 1619 1620 ... Family-based business owned by the Rigas brothers – Deceptive accounting practices – Personal loans from the company – Comingled personal and business assets 16? ?16 Cases • Enron / Arthur Andersen... Multiple accounting & auditing related issues • Mark-to-market accounting • Auditor independence • Use of special purpose entities • Off balance sheet debt Primary impetus for the Sarbanes-Oxley... Ethics is a discipline that • Studies values and guidelines for living • Considers the justification for those values 16? ?8 Ethics Table 16. 1 Ethics issues in accounting Area Revenue recognition Earnings