Ethics in Public Sector Organizations

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Ethics in Public Sector Organizations
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Conventional Ethics

• Ethics dimensions
• Deontological
• Means justify end
• Right wrong vs. benefit harm
• Teleological
• End justifies means
• Benefit harm vs. right wrong
• Theories
• Rule based ethics generate rules that guide
  behavior
• Act based ethics guide decision making

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Conventional Ethics

• Philosophers of note - Ancient Greece
• Term ethics first discussions of
• Plato
• Justice, reason, ethics
• Aristotle
• Ethics moral virtues
• Instill through training practice
• A way of life vs. rules principles

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Conventional Ethics

• Philosophers of note - Ancient Greece
• Term ethics first discussions of
• Socrates
• Action/decision is right or wrong
• Without considering personal impact, what others
  will think, or how we feel about what happened

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Conventional Ethics

• Philosophers of note
• Habermas
• Do no harm (medical professions)
• Niccolo Machiavelli
• Good well intentioned people produce bad policy
  administration
• People need to learn how not to be good
• Judge ethical merit by consequences

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Conventional Ethics

• Philosophers of note
• Immanuel Kant
• Categorical imperative (3 iterations)
• Act so that in your own person as well as in the
  person of every other you are treating mankind
  also as an end, never as a means (second
  iteration)

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Conventional Ethics

• Philosophers of note
• John Rawls
• Justice based on individual rights to basic
  liberties
• Distribute rights as equally as possible
• Arrange inequalities to benefit least advantaged

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Conventional Ethics

• Philosophers of note
• Lawrence Kohlberg
• Theory of Moral Development
• Three levels six stages
• Pre-conventional morality
• Conventional morality
• Post conventional morality

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Conventional Ethics

• Philosophers of note
• John Stuart Mill
• Utilitarianism
• Judge acts by greatest good to greatest number
• Precursor to cost-benefit

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Conventional Ethics

• Philosophers of note
• Alasdair MacIntyre
• Focus on practices vs. professions
• Practices normative framework
• Broader framework avoids self protection self
  aggrandizement of professions

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Accounting Today

• The late 20th century
• 1970s client loyalty fades, client-auditor
  relationship changes
• 1973 FASB created
• Early 1980s Florida Hawaii adopt 150-hour rule
  for CPA candidates

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Accounting Today

• The late 20th century
• 1980s 1990s
• Competition for audit clients rises while margins
  decrease
• Huge growth in non audit services
• Firms become multidisciplinary
• Big 8 mergers

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Accounting Today

• The late 20th century
• 1980s 1990s
• Explosive corporate growth
• Dot coms
• Earnings management
• Stock option compensation
• Late 1990s - restatements

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Accounting Today

• The new millennium
• 2001 Enron, Andersen, et al
• 2002
• Sarbanes-Oxley Act
• Fall of Arthur Andersen
• 700 restatements 1/97 to 3/02
• 39 for premature revenue recognition
• Norwalk Agreement

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Accounting Today

• Scandal public distrust
• Accountants auditors
• Most states require 150 hours
• More women partners
• Family friendly companies
• Specialization
• Increasingly complex business environment

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Accounting Today

• SOX
• PCAOB
• Restrictions on non-audit services
• Audit committee
• Auditor rotation
• Revolving door policy

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Accounting Tomorrow

• PCAOB quality review vs. peer review
• Public education regarding what an audit is/says
• Reassert ethics in the profession

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Accounting Tomorrow

• International standards
• Accounting
• Private public sector entities
• Auditing
• Increased focus on management accounting
• Congressional involvement
• Auditor rotation
• Benefit plans

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Ethics the CPA
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Why Professional Ethics?

• Professional
• Self disciplined group of individuals
• Hold out to public possess skill
• Education or training
• Use skill in interest of others

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What It Means To Be a CPA

• Compliance with ethical professional standards
• Founding values
• Honesty
• Trustworthiness
• Conflict free
• Doing whats right
• Due proper support for work opinions

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What It Means To Be a CPA

• Today
• Ethical compliance not a luxury
• Expanded responsibilities
• Greater need for transparency
• Increased professional liability
• New civil criminal penalties
• Failure to meet professional standards

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Ethical Perspectives for the CPA

• Individual CPA
• Relation to employer/clients
• Relation to colleagues the profession
• Relation to third parties general public

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Ethical Breakdowns

• Meet immediate self-interest easier
• Anticipated harm to self
• Right may conflict other obligations
• Personal ethics conflict with firmly established
  community/organizational standards

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Ethical Breakdowns

• Cant succeed without getting hands dirty
• Small part of overall operation
• Many involved in decision no individual held
  responsible
• Failure to think about ethical considerations

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Section 500Acts Discreditable

• Failure to return client records
• Failure to follow standards, procedures, etc.
  required in governmental audits
• Negligence in preparation of FS or records

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Section 500Acts Discreditable

• Failure to follow requirements of governmental
  bodies, commissions or other regulatory agencies

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Section 500Acts Discreditable

• Solicitation/disclosure of CPA exam
  questions/answers
• Failure to file tax return or pay tax liability

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Issues to Consider

• Fraudulent financial reporting based on
  deep-seated moral ethical problems
• Not disappeared even after high profile
  convictions

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Issues to Consider SLGs NFPs

• Financial reporting issues
• Revenue recognition
• Fair value measurements
• Lease accounting
• DB other retirement plans
• Quantifying FS misstatements through quantitative
  qualitative factors
• Executive compensation issues

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Addressing Ethical Dilemmas

• Know respect professional standards
• Understand proper disclosure financial
  reporting considerations
• Know proper value-oriented responses to ethical
  dilemmas

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What Must You Do?

• Remember key reference points from Code of
  Professional Responsibility
• Fulfill responsibilities to all stakeholders
• Are you doing what a person with integrity would
  do?
• Avoid conflicts of interest in services rendered

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Conclusion

• Whenever you are to do a thing, though it can
  never be known but to yourself, ask yourself how
  you would act were all the world looking at you,
  and act accordingly.

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Ethics GAGAS
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Auditing Accountability

• Public expects auditors to be ethical
• Ethical tone set by organizational management
• Essential element of positive ethical environment
• Ethical culture
• Communicating acceptable behavior expectations
• Creating environment reinforcing encouraging
  ethical behavior

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A Matter of Responsibility

• Conducting audit work in accordance with ethical
  principles is a matter of personal
  organizational responsibility.
• Preserving independence
• Taking on only work auditor is competent to
  perform
• Performing high-quality work
• Following applicable standards cited in audit
  report

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Ethical Principles

• The public interest
• Integrity
• Objectivity
• Proper use of government information, resources,
  position
• Professional behavior

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The Public Interest

• A distinguishing mark of an auditor is acceptance
  of responsibility to serve the public interest.
  This responsibility is critical when auditing in
  the government environment.