Chapter5: Professional Ethics5.1IntroductionEthics in businesses and accounting helps to direct individuals toabide by the code of professional conduct that inspires public confidence. Accordingto M. Jennings (2006) the collapse of Arthur Anderson and Enron, raised thequestion of whether there were any indications of decline in ethics that shouldhave indicated that there was something wrong in the company.
The unethicalbehaviour at Enron, by those charged with governance destroyed the ability of acompany to function. Every company’s goal is to maximise its shareholderswealth, and according to Jennings (2006) to achieve this goal, public trust isrequired. The accounting profession to improve its preceding level of respectand trust, is required to take proactive actions to restore its trustworthiness,this view has been supported by Bean and Bernadi (p.64 2005). 5.2 The Importanceof Profession EthicsProfessional ethics are as essential aspersonal ethics.
Ethical behaviour is the most critical component of everybusiness, but it role in the confirmation of auditors to financial statements isfar more critical. Ethical behaviour is the essential element for investors tobenefit from the credibility of the auditor’s confirmation to financialstatements. The stakeholders cannot rely on the auditor’s opinion if theauditor is not perceived as ethical. Bernard (2005) stated that the auditor’srequired skills and competence are equally important as the auditor’s ethicaltrait of providing an honest opinion.
The importance of accountants’ professional ethics cannot beoverstated. According to Dr Smith (2005) the rise of corporate scandals, likeEnron and Parmalat scandals, resulted in regulators passing many legislations,however the passing of these new laws like the Sarbanes-Oxley Act, would notrestore the investors or public confidence although they maybe helpful. Ethicalleadership from the business and accounting profession is the only importanttool that can restore the confidence of investors or the public. This view was supportedby Melanchon (2002) who stated that the accounting profession leadership muststrive to restore its reputation after the Enron scandal. 5.3 TeachingAccounting Students Ethics McPhail (2001) stated that to restore the credibility andreputation of the accounting profession, ethics must be included in theaccounting curriculum.
This view was supported by Bedford Committee (1986, P.179),by recommending that accounting studies must not focus only on the knowledgeand skills needed in the profession, but must also emphasize the importance ofcommitment to the accounting profession and the ethical standards. AccordingKetz (n.d., p.346), there was a need to teach accounting students ethics, asbefore the Enron scandal ethical issues were not included in the accounting curriculum. 5.3.
1The need for teaching accounting ethicsAfter the Enron and Arthur Anderson collapse incident the need to teachaccounting ethics increased, because the accountants had to understand theaccounting ethical standards and the methods used to enforce these ethicalstandards of accounting. Further, Stephen Loeb (n.d.) stated that the accountantsneed to have both clear knowledge and understanding in applying these accountingethical standards in a real-world situation. Therefore, Stephan Loeb (n.d.)recommended that accounting students’ needs to be taught well enough until they:· Understand both the structure of and themechanisms used to enforce different ethics codes that exist in the accountingprofession,· Understand the mechanisms that can be used bythe public to gain assurance that the accounting profession functioning in the publicregulates itself,· Understand the sanctions that the public canuse to public accountant that fails to comply with the stated professionalstandards,· Can deal with and focus on the diplomaticnature of the environment that currently exist in accounting, and· Can also be able to effectively respond toethical dilemmas in accounting