Greed, Ethics, Profitability | AccountingWEB

Greed, Ethics, Profitability

By Alex Vuchnich, CPA, CFE - Within our profession there is a long standing tradition of maintaining the highest level of ethical principles in our professional and business practices. This is evident in our professional code of conduct and the largely self-regulated nature of the accounting profession. It implies that we understand that in order to provide our services to the public we have a responsibility to do so under certain self-imposed restrictions on how we provide those services. For instance, in providing assurance services that will be relied upon by a third party financial statement end-user we impose a requirement on ourselves to maintain independence from the client whose financial statements we are opining on. Multiple factors drive our compliance with these ethical principles. As a member of the profession we give our word to adhere to the code of conduct and face sanctions if we do not, regulatory bodies require legal adherence for various entities and hopeful all of us adhere to them out of a general sense of doing what is 'right/good/moral' based on our own moral philosophy. However, as a practical matter, members of our profession do sometimes stray from the ideals which is evidenced by the breaches of conduct and ever present litigation that we see and hear about in the news.

One common theme that is encountered when looking at how individuals rationalize breaking moral principals is the cost-benefit judgment that is often made. This is often seen in fraud cases where the defendant justifies their actions by rationalizing 'this isn't going to hurt anyone' or 'I did it for the good of the shareholders'. This sort of rationalization has resulted in an association that greed and ethics are at opposite ends of the spectrum of what behavior is right or wrong. In many cases this also results in a generalization that maximizing profits is akin to poor moral behavior. Greed can be viewed as an excessive attempt to maximize profits at the expense of another persons rights and so many would mistakenly run with that definition and view any attempt to maximize profit as unethical/greedy. But everyday we see examples to the contrary of this. It would appear that ethical behavior will in many cases result in a state of profit maximization. Consider a company's ability to retain top talent by following good hiring practices or efficiencies gained by firms that go paperless, reducing waste and environmental impact.

My purpose in pointing all this out is not to try and argue that profit maximization equals good ethics. Rather, the point is that generally following sound moral principles will have an added benefit of improving profitability. Many of the poor ethical choices made by individuals are made as a result of the cost-benefit decision where the individual has failed to realize all the costs. A short term gain in profitability is perceived but the ethical implication is discounted resulting in a judgment error. These sort of cost-benefit judgments are always extremely subjective and prone to error. It is far better to act on sound principles taken from your own sense of morality along with the principles established under our professional code than to take on the risk associated with a subjective judgment call that may only net a small immediate gain at the expense of long-term profitability.

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by Alex Vuchnich, CPA, CFE - Alex Vuchnich is the developer of Controlzkit an internal controls anaylsis tool and shares his perspective on how audit and accounting theory, technology and professional ethics interrelate to create forward thinking profitable firms.

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