Through the professional organizations of the PICPA and AICPA, the CPA profession devotes considerable effort to strengthening the awareness and tools pertaining to professional conduct and ethics. The profession’s Code of Professional Conduct has made it easier for CPAs to find applicable standards and guidance for conducting professional activities, and has explicitly included members in industry and even retired members. A requirement of four credit hours of ethics CPE has been added to Pennsylvania CPA licensing. The creation of the Public Company Accounting Oversight Board under the 2002 Sarbanes-Oxley Act also expanded independence and professional responsibility requirements following the scandals of Enron and WorldCom, among others, in which fraudulent and questionable accounting practices were revealed.
The study “An Investigation of Ethical Environments of CPAs: Public Accounting versus Industry”1 was recently published in the Behavioral Research in Accounting Journal of the American Accounting Association. It examines the current ethical environment in accounting, and looks at perceptions among CPAs in various organizations. This report is an interesting look at the results achieved over the past several years.
Ethics course presenters often say that the majority of people are influenced by their environment with respect to ethical conduct. David Myers, former controller at WorldCom, stated in a presentation that he never expected to be caught up in a fraud situation.2 He thought the company was following “aggressive accounting” policies. Scott Sullivan, former CFO at WorldCom, gave a talk not long ago where he held up two things: one was an award from CFO magazine that honored him for his role as CFO at WorldCom, and the other was his prison badge. He informed the audience that he received both for the same work.
The authors of the “Investigation of Ethical Environments of CPAs” paper reviewed prior accounting research on ethical environments as a foundation for their study.3 They focused on factors essential to strong ethical environments, such as social norms, social practices, and outcomes. Social norms relate to “the underlying culture of values of the firm,” and include three components: mission and values, leadership and management influence, and peer group influence. Social practices reflect formal policies and procedures at the organization. A key factor the authors focused on was the perception of the ethical environment in which CPAs work.
The study included survey results from 904 CPAs: about 75 percent of them were in public practice, and 25 percent were in industry, government, or nonprofit organizations. From the public accounting group, the breakdown of firm types was about 21 percent at Big 4 firms, 10 percent from other international or national firms, 29 percent from regional, and 40 percent from local firms, thus covering all public practice firm operations. Demographically the participants’ ages were mid-career, 30s and 40s, with 58 percent male and 42 percent female. It appears that the sample was representative of the relevant groups of CPAs and practice areas to draw useful conclusions. The study presented statements that were relevant to the type of organization the respondents worked in; therefore, there was different phrasing of questions for participants in public practice compared with other organizations, though they covered the same subjects. The statements required participants to rank them from strongly agree to strongly disagree.
The results indicate that “CPAs in general perceive that they work in relatively strong ethical environments.” However, there appears to be more emphasis on ethical environments in public accounting firms. CPAs in all types of public accounting see a greater emphasis on an ethical environment compared with those in industry. The authors attribute this difference to a greater emphasis on meeting bottom-line numbers in industry, whereas the brand reputation of public accounting firms encourages more training on and awareness of professional ethics.
It appears that the reforms and focus on professional ethics is achieving its objectives. The authors suggest that auditors and CPAs keep in mind the different environment that exists for those in industry when planning audits. Further, they caution to be aware of the different work environment CPAs may encounter when contemplating career change from public accounting to other organizations.
1 D.D. Bobek, D.W. Dalton, B.E. Daugherty, A.M. Hageman, and R.R. Radtke, “An Investigation of Ethical Environments of CPAs: Public Accounting versus Industry,” Behavioral Research in Accounting, Vol. 29, No. 1, spring 2017, pp. 43-56.
2 “Anatomy of a Fraud” training video, Ernst & Young.
3 D.D. Bobek, D.W. Dalton, B.E. Daugherty, A.M. Hageman, and R.R. Radtke, “An Investigation of Ethical Environments of CPAs: Public Accounting versus Industry,” Behavioral Research in Accounting, Vol. 29, No. 1, spring 2017, pp. 43-56.
Ibolya Balog, CPA, is an associate professor and chair of the department of business, management, and economics at Cedar Crest College in Allentown and a member of the Pennsylvania CPA Journal Editorial Board. She can be reached at firstname.lastname@example.org.