Philadelphia Inquirer | 08/20/2002 | 'Accounting Ethics': What a timely tome
300-plus-page manuscript that offers a superb, accessible introduction to the traditions and responsibilities of individual accountants and their firms.
Ron Duska considers the classic book in the field to be The Truth About Corporate Accounting by Abraham Briloff (Harper & Row, 1980).
Because the profession in the United States is governed by a code of ethics - the most extensive one is that of the American Institute of Certified Public Accountants - its ethical controversies have often turned on whether new activities violated its codes, or ran afoul of what accountants refer to by shorthand as GAAP - generally accepted accounting principles. So while accountants have long known they shouldn't own stock in a company they audit, or audit companies that employ their relatives, the recent trend of Big Five accounting firms providing both consulting and auditing services to clients arose after such early prohibitions on conflicts took hold.
The overriding theme of the Duskas' book is that accountants, like all professionals, owe duties not just to clients but also to the public. Unlike lawyers, whose wholehearted use of all permissible tactics to help clients is often seen as their proper contribution to the adversarial legal system, accountants primarily produce information. Pulling out all the stops to help clients should never interfere with their fundamental obligation to provide accurate information to all parties entitled to it.
Accountants who have gone wrong lately, the Duskas suggest, seem to have forgotten that the CPA institute code clearly states that the "accounting profession's public consists of clients, credit grantors, governments, employers, investors, the business and financial community, and others who rely on the objectivity and integrity of certified public accountants to maintain the orderly functioning of commerce." Accountants, in a nutshell, are not permitted to violate the public's right to accurate information just because doing so would help a client.
"I think that's why this is such a big problem," Brenda Duska says.
Both Duskas agree that most Americans traditionally shared Ron Duska's impression of accountants before he started the project: "I always thought, 'Man, they are just the paragons of virtue.' " By contrast, when Ron was recently introduced before a talk as someone who had just cowritten a book on "accounting ethics," he recalls, "the room broke out in gales of laughter." Both Duskas hope that the creeping sense of "accounting ethics" as an oxymoronic phrase is just a fleeting phenomenon.
In the course of their book, the Duskas examine both real cases and hypotheticals in which accountants face pressure, usually from a company's top managers, to help the company "make its numbers" or "smooth the quarterly report" through "aggressive accounting" or just plain "cooking the books." Along the way, they explain all the concepts one needs to know, from basics like balance sheets to technical maneuvers such as stock options.
For all their criticisms of recent accounting misdeeds, both Duskas hasten to point out that accounting remains both art and science, with reasonable interpretive differences possible in portraying the "picture" of a company's finances.
Judgments such as how one depreciates or values assets can lead to quite different pictures. The key criterion, both say, is much the same as the one that governs many judgments in law: Are such judgments reasonable? In accounting, that often means asking whether they square with GAAP.
"For instance," Brenda Duska says, "the use of estimates is reasonable if you have a reasonable basis for it. Most accountants do."
That's a long way, her husband remarks, from the now-casebook practice of a national firm a few years back that simply sent products to people who didn't order them, told the people they could keep the items, and logged them as sales.
Throughout their book, the Duskas insist that deliberate deceptions meant to manipulate other financial players into doing things they otherwise wouldn't do (and that are plainly in the financial interest of the deceiver) are as much a "lie" in accounting as anywhere else. Yet they also regularly emphasize the subject's philosophical nuances and gray areas. Is there such a thing as a true picture of a company's financial status, they ask, or are there simply acceptable and unacceptable pictures?
On a more concrete controversial topic - whether stock options should be recorded as expenses - Brenda Duska thinks one can honorably "go both ways," but favors expensing them once they're exercised.
The good news in all the accounting scandals, the Duskas emphasize, is that almost all accountants "act honorably."
"Unfortunately, the actions of a few are bruising the reputations of many," Brenda Duska says. The major long-term effect of the scandals, she expects, will be on the so-called Big Five accounting firms - or Four, if Arthur Andersen completely disappears.
"Basically we've always been a self-regulating profession," she says, "and that's going to end for the public companies... . The Big Five are going to be regulated up, down and sideways. And it's going to trickle down to smaller firms. But by and large, the majority of people are going to be doing things the way they've always done them. Which is legitimately."
"I'm really optimistic," Ron Duska adds, despite some concerns that heavy federal legislation will simply create more business for accountants and lawyers who specialize in finding loopholes. As far as the bad guys go, he says, "What happened is - the market caught them."
The Duskas owe their final manuscript changes to Blackwell by Friday. After that, their days of day-to-day coverage on the accounting front lines are over.
Ron Duska, at any rate, seems to have a sense of how to hold onto the whirlwind. If the topic stays front and center as a certified public disaster area, he jokes, "we can always do Son of Accounting Ethics."
I have been thinking about accounting ethics and in fact, business ethics so this is good stuff and more is needed. And soon.
