ETHICS IN ACCONTING ETHICS Ethics, sometimes known as philosophical ethics, ethical theory, moral theory, and moral philosophy, is a branch of philosophy that involves systematizing, defending and recommending concepts of right and wrong conduct, often addressing disputes of moral diversity. Let’s take a closer look at some of these important rules. When compared to consequentialism and deontology, virtue ethics is another viable approach on which to base business and accounting ethical decision-making. On the surface, this seems to be a very reasonable approach. Cognitive-developmental theorists posit that individuals’ cognitive moral capacity (the moral reasoning that one is capable of) increases over time and is not related to an ethical context, whereas moral reasoning (the actual cognitive moral structure used to resolve an ethical dilemma) is affected by context (Thorne, 2000). Kohlberg’s model (based on a cognitive-developmental perspective) assumes three levels of moral development: at the pre-conventional level, moral reasoning is based on rewards and punishments; at the conventional level, moral reasoning is based on group norms; and at the post-conventional level, moral reasoning is based on ideas of universal fairness (Kohlberg, 1958; Thorne, 2000). Accountants can best understand these ethical views by comparing and contrasting the fundamental moral principles of each ethical theory, and determining which ethics system is most appropriate for the accounting … Search for more papers by this author. A … As the ethical paradigm of policing continues to evolve, ethical theories must be turned into everyday common practice and this can only be maintained by ongoing training. The rightness or wrongness of the decision is determined by the consequences of following the chosen rule. Without prudence monitoring the other three virtues, the virtues could become vices. Unlike consequentialism and deontology, virtue ethics does not necessarily help us judge the rightness or wrongness of a particular decision. Essentially, following this formulation of the imperative prevents individuals from using coercion or deception when dealing with other stakeholders. VAT Registration No: 842417633. Cash earnings per share (Cash EPS) is different from traditional earnings per share (EPS), which takes the company’s net income and divides it by the number of shares outstanding. In this, Certified Banking & Credit Analyst (CBCA)™, Capital Markets & Securities Analyst (CMSA)™, Financial Modeling & Valuation Analyst (FMVA)®, Contingent fees are not allowed – For example, audit fees that are based on a percentage of the net income figure or a percentage of a bank loan received. Deontology is mostly associated with Kant. Both aspects (moral capacity and moral reasoning) imply a need for considering ethics in an academic setting: to guide and enhance cognitive-moral development, and to provide a context for “practicing” moral reasoning skills. From a business perspective, this formulation requires businesses to treat all stakeholders with respect (Bowie 1999). There are always threats and situations that can reduce the level of independence. The utilitarianism approach requires that you decide what course of action needs to be done and evaluate the outcomes of each action. The code of professional conduct, however, is a specific set of rules set by the governing bodies of chartered accountants. Furthermore, it is possible to over emphasize one virtue to the detriment of another. Utilitarians believe that the purpose of morality is to make life better by increasing the amount of good things (such as pleasure and happiness) in the world and decreasing the amount of bad things The task of determining whether utilitarianism is the correct moral theory is complicated because there are different versions of the theory, and its supporters disagree about which version is correct. Under the matching principle theory, expenses are always reported in the same period, such as a month, quarter or year, and the associated income is recorded. Van Hise and Massey describe in detail how they followed a pedagogical framework, known as the Ignatian Pedagogical Paradigm (IPP), to provide for principles-based accounting ethics instruction. Practically speaking, you could consider using this imperative to develop the rules that would form the basis for a rule utilitarianism based approach to ethics. For example, many of the accounting firms use a risk-driven approach, which is consequentialist in nature, in deciding whether to perform an engagement. Accountants, lawyers, and finance professionals are all involved. There are four major ethical theories: deontology (or duty), utilitarianism, rights, and virtue. Unlike consequentialism and deontology, virtual ethics focuses on the characteristics or virtues that a moral person should possess. Obviously, from an accounting perspective, prudence is very important. Rules should simply be operationalizations of principles. When a company makes news for dishonest accounting, it loses the trust of current and potential customers. Ethics and ethical behavior refer more to general principles such as honesty, integrity, and morals. Furthermore, having business and accounting decision-makers attempt to place themselves into Rawls’ original position behind a veil of ignorance to become an impartial spectator could enable them to better appreciate the ramifications of different business and accounting practices. In another example, Pakaluk and Cheffers (2011, p. 175) point out that utilitarianism encourages a “make the numbers” approach to accounting that could encourage fraud. The possession of a good will, from Kant’s point of view, is what separates humans from animals. For example, it is possible for someone to have an extreme value of courage. These courses will give the confidence you need to perform world-class financial analyst work. … The new hires fear very strongly for their job.” (Callahan 2004, p. 145) In some extreme cases, the accountant may morally find themselves in the position of becoming a whistleblower. On the other hand, act utilitarianism deals with the rightness and wrongness of the specific act. As you might guess, enduring judgments are those that should always be true, occasional judgments tend to be heuristic in nature, and a particular judgment is one that only applies in a specific situation. Did you catch that? Do you have a 2:1 degree or higher? There are several philosophical frameworks that fall into the normative ethics category; for example, deontological ethics (involving deductive reasoning based on universal principles), teleological ethics (involving the consideration of consequences of an ethical decision), and virtue ethics (involving a focus on the importance of having a virtuous and moral character) (McPhail and Walters, 2009). The third cardinal virtue suggested by Plato is justice. A prudent or wise individual is an individual that has the ability to evaluate which things are truly important in life and those that are not. 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