Philosophical Ethics versus Professional Accounting Ethics



Since the beginning of sentience, the true concept of right and wrong is one that has eluded human beings. Though there exists some general consensus as to the fundamental base of these concepts, rarely do people as a whole fully agree on the concepts of ethics and morality. While some people and companies use religion and law to guide their own ethical behavior, the question remains whether humans are truly born with these concepts embedded into their psyche, whether they can be learned, or whether they are rational at all. Different cultures, life experiences, and upbringings have driven different patterns of human thought to the point that it is highly doubtful that one common ground can ever be reached. It is because of this phenomenon that philosophers have developed several distinctive schools of thought in an attempt to guide and rationalize certain aspects of human ethical and moral behavior. Egoism, utilitarianism, deontology, and virtue ethics are just a few examples of these schools of thought.

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Egoism is an idea based solely in self-interest. Advocates of this school of thought believe that one should do only what is in one's own best interests, regardless of how any particular action affects others and whether such behavior is ethical or unethical.

In contrast to egoism, utilitarianism states that any action should be one that provides the greatest benefit the greatest amount of people. Like egoism, whether or not the action is ethical or unethical is irrelevant; utilitarianism is simply concerned with the outcome.

Unlike egoism and utilitarianism, which are only concerned with outcomes, deontology is simply concerned with the morality of the particular action that is taken. Deontology advocates that one should always treat others with respect and to treat people as an end, never as a means. The outcome of such an action is irrelevant as long as the rule is followed and intentions are wholesome.

Finally virtue ethics, in contrast to the three previously mentioned schools of thought, places emphasis on the moral character of the person committing the act. Virtue ethics contends that virtuous people act virtuously. However, virtue must first be defined to give meaning to the virtue ethics position. Greek philosopher Aristotle defined four cardinal virtues that society should be built upon; wisdom, justice, courage, and temperance (self control). A professional living by these four virtues will have sufficient knowledge and understanding of their particular area to practice it, will have a thorough understanding of his/her duties with regards to justice and how it should be executed, will have the courage to do the right thing under any circumstance, and will have enough self control to resist the negative temptations of everyday life. If these four cardinal virtues are used as a template for virtue ethics, the position can be used to assess whether a person is acting within the confines of this particular school of thought.

Different accounting and auditing standard setters and financial regulators around the world attempt to provide the fairest and most ethically sound standards that they possibly can. The American Institute of Certified Public Accountants (AICPA), Securities and Exchange Commission (SEC), Public Company Accounting Oversight Board (PCAOB), and the International Accounting Standards Committee Foundation (IASC) are a few examples of such organizations. The AICPA develops auditing standards for private companies in the United States. The SEC is a federal body that enforces federal securities laws and regulates stock exchanges and public companies the United States. The PCAOB is standard setter created directly under the SEC's umbrella that oversees U.S. public company auditing standards. Finally, the IASC attempts to create a standard set of accounting principles that can be used by countries worldwide in an effort to promote comparison in an increasing global business setting.

Though these four governing bodies strive to provide the most ethical guidance possible, they follow no particular school of thought. When taking the four previously mentioned schools of thought into consideration, one can see possible similarities and differences with each governing body's set of principles. The following sections of this paper discuss in depth each ethical school of thought's possible influence on each of the respective governing bodies.

The American Institute of Certified Public Accountants

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The American Institute of Certified Public Accountants (AICPA) provides its meembers with ethical guidance through its Code of Professional Conduct and "Ethics Decision Tree". The Professional Ethics Executive Committee (PEEC) is in charge of "interpreting and enforcing the AICPA Code of Professional Conduct" (AICPA, 2010). The PEEC also facilitates the process of deliberation that takes place for new ethics standards, which includes gaining input from the public. In addition to these sources, the AICPA has an ethics hotline that members may call when they are faced with an ethical dilemma. While these resources do provide guidance for members regarding their professional responsibilities, the AICPA is sometimes criticized for not offering a framework to help with ethical questions that fall outside of the rules of the Code of Professional Conduct. (AICPA, 2010)

The AICPA Code of Professional Conduct offers assistance for making ethical decisions as well as rules for the profession that all members must follow including those in public accounting, industry, government, and education. There are two sections of the Code. The first section, the Principles, are the foundation upon which the second section, the rules, are built. The Principles establish a framework for what is considered ethical behavior for members of the AICPA. The rules are more specific and establish how professional services should be performed. The Professional Code of Conduct also includes interpretations of the rules which clarify the scope of the rules and how they are to be applied, and ethics rulings, which are official rulings of the PEEC on the application of rules to specific situations. (AICPA, 2010)

The AICPA Code of Professional Conduct Principles are integrity, objectivity, independence, and due care. According to the AICPA integrity involves honesty, confidentiality, service to the public, putting self-interest last, and adhering to accounting principles. According to the code, "integrity is measured in terms of what is right and just" (AICPA, 2010). Objectivity and independence go hand in hand to ensure impartiality, honesty, and freedom from conflicts of interest. In order to be independent members must avoid relationships that reduce objectivity as well as ones that appear to do so. Due care is "the quest for excellence" (AICPA, 2010). It is comprised of competence and diligence in the members' professional work. Competence requires the level of education and experience connected with being a certified public accountant. Diligence requires members to always do their best and work for their clients' interests while maintaining their responsibility to the public. The rules are based on these principles and like all rules give more specific guidance.

The "Ethics Decision Tree" was designed to help members of the AICPA navigate through ethical dilemmas that the rules do not speak to directly. The idea behind the decision tree is sound because there is no way to have rules to address every ethical situation. However, the AIPCA's decision tree fails to provide much guidance to its members. The decision tree advises members to follow a company's ethics policy and talk to managers, the ethics committee, the audit committee, and the board of directors until a satisfactory ethical decision is made. If a satisfactory decision cannot be reached the member is advised to resign. While talking to higher levels of management and following company ethical guidelines are wise things to do in an ethical dilemma, this decision tree does not provide an actual framework for making ethical decisions. It advises members to talk to superiors, but not how to assess whether that superior's decision is ethical. Often AICPA members do not need to use a decision tree because the issue they are facing is directly addressed in the rules. While the rules do prevent the sort of ethical dilemma that the decision tree is supposed to address, it might result in being "as bad as the rules allow" (Anderson). In order to avoid this mentality and provide an actual "decision tree" for ethical dilemmas, the AICPA must establish a framework for ethical decision making. One could argue that the AICPA actually has this framework wrapped up in the Principles section of their Code of Professional Conduct. However, as evidenced by the decision tree, the organization has not fully recognized these Principles' ability to be the needed framework. The decision tree and even the rules to a certain extent tend to undermine the framework established by the principles.

Egoism vs. AICPA

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By comparing the principles established in the AICPA Code of Professional Conduct with the different schools of ethical thought one can analyze whether or not a sufficient framework exists. The principles have similarities with all of the main schools of ethical thought except for egoism. The egoist school of thought is based on the idea that there is only one virtue, selfishness. Egoists believe that the only way to act ethically is to act in their own self interest regardless of the effect it has on others. This does not match up with the principles in the AICPA Code of Professional Conduct. The principles are based on the idea that the professional accountant has a duty to the public, clients, and colleagues that supersedes self-interest. According to the Professional Code of Conduct, "the principles call for an unswerving commitment to honorable behavior, even at the sacrifice of personal advantage" (AICPA, 2010). This is the exact opposite of what someone with an egoistic framework would consider ethical.

Utilitarianism vs. AICPA

The ethical school of thought of utilitarianism is based on the idea that one should do whatever is best for society as a whole. Providing the greatest good for the greatest number of people is the fundamental goal of utilitarianism. This idea is central to the AICPA Code of Professional Conduct as well. The principles that are intended to guide members' actions are based on the idea that a professional accountant has a duty to the public, or society as a whole. These principles and utilitarianism are striving for the same ends. According to the Code of Professional Conduct, "reliance imposes a public interest responsibility on certified public accountants. The public interest is defined as the collective well-being of the community of people and institutions the profession serves" (AICPA, 2010).

Deontology vs. AICPA

The ethical school of thought deontology is based on the idea that one should never treat a person as a means to an end. Deontology is all about respecting people and having the right intentions, not just the right outcome. According to the Code of Professional Conduct, "integrity requires a member to observe both the form and the spirit of technical and ethical standards" (AICPA, 2010). This idea of following the spirit of a standard and not just the form requires members to have the right intentions when applying standards. It prevents the "be as bad as the rules allow" (Anderson) mentality. The focus on remaining free from conflicts of interest expressed in the principles of objectivity and independence also serves to ensure that members have the right intentions. The AICPA principles focus on a members' duty to the public rather than respecting the public just because they are fellow human beings, but the end result is within the deontological perspective; the public is treated as an end not a means.

Virtue Ethics vs. AICPA

The virtue ethics school of thought claims that virtuous people do virtuous things. Therefore the focus is on acting virtuously rather than on the consequences of one's actions. Like virtue ethics, the Code of Professional Conduct focuses on the idea of a person striving to be virtuous. "In the absence of specific rules, standards, or guidance, or in the face of conflicting opinions, a member should test decisions and deeds by asking, 'Am I doing what a person of integrity would do? Have I retained my integrity?'" (AICPA, 2010). The main problem with virtue ethics is that what is considered ethical depends on how virtue is defined. Different definitions of virtue could lead to very different actions being considered ethical. Aristotle, the founder of virtue ethics, believed that there were four cardinal virtues: wisdom, justice, courage, and self control. The principles in the AICPA Code of Professional Conduct match up with Aristotle's four cardinal virtues. Accountants are required to have wisdom in the theory and practice of accounting, which is a main focus of the principle due care. Professional accountants also have a duty to the public to provide justice. The principles discuss avoiding subordination of judgment which requires courage, and self control, which is important for the accountant to maintain integrity, objectivity, and independence. By defining the principles as virtues the virtue ethics school of thought could be easily adopted by the AICPA.

When comparing these different schools of ethical thought to the principles in the AICPA Code of Professional Conduct it is easy to see that they could provide a framework for ethical decision making. If the AICPA were to further explain the principles and promote them as a means for ethical decision making it may prove to be a more helpful framework than detailed rules or decision trees.

The Securities and Exchange Commission

Egoism vs. SEC

Egoism deals primarily with a party acting exclusively in their own self-interest. The party's self-interest may harm, benefit, or have no effect on the interests of other parties (Wiki, 2010). Within the Securities and Exchange Commission, federals laws are implemented and rules and regulations are instituted that deal with proper behavior for professionals. These professionals can consist of accountants, investment companies, and investment advisors. Overall the SEC protects investor interests and wants to maintain their integrity, which means they are primarily concerned with ethical issues. In addition, the SEC has the responsibility of approving federal security laws that are set by the SRO (self-regulatory organization). When the SEC deals with ethical dilemmas it uses an approach that is not like egoism, an ever-present concept in today's capitalist society. Rather, the SEC assumes parties are trying to be honest and altruistic. Specifically, the SEC believes the parties involved should instead of acting in their own self-interest, act in a way to help serve others. The moral party should feel somewhat obligated to do this, which contrasts with egoism. Egoism concerns selfish motivations, while altruism concerns the opposite. The SEC and the overall financial environment want to switch the capitalistic society to a more agency relationship outlook. The shift has been called the paradigm shift, which consists of examining the "rational-maximizer assumption" that is the current underlying theory and negate the idea that self-interest should be a party's motivation. Instead, this financial environment now believes in a higher degree of ethical and altruistic actions. This means focus would be on the principal-agency relationship (which altruism agrees with). Specifically there would be trust, honesty, and loyalty between the principal and the agent (Enotes, 2010). Again, this is completely different from egoism's selfish view point. For instance, the principal may be an accountant who audits a company and according to the SEC, this accountant should act with the honesty and attempt to serve their client, or agent. This differs from egoism, which would be okay with the principal acting in their own self-interest to increase their profit margin instead of acting to serve their agent to the best of their ability. The principal would not be able to act with loyalty and honesty towards their agent if they are only looking out for themselves and trying to increase their bottom line. However, there is one similarity between egoism and altruism which should be mentioned and that is they both deal with an agent focus, meaning they are subject focus forms of consequentialism (Wiki, 2010).

Utilitarianism vs. SEC

Overall, companies feel like they have what is called a corporate social responsibility, meaning they should act ethically and they are held accountable to society as a whole. There are many approaches to what corporate social responsibility can mean to a company, whether it deals with the stakeholder approach or corporate citizenship. Within the SEC's preamble it states that their task is to regulate aspects of the American economy. It goes on to say that the SEC should insure that their private enterprise system serves the entire welfare of all citizens in the United States (E-CFR, 2010). Furthermore, when the SEC deals with lawsuits in professional accounting (primarily dealing with white-collar crime) they must consider what is best for society as a whole as well. Utilitarianism views all people equally and states that the party should do whatever is best for the majority of the society. Whatever produces the greatest good for the most people is what utilitarianism advocates as ethical. Utilitarianism's focus is on the outcome of things and not on how the actual action takes place. This means the SEC's view point does agree with the idea of the greatest good for the most amounts of people; however, they would not agree with treating parties involved as only an end itself. They want to protect the public, investors, etc. The SEC realizes that it is their responsibility to help the public, which is why they would not agree with focusing solely on the outcome and not considering the means.

Normally when dealing with lawsuits in the professional accounting area, court case decisions are based on what is best for society as a whole. This agrees with utilitarianism, which means laws governing us (not SEC regulations) can be considered just the bare minimum and are not always the most ethical (Wiki, 2010). Once again here the SEC would agree with an outcome that benefits the majority; however, the SEC would have to ensure the parties involved were not just treated as a means to an end (Cross & Miller, 2008).

Deontology vs. SEC

The Securities and Exchange Commission ethical principles exist in an attempt to maintain the trust and confidence of the public. The SEC will only retain this reputation if they act with integrity. Specifically, the SEC states parties have to act honestly, with integrity, and be objective or impartial (Code of Ethics, 2009-2010). After the Stock Market Crash of 1929, The Regulatory Commission Act of 1934 was created in order to end misleading sales practices and protect investors. This act also prohibited use of non-public information within the stock trading process. Another prevalent mandate of the act was the requirement of full public disclosure of all relevant information (Answers, 2010). Of course today, due to Enron and Worldcom, The Sarbanes-Oxley Act (which created the PCAOB) has created greater oversight and influence on how to protect the public even more. All of this oversight created to protect the public means the SEC is trying to maintain the trust and confidence of the public intact. The SEC is trying to respect all citizens of the public and investors alike. Deontology deals with treating everyone with respect and considering your duties and rights towards other parties. The SEC believes duties, rights and justice are important as well. They believe parities have to have trust between one another. More importantly, clients need to be able to trust the expert they hired to perform these duties as originally stated. For instance, as a professional accountant a party has the duty to act in the client's best interest; however, they only will do this as long as it does not violate any law or regulation. Any violation as previously mentioned would be considered disrespectful in the deontological view point. Deontology focuses on the duties and reasons motivating an action rather than simply the outcome of that action. In addition, when thinking about cases like Enron, one sees that the parties here were not interested on how they made their bottom line. All that mattered was whether or not they made that bottom line. This meant that the parties, like Arthur Anderson's accountants, did not care about the public. They did not care about what was just and ethically sound they only cared about the outcome. They disrespected the public, clashing with deontology, and in effect clashing with SEC as well. Overall, the deontological point of view and the SEC's view on how to treat the public are similar (Brooks & Dunn, 2009).

Virtue Ethics vs. SEC

Virtue Ethics can be dated all the way back to Aristotle. However, today the view of virtue ethics is more towards character virtues, sometimes known as "enlightened self-interest," but is not focused on self-serving achievement (Brooks & Dunn, 2009). Overall, when people are able to regulate their emotions and their individual reasons it is because they have good character habits. For instance, if an accountant is faced with a difficult ethical situation and has integrity and good habits that they normally apply, then they would be more apt to act ethically and fair in this situation as well. The great idea of virtue ethics deals with the practice of being honest and fair on a daily basis, or rather sacrificing ourselves for the greater good, acting with integrity, and being moral; which should come naturally. Unfortunately, when dealing with parties on the job, the SEC knows that ethical dilemmas will come up and what actions to take will not be entirely clear. Instead there are normally many different variables to consider. The SEC does agree with putting the public and the investors as the priority and to serve your client with honesty and integrity; however, they know that even ethical and morally-sound parties will still have difficulty deciding on what is best for the greater good (Cline, 2010). Stated within the SEC's Conduct and Ethics Code, specifically in the maintenance of independence section: 200: 58, it discusses how members should not be coerced by "partisan demands, public clamor or considerations of personal popularity or notoriety, and that he or she should be above fear of unjust criticism by anyone" (E-CFR, 2010). If the SEC members practice this type of behavior on a daily basis and continue to remain independent, then these behaviors become an explicit habit and members will continue to act with morality and integrity every day. However, virtue ethics does help professional communities, including professional accountants, help identify ethical issues and guide them to ethical actions. Overall, a virtue is considered to be part of your character. For instance, an accountant who possesses a trait or disposition of honesty will show his or her virtue typically through some type of action. Here it could simply be by them bringing attention to their manager that they think assets are overstated. Normally this accountant would exhibit this kind of honest behavior, which would mean that it was part of their character and that they possessed that kind of virtue. The SEC and their professional accountants would agree with this kind of virtuous behavior; the type of behavior that incorporates moral sensitivity, judgment, and great perception (Brooks & Dunn, 2009).

The Public Company Accounting Oversight Board

Enron, Tyco, and WorldCom are all examples of why ethics are so important in the accounting profession today. These scandals were a result of management driving earnings to increase stock prices at all costs and auditors allowing these deceptive actions to maintain their high audit fees. According to some ethical perspectives management's and the auditor's actions were justified; however, other ethical perspectives would view this as an ethical meltdown (Hinman, 2002). The accounting profession as a whole reacted to these incidents with the Public Companies Accounting Oversight Board (PCAOB) in a response to market chaos. The PCAOB was created to reinforce the SEC's ethical views on auditors, public companies, and the public as a whole to create a market turnaround. This new market that the PCAOB aims at creating involves transparency and trust; because without trust the markets will ultimately fail. The PCAOB's ethical standards are both similar and different when compared to the different philosophical ethical perspectives.

As a result of the Sarbanes Oxley Act of 2002 (Sox), which stems from the aforementioned corporate scandals, the responsibility to regulate the audits of public companies was transferred from the AICPA to the PCAOB. The purpose of the PCAOB is to establish audit, attestation, quality control, ethical, and independence standards for public accounting firms registered with the SEC (Sweeny, 2007). In addition, the mission of the PCAOB is to, "oversee the auditors of public companies in order to protect the interests of investors and further the public interest in the preparation of informative, fair and independent audit reports" (PCAOB, 2010).  The PCAOB has adopted the AICPA's Code of Ethics as a base, which emphasizes independence, objectivity, and integrity. The PCAOB is also responsible for the enforcement of the professional standards for auditors of public companies. If there are potential breaches the PCAOB may impose public hearings, training, quality control standards, appointment of monitors, revoking a firm's registration, or revoking an auditor's participation in an audit. Overall, the PCAOB was established to regain trust in the CPA since the public, investors, and the economy as a whole had lost confidence in CPAs (Sweeny, 2007). The vision statement of the PCAOB states, "the PCAOB aims to improve audit quality, reduce the risks of auditing failures in the U.S. public securities market and promote public trust in both the financial reporting process and auditing profession" (PCAOB, 2010). Therefore, the PCAOB is the establisher and regulator of a new moral compass in our society that was developed based off of past decisions and actions of society (Sweeny, 2007). A profession that was once self-regulated now requires oversight because of our society's and the accounting profession's ethical views (PCAOB, 2010).

Egoism vs. PCAOB

From an egoistic perspective one would probably conflict with the PCAOB since the scandals in the 90's were mainly due to accountants with an egoistic point of view which is what the PCAOB is aiming to protect the public from. Egoism encourages the increasing of earnings and stock prices even if a company is violating integrity, commitment, or confidentiality as long as these actions are furthering one's own interest (Wiki, 2010). For example, public auditors may not audit a company if they are not independent according to the PCAOB. In an egoistic society one who violates the independence principle to maintain a client and increase revenue would be doing the right thing as opposed to someone who did not violate the independence principle and in effect lost clients and revenue. Egoists in the marketplace typically view laws as constraints because they are focused on selfishness rather than self-interest; therefore, egoists would not like the accounting professions standards of the PCAOB which are rules based (Chamberlain, 2002). An egoist would rather participate in a market with no rules at all and where every man fends for himself, whereas the PCAOB promotes fairness, inclusiveness, and public interest (PCAOB, 2010).

Utilitarianism vs. PCAOB

The ethical philosophy of utilitarianism is similar to the accounting ethics of the PCAOB in that the PCAOB strives to protect the general public and the goal of utilitarianism is to provide the most good to the greatest number of people (Wiki, 2010). As stated in class, the accounting profession's ethical standards are most like those of a utilitarian point of view. The PCAOB provides for more public disclosure and transparency which may not be as beneficial for some public companies but has positively affected the general pubic since they are provided with greater protection from misrepresentations and misconduct of public auditors (Sweeny, 2007). One of the top priorities of the PCAOB is public interest which is of significant value to the utilitarian perspective. Some other values of the PCAOB that are similar to utilitarianism include fairness, inclusiveness, and teamwork (PCAOB, 2010). Utilitarianism seems to be the polar opposite of egoism and egoism is what the PCAOB drives at protecting the public against; therefore, one can conclude that the PCAOB's ethical standards encompass a considerable amount of the utilitarian ethical principles. However, there is a key difference between utilitarianism and the PCAOB. While both ethical systems want what will benefit society the greatest as a whole, the PCAOB does not allow behavior they consider unethical even if the benefits will be greater for everyone. For example, utilitarianism would condone lying if it results in the greatest result for the most people but the PCAOB seeks the truth in all situations.

Deontology vs. PCAOB

The professional code of conduct adopted and enforced by the PCAOB encourages auditors to behave honorably and sacrifice personal advantage by treating stakeholders with respect (Sweeny, 2007). This is similar to deontology where one is treated how they would like to be treated, which means treating others as an end rather than a means. One of the core values of the PCAOB is integrity which is also one of the guiding ideals of deontology. However, the PCAOB considers efficiency, effectiveness, and cost benefit analysis in the application of their ethical standards which contrasts to the deontological view where the golden rule is applied without exception (Wiki, 2010). In addition, deontology ethics focuses on the morality of an act itself where as the PCAOB looks at the act itself and its related consequences. Similar to professional accounting ethics deontology utilizes duty ethics, which emphasizes the following of rules just as the PCAOB requires auditors to follow standards because auditors have a duty to the public (Wiki, 2010).

Virtue Ethics vs. PCAOB

The focal point of the virtue ethics philosophy is on one's moral behavior and character (Wiki, 2010). This is similar to the PCAOB independence rule where auditors must be independent in both fact and appearance. The application of this standard focuses on the auditor's being and identity. However, virtue ethics differs from the PCAOB in that it does not apply rules or standards which are focused on an auditor's actions; it is based on one's characteristics like compassion and fairness (Wiki, 2010). The PCAOB requires auditors to conduct business fairly; however, it is not essential that the auditors themselves are fair people in all aspects, rather the PCAOB is more concerned with the auditors applying fairness to the audit of public companies. Virtue ethics is about reason and logical choices; auditors are constantly making judgement calls and the PCAOB's standards help guide auditors applying reason and logic to make the right decisions.

The PCAOB offers those in the auditing profession guidelines on the way auditors are required to conduct the audits of public companies through their standards and codes of professional conduct. The ethical system is written and enforced by auditing professionals themselves to express the ideals and values of their corporations and profession; however, just like any other ethical perspective, it is ultimately up to the individual whether or not to act ethically or unethically (Hinman, 2002). The PCAOB is an ethical system made up and enforced by rules whereas the philosophical ethics systems are different ways at viewing a situation and deciding according to those set of beliefs if something is right or wrong. There will be consequences to all decisions but the other ethical systems do not have a body enforcing those consequences or making changes to their ethical system's beliefs. The PCAOB will constantly change as society changes, society will impact the ethical standards that the PCAOB seeks to enforce and the PCAOB will have its effects on the market which will affect society as well in the long run. Therefore, the PCAOB's accounting ethical standards are ever changing and will continue to change whereas the other philosophical ethical standards have remained basically the same for hundreds of years and will probably continue to remain constant.

The International Accounting Standards Committee Foundation

Egoism vs. IASC

Egoism grounds its ethical position in "that moral agents ought to do what is in their self-interest," (Ethical Egoism, para.1). At first glance of the objectives in the International Accounting Standards Committee Foundation's Constitution it appears that the International Accounting Standards Board is not grounded in the egoist school of thought. The four objectives listed in the Constitution are to develop, in the public interest, a single set of high quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated principles, to promote the use and rigorous application of those standards, in fulfilling the previous objectives to take account of the needs of a range of sizes and types of entities in diverse economic settings, and to promote and facilitate adoption of International Financial Reporting Standards, being the standards and interpretations issued by the IASB, through the convergence of national accounting standards and IFRS (IASC Foundation, 2010, p.5). These objectives do suggest that the standards created by the IASB are held to the highest of standards and that the unified and consistent application of them could bring benefits to financial information users. However, the question exists on whether the promotion of these standards is in the interest of all users of IFRS, or a select few countries or regions of the globe.

Through appointing twenty-two trustees to the IASC Foundation, the Foundation has attempted to create a governance body that is globally diverse and unbiased. Within the IASC Foundation Constitution they have set the requirement of six Trustees coming from each Asia, Europe, and North America and then one Trustee coming from each Africa and South America. There are also two Trustees appointed from any area, subject to maintaining overall geographical balance (IASC Foundation, 2010, p.6). Although there seems to be an effort from the IASC Foundation to create a governing body that is diverse enough to overcome self-interest, their inability to more equally involve Africa and South America suggests the self-interest of the other three continents can more easily be promoted with uneven representation. Also, within each continent's trustees there is also uneven representation from countries. Eastern Europe currently has no representatives within the board of trustees, North America's representation is primarily from the United States and Canada, and the People's Republic of China and Japan dominate the Asian slots for trustees. (IASB, The Organization: Trustees).

Since the IASC Foundation is relatively young in comparison to many accounting standard formation bodies around the world, it is difficult to determine whether the unrepresented global regions will either be provided a position in the Trustee governance body, or if they will agree to follow International Financial Reporting Standards and adopt the perspectives of the current Trustee body. The path that is selected will further indicate whether the IASC Foundation has truly had the intention of acting in their self-interest or providing a uniform set of standards to the world that incorporate a truly global perspective.

Utilitarianism vs. IASC

Utilitarianism bases its moral framework around determining the moral worth of an action by its outcome (Utilitarianism). The IASC Foundation states that they have "adopted a set of policies and guidance statements that are designed to ensure that the organization operates in a way that meets or exceeds the requirements of public interest, meets all legal requirements, and has an overall beneficial impact on the environment," (IASB, The Organization: IASC Foundation Policies, para.1). This suggests that the Foundation has adopted an ethical framework that serves to bring as much benefit as possible to the public and the environment.

The Due Process Oversight Committee of the IASC which consists of five to seven trustees also applies a utilitarian process. This committee has the specific responsibility of reviewing the oversight function the Trustees have been mandated to perform through the Constitution of the Foundation (IASB, The Organization: Due process oversight, para.1). This Due Process Oversight Committee specifically "develops proposals and measurement targets, monitors the achievement of those targets and alerts the Trustees when targets are not being met," (IASB, The Organization: Due process oversight, para.2). This measurement process performed by the Due Process Oversight Committee shows the concern the IASC Foundation has over the effectiveness of their Trustee performance in governing the IASB's standard setting procedures.

Deontology vs. IASC

The standard setting function of the International Accounting Standards Board and the IFRS Interpretations Committee follow a deontological framework. "Deontology is an approach to ethics that judges the morality of an action based on the action's adherence to a rule or rules" (Deontological Ethics, para.1). Although the IASB and the IFRS Interpretations Committee perform different roles in the standard creation and setting process, they both follow similar and specific processes. The IASB holds all their meetings in public, and they follow an open and transparent due process that publishes consultative documents for public comment. Like the IASB the IFRS Interpretations Committee also holds public meetings, and they must also follow an open due process (IASB, The Organization: About the IASC Foundation and the IASB, para 3 & 4).

The Trustees of the IASC have also created a Monitoring Board. This board has been given the primary responsibility to ensure that the Trustees discharge their duties as defined by the IASC Foundation Constitution, and they approve the appointment or reappointment of Trustees (IASB, Governance and accountability: Monitoring Board, para. 3). The Monitoring Board is currently composed of securities regulators of Europe, Japan, the United States, and the Emerging Markets and Technical Committees of the International Organization of Securities Commissions ( IASB, Governance and accountability: Monitoring Board, para. 2). The Monitoring Board gives "securities regulators that allow or require the use of IFRS in their jurisdictions the ability to carry out their mandates regarding investor protection, market integrity, and capital formation" (IASB, Governance and accountability: Monitoring Board, para. 2). The formation of this board shows how the approach taken by the IASC Foundation is vital to their credibility, and that without processes being appropriately completed, they cannot ensure the reliability of their standards. By creating a board that is composed of securities regulators external to the IASC Foundation, they have ultimately created greater credibility to their standard setting process.

The Due Process Oversight Committee has been created to monitor Trustee fulfillment of their oversight function. Although this Committee is focused on ensuring processes are successfully completed, measurement targets are its primary concern and is more utilitarian in nature.

Virtue Ethics vs. IASC

According to Aristotle, wisdom, justice, courage, and temperance are characteristics of virtue. Using Aristotle's characteristics the IASC Foundation can be identified as having some resemblance of practicing virtue ethics. Use of virtue ethics as the IASC Foundation's ethical framework can be seen in their financing structure, selection of trustees, and formation of the IASB.

The IASC Foundation gives the responsibility to their Trustees to organize and approve the appropriate financing for the Foundation. The IASC Foundation states that their goal is to engage all interested parties throughout the world in the shaping of reporting standards, and their financing should ensure independence and objectivity of the standard-setting process (IASB, Governance and accountability: Financing, para. 2). This desire to finance the foundation while maintaining independence and objectivity shows that the IASC Foundation wants to be just in their standard creating process, and that they desire to create temperance in forming standards to benefit all. The Trustees' financing efforts are guided by four principles. These principles are to be broad-based, compelling, open-ended, and jurisdiction specific (IASB, Governance and accountability: Financing, para.4). Their goal to have funding come from a broad-base of participants in the world market and to have the funding burden be shared by the major economies on a proportionate basis shows the Foundation's desire for a just funding system to be in order. The principle of open-ended financing is to ensure financing is not contingent on actions or situations so that the Foundation can maintain their independence. This open-ended financing is a way for the Foundation to exercise temperance. The principle of funding being compelling is to encourage beneficiaries of the IASC Foundation to provide funding. This principle requires the Trustees to use their wisdom to engage market participants to provide funding.

The selection of trustees and formation of the IASB shows the how the IASC Foundation desires to create an organization of virtuous individuals. To be a Trustee of the IASC Foundation, it is outlined in their Constitution that a Trustee must show a commitment to the IFRS Foundation and IASB, be financially knowledgeable, and show an understanding of challenges associated with the adoption of global accounting standards (IASC Foundation, 2010, p.6). Furthermore the mix of Trustees should be a broad reflection of the world's capital markets and professional backgrounds, and they are required to commit themselves formally to act in the public interest in all matters (IASC Foundation, 2010, p.6). These requirements set out by the IASC Foundation require their Trustees to have wisdom gained from their global and professional backgrounds. Also, through being required to consider the impact and challenges of global accounting standards and publicly committing themselves to act in the public interest they are showing the courage to act justly and for the benefit of others.

Like Trustees, the International Accounting Standards Board members are required by the IASC Foundation Constitution to hold certain qualities. The Constitution requires the IASB members to have technical expertise, diversity of international business and market experience, and must formally commit themselves to act in the public interest in all matters (IASC Foundation, 2010, p.11-12). The requirement of having to be a technical expert with diverse market experience shows the desire for the IASB to have wisdom as they create international accounting standards. Also by formally stating they are acting in the public interest, they are being courageous, claiming to be just, and claiming to exercise temperance as they create accounting standards.

Although the IASC Foundation demands their Trustees and the IASB to be virtuous, their lack of range in diversity of representation from various parts of the globe may hinder the desired level of wisdom practiced, justice provided to certain global regions, and temperance exercised. Also since financing is the responsibility of the Trustees, the desire for the fundraising process to be virtuous may also be impacted due to the lack of diversity of representation from particular world regions.


In conclusion, it is clear that accounting standard setters and financial regulators have borrowed basic ideas and concepts from different schools of thought to guide their organizations and create standards. Most commonly, ideas seem to fall in line with utilitarianism, deontology, and virtue ethics. In the spirit of utilitarianism, the AICPA, SEC, PCAOB, and IASC appear to provide guidelines that give the greatest benefit to the greatest amount of people. However, in contrast to utilitarianism and more in line with deontology, these organizations are additionally concerned with the means of their acts and not simply the outcomes. With regards to virtue ethics, the four organizations are certainly concerned with the moral character of their members and expect them to have the knowledge and understanding to practice their profession, a strong concept of justice, the courage to always do the right thing, and the self control to resist negative or self-motivated temptations. These organizations almost universally reject the egoist concepts of self-interest and lack of concern for others. However, if these organizations are put under a microscope and studied more closely, this does not necessarily appear to be so. Though the IASC would openly reject any accusations of self-interest, the disproportionate representation of key world regions gives an air of self-interest that cannot be denied. In order to be the most effective and maintain credibility, these organizations will need to take an introspective look to ensure that they are truly providing standards and guidelines that benefit the entire public and not just a few select groups of people.