Courage: The Key to Ethical Behavior continued from previous page
accounting irregularities in the company that, in the end, resulted in federal investigations, criminal and civil suits, the imprisonment of corporate executives, fines against corporate directors, corporate bankruptcy and the eventual acquisition of the company by Verizon. Extraordinary Circumstances: The Journal of a Corporate Whistleblower31 recounts Cooper’s efforts, supported by her trusted staff, to pursue what would turn out to be the largest case of fraud at the time. Cooper was persistent in overcoming significant hurdles in pursuit of the truth: the chief financial officer’s (CFO’s) attempts to delay her work, deliberate efforts by the CPA controller to block access to accounting data, as well as to divert her attention from the problem areas to other auditing projects, and efforts to obscure improper accounting entries in a complex maze of unsupported accounting transactions. Even the chair of the audit committee encouraged her to wait for direction from the CFO. In spite of these challenges and personal fear about the ramifications of her findings, Cooper demonstrated moral courage in doing what she knew was right. Her book would be more aptly titled Extraordinary Courage.
DAILY PRACTICE EXAMPLES
In the previous examples, ethical courage was exemplified by the actions of CPAs Cooper and Glover, while a lack of ethical courage was exhibited by CPAs for Madoff and HealthSouth. These wellpublicized examples of ethical and unethical actions are familiar to most practitioners. Nevertheless, the authors contend that the activation of the courage component of ethical behavior is also required in the daily practice of CPAs. For example, in tax practice it is not unusual for clients to provide CPAs with tax deductions that appear unreasonable. If the CPA questions a deduction and the client provides an adequate explanation or documentation to support the amount claimed, an ethical problem does not arise. However, an ethical problem may arise when a client refuses to adequately explain a problematic deduction, especially one that could result in the IRS penalizing the client and perhaps the CPA for substantially understating the taxpayer’s liability32 and tells the CPA to “just go ahead and put the deduction on my return.” Let’s assume that this individual has been a good client for many years, that the annual fees paid for tax
return preparation and other accounting services are material to the firm, and that this client is an influential business person in the community – especially influential with other firm clients. What should the CPA do? The CPA must have the courage to stand up to the client and refuse to be connected with the return. It is much better to lose a client who wants to “push the envelope” with his/ her tax deductions than to risk potential professional sanctions, including the loss of the CPA’s license to practice, the loss of the ability to practice before the IRS, and/or the loss of a CPA’s most valuable asset – his/her professional pride and reputation. By acquiescing to the client’s demands, the CPA violates the Code by subordinating his/her professional judgment to that of the client.33 Another example is where a staff accountant working on an over-budget audit engagement is instructed by a supervising senior to skip a required procedure while indicating on the working paper that the procedure was completed. This accountant could take the easy but unethical route of being a “good soldier” (which is never an adequate justification for following the unethical instructions of superiors) and succumb to the senior’s demands. It is much harder to be courageous by taking the ethical stance that requires not only refusing the request to be dishonest,34 but also by going up the chain of command (as required in the Institute of Management Accountants’ ((IMA)) Statement of Ethical Professional Practice35) to report the unethical demand of the senior. In the opinion of the authors, merely refusing to take the unethical act is not enough. Acting in the profession’s and public’s best interest demands that CPAs also follow the precepts of the Honor Code of the U.S. Military Academy by not tolerating the unethical behavior of others.36 Rejecting new clients may also require the exercise of courage. It takes courage to refuse a potentially lucrative engagement when an investigation of the prospective client, as required by the AICPA Quality Control Standards,37 reveals prior illegal, unethical or questionable acts or transactions. Especially for a small CPA firm, it may be very difficult to turn away a client who could bring in a substantial amount of revenue. Disengaging from a current client who has proven to be unethical can be even more difficult. A CPA who has worked with a client for
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Today’sCPA
| MAY/JUNE 2012