Topic 1 Professionalism and Ethics of Accountants

1
Introduction to ACCY305
Professionalism and Ethics of
Accountants
ACCY305 Financial Accounting III

Session 1, 2020
Topic 1
ACCY305 2020 Slides prepared by S Chapple

2
Outline of lecture
• Moodle
• Subject outline
• Outline of ACCY305
• Subject learning outcomes
• Today’s topics
▫ Professionalism
▫ Ethics
▫ Corporate governance
3
Moodle
• On the Moodle site you will find:
▫ ACCY305 Subject Outline
▫ Weekly topics – lecture notes and tutorial questions

and solutions
▫ Guidelines / marking sheets for assessment tasks

4
Subject outline
• Text books
▫ Deegan (2014) Financial Accounting Theory 4th
Edition, McGraw Hill
▫ Leo et al (2015) (chapters 19, 20, 21) – from

ACCY201 (used for consolidations)
• Key references and recommended readings

▫ Some of these may be accessed through ACCY305
eReadings – otherwise through UOW journal
search or via direct links
5
Assessment summary
Requirement
Assessment 1 - weekly • Individual • Handwritten, hand up

tutorial (10%) • Please refer to Moodle for during the allocated
the allocation of weeks week.
• 5 marks for best 3 • Attach UOW cover page
(converted to a mark out • Short-response questions
of 10) can be found in the
tutorial folder.
Assessment 2 - Oral • One group will present • Print out the marking
presentation once during the semester. rubrics during
(10%) Questions will be presentation week
allocated accordingly in • Presentation on long
Moodle. response questions
Assessment 3 – Authentic
task (20%)
Final Exam (60%) To be discussed

6
What is a profession?
• “A profession is defined as a community of people
bounded by the activities they perform, founded on a
common theoretical background acquired through
formal education” (Dellaportas et al 2005, p58).
• Professionalism is a form of accreditation.

▫ Many of you will join one of the professional bodies eg.
CPA Australia or Chartered Accountants Aust and NZ

7
The Accounting Profession

• Clients and the community rely on accountants because of
their specialised knowledge and expertise.
• “Accounting impacts the lives of everyone in society, even

(especially) those who know very little about the subject
and have never set eyes on a financial statement” (Perry and
Nolke, 2008, p560)
▫ Think about how numbers impact on your life (eg. uni fees, uni
tutorial classes, health/medical services, services provided)
• This would suggest that accountants have an obligation to

the public to act professionally and ethically (which is more
than just following the rules).
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Characteristics of a profession
1. A systematic body of theory
▫ Involves mastery of theory rather than manual skills (this is

why you study various theories).
▫ Requires extensive:
▫ Tertiary education
▫ Professional updates
▫ Practical experience
▫ Research
(from Dellaportas et al 2005, p61)

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2. Professional Authority
▫ Based on knowledge that creates a dependent

relationship with those who are reliant on the
professional’s services
▫ This is distinguished from say, the technical

expertise of a bookkeeper.
(from Dellaportas et al 2005, p61)

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3. Community sanction
▫ The community confers powers on the profession to self regulate
 Accountants are trusted as highly skilled persons who are

expected to act in the best interests of the public
(Responsibilities).
 As professionals, accountants are granted certain status and

privilege (Rights)
 If they fail to act as professionals, society will withdraw

privileges (Social contract)
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4. Codes of ethics
▫ The profession can regulate members by

compelling a minimum standard of ethical
behaviour (ie. A code of professional conduct).
▫ Note though that codes of ethics cannot force

people to act ethically (see later slides)

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5.Professional culture
▫ Consists of values that are oriented toward the public interest rather
than toward self interest.
▫ Professionals should demonstrate:
 High standard of performance – search for excellence

 High standard of competency, technical ability, knowledge, expertise
 Integrity
 Specific obligation to clients while keeping in mind the public interest.
(Dellaportas et al, 2005, p61 and Matthews and Perera, 1996, p290-292)
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The Profession and Self Regulation

• Self regulation means that the governing bodies of
accountants control the membership and activities of
their members, including:
▫ Entry qualifications
▫ Quality assurance
▫ Conformity with accounting regulations
▫ Rules of enforcement - embedded in the Code of
Professional Conduct.
▫ Disciplinary proceedings

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Accountants and ethics

• In our roles as accountants, managers, business people
etc, we operate in a complex environment, and are
constantly faced with questions of “what to do” in a
particular situation
• We live in a social world - “the ethical landscape is a

necessary feature of the human condition” (Longstaff, 1994).
• Ethics is not merely an ‘add-on’ to business, it should

be part of everything that we do.

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• Members of today’s society demand a much higher
level of ethical behaviour than in the past
• “Technology has empowered consumers, employees

and grassroots activists to take direct and immediate
action when they find ethical standards of a business
[or professionals] are unacceptable, whether its
through twitter, Facebook or any other online mediums
available to millions of people worldwide” (Tindall, 2014)

16

• As discussed in ACCY201:
▫ accountants and standard-setters construct reality (what

is/is not accounted for and how things are
measured/disclosed), and
▫ the information provided by accountants is used to make

decisions (that is, accounting is socially constructing)
 Think about how accounting impacts on your life (uni,
health/medical services, provision of other goods and
services, employment).

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• Because of this, accountants are powerful
• We should be concerned about the consequences of

what we do, and
• As professionals we have a responsibility to exercise

ethical judgement.

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• In recent years, the behaviour of accountants and business
professionals has been blamed for much of the corporate
excesses and collapses that we have seen – there is a need to
open up the discussion about this behaviour, and also the
broader context of business.
• Collapses such as Enron, Worldcom, HIH, OneTel, Harris Scarfe

had huge financial and social consequences
• In ACCY201 we considered the AWB case, and this session we

will look at the Dick Smith collapse

19
Code of Ethics
• The Accounting Professional and Ethical Standards
Board (APESB) issued APES 110 “Code of Ethics for
Professional Accountants” in June 2006.
• The APESB works as an independent body to serve

CPA Australia, CA Aust and NZ, and IPA.
• www.apesb.org.au

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Code of Ethics
• Section A – General Application of the code
▫ Fundamental principles (Public interest, integrity,
objectivity, professional competence and due care,
confidentiality, professional behaviour)
• Section B – members in public practice

▫ Professional appointment, conflicts of interest, fees,
marketing, independence, gifts, custody of client assets
• Section C – members in business

▫ Conflicts, preparation and reporting of information,
financial interests, inducements

21
Code of Ethics
Public interest – the hallmark of a professional is to
put public interest before self interest.‘
“a distinguishing mark of the accountancy profession is its

acceptance of the responsibility to act in the public interest.
Therefore, a member’s responsibility is not exclusively to
satisfy the needs of an individual client or employer.”
Section 100.1 APES 110 Code of Ethics for Professional

Accountants (APESB,2006)
22
What is the public interest?

• In terms of accounting and financial reporting, who are the
public?
▫ Shareholders of a company?
▫ Broader stakeholders – employees, creditors, suppliers,
environmental groups?
▫ The local community?
▫ The citizens of the country?
▫ International public?
▫ Gaffikin (2008, p180) suggests that the public interest may be

determined by the type of society (dominated by religion, military
rule, totalitarian etc)
23
Accountants and conflicting interests
• In practice, accountants face conflicts between:
▫ Public interest (see previous slides)
▫ Client interest
▫ Self interest

24

•Client interest
▫ Accountants are paid by clients and traditionally owe primary responsibility to
their client – consider the current media attention to tax minimisation by large
companies – good for client (shareholders) but not good for society (reduced
national tax revenues available for public goods and services, higher rates of tax
for individuals)
▫ Even though the code of professional conduct privileges the public interest, it is
very difficult to:
determine what is meant by ‘public interest’
enforce the code – who is likely to bring an action against a professional on
public interest grounds?
▫ So, in a working situation most accountants will give preference to the client
interest (Henderson and Henderson, 2003).
25

• Self interest
• “The public interest is readily declared but the private interest remains
submerged yet powerful” (Parker, 1994, p508).
• That is, Parker suggests that professionals claim to act in the public interest as
this gives them legitimacy, but in reality they are concerned with maintaining
their private self interests:
▫ Professional insulation from the public

▫ Minimise interference from govt
▫ Self control
▫ Professional authority
▫ Preservation of socio-economic status
26
Accountants and codes of ethics
• A written code might provide some guidance to

professionals, but alone it is not effective in
preventing unethical behaviour
• Please refer to ACCY201 Week 1 lecture slides

▫ The ethical code we follow:
 Is based on Western beliefs
 Assumes that there is ONE public interest
 Can’t stop people from behaving unethically

27
What is meant by ethics?

• Various notions and beliefs
▫ Common theme - for the good or welfare of all
humankind, consideration of what is right, fair, just,
equitable, respect for others, virtuous
• A core set of values, which, if violated, violate the

community we are part of.
• What constitutes ethical behaviour at any time – like

knowledge more generally – is socially constructed; it
is a product of its time and place (Neimark, 1996, p93)
28
What is meant by ethics?

• A theory or a system of moral values.
• “Ethics is the field of inquiry that concerns the

actions of people, in situations where these actions
have effects on the welfare of both oneself and
others”(Gaa and Thorne as cited in Boyce, 2008, p277).
• Ethics is more than just following the rules – many
accountants seem to think that by following
accounting standards and ethical codes of conduct
they will be acting ethically.

29
Can ethics be taught?

• By third year at university, a student’s moral standards
have been developed (by our families, schooling,
religions, experiences, communities) – a lecture on the
topic is unlikely to change this.
• It is NOT the intention to teach moral standards of

behaviour
• but, we can attempt to broaden your outlook

30
Ethics & education – ethical frameworks

• For a decision to be ethical, you must first decide on what is
meant by ‘ethical’.
• Ethical decision making relies on a criterion to know what is

ethical – intuition and personal feelings are not sufficient.
• There are numerous approaches to the philosophy of

ethics.
▫ Each gives us a principle or standard on how we ought to
behave by considering the right and wrong of our actions.
▫ Consequential (utilitarianism), non-consequential (theory of
justice, theory of rights).
31
Boyce (2008) A broader view of ethics

• Boyce (2008) argues that it is necessary to:
▫ transcend the individualised ▫ Crises, collapses, problems are not

conception of ethics and to always the fault of the individual
examine ethics in the broader director, accountant, auditor. The
context of globalisation globalisation phenomenon has
fundamentally changed our world.
▫ transcend conventional
accounting education as being ▫ Accounting has broader social, cultural,
only connected to the economic political influences and consequences
▫ Neo-liberal capitalism inherently drives

▫ examine the system in which
much of corporate misdoings (eg.
contemporary business takes
maximising revenues, cutting costs,
place
focus on profit and needs of
shareholders).
32
Ethics in the context of globalisation

• With the globalisation of business, the ‘public’ and
‘public interest’ become much broader
• Accountants come into contact with different cultural

and ethical values
• Western firms that operate under ‘western’ tenets of

ethical behaviour place themselves at a disadvantage
if they show cultural or ethical insensitivity.
• (Waldmann, 2000)

33
Williams (2004) Ethics and the profession
• Williams (2004) argues that the profession has failed

in its ability to acknowledge the moral implications
of corporate collapses such as Enron.
• He suggests that Enron was more than a “technical”

problem –it was a “moral” problem (p995).
• The profession must accept some of the

responsibility for the instances of corporate
corruption that continue to reveal themselves (p1000).
34

• The prevailing accounting language and models of
accounting are based on “positive economic science (PES)
(later in the session we will look at positive accounting
theory PAT).
▫ in other words, everything we do is reduced to numbers;

“the social and economic world is described by a system of
mathematical equations which explain the well ordered
behaviour of individuals pursuing their own, narrowly
understood self interests to the optimal benefits of all”
(Williams, 2004,p996).

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• eg. It was suggested by the president of the AAA
(American Accounting Association) that extreme cases of
aggressive accounting (such as that revealed in the
Enron case) were consistent with the cross sectional
variations in the financial statements of SEC registrants
and the existing paradigms (ie. how we do accounting –
and based on PES) (p998).
• there was no acknowledgement that anyone did

anything morally WRONG (p998).

36

• Williams suggests (p999) that the profession must accept
responsibility for what went wrong.
• The profession shapes the attitudes of its members, and it has

been responsible for providing the structure of formal and
informal relationships through which group members influence
the values of other members.
• If, for example, there is an explicit corporate policy to maximise

profits, it can take on the role of moral guidance for the group
(remember the AWB case and how the drive to maximise profits
led to massive failures in corporate governance and ultimately
the collapse of the company).
37
• Williams (p1000) suggests that all professionals “have

the positive duty to be especially vigilant in critically
evaluating the possible harms that their work can do”.
• To do this, we need the discourse in which such

evaluations can occur. That is, we need to start talking
about more than just the numbers (this is what I want
you to think about when doing assessment task 3).

38
Corporate governance
• The “ethical framework” of a company
• The framework that companies adopt to “do the right

thing” or to act as “good corporate citizens”.
• Companies are artificial, legal constructions, but are

managed by people
• Covered in ACCY201, but central to the operations of

companies, company officials and company
accountants
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Conclusion
• Professional accountants have an unwritten contract with society –
they need to fulfil their responsibilities and society will continue to
grant them the rights/privileges associated with being a professional.
• Professionals have a responsibility to start discussing (un) professional

behaviour in terms of morality and not just technicalities.
• The fundamental duty of a professional accountant is to act in the

public interest, but…
• Accountants face conflicts of interest (public, client & self).
• Accountants also operate in a much larger economic system, which

privileges capital market participants.
40
Conclusion
• It is suggested that accountants should look beyond the
conventional conception of ethics which is in terms of the
behaviour of individuals and adherence to rules of conduct,
and analyse situations in terms of:
• Broader corporate stakeholders (not just shareholders)
• The system of which we are a part (and how this inherently

gives rise to unethical practices)
• The effects of globalisation (and the role of accounting in

globalisation, particularly the negative effects).
41
References
Boyce, G. 2008, “The social relevance of ethics education in a globalising
era: From individual dilemmas to systemic crisis”, Critical Perspectives
on Accounting, vol 19, pp 255-290
Deegan, C. 2014, Accounting Theory 4 th Edition, McGraw Hill.
Dellaportas, S., K. Gibson, R. Alagiah, M. Hutchinson, P. Leung and D. Van

Homrigh 2005, Ethics, governance & accountability, a professional
perspective, Wiley, Kyodo Printing Co. Singapore.
Gaffikin, M. 2008, Accounting Theory: Research, Regulation and

Accounting Practice, Pearson Education Australia, Frenchs Forest.
Henderson, S. and Henderson, E. 2001, “A Note on the Public Interest and

Ethical Behaviour” Australian Accounting Review, Vol 11 (3), pp 68-72.
42
Matthews, M. and Perera, M. 1996, Accounting theory and development, third edition,
Thomas Nelson Australia.
Neimark, M K, 1996, “The selling of ethics”, Accounting, Auditing and Accountability Journal,
Vol 8(3) .
Parker, L. 1994, “Professional Accounting Body Ethics: In Search of the Private Interest”,
Accounting, Organizations and Society, Vol 19(6), pp507-525.
Tindall, S. 2014, “The modern perils of business ethics”, Charter, Feb, online, accessed 1/3/14,
http://www.charteredaccountants.com.au/News-Media/Charter/Charter-articles/Ethical-an
d-professional-standards/2014-02-The-Modern-Perils-of-Business-Ethics.aspx
Waldmann, E. 2000, “Teaching ethics in accounting: a discussion of cross-cultural factors with

a focus on Confucian and Western philosophy”, Accounting Education, vol 9 (1), pp23-35
Williams, P.F. 2004, “You reap what you sow: the ethical discourse of professional accounting”,
Critical Perspectives on Accounting, Vol 15, pp 995-1001.

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1

ACCY305 Financial Accounting III

ACCY305 2020 Slides prepared by S Chapple

• Subject learning outcomes

▫ ACCY305 Subject Outline

▫ Weekly topics – lecture notes and tutorial questions

▫ Guidelines / marking sheets for assessment tasks

ACCY305 2020 Slides prepared by S Chapple

▫ Leo et al (2015) (chapters 19, 20, 21) – from

• Key references and recommended readings

Assessment 1 - weekly • Individual • Handwritten, hand up

Final Exam (60%) To be discussed

ACCY305 2020 Slides prepared by S Chapple

• Professionalism is a form of accreditation.

ACCY305 2020 Slides prepared by S Chapple

The Accounting Profession

• “Accounting impacts the lives of everyone in society, even

• This would suggest that accountants have an obligation to

▫ Involves mastery of theory rather than manual skills (this is

(from Dellaportas et al 2005, p61)

ACCY305 2020 Slides prepared by S Chapple

▫ Based on knowledge that creates a dependent

▫ This is distinguished from say, the technical

(from Dellaportas et al 2005, p61)

ACCY305 2020 Slides prepared by S Chapple

 Accountants are trusted as highly skilled persons who are

 As professionals, accountants are granted certain status and

 If they fail to act as professionals, society will withdraw

▫ The profession can regulate members by

▫ Note though that codes of ethics cannot force

ACCY305 2020 Slides prepared by S Chapple

▫ Professionals should demonstrate:

 High standard of performance – search for excellence

The Profession and Self Regulation

ACCY305 2020 Slides prepared by S Chapple

Accountants and ethics

• We live in a social world - “the ethical landscape is a

• Ethics is not merely an ‘add-on’ to business, it should

ACCY305 2020 Slides prepared by S Chapple

Accountants and ethics

• “Technology has empowered consumers, employees

ACCY305 2020 Slides prepared by S Chapple

Accountants and ethics

▫ accountants and standard-setters construct reality (what

▫ the information provided by accountants is used to make

ACCY305 2020 Slides prepared by S Chapple

Accountants and ethics

• Because of this, accountants are powerful

• We should be concerned about the consequences of

• As professionals we have a responsibility to exercise

ACCY305 2020 Slides prepared by S Chapple

Accountants and ethics

• Collapses such as Enron, Worldcom, HIH, OneTel, Harris Scarfe

• In ACCY201 we considered the AWB case, and this session we

ACCY305 2020 Slides prepared by S Chapple

• The APESB works as an independent body to serve

ACCY305 2020 Slides prepared by S Chapple

• Section B – members in public practice

• Section C – members in business

ACCY305 2020 Slides prepared by S Chapple

“a distinguishing mark of the accountancy profession is its

Section 100.1 APES 110 Code of Ethics for Professional

What is the public interest?

▫ Gaffikin (2008, p180) suggests that the public interest may be