Ethics Mindsets: New and Old

• In Event: Emerging Research Session IV: Ethics, Management Accounting and Governmental Accounting

Abstract

Turn-of-the-century audit failures such as Enron exposed lapses in accountants’ professional conduct. The SEC and Sarbanes-Oxley Act responses changed little to the prevailing “rules-based” mindset wherein some CPAs sought loopholes, “bright-lines” and ways to bend rules. To foster a new mindset, the AICPA issued two “principles based” conceptual frameworks that require members to identify, evaluate, and address ethics “threats” and apply “safeguards” to eliminate or mitigate those threats. This article (1) explains and illustrates ethics threats and safeguards, (2) traces the evolution from rules-based to principles-based ethics standards, and (3) applies the framework requirements to two ethics cases.
To navigate the new ethics landscape, CPAs must be versed in the objectives of the AICPA’s six fundamental ethics principles. We also present a table that summarizes these objectives and comments on their implications.

Authors

• Martin A Leibowitz, Yeshiva University

• Alan Reinstein, Wayne State University