Virtue ethics and accounting education

Mintz, Steven M . Issues in Accounting Education 10. 2 (Fall 1995): 247.

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The meaning and purpose of virtue theory are described, emphasizing the work of Pincoffs
(1986), how it relates to accounting practice, and pedagogical considerations in teaching virtue to
accounting students. There is a need for virtue in accounting because the virtues enable
accountants to resist client and commercial pressures that may result from conflicts between an
accountants' obligation to a client or employer and public interest considerations. The following
virtues enable accountants to withstand these pressures and to act according to the moral point of
view: 1. benevolence and altruism, 2. honesty and integrity, 3. impartiality and open-mindedness,
4. reliability and dependability, and 5. faithfulness and trustworthiness. Educators can use case
analysis, cooperative and collaborative learning techniques, and role-playing, to inform students
about the importance of virtue and to facilitate the learning of virtue.

CONGRESSIONAL investigations in the 1980s of a number of business failures and failed

savings and loan institutions led to criticisms of the outside auditors of major companies for
failing to blow the whistle on companies that failed to disclose business problems. Congress
labeled many of these failures as "audit failures." The American Institute of Certified Public
Accountants (AICPA) helped to form the National Commission on Fraudulent Financial
Reporting (The Treadway Commission) in 1985 to examine instances of fraudulent financial
reporting and the role of management and the independent auditor in preventing and detecting
such acts. In its report the Treadway Commission (1987, 47) pointed out that a difference of
opinion over a significant financial reporting issue between a company and its independent
auditor may prompt management to seek an opinion from a second public accounting firm "to
obtain an opinion that coincides with management's interest in presenting the results in the most
favorable light." The Commission noted that generally accepted accounting principles may not
always be clear on the appropriate accounting treatment and the independent auditor must use
judgment in making a determination of acceptability. According to the Commission, when a
company decides to seek a second opinion, "Commercial pressures are introduced into the
process of resolving the financial reporting issue." The Commission determined that in some
instances these pressures lead to fraudulent financial reporting.

Responding to criticism of the role of the independent auditor in detecting and reporting
fraudulent financial reporting, the AICPA's Auditing Standards Board in 1988 issued nine new
auditing standards that are designed to close the "expectation gap." That is, the difference
between what the public and financial statement users perceive as the obligations of the
independent auditor in auditing financial statements of an entity and what the auditors see as
their responsibilities. Statement on Auditing Standards (SAS) No. 53 increases the auditor's
responsibility to design an audit to provide reasonable assurance that material errors and
irregularities will be detected. SAS No. 58 requires an explicit statement in the audit report that
an audit provides reasonable assurance for the reliance on the fairness of the financial statements.

In a recent survey of investor views of audit assurance by Epstein and Geiger (1994, 60-66), the
authors found that the investing public held auditors to a much higher level of assurance for
detecting material misstatements as a result of error (unintentional misstatements) than as a result
of fraud (intentional misstatements). The authors concluded that the profession's perception that
an audit should provide reasonable assurance of financial statement accuracy is held by only a
minority of investors. The majority of investors expect an audit to provide absolute assurance
that the financial statements are free of all types of material misstatement. Thus, a gap exists
between auditors and investors on the level of assurance an audit provides. The authors believe
that an important factor in closing the gap is to increase audit sensitivity to management honesty
and integrity.

Evidence of the existence of an expectation gap suggests that there has been a breakdown in the
relationship of trust that should exist between the independent public accountant and the public.
The importance of this relationship was recognized by the Supreme Court in United States v.
Arthur Young and Company et al., 104 S. Ct. 1495 (1984, 1503). The Court stated in its opinion
that:

By certifying the public reports that collectively depict a corporation's financial status, the
independent auditor assumes a public responsibility transcending any employment relationship
with the client. The independent public accountant performing this special function owes
ultimate allegiance to the corporation's creditors and stockholders, as well as the investing
public. This 'public watchdog' function demands that the accountant maintain total independence
from the client at all times and requires complete fidelity to the public trust.

Baier (1986, 259-260) claims that trust is "reliance on others' competence and willingness to look
after, rather than harm, things one cares about which are entrusted to their care." She contends
that the moral test of trust relationships is:

In addition to whatever else is entrusted, knowledge of each party's reasons for confident reliance
on the other to continue the relationship could in principle also be entrusted -- since such mutual
knowledge would be itself a good, not a threat to other goods. To the extent that mutual reliance
can be accomplished by mutual knowledge of the conditions for that reliance, trust is above
suspicion, and trustworthiness a non-suspect virtue.

Pincoffs (1986, 75-79) believes that virtues (and vices) are dispositional properties that provide
grounds for preference (or avoidance) of persons and, therefore, they can help us to decide with
whom we want to enter into a relationship of trust. For example, if honesty is a virtue, then a
potential client who is honest is preferred to one who is dishonest. If reliability and dependability
are virtues, then a client who values these attributes would prefer to have an accountant with
these traits of character rather than one who is unreliable and undependable. In the former case
the honest client is more likely to tell the truth and fully disclose relevant information that
enhances the trust relationship between the external auditor and the client. In the latter case a
reliable and dependable accountant is more worthy of trust because that person is more likely to
complete an engagement with due care and maintain the confidentiality of client information.

To fulfill their role in society, accounting professionals should have both technical expertise and
moral expertise. The Committee on the Future Structure, Content, and Scope of Accounting
Education (the Bedford Committee) of the American Accounting Association (AAA) recognized
this in 1986 when it stated that: "Professional accounting education must not only emphasize the
needed skills and knowledge, it must also instill the ethical standards and commitment of a
professional" (The Bedford Committee 1986, 179).

In discussing the auditor's role in society, Gaa (1992) points out that technical rules can never be
a complete guide in all of the situations that auditors may come across while fulfilling their
professional responsibilities. The auditor's knowledge of the rules and skills in applying them
(technical expertise), which is gained through years of education and practice, may not be
sufficient in situations where the facts are ambiguous or stakeholder interests conflict. In such
situations an auditor needs to have moral expertise as well as technical expertise. Gaa (1992, 15-
22) believes that moral expertise is evidenced by the auditor's ability to make ethical judgments
in accordance with the "moral point of view." That is, the moral agency role of auditors requires
that they consider the interests of all the stakeholders in the auditing process, and not just their
own self-interests. This implies that at least sometimes auditors ought to take an action that is
against their own self-interest.

The possession of moral expertise enables auditors to make moral judgments qualitatively well
in fulfilling their ethical obligations to society. In so doing the auditor must not only recognize
that an ethical issue exists -- i.e., conflicting stakeholders' interests -- but the auditor also must be
committed to take the morally appropriate action. Ethical commitment refers to a strong desire to
do the right thing, even when one's actions impose economic, social, or psychological costs. It is
the virtues that give the auditor the inclination to act according to a commitment to ethical
behavior. Thus, the possession of both technical and moral expertise are necessary but not
sufficient conditions for auditors to meet their ethical and professional obligations to society.
Auditors must have the intention to act in accordance with the moral point of view as well as
possess the ability to do so.

During the past several years a variety of groups have called for greater integration of ethics into
the accounting curriculum including The Treadway Commission (1987, 82-83), the large
international accounting firms in their "White Paper" (Perspectives on Education, 1989, 6), the
AICPA (1988, 23; 1992a, 16), and the Accounting Education Change Commission (AECC)
(1990, 308). The AECC pointed out that accounting graduates should: identify with the values of
the members of the profession; be able to make value-based judgments; and be prepared to
address issues with integrity, objectivity, competence, and concern for the public interest.

This notion that accounting graduates should be aware of the values of the profession recently
has been reinforced in the survey results reported by Ahadiat and Mackie (1993, 243-257) and
Ahadiat and Smith (1994, 59-79). The results indicate that recruiters in the accounting profession
expect accounting graduates to have traits of character such as honesty, reliability,
trustworthiness, and to honor the public trust and interest. These and other qualities of ethical
behavior ranked higher than most other characteristics sought in entry-level accountants by
various employers of accounting graduates, including factors such as communication skills and
accounting education and knowledge.

These results suggest that accounting educators should discuss with students certain traits of
character that are important to the development of trust in professional relationships that exist in
accounting and which are an integral part of the professions' socialization process. Moreover, as
educators we influence our students in one way or another in the normal course of our activities
as teachers. Thus, moral education in some sense or another is unavoidable. Even if we do not
talk to students specifically about ethical behavior, it does not mean they are not learning through
observations of our actions and how we relate to them.

Ethical conflict in accounting occurs when accountants perceive that their duties toward one
group are inconsistent with their duties and responsibilities toward some other group or their own
self-interests. For example, a difference of opinion with a client over the proper application of an
accounting principle could lead to pressure exerted by the client and, perhaps, the accounting
firm, which tests the independent accountant's commitment to the public trust. It may be that the
accountant yields to client and competitive pressures. The way in which the external auditor
deals with the pressures that result from conflicting duties is a fundamental matter of character.
Therefore, virtue ethics takes on a point and purpose in accounting because of conflicting duties
in relationships of trust that may create pressures for the accountant that should be resolved in a
morally appropriate way.

Another example might help to illustrate the importance of virtue in accounting. Let's assume
that the chief executive officer does not want the financial statements to disclose a particular
item of importance that should be disclosed and that may be viewed as detrimental to the
company. In this situation the controller has a conflict of interests and must weigh his/her duty of
loyalty to the employer against the virtue of honesty. From the perspective of the public interest,
an honest controller is preferred to a dishonest one because, in the former case, the accountant
would insist that the financial statements should disclose all of the information that is deemed
necessary for the users to make informed decisions. The virtuous (honest) accountant, one who
acts according to the moral point of view, would recognize the importance of pacing the public
interest ahead of the employer's interest or self-interest. If such an accountant also possesses the
virtue of integrity, he/she would be able to withstand client pressure and to take whatever steps
are necessary to ensure that the statements present the financial results of the company fairly and
accurately.

The objective of this paper is to describe the meaning and purpose of virtue theory, emphasizing
the work of Pincoffs, how it relates to accounting practice, and ways to teach virtue to
accounting students. The first section will define and distinguish some of the important terms
and concepts relevant to an understanding of virtue in accounting. This will be followed by a
description of virtue theory and its relationship to accounting. Then, there will be a discussion of
the role of virtue in accounting practice. Pedagogical issues related to teaching about virtue will
be discussed in the next section. The paper concludes with some final thoughts about the need to
teach virtue to accounting students.
DEFINITIONS

To think clearly about virtue and relate it to ethical issues that arise in the practice of accounting,
it is necessary to define and distinguish between some of the most important terms and concepts
discussed in this paper.

Ethics, Values, and Virtues

Ethics refers to standards of conduct that indicate how one ought to behave based on specific
values and moral duties and virtues arising from principles about right and wrong. For example,
many people value certain rights such as the right to be treated equally regardless of one's race or
religion. It would be wrong to discriminate against another person based on these or any other
factors. We have a moral duty to treat others fairly and equitably, and it is the virtue of justice
that enables us to do so.

Values are basic and fundamental beliefs that guide or motivate attitudes or actions. Values are
concerned with how a person will behave in certain situations whereas ethics is concerned with
how a moral person should behave. Some values concern ethics because they pertain to beliefs
about what is right and proper or which motivate a sense of moral duty or virtue. For example,
the most important value of the accounting profession is its commitment to serve the public
interest. This entails placing the public good ahead of all other interests including the interests of
an employer or client and self-interest. Similarly, accountants are expected to act according to
the moral point of view in fulfilling their responsibilities to society. Other values of the
accounting profession, as evidenced by their inclusion in the codes of conduct of the major
professional associations, are: to perform services competently; to be objective in carrying out
professional responsibilities; to maintain integrity; and to preserve the confidentiality of
employer or client information.

Virtues are dispositional properties that enable accountants to meet their ethical obligations to
employers, clients, and the public at large. For instance, in order for an accountant to act
objectively in performing professional services, such as auditing the financial statements of a
client, the accountant must have the inclination to be impartial and open-minded. That is, to
perform such services without bias and avoid conflicts of interest. Impartiality is an essential
virtue for judges. CPAs render judgment on the fairness of financial statements. Therefore, they
should act impartially in carrying out their professional responsibilities.

Integrity, Trustworthiness, and Loyalty

To make judgments in a morally appropriate way and consistent with the profession's values, the
CPA must possess the ability (technical and moral expertise) to act ethically and must have the
intent to do so. Integrity provides the intent. Integrity means acting according to ethical
principles and placing those principles above expedience or self-interest even when such an
action imposes financial or other costs.

Trustworthiness is a trait of character that inspires confidence for those who rely on the good
intentions of others to perform services competently and in their best interests. For example, an
accountant who is honest can be expected (trusted) to fully disclose all the information necessary
to make the financial statements not misleading. However, it is the virtue of integrity that ensures
the accountant will not subordinate honesty to the loyalty demands of an employer or client. An
accountant who has integrity can be counted on (trusted) to act in the best interests of the
stockholders, creditors and others who rely on the financial statements.

Loyalty entails a special moral responsibility to promote and protect the interests of others.
While an accountant is expected to be loyal to the employer's or client's interest, it is the public
interest to which the accountant owes ultimate allegiance. The duty of loyalty requires that
accountants should protect the confidentiality of information learned during a professional
engagement and to be faithful to the employer or client's interests by performing services
competently.

VIRTUE THEORY

Virtue theory dates back to the ancient Greek philosophers, especially Plato and Aristotle. The
primary question the Greeks sought to answer was not: "What actions are universally morally
right?" Instead, it was: "What is the best sort of life for human beings to live?" (Prior 1991, 1).
For most Greek philosophers, the end or goal of life was happiness or a life of excellence, and
the excellences were virtues (Prior 1991, 2).

Aristotelian Virtue

In writing about Aristotle's account of the virtues, MacIntyre (1984, 149-150) states that the
exercise of virtue requires "a capacity to judge and to do the right thing in the right place at the
right time in the right way. " Judgment is exercised not through a routinizable application of
rules, but by possessing those dispositions which enable choices to be made about what is the
good of man and by holding in check desires for something other than what will help to achieve
this goal. Some individuals may have an inherited natural disposition to do on occasion what a
particular virtue requires. However, this does not mean that those individuals possess the
corresponding virtue which must be cultivated through systematic training.

According to Aristotle, the excellence of character and intelligence cannot be separated. We

transform our naturally given dispositions into virtues of character through the exercise of
intelligence. The virtues of character must be present to direct our practical intelligence toward
the good of man. This interrelationship of the virtues explains why they do not provide us with a
number of distinct criteria by which to judge the goodness of a particular individual, but rather
with one complex measure (MacIntyre 1984, 154-155).

According to the AICPA Code of Professional Conduct(1992b, 4), CPAs have responsibilities to
all those who use their professional services. In carrying out their responsibilities, "members
should exercise sensitive professional and moral judgments in all of their activities." Judgment is
an essential component in the audit of a client's financial statements. For example, generally
accepted auditing standards require the independent auditor to judge the adequacy (competency
and reliability) of the underlying accounting data and corroborating information in order to
render an opinion on the financial statements under audit. Judgments must be made about the
degree of importance (materiality) of items and how they should be disclosed. A critical
judgment in the audit report is whether the financial statements are presented in accordance with
generally accepted accounting principles that have been consistently observed in the current
period in relation to the preceding period. An Aristotelian approach to virtue in accounting
recognizes the importance of certain traits of character that enable the accountant to make
professional and ethical judgments (exercise practical intelligence) that are consistent with the
expectations of public trust.

Virtues as Dispositions

So what are the character traits of a virtuous person? As previously stated, Pincoffs (1986, 75-
79) believes that virtues (and vices) are dispositional properties that provide grounds for
preference (or avoidance) of persons. Since there can be many different reasons for preference,
the list of virtues wiLl be long and varied. A way of making a choice of persons is to categorize
the virtues based on considerations of "the aptness or appropriateness of the person for the
accomplishment or achievement of goals or objectives" (Pincoffs 1986, 83-84). Pincoffs divides
his virtues into two categories -- instrumental and noninstrumental virtues.

Instrumental Virtues

The instrumental virtues are those that make it more probable that a person will successfully
pursue goals, ends, or objectives. Examples include: persistence, courage, carefulness, and
prudence. These are positive traits of character for an independent auditor because their presence
enables the auditor to complete the engagement with due care. Generally, a client would prefer
that the auditor should have these virtues. However, a difference of opinion with client
management over the proper application of an accounting principle may lead the client to prefer
an auditor, at least in this instance, who does not have the strength of conviction (courage) to
insist on the proper application of the accounting principle. In this case the auditor should take
the moral point of view and place the public interest ahead of the client's interest in determining
what is the proper accounting.

Noninstrumental Virtues

The noninstrumental virtues are concerned with the doing of tasks well. The most important type
of noninstrumental virtue for accountants is the moral one. According to Pincoffs (1986, 89-90),
the moral virtues are traits concerned with the regard that the agent has for the interests of others.
What makes them virtues or vices is whether the agent acts out of a positive concern for others.
There are two categories of moral virtues: (1) mandatory moral virtues and (2) nonmandatory
moral virtues.

Mandatory moral virtues. These virtues require that no unfair advantage be taken of others.
Examples include various forms of nondeceptiveness such as honesty, sincerity, and truthfulness.
The virtuous person does not change information to mislead others. Virtuous people in positions
of trust do not use their positions to gain an unfair advantage. A moral community depends on
honesty and open communication to develop mutual trust and self-government.
Let's assume that the chief accounting officer is being pressured by the chief executive officer to
use an overly aggressive accounting procedure to make the financial statements look better than
they really are in anticipation of a pending stock sale. Now, the accountant believes there is
another procedure that is preferable but that procedure does not have as positive an effect on the
statements. The mandatory moral virtues require that the accountant should not go along with the
chief executive officer. Otherwise, potential investors and the public will be treated unfairly. The
moral point of view requires that the interests of these stakeholders should be given priority over
those of the employer.

Pincoffs (1986, 90-91) describes ways other than deceptivenes of taking unfair advantage of
others. For example, one can be disloyal where another person has a right to expect loyalty. One
can be incorrect by failing to faithfully adhere to the principles that one has led others to believe
that one holds. One can be unreliable, undependable, or untrustworthy by failing to carry out
one's responsibilities to others. One can be fanatical in the pursuit of one's own objectives, thus
placing those objectives above the interests of everyone else. These are all ways of taking unfair
advantage of those who are, on the whole, nondeceptive, loyal, conscientious, faithful,
trustworthy, and so on.

Nonmandatory moral virtues. Unlike the previously described mandatory moral virtues, the
absence of the nonmandatory moral virtues is not necessarily a vice. However, their presence is a
virtue because those persons who possess these qualities take the interests of others into account.
For example, there are kind, sensitive, benevolent, altruistic, and understanding people.
Relationships break down in a moral community in the absence of these virtues (Pincoffs 1986,
91). These virtues are of particular importance for CPAs who are expected to act according to the
moral point of view and, therefore, to place the public interest ahead of self-interest. CPAs who
have a benevolent and altruistic attitude about their obligations as professional are inclined to
favor the public interest in conflicting situations. That is, they are motivated to act properly and
to unselfishly seek to honor the public trust.

Pincoffs (1986, 92) considers justice to be the quintessential moral virtue in the sense that one
should not take unfair advantage of one's own interest. Justice in the sense of treating others
fairly also is an important moral virtue. Conflicts will arise in a moral community if the members
believe that those in positions of power or influence take unfair advantage or treat others
unequally when there is no moral basis to do so.

It is not difficult to see why an accountant who possesses the moral virtues of character is
preferred to one who does not. For example, an accountant who is faithful and reliable can be
trusted to maintain the confidentiality of client information obtained during the course of an
engagement. On the other hand, an accountant who is unfaithful and unreliable might use the
confidential information for personal gain.

Moral Acceptability of Actions

Pincoffs (1986, 103-104) supports what he calls a "perfectionist" view of moral acceptability.
That is, "It is a necessary and sufficient condition of the moral acceptability of an action or
course of action that it not violate the requirements of the relevant set of virtue considerations."
However, he admits that virtues may have to be balanced in some situations. For example, an
employer expects the controller to be loyal but the public trust demands that all relevant
information be disclosed in the financial statements. If information that is potentially harmful to
the employer's best interests comes to the attention of the controller, then the controller must
weigh faithfulness to the employer and the duty of loyalty against the virtue of honesty and the
fact that the public relies on the accuracy of the financial statement information for its decision
making. The controller's overriding obligation in this instance is to disclose information that the
puBlic has a right know. The virtue of honesty enables the controller to meet the public's
expectation.

There are limitations to loyalty. An employer may expect the controller to place the employer's
interests so high that virtue is subordinated. Loyalty, however, is a reciprocal notion and an
employer has no right to ask the controller to sacrifice ethical principles in the name of a
relationship of trust. Thus, while there is a duty of loyalty to one's employer (or client), it does
not justify e violation of a virtue.

Pincoffs (1986, 112) claims that an apparent advantage of his thesis over other conceptions of
moral justification is "that it bridges the supposed gap between the description of an act or policy
and the conclusion that it ought to be done or adopted." Virtue considerations apply both to me
and to the act that is under consideration by me. For instance, "since I ought not do what is
dishonest, I ought not do this act." If the act has a certain characteristic, for example,
trustworthiness, then according to Pincoffs (1986, 113), "I have that characteristic" in this
instance "if I do it." The question then is: What is the motive for the act? Is it to have that
characteristic, or is it to do a trustworthy thing? If it is to have that characteristic, then what is the
source of my motive to be trustworthy? Is it a morally defensible motive, such as wanting to be a
trustworthy person, or is it for egocentric reasons. Pincoffs admits that one should be constantly
on guard to not take actions in order to embellish one's character. Instead, one should be
sensitive to not taking actions that would be wrong or harmful to others or, in other words, not in
accordance with virtue considerations (Pincoffs 1986, 112-114).

VIRTUE IN ACCOUNTING

MacIntyre (1984) rates virtues to goods (rewards) that are internal to practices. By practices, he
means any coherent and complex form of socially established cooperative human activity
through which internal rewards may be realized while trying to achieve those standards of
excellence specific to that form of activity. MacIntyre differentiates between the external
rewards of a practice (such as money, fame, and power) and the internal goods that relate to the
intrinsic value of a particular practice. For MacIntyre, "practice" is a general term that might
apply to a variety of different activities. For example, he considers the game of football to be a
form of practice (MacIntyre 1984, 187). The internal rewards of foot would include the ability of
those who play together as a team to ingrate their various skills in such a way that they function
in a smooth and efficient manner. The result of such excellence is that the members of the team
gain pride in performing better than any other team. The external rewards of such effort might
include the prestige of winning a Superbowl and the inevitable large contracts that follow.
MacIntyre (1984, 190-192) points out that every practice requires a certain kind of relationship
between those who participate in it. The virtues are those goods that define our relationship to
others who share the same kind of purposes and standards of practice. The virtues include
truthfulness and trust, justice, courage and honesty. A practice cannot be sustained without these
standards of excellence and perhaps some others that characterize relationships within a practice.
To enter into a practice is to accept the authority of those standards, obedience to rules, and the
achievement of goods.

Francis (1990, 5-7) states that accounting has the capacity to be a virtuous practice if we realize
that it is both a moral practice and discursive practice. By moral he means that: "Accounting is a
practice involving human agency that has the capacity to change things in the world." By
discursive he means that accounting not only reports the facts but, importantly, the accountant
says "something (what the accounting report is about) to someone (who the accounting report is
prepared for)." The discursive nature of accounting practice establishes a moral agency role for
accountants. Virtuous practitioners are concerned about the moral consequences of what they do
as accountants.

Francis (1990, 9-11) identifies five internal goods that may be uniquely realized through the
practice of accounting: honesty; concern for the economic status of others (stewardship or
accountability); sensitivity to the value of cooperation and conflict; communicative character of
accounting; and dissemination of economic information. He identifies three obstacles in realizing
these virtues: the dominance of external rewards (i.e., prestige, status, and money); the
corrupting power of institutions; and the failure to distinguish between rules and virtues.

Public Accounting

In exchange for the monopoly rights granted to the accounting profession, its members promise
to use their expertise to benefit society. The accounting profession self-regulates the behavior of
its members through codes of ethics. A function of a code is to emphasize the importance of high
standards of ethical conduct in relationships between accounting professionals and their clients
or employers, and their public interest responsibilities.

The AICPA Code (1992b, 3-8) consists of principles and rules. The principles are goal-oriented
and provide the framework for the profession's technical standards and ethics rules. The
principles prescribe the ethical responsibilities members should strive to achieve and express the
profession's recognition of its responsibilities to the public, to clients, and to colleagues. The
principles call for an unswerving commitment to honorable behavior and the public interest even
at the sacrifice of personal advantage. The principles include: (1) the public interest, (2) integrity,
(3) objectivity and independence, and (4) due care in the performance of services. The rules
represent the enforceable provisions of the code. According to Gaa (1992, 16), these statements
of principles and rules are important from the moral point of view because they obligate CPAs
who are members of the AICPA to adopt the moral point of view. That is, the statements
represent promises to society that are morally binding on CPAs in the same way any promise is.

The Public Interest

As previously mentioned, virtue considerations may have to be balanced on occasion because of
conflicting professional obligations. The AICPA Code (1992b, 5) provides guidance in such
situations. It states that members should resolve conflicts by acting with integrity, "guided by the
precept that when members fulfill their responsibility to the public, clients' and employers'
interests are best served."

Loyalty v. truthful and nondeceptive financial information. Conflicts may exist between the
public interest and duties to a client and a CPA firm/employer when, for example, a difference of
opinion rests between the auditor and top management over the proper financial statement
treatment of an item in question. The client may expect the auditor to go along with the client's
position out of a duty of loyalty and because the client pays the fee for the professional's
services. Similarly, the CPA firm may expect the auditor to not take any action that might
jeopardize the client relationship. However, the CPA's obligation of loyalty does not include
agreeing with the client's position whether it is proper or improper. Loyalty requires that the
CPA should be faithful to the client's interests by maintaining the confidentiality of client
information and by performing professional services reliably and dependably.

The public has a right to expect truthful and nondeceptive financial information. The virtue of
honesty precludes both intentional misrepresentations of fact and the deliberate slanting of
information. When this virtue conflicts with loyalty considerations, the public trust demands that
the auditor should insist on accurate and reliable financial information. Two virtues that enable
auditors to meet their public interest responsibilities in this regard are integrity and
trustworthiness.

Integrity. The integrity of a person is an essential element in trusting that person. MacIntyre
(1984, 203) states that: "There is at least one virtue recognized by tradition which cannot be
specified except with reference to the wholeness of a human life -- the virtue of integrity or
constancy."

The external auditor has an ethical obligation to not subordinate professional judgment to the
client's demands or for personal gain and advantage. Conflicting duties that arise when there is a
difference of opinion with a client over the proper application of accounting principles test the
professionals' strength of character and commitment to do the right thing. The Integrity Principle
in the AICPA Code (1992b,6) "requires a member to observe both the form and the spirit of
technical and ethical standards; circumvention of those standards constitutes subordination of
judgment." As previously mentioned, Gaa (1992, 22) believes that moral expertise is necessary
to guide auditors when standards are unclear. Integrity is the virtue that enables the auditor to act
according to the expectations of moral expertise when such conflicts exist.

The reliance of the public on the financial statement presentations imposes an obligation of
honesty and integrity, especially when standards are unclear. An accountant who seeks to
comply merely with the strict technical aspects of a standard is not trustworthy. When standards
are unclear it is the "spirit" or true meaning that is important. In this regard, integrity is an
essential component of trustworthiness. An accountant who maintains integrity should not permit
professional judgment about the proper application of standards to be subordinated to client and
commercial pressures for technical compliance, which may favor the client's interests but harm
the public trust.

Integrity is a fundamental trait of character that enables a CPA to withstand client and
competitive pressures that might otherwise lead to the subordination of judgment. Its presence
gives the CPA the motivation and intent to act according to the moral point of view. Having
integrity means that the auditor will act out of moral principle and do what is right even when
there are negative consequences for the auditor and the CPA firm, such as a loss of the client.

Trustworthiness. Trustworthiness is an essential trait of character for an accounting professional.

The Due Care Principle in the AICPA Code (1992b, 7) requires that technical and ethic standards
should be properly adhered to while performing professional services. In some situations it may
be difficult for the client or the public to make this assessment. For example, if the observer of
professional conduct is not an expert -- i.e., the investing public -- it is the auditor's
trustworthiness at gives the pubic confidence that professional services have been performed for
a client with due care.

Trustworthiness also is an important virtue when the behavior of the accountant is not
observable. For example, according to the Objectivity and Independence Principle in the AICPA
Code (1992, 6), objectivity is a "state of mind," a quality that lends value to a member's services.
The objective accountant should be impartial The virtue of impartiality requires open-
mindedness. When alternatives exist, the virtuous accountant should be receptive to client
arguments. However, the final decision should be based on the technical merit of each
alternative, not on biased considerations such as client or commercial pressures. Similarly, an
auditor should be independent in both "fact" and "appearance." While the latter can be assessed
by determining the significance of certain financial business, or family relationships that may
affect client service, the former is said to be a matter of one's "mental attitude." An impartial
mental attitude exists when conflicts of interest are avoided that could impair the accountant's
ability to render a truthful opinion on the fairness of the client's financial statements.

Industry Accountants

The Treadway Commission Report (1987) placed primary responsibility for financial reporting
with company management and directors. The Commission emphasized the importance of a
strong ethical tone at the top. If the chief accounting officer refuses to sanction improper
financial reporting, and a strong internal audit function exists, then it is difficult for the company
to "cook the books." This, in turn, facilitates the external auditor's job in providing assurance of
financial statement accuracy.

Ethical Obligations

Internal accountants are responsible for designing, implementing, and monitoring the company's
financial reporting system and internal accounting controls. Internal accountants who are CPAs
and members of the AICPA are obligated to follow the same ethic standards as external
auditor/CPAs. Those who may be Certified Management Accountants and members of the
Institute of Management Accountants (IMA) are obligated to follow the IMA's ethical standards,
which are: (1) competence, (2) confidentiality, (3) integrity, and (4) objectivity (IMA 1983).
Management accountants have an obligation to their employer, the public, and themselves.

Internal auditors monitor the reliability and the integrity of financial and operating information
and, therefore, they serve a critical role in preventing and detecting fraudulent financial
reporting. Internal auditors who are CPAs and members of the AICPA are obligated to follow the
same ethical standards as external auditor/CPAs. Those who may be Certified Internal Auditors
and members of the Institute of Internal Auditors (IIA) are obligated to follow the IIA's ethical
standards, which include: (1) integrity, (2) honesty, (3) objectivity, (4) diligence, (5) loyalty, and
(6) prudence (IIA 1992). These professionals have an obligation to their employer, the public,
and themselves, as well as to the external auditors who rely on the internal auditors' work in
determining proper external audit procedures.

Loyalty v. integrity and reliability of reports and controls. The public has a right to expect that
the internal accountants and auditors will take whatever steps are necessary to ensure that the
financial statements are reliable. Employers expect their employees to be loyal. Conflict may
arise between the public trust an management's expectations of loyalty if top management
pressures the industry accountants to circumvent internal controls in order to manage earnings or
even manipulate the financial statements. A professional who is predisposed to act with honesty
and integrity would be more inclined to resist top management pressure and honor the public
trust by insisting that the financial information is truthful and nondeceptive. Integrity in this
instance requires that one's principles should not be subordinated to management's desires or
one's own self-interest, even if it means a loss of position in the company.

Loyalty to an employer does not mean that an accountant should go along with whatever the
employer wants. Instead, it requires that the employee should be faithful to the employer's
interests by maintaining the confidentiality of employer information and by performing one's
duties reliably and dependably. Thus, the same virtues that external auditors need to meet their
obligations to the client also enable industry accountants and auditors to meet their ethical
obligations to their employer.

Role of Virtue in Accounting

The proposition then is that the virtues enable accounting professionals to resolve conflicting
duties and loyalties in a morally appropriate way because they provide the inner strength of
character to withstand pressures that might otherwise overwhelm and negatively influence
professional judgment in a relationship of trust. The virtues are not independent of each other.
Instead, the exercise of one virtue often will depend on the presence of another. For example, a
person who lacks integrity is not trustworthy in a relationship of trust. A person who is biased in
performing professional services does not perform such services reliably. The duty of loyalty
should always be viewed as subordinate to the virtues. Otherwise, an unethical action might be
rationalized based on loyalty to another party, such as one's employer.

Figure 1 presents a summary of the enabling virtues in accounting in relation to the profession's
values as reflected in its codes of conduct, and with due consideration given to the accountant's
ethical obligations. (Figure 1 omitted) In all matters, the accountant should always place the
public interest and of all other interests and should use technically sound and moral professional
judgment.

PEDAGOGICAL CONSIDERATIONS

Pincoffs (1986, 169) believes that the primary objective of moral education is to encourage the
development of the right sort of person. This entails paying attention to two interrelated aspects
of moral judgment. In deliberating over alternative courses of action, the agent deliberates at the
same time over what he or she is to be or become. By cultivating the virtues and avoiding the
vices, the teacher can instill the necessary qualities for one person to be preferred to others who
do not possess such qualities.

Christina Hoff Sommers, a philosophy professor at Clark University, in writing about her own
experience teaching philosophy (1993, 8), states that a course on the philosophy of virtue is
"naturally edificatory." She claims that: "Students find a great deal of plausibility in Aristotle's
theory of moral education, as well as personal relevance in what he says about courage,
generosity, temperance, and other virtues." By exposing students to Aristotle's writings on virtue,
they are likely to learn that morality is not "relative to taste or social fashion" and that right and
wrong do est. Sommers concludes that: "Most students find the idea of developing virtuous
character traits naturally appealing." " In describing the role of the teacher of ethics, Sommers
(1993, 7-11) criticizes those who take a "hands-off posture," claiming that they are not
demonstrating a values-neutral approach to ethics. Instead, "The teacher contributes to the
student's lack of confidence in a moral life that could be grounded in something more than
personal disposition or political fashion." She advocates a "directive moral education" approach
to teaching virtue, one that actively engages the teacher in fostering the moral betterment of
students by stimulating their moral sensibilities.

The primary focus of ethics integration efforts in accounting to date has been to expose students
to standard ethical theories as a way to resolve ethical dilemmas that arise in case studies.
Perhaps this is attributable to the ethics training workshops and seminars that were conducted by
Arthur Andersen & Co. through its business ethics program, PACE (Partnership for Applied
Curriculum on Ethics, and the AAA through its Professionalism and Ethics Committee. Indeed,
both organizations adopted standard ethical theories as their approach to moral reasoning. For
example, Cooke in his paper that was used in the PACE program, stated that there are "standard
operational models that people use when confronted with ethical issues or dilemmas" (1988, 5).
Cooke summarized four such models including the utilitarian model, the golden-rule model, the
Kantian model, and the enlightened self-interest model.

Ethics material edited by William W. May and included in the AAA binder, "Ethics in the
Accounting Curriculum: Cases & Readings" (1992, 31), refers to the three approaches to moral
reasoning: utilitarianism, rights, and justice. Additionally, at least two authors of accounting
textbooks (Armstrong, 1993 and Mintz, 1992) describe the models and use them to analyze
ethical issues that arise in case studies. These models are useful tools of ethical analysis.
However, they ignore ethical considerations related to the agent because they focus reasoning
entirely on the act. Since it is the agent who is faced with the ethical dilemma, that person's traits
of character should effect how and why a decision is made. The accounting virtues described in
this paper represent those traits that enable the accountant to meet the expected standard of
behavior of those with whom there is a relationship of trust. Thus, educators can facilitate the
socialization process by discussing with students the values that underlie the moral duties and
virtues of accounting professionals.

Langenderfer and Rockness (1989, 68) outlined an eight-step decision-making model for
evaluating ethical dilemmas as follows: (1) identify the facts, (2) identify the ethics issues and
the stakeholders involved, (3) define the norms, principles, and values related to the situation, (4)
identify the alternative courses of action, (5) decide the best course of action consistent with the
norms, principles, and values, (6) evaluate the consequences of each possible course of action,
(7) if appropriate, discuss the alternatives with a trusted person to help gain greater perspective
regarding the alternatives, and (8) reach a decision.

Armstrong (1990, 188-189) suggests that a criticism of the 8-step method is its lack of emphasis
on existing professional guidance in discussing ethical issues and solving dilemmas. She
recommends including after step 2 a discussion of the profession's principles since they are
official sources of guidance on ethical issues. Some examples cited are the AICPA Code of
Professional Conduct (1992b), the IMA Standards of Ethical Conduct (1983), and the IIA Code
of Ethics (1992). For the most part these principles represent the values and virtues of the
profession. Therefore, step 3 of the model should be amended to read "define the norms,
principles, values and virtues related to the situation." Belatedly, step 5 should be amended to
read "decide the best course of action consistent with the norms, principles, values and virtues."

Objectives

There are two primary objectives of virtue education. One is to teach students about virtue. That
is, to inform them of the role of virtue in accounting practice and provide examples of how the
virtues apply in specific situations. In this regard accounting educators might invite professionals
to come to class and discuss experiences they had where virtue played a role in resolving a moral
conflict related to their practice of accounting. These professionals might serve as role models
for students. Also, case studies and video presentations can be used to facilitate the discussion of
virtue in accounting. Educators also can use these techniques to help meet the second objective --
to involve students in situations where they learn the importance of virtue and/or how to act
virtuously. Role-playing exercises can be developed from case studies or video presentations to
facilitate meeting this objective. By so doing students can experience first hand what it's like to
be faced with an ethical dilemma. Another potentially valuable experience for students is to
make group assignments to expose them to virtue in a community-type situation. Students learn
that they have certain moral responsibilities as members of a group much as accountants have
moral obligations as members of the accounting profession.

Techniques

Three pedagogical methods are addressed in this section: (1) the use of case studies; (2) group
processes including collaborative and cooperative learning; and (3) role-playing.

Case Studies
According to the AECC (1990, 307-308), one of the objectives of education for accountants is to
develop the skills that are necessary for success in the accounting profession. One such group of
skills is the intellectual skills. These include "the ability to identify and solve unstructured
problems in unfamiliar settings and to exercise judgment based on comprehension of an
unfocused set of facts." The large accounting firms also stressed the importance of these skills in
their "White Paper," emphasizing the need for new methods of teaching the skills such as the use
of case analysis (Perspectives on Education 1989, 11).

Accounting educators who currently integrate ethics into the curriculum should be familiar with
the case method and the 8-step approach. Therefore, they should be comfortable using these
pedagogical tools to illustrate the role of virtue in accounting practice. Examples of virtue (or
vice) in the accounting profession should be provided to facilitate the learning process and to set
the stage for more complex situations. For instance, Sack and Tangreti (1987, 94-100) describe
the $300-million ESM fraud and the role of Jose Gomez. Gomez was the partner in charge of the
audit who failed to detect the fraud in the 1978 audit and concealed this information after being
told about it by ESM's chief financial officer in 1979. Gomez was afraid that if he told the CPA
firm's management it would end his career. At about the same time he had a large amount of
personal debt that he could not pay off. ESM discovered that fact and offered to loan Gomez
money to ensure his silence. Gomez accepted loans of $200,000 from ESM principals and he did
not reveal the existence of the fraud or of his "borrowings" from his client.

Knapp (1993) analyzes the ESM case and many other examples of situations in which auditors
failed to satisfy their professional responsibilities in a book of contemporary auditing cases.
Accounting educators might ask students to read one or more of these cases and to develop a list
of virtues (or vices). For example, in the ESM case Jose Gomez placed his own self-interest
ahead of the public interest. He had a conflict of interest with his client and, therefore, he lacked
both objectivity and independence. He was dishonest and lacked integrity, having admitted after
the fact that his actions were improper but he felt "pressured" by his new partnership position
and responsibilities. Finally, he failed to exercise due care because he violated technical and
ethical standards. Gomez's actions were contrary to all of the accounting virtues.

The Kohlbergian (1984) cognitive-development approach to discussing ethical dilemmas

presented in case studies focuses on encouraging students to reach the highest level of moral
reasoning. Shaub (1994, 135) criticizes this approach to ethics education because it emphasizes
the use of self-chosen values rather than simple adherence to conventional morality. Shaub's
concern is that such an approach could lead students to feel morally justified to follow their own
values rather than societal norms and the accounting profession's own standards of conduct.
Without the restraints of encouraging adherence to "conventionally virtuous behavior," the
Kohlbergian approach may lead to an egoistic relativism in resolving issues that arise in case
discussions (Shaub 1994, 6-9). This is an important point considering the earlier discussion about
the need to expose students to the values of the profession that underlie moral behavior in
accounting.

Group Processes
Interpersonal skills are recognized by AECC (1990, 311) and in the "White Paper" (Perspectives
on Education 1989, 7) as being part of the capabilities needed by accounting graduates. One of
the interpersonal skills specifically mentioned by both groups is the ability to work with others,
particularly in groups, to influence them, to organize and delegate tasks, to motivate and develop
people, and to withstand and resolve conflict. Thus, group processes can be a useful pedagogical
tool to teach virtue because they require that students work with each other to accomplish a
specific task and to resolve possible conflict that may arise between group members.

Collaborative learning groups. Collaborative learning in the classroom grew out of the work of
human relationists who emphasized the importance of group dynamics and the informal social
organization. According to Rau and Heyl (1990, 143-145), collaborative learning groups enable
teachers to give authority to students while holding them accountable for its use. A
distinguishing characteristic of collaborative learning is the emphasis on group learning based on
group discussions, group responses, and group reports. Unlike cooperative learning which has
two features, "student-student interdependence" and "individual accountability," collaborative
learning focuses solely on student interaction within the group context and group grading.

Rau and Heyl (1990, 146-148) identify several benefits of collaborative learning groups. They
include: creating an esprit de corps among students; developing leadership and communication
skills; sensitizing students to the needs of other group members and being able to empathize with
them; providing experience in group consensus building; and improved classroom performance.
Conflicts may occur in collaborative learning groups if the personalities of group members clash
and this is not successfully managed.

The features and benefits of collaborative learning make this a useful pedagogical tool. Students
become more aware of the needs of others and the importance of their role as a member of a
community, thereby providing an opportunity to develop the moral virtues described by Pincoffs
(1986). The classroom experience they have as members of a collaborative learning group should
facilitate the learning of virtue. After students graduate they may be able to apply these
experiences when they interact with other professionals on assignments and to help resolve
conflicts that may arise on the job.

Cooperative learning groups. Slavin (1983, 19-21) points out that the basic principle of
cooperative learning methods is that learning is enhanced by provision of group rewards if and
only if group members are individually accountable to the group for their own learning.
Individual accountability solves the problem of diffusion of responsibility in groups. This can
lead to rewards for individuals who contribute little to the group or a lack of rewards for those
who have done the most (Slavin 1983, 14-17).

Peek et al. (1994, 195) used cooperative learning to determine whether group discussions
significantly changed the individual responses of students to an ethical dilemma depicted in one
of the five vignettes on the Arthur Andersen videotape, "Ethics in Accounting." While the
authors did not find many significant differences after the discussions, they did observe that
cooperative learning techniques increased students' participation in the ethical discussions. The
authors concluded that: "Cooperative learning concepts stress the value of teamwork and shared
responsibility, and they facilitate the enculturation of accounting students into the role of
professional in a business organization."

The primary benefit of cooperative learning is that it holds group members responsible for their
own performance as well as for that of the group. Thus, students have an opportunity to practice
both the instrumental and moral virtues. The instrumental virtues emphasize traits of character
that enable the agent to accomplish goals and, therefore, are relevant to the individual
accountability aspect of cooperative learning. These virtues facilitate an accountant's successful
completion of professional services. The moral virtues relate more to how the agent treats others
and, therefore, they are important for group accomplishment. These virtues enable the accountant
to fulfill obligations to a client (or employer) and to meet public interest expectations.

Role-playing. Communication skills also are identified by AECC (1990, 311) and in the "White
Paper" (Perspectives on Education 1989, 7) as one of the important capabilities for success. In
role-playing, students practice verbal skills by presenting their views as they take on and act out
the roles of real or imaginary characters in various situations. Accounting educators can use role-
playing to extend the discussion of a situation depicted on a video or to place students in the
roles of various stakeholders in a case study.

Chesler and Fox (1966) define role-playing as a technique that requires students to step outside
of customary roles and relinquish patterns of behavior in exchange for the role and patterns of
another person. This other role may be that of a real or fictitious person, but the action is
designed to enable one student to experience another's feelings, thoughts, and behavior (3-9).
Role-paying can be an effective tool to get students to learn how to empathize with another
person and to develop a sympathetic understanding for that person's situation. By having
students role-play, they may begin to understand how their actions as moral agents affect the
behavior of others.

Beets (1993) divided a class into small groups and each one was given the responsibility to (1)
design a role-play related to a specific rule of the AICPA Code, (2) perform the role-play during
class, and (3) lead a discussion of related ethics issues after completion of the exercise. Each
role-play involved an ethically questionable situation.

Role-playing adds a dimension to case analysis and discussion that enables students to
experience empathy and understanding. According to Beets (1993, 52), "While cases are
typically discussed and analyzed from a detached, third-party point of view, role-plays encourage
students to consider the ramifications of actions and decisions from a very personal level."

In exploring the use of role-playing in a conflict resolution setting, such as case material, Craig
and Amernic (1994, 31) suggest that one such setting might be "disputes between auditors and
client management regarding the choice of appropriate accounting principles." This type of role-
play setting would be an ideal one for teaching about virtue. Students would have an opportunity
to experience on a very personal level what it might be like to try to convince a client about the
rightness of one's professional judgment, in light of client and commercial pressures.
In discussing the attractiveness of conflict-resolution role-play cases, Craig and Amernic (1994,
32) point out that the role-play experience should help students to become more sensitive to
other perspectives, force them to respond to business-related ethical dilemmas, and help them to
learn to better appreciate their own strengths, limitations, and biases.

CONCLUDING THOUGHTS

The public continues to question whether external auditors are excessively influenced by client
and commercial pressures in carrying out their audit responsibilities. Industry accountants, who
have responsibilities to management and to outside parties, may feel pressured by loyalty
considerations if top management sanctions improper financial transactions. Conflicts such as
these require that accountants should make professional judgments according to the moral point
of view. It is the virtues accountants maintain that enable them to meet these and other ethical
obligations.

Virtue considerations bridge the gap between a description of possible acts or decisions and the
conclusion as to which one should be done because the virtues apply both to the agent and to the
proposed act or decision. Training in virtue ethics enables the student not only to give and be
guided by the right reason, but to have the right reason for doing something.

Ethics education in accounting should include meaningful discussions with students about the
virtues. Educators should invite accounting professionals into the classroom to discuss their
virtue-related experiences. Techniques such as case studies, cooperative and collaborative
learning techniques, and role-playing, can be used to inform students about the role of virtue in
the practice of accounting and to involve students in situations where they learn the importance
of virtue and/or how to act virtuously. Accounting educators should take advantage of every
opportunity at their disposal to inculcate the virtues. The result may be to improve the character
of students, thereby fostering the ethics and professionalism of future generations of accounting
professionals.

The author wishes to acknowledge the help of two anonymous reviewers who provided many
helpful comments and insights during the development of this paper.

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Steven M. Mintz is a Professor at Southwest Texas State University.

Copyright American Accounting Association Fall 1995