In the mid‐twentieth century in the United States, when the discipline of accounting was seeking the status of a profession, the Commission on Standards of Education and Experience for Certified Public Accountants issued a report that listed the following seven characteristics of a profession:

1. A specialized body of knowledge.
2. A recognized formal education process for acquiring the requisite specialized knowledge.
3. A standard of professional qualifications governing admission to the profession.
4. A standard of conduct governing the relationship of the practitioner with clients, colleagues, and the public.
5. Recognition of status.
6. An acceptance of social responsibility inherent in an occupation endowed with the public interest.
7. An organization devoted to the advancement of the social obligations of the group.¹

It is obvious that accounting meets the first two characteristics. Accounting is a complicated discipline that requires formal study to become an expert. To become a certified public accountant (CPA) usually requires a bachelor’s degree in accounting, as well as passing the rigorous CPA exam. Retaining CPA status requires staying abreast of the latest developments with continuing education.

In meeting the third standard, the accounting profession is like many other groups that have banded together to serve the general public from a position of expertise. Doctors, attorneys, teachers, engineers, and others form professional groups dedicated to serving their clientele. These groups generally determine the qualifications necessary to obtain membership. Continued membership requires abiding by the group’s standards of behavior, including the requirement to act in the client’s best interest. Only individuals who meet the qualifications will be admitted into the profession, and individuals can be expelled from the profession if they do not live up to its standards.

The fourth characteristic states that a profession needs “a standard of conduct governing the relationship of the practitioner with clients, colleagues, and the public.” But what should be included in that standard of conduct? Standard six specifies the need for “an acceptance of social responsibility inherent in an occupation endowed with the public interest.” But what social responsibility does the accounting profession owe to the public?

We can find answers to these questions in the analysis of ethical standards of professionalism developed by Doctor Solomon Huebner, the founder of The American College. Huebner established the college to provide advanced education for insurance salespeople. The goal was to elevate insurance salespeople into professional agents. Several years before he founded the college, Huebner delivered an address at the annual meetings of Baltimore Life and New York Life Underwriters, in which he laid out his vision of what it means to be a professional, as fine a statement of what it takes to be a professional as exists.

Huebner cited four characteristics of the professional:

1. The professional is involved in a vocation useful and noble enough to inspire love and enthusiasm on the part of the practitioner.
2. The professional’s vocation in its practice requires an expert’s knowledge.
3. In applying that knowledge the practitioner should abandon the strictly selfish commercial view and ever keep in mind the advantage of the client.
4. The practitioner should possess a spirit of loyalty to fellow practitioners, of helpfulness to the common cause they all profess, and should not allow any unprofessional acts to bring shame upon the entire profession.

Let us apply Huebner’s first characteristic to accounting. Clearly, accounting is a useful vocation; modern organizations could not function without accounting skills. What about nobility? According to the American Institute of Certified Public Accountants (AICPA) code of ethics, “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.”² Contributing to the orderly functioning of commerce certainly makes the accounting profession noble.

But the most interesting of Huebner’s characteristics of the professional is the third, for it prescribes the standard of conduct that should govern an accountant and the social responsibility inherent in the occupation of accounting. It requires the professional “to abandon the strictly selfish commercial view and ever keep in mind the advantage of the client.” As noted earlier, the Commission on Standards of Education and Experience for CPAs states that membership in a profession demands a standard of conduct that governs the member’s relationship with clients, colleagues, and the public and an acceptance of social responsibility that is central in an occupation committed to the public interest. Advancing the concept of professionalism brings ethical behavior to the world of business. In short, making a commitment to a profession involves taking on ethical responsibilities that require rejecting a strictly selfish commercial view.

What is a strictly selfish commercial view? It is the view of those for whom business’s only concern is making money or increasing profit. It is the view that extreme advocates of the free‐market system voice in echoing economist Milton Friedman and others who insist that “the primary and only responsibility of business is to increase profit.”³

Such a view distorts the position of Adam Smith, the eighteenth‐century economist–philosopher and father of the capitalistic free‐market economy. As we discussed in Chapter 3, Smith argued in The Wealth of Nations that a great deal of good derives from a system that allows people to pursue their own interests. His doctrines became the theoretical foundation and justification of the capitalist free‐market economic system. Smith, however, did not adopt a strictly commercial point of view, in that he asserted that the pursuit of self‐interest be constrained by ethical considerations of justice and fairness. “Every man is left perfectly free to pursue his own interest, his own way,” said Smith, “and to bring both his industry and capital into competition with those of any other man, or order of men, as long as he does not violate the laws of justice.”⁴ Thus, there are times when justice and ethics demand that the professional sacrifice his or her own interests for the sake of others.

The strictly selfish commercial view, on the other hand, encourages the pursuit of self‐interest with no limits – a pursuit that inevitably leads to selfishness. As we saw in the discussion of egoism in Chapter 3, there is a distinction between behavior that is completely acceptable (self‐interested behavior) and behavior that is ethically inappropriate (selfish behavior). The New Testament teaches that we should love our neighbor as ourselves, thereby reminding us that if we don’t have a healthy self‐love and self‐interest, we do both our neighbors and ourselves a disservice. Nevertheless, if we pursue our self‐interest at the expense of another, we act unethically. In an ethical world, occasions arise in which we must sacrifice our own interests for others or for the common good.

We can argue that it is precisely because of the professional’s specialized knowledge that this view should be abandoned. Whenever specialized knowledge is required to provide services to other people, it creates an asymmetry of knowledge and thereby an asymmetry of power. This results in a dependency relationship, whereby one person needs to rely on the word and advice of another. The potential exists to abuse the position of power and take advantage of the dependent person. For example, a doctor seeking extra compensation could recommend a procedure that a patient does not need. The patient would depend on the doctor’s recommendation because the patient does not have the doctor’s specialized medical knowledge. The ethics of our society mandate that those with superior knowledge have an obligation not to abuse that knowledge or to use it on the unknowing to gain unfair advantage. Hence, the professional must adhere to ethical precepts. But what specific obligations must the professional follow?

As a professional, the accountant has the following three obligations:

1. To be competent and know about the art and science of accounting.
2. To put the interests of the client before the accountant’s own, avoiding the temptation to take advantage of the client.
3. To serve the public interest.

The AICPA code of ethics clearly articulates these responsibilities. It explains the first obligation as follows:

Competence is derived from a synthesis of education and experience. It begins with a mastery of the common body of knowledge required for designation as a certified public accountant. The maintenance of competence requires a commitment to learning and professional improvement that must continue throughout a member’s professional life. It is a member’s individual responsibility. In all engagements and in all responsibilities, each member should undertake to achieve a level of competence that will assure that the quality of the member’s services meets the high level of professionalism required by these Principles.⁵

The second obligation accrues to all professionals – the obligation to look out for the client’s best interest. When an accountant is hired to perform a service for the client, there is, at the very least, an implied understanding that the accountant will look out for the client’s interests. “A distinguishing mark of a profession,” according to the code, “is acceptance of its responsibility to the public … which consists of clients.”⁶

The same passage of the code also recognizes the accountant’s obligation to the public:

A distinguishing mark of a profession is acceptance of its responsibility to the public. 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. This reliance imposes a public interest responsibility on certified public accountants. The public interest is defined as the collective well‐being of the community of people and institutions the profession serves.⁷

Thus, accountants must accept the social responsibility inherent in their profession to serve the public interest. Note that this responsibility arises, as stated above, “to maintain the orderly functioning of commerce.” Also note that the public interest – “the collective well‐being of the community of people and institutions the profession serves” – is remarkably similar to the concept of “stakeholder,” prevalent in business ethics literature. In light of Arthur Andersen’s involvement in the Enron debacle, it is essential to recognize, no matter what the facts, that Arthur Andersen had an obligation to look out for the public interest, to protect the integrity of the free‐market system. We can apply this same responsibility to the public interest to the tax accountants in the KPMG tax evasion scandal. Certainly, the accountant should act in the client’s interest, but not if it is unfair to or brings harm to the public. It is important to remember the scathing criticism in the KPMG indictment:

It is hard to imagine anything that can serve to undermine our voluntary system of taxation more than the crimes charged today, where so many professionals banded together with wealthy individuals to perpetrate this massive fraud on the tax system.⁸

The laws that require publicly held companies to be audited impart a special responsibility to the accounting profession. Accountants are the public’s designated gatekeepers; because they hold that privileged position, therefore, they are answerable to the general public.

This brings us to Huebner’s last characteristic of a professional: “The practitioner should possess a spirit of loyalty to fellow practitioners, of helpfulness to the common cause they all profess, and should not allow any unprofessional acts to bring shame upon the entire profession.”

This corresponds to the AICPA’s seventh characteristic of a profession: “An organization devoted to the advancement of the social obligations of the group.” Thus, the AICPA and its members have a critical responsibility to society. If performing both auditing and consulting services for the same company interferes with an accountant’s objectivity, for example, the AICPA must develop ways that will allow the accountant to meet its obligations to the general public.

Because of their joint responsibility to various groups – clients, colleagues, and the public – it is inevitable that accountants will sometimes face conflicting pressures. How can the accountant handle these pressures? The AICPA code of ethics says, “In resolving those conflicts, members should act with integrity, guided by the precept that when members fulfill their responsibility to the public, clients’ and employers’ interests are best served.”⁹

This passage presents an intriguing motivation for behaving ethically. Because doing what is right for the public best serves clients and employers, the passage suggests, there cannot be a substantial conflict between the public, clients’, and employers’ interests. Thus, if an employer pressures a management accountant to cook the books, the accountant should refuse – not only is altering financial information not in the public’s best interest, but it is also not in the employer’s best interest. The AICPA code assumes that honesty is always the best policy, and that ethical business is always good business. In effect, this means that an action that appears to be in a client’s or employer’s interests cannot be if the action is not in the public’s interest. Appearances can be false and misleading. Consider this: Would Enron have been better off if its accountants had exposed some of its more opaque transactions?

Because accountants are charged with maintaining the orderly functioning of commerce without succumbing to a strictly commercial point of view, the public has a right to expect accountants to act with ethical probity, as mandated by the AICPA code:

Those who rely on certified public accountants expect them to discharge their responsibilities with integrity, objectivity, due professional care, and a genuine interest in serving the public. They are expected to provide quality services, enter into fee arrangements, and offer a range of services – all in a manner that demonstrates a level of professionalism consistent with these Principles of the Code of Professional Conduct.¹⁰

Joining a professional group such as the AICPA is tantamount to promising to abide by the group’s ethical standards. As such, that promise must be kept. Breaking promises is unacceptable (recall the discussion of Immanuel Kant’s ethical theories in Chapter 3), because it is usually in pursuit of an individual’s own inclinations without regard for others. The code specifically points out that joining the AICPA places an ethical burden on the member:

All who accept membership in the American Institute of Certified Public Accountants commit themselves to honor the public trust. In return for the faith that the public reposes in them, members should seek continually to demonstrate their dedication to professional excellence.¹¹

An interesting question remains: If being a professional requires membership in an organization, but all accountants are not CPAs and therefore do not belong to the AICPA, are all accountants professionals? If not an AICPA member, is the accountant bound by the same ethical obligations?

It seems evident that all CPAs fulfill the criteria of being professionals. They are admitted into the CPA fraternity by meeting professional qualification standards and passing the rigorous CPA exams to demonstrate that they have the requisite expertise. But what about accountants who have not acquired the CPA designation? They may have the necessary expert knowledge without passing the CPA exam or becoming AICPA members. They deal with clients and thereby have the same obligation to those clients as CPAs do. Thus, they should be subject to some of the other professional standards, such as abiding by the provisions in a code of ethics, whether it is the AICPA code or another professional code. The standards of behavior do not rest on the code itself. Rather, codes specify universally valid standards of conduct that accountants should follow. Chapter 5 examines these codes of ethics and explores the principles on which they are based.

Discussion Questions

1. Why does Milton Friedman’s belief that “the primary and only responsibility of business is to increase profit” pose a problem for the accounting profession?
2. Why is there a need for professionalism in accounting?
3. Accountants have an obligation to serve the public interest. As a profession how is this accomplished?