Accounting ethics: Why character matters

By Schalk Engelbrecht, Chief Ethics Officer at KPMG South Africa as well as Research Associate with the Centre for Applied Ethics (Stellenbosch University) and an Extraordinary Associate Professor with the School of Accounting Sciences (Northwest University)

Johannesburg, 8 September 2020 – We generally assume that a person can be good at their job without also being a good human being. We can easily imagine an exceptional golfer, or mathematician, or chef, who isn’t at the same time a saintly person. In fact, there are vivid examples in support of this assumption, writes Schalk Engelbrecht, Chief Ethics Officer at KPMG South Africa as well as Research Associate with the Centre for Applied Ethics (Stellenbosch University) and an Extraordinary Associate Professor with the School of Accounting Sciences (Northwest University).

Ironically, in two areas where we would expect character to play an important role – leadership and ethics – we often find the opposite. In leadership studies, researchers call the tendency for the moral flaws of successful leaders to be exposed the Bathsheba Syndrome (with reference to the series of unfortunately events that followed when King David witnessed Bathsheba bathing). Throughout the course of history, exceptional leaders have not been short of moral imperfections.

Similarly, in the field of ethics the “ethics of ethics experts” has itself become somewhat of a research topic. And the findings don’t flatter the experts. In their article, “The moral behaviour of ethics professors”, Eric Schwitzgebel and Joshua Rust found that while ethics professors often display stricter moral attitudes (or set the bar higher, morally), these attitudes don’t translate into markedly better behaviour. Ethics professors are just as bad at phoning their mothers as the rest of us. This confirms what the philosopher Arthur Schopenhauer claimed a century ago: “It is just as unnecessary for the saint to be a philosopher as it is for a philosopher to be a saint”.

Why then are the ethical expectations of accountants so high? If leaders and moral philosophers need not be saints, why do we expect it of accountants?

Why should accountants (ac)count more?

Morally speaking, a lot is expected of accountants. The South African Institute of Chartered Accountants’ (SAICA’s) Code of Professional Conduct is a 202-page document filled to the brim with requirements. The first real line of text in the Code commits the profession (and its professionals) to act in the public interest. In addition, accounting firms often expect their employees to adhere to “the highest level” of personal and professional behaviour.

While many might say these are but words on paper, the critics of accounting are often less aware of the myriad ways in which adherence to these standards is evaluated. Every year accountants are subjected to internal and external audits. Audit files are sampled and put to the test by internal risk management functions. Adherence to moral and professional expectations is tracked via “compliance dashboards”. In multinational firms, a global panel of reviewers also check the quality of work delivered. Finally, regulators get a turn to sample work – and findings against an accountant’s work lead to penalties.

This raises the question why the character of the accountant is relevant at all? If they are meticulous and demonstrate good judgement relative to accounting and auditing standards, why do we also expect them to be people of integrity?

The importance of integrity in accounting

To some extent accounting is different from other occupations. While you could be a good chef but a terrible person, in accounting that doesn’t quite work. The accountant’s character is somehow mixed up with her product. She does not produce something tangible – a car or a garment or a pastry that could be driven or worn or eaten. An accountant provides reliability, transparency and accountability. The accountant says, “This is what we did with what was given”. The auditor says, “You can trust it, because I checked it”.

For this reason – because accountants are moral agents in society who promote values like honesty and accountability – character plays a role. The reliability of financial statements and the quality of audits are influenced by the integrity, objectivity and diligence of the teams who worked on them. And character, in this context, includes being motivated by the right things, and developing the right dispositions.

Being a good accountant means being motivated by the proper aims of your professional activity. For a teacher, the aim should not only be to coach learners to achieve a certain mark, but to supplement knowledge with learning and behavioural habits that prepare learners for life. For the accountant, the proper aim is not to “keep the client happy” or to present the firm’s finances in the most favourable light. The proper aim of accounting is to provide sound, decision-useful information to the different groups that make up “the public”.

The accountant is far more likely to achieve this aim if her character is aligned to her aim. The fundamental principles of accounting (integrity, objectivity, professional competence and due care, confidentiality and professionalism) are therefore best thought of as character traits or virtues that you are constantly working on, rather than tools that you take out only when you need them. Being “straightforward and honest” is second nature for the accountant in all spheres of her life, not only at work.


Obstacles to professional integrity

Like an athlete or musician, therefore, the accountant is constantly “practicing” integrity, objectivity and diligence. On race day (during year-end or an audit), these virtues are channelled towards the public interest. This explains why chartered accountants are often asked to serve on committees, and why they can be so pedantic. Their perfectionism and their willingness to identify and communicate problems make them both frustrating and useful.

Yet many obstacles test the ethics of accountants. Three are especially noteworthy:

First, in accounting the “client” is both faceless and removed. When a doctor sees a patient, there is little doubt on whose behalf they are applying their professional expertise. So too for the attorney. Yet the person(s) in front of the accountant and the auditor, those he or she interacts with while applying their skill, are mostly not the beneficiary. The accountant works on behalf of an anonymous mass of “stakeholders” who are affected by the accuracy of financial statements, including shareholders, creditors, investors and the wider community.

Second, and closely related to the problem of a distant and faceless client, is that accountants must constantly navigate between their guardian and commercial roles. To pay the bills an accountant is meant to get clients, provide them a service and retain them. Ultimately, however, the accountant must simultaneously protect the public against inaccurate financial reporting. There is a tricky balance to be maintained between productive and amiable relationships with clients and being a gatekeeper on behalf of society at large.

Finally, success is not immediately apparent in the world of accounting. Having the financials signed off and published; having a happy boss, satisfied stakeholders or analysts whose expectations have been met – all of these are dubious measures of success. Instead, success is determined by how useful the financial statements were for purposes of accountability, planning, strategy or investment. In turn, success in audit depends on whether an opinion stands three years later. Because “getting it right” can only be judged much later; and because in thinking people tend to attach more importance to immediate rather than long-term consequences, it can be challenging to pursue the rights measures of success.

Admitting our character limitations

Given these challenges, it is unfair to ask of accountants to simply “will” themselves into being ethical. Part of being “virtuous” is being aware of our limitations and acting to sidestep these limitations. If I want to eat more healthily, I don’t fill the cupboard with chocolate and then will myself to resist it. I simply don’t buy chocolate. This is not weakness of character, but recognition of fallibility.

In the same way, we should arrange the professional environment in a way that makes it easier to do the right thing. Instead of managing familiarity or self-interest, we should try to minimise or eliminate these challenges.

We should also guard against trying to comply ourselves into integrity. More rules and stricter punishments, while sometimes necessary, may also undermine the true value of a professional – judgement and discernment that comes with experience.

What’s in a name?

It may be necessary for us to revisit the assumption that technical excellence is separate from character. If the quality of an accountant’s work is a function of his/her character, perhaps the same applies in other occupations. This seems plausible for nurses, attorneys and engineers. And even in the culinary arts, we can sometimes see the chef’s character in their food.

Returning to the behaviour of ethics professors. There is a story told of the eminent moral philosopher, Bertrand Russell. While occupying the Chair in Ethics at Harvard University, Russell was reportedly embroiled in an adulterous affair. When questioned about this by the Harvard Board of Governors, Russell argued that his private life was irrelevant to his academic responsibilities. When the Board reminded him that he was, after all, a professor of ethics, he replied that while being a professor of geometry at Cambridge, he was never required to be a triangle.

While geometrists need not be triangles, accountants are required to be accountable. It is essential for accountants to develop and safeguard their character through consistent habit-formation. An accountant’s character is their product, and once an accountant’s integrity is in doubt, the product loses its value.