The paper begins with an example of the accounting treatment afforded an Indefeasible Rights Use (IRU) Swap by Global Crossing. The case presents a typical example of ways in which accounting firms contributed to the ethical scandals of the early 21st century. While the behavior of Arthur Andersen, the accounting company in the case, might have met the letter of the law, we argue that it violated the spirit of the law, which can be discovered by looking at (1) the (...) legitimate goals of a company which give it its ethical direction and (2) the responsibilities of the accounting professionals who serve the company and the general public. Those professional responsibilities are determined by looking at the legitimate function those professionals fulfill in the economy. A further claim is that Andersen and other accounting firms are motivated to abandon the responsibilities derived from pursuing their proper goals by falling into the trap of accumulating wealth for its own sake. We argue that the ultimate responsibility of internal auditors is to develop statements that give as reasonably true and fair a picture of the financial situation to any user having a claim to that knowledge. Further we argue that the major responsibilities of the external auditor are: first, to be responsible to the using public for evaluating financial statements and declaring that they represent a fair picture of the financial situation of a company, and second, to be a watchdog of financial markets and call into question irregular practices that would distort those pictures. Such due professional care requires the auditor to exercise professional skepticism: an attitude that includes a questioning mind and a critical assessment of audit evidence. The paper concludes by giving particular examples of how Arthur Andersen LLP failed to meet those responsibilities. (shrink)

Modern management reporting on its company''s performance is influenced by individuals ethical considerations. Stakeholders philosophies have continued to change over the last 75 years affecting reporting systems for companies reporting information internally and externally. These fundamental changes in philosophy have affected how information is conveyed. We are not claiming that only one philosophical viewpoint dominates companies reporting practices, but there does appear to be a changing trend of philosophies building on one another. We use resource dependence theory in relationship to (...) a decision-making model to explain changing stakeholders positions over time. This paper argues that six dominant philosophical theories have influenced the way individuals and organizations report financial and other information. Further, these philosophies then are depicted in a model that helps us to understand what influences companies to present themselves to the outside world. A vignette is used to depict changing philosophical views for several companies management report over 75 years. (shrink)

This paper analyzes the rhetoric surrounding the profession’s presentations of auditor independence. We trace the evolution of thecharacter of the auditor from Professional Man in the early years of the twentieth century to the more public and abstract figures of Judicial Man and Economic Man. The changing character of the auditor in the profession’s narratives of legitimation reflects changes in the role of auditing, in the economic environment, and in the values of American society. Economic man is a self-interested and (...) shallow character who offered the auditing profession little protection against involvement in corporate scandals. In the wake of recent accounting scandals, the profession is calling for a return to the character of Professional Man to restore trust in audits and the financial markets.We also analyze the philosophical bases of the metaphors surrounding auditor independence. These metaphors, particularly the metaphor of independence as separation, create problems in conceptualizing independence concepts. How can you discuss appropriate relationships when your basic concept is one of separation, or no relationship? On the other hand, relational concepts of independence are also flawed if they are not based on a firm moral foundation. We suggest how the profession can act to rebuildits moral foundation through recognition of collective responsibility. (shrink)

Financial and cost accounting information is processed by decision-makers guided by their particular need to support decisions. Recent technological advances impacting on information as well as organizations such as the European Community mandating financial reporting requirements for many countries is rapidly changing the landscape for decision making using accounting information. Hence, the importance of individuals'' decision making is more important than it was previously. These decisions are also influenced by individuals'' ethical beliefs. The Throughput Modeling approach to cultural and ethical (...) concerns provides a way of dealing with accounting information processed through various pathways by decision-makers. This modeling approach captures different philosophical perspectives from which to understand what is involved in "thinking scientifically." In the Throughput Modeling approach, pathways highlight the importance of how different philosophical perspectives may be used by individuals in arriving at a decision. This paper highlights key concepts involved in rethinking the basis of moral decision making in terms of an underlying process, rather than focusing on the application of principles or the development of a virtuous character. Examples are provided from both English and Spanish settings to help emphasize the importance of modeling ethical decision making globally. (shrink)

External auditors owe a professional duty to the company''s stockholders and to society in general. However their remuneration is determined by management. The resulting conflicts of interest are particularly acute in distressed companies where the auditors are required to disclose uncertainties regarding future survival. We focus on the consequentialist self-fulfilling prophecy argument whereby auditors may fail to disclose such uncertainties due to the belief that the disclosure itself would precipitate the company''s bankruptcy. We find no empirical support for such beliefs (...) for a sample of distressed U.K. companies with audit reports published between 1986 and 1993. Companies whose auditors disclose going concern uncertainties are no more likely to fail than those without such disclosures; indeed three out of four reports containing going concern uncertaintiesare not followed by failure before publication of a subsequent set of accounts. Instead we find that it is the degree of financial distress that drives both bankruptcy and the auditor''s going concern disclosure rather than that the disclosure itself causes failure. Belief in the self-fulfilling prophecy effect nevertheless persists, and this despite the profession''s clear ethical guidelines that audit opinions should provide an objectively true and fair view, paying no regard to possible consequences. It may be that the continued attractiveness of the self-fulfilling prophecy belief is due to its providing a means of resolving intense auditor/management conflict in what is a particularly complex decision situation. We argue that, if the profession''s clear ethical guidelines are to play a greater role in this area, issues such as enforcement will need to be addressed. (shrink)

Several critics have reopened the continuing debate regarding the credibility of the auditing profession in part because of auditors' reluctance to issue warning signals to investors. At the root of auditors' lack of independence issues are conflicts of interest resulting from the structural features of auditor-client relationship. The Throughput Model is advanced to illustrate how ethical issues may be influenced by conflicts of interest. In the first stage, the TP provides an isolation of auditors' ethical positions from six ethical different (...) perspectives. In the second stage, previous TP theory is built upon by arguing a simultaneous analysis of how conflicts of interests may induce auditors' behavior. We conclude that in the current low litigation risk environment, auditors' ethical behavior is clearly ' unbalanced' favoring the reluctance to issue warning signals. Finally, we offer a discussion of potential solutions to improve ethical issues. (shrink)

The recent frauds in organizations have been a point for reflection among researchers and practitioners regarding the lack of morality in certain decision-making. We argue for a modification of decision-making models that has been accepted in organizations with stronger links with ethics and morality. With this aim we propose a return to the base value of Christianity, supported by Bible scriptures, underlying six dominant ethical approaches that drive practices in organizations.

The paper begins with an example of the accounting treatment afforded an Indefeasible Rights Use Swap by Global Crossing. The case presents a typical example of ways in which accounting firms contributed to the ethical scandals of the early 21st century. While the behavior of Arthur Andersen, the accounting company in the case, might have met the letter of the law, we argue that it violated "the spirit of the law," which can be discovered by looking at the legitimate goals (...) of a company which give it its ethical direction and the responsibilities of the accounting professionals who serve the company and the general public. Those professional responsibilities are determined by looking at the legitimate function those professionals fulfill in the economy. A further claim is that Andersen and other accounting firms are motivated to abandon the responsibilities derived from pursuing their proper goals by falling into the trap of accumulating wealth for its own sake. We argue that the ultimate responsibility of internal auditors is to develop statements that give as reasonably true and fair a picture of the financial situation to any user having a claim to that knowledge. Further we argue that the major responsibilities of the external auditor are: first, to be responsible to the using public for evaluating financial statements and declaring that they represent a fair picture of the financial situation of a company, and second, to be a watchdog of financial markets and call into question irregular practices that would distort those pictures. Such due professional care requires the auditor to exercise "professional skepticism": an attitude that includes a questioning mind and a critical assessment of audit evidence. The paper concludes by giving particular examples of how Arthur Andersen LLP failed to meet those responsibilities. (shrink)