It’s Time for Principles-Based Accounting Ethics

The American Institute of Certified Public Accountants (AICPA) has promulgated a Code of Professional Conduct, which has served as the primary ethical standard for public accountants in the United States for more than 20 years. It is now out of date and needs to be replaced with a code of ethics. It suggests, for example, that accountants should "exercise sensitive professional and moral judgments in all their activities" and should seek to "continually demonstrate their dedication to professional excellence." Just as US generally accepted accounting principles are being migrated toward "principles-based accounting" as part of a convergence with International Financial Reporting Standards (IFRS), a similar process needs to occur with ethics.

The primary rules of the AICPA Code around five essential virtues: objectivity, integrity, inquisitiveness, loyalty and trustworthiness. These virtues correspond to the general principles set forth in the Code of Ethics for Professional Accountants of the International Federation of Accountants (IFAC). The IFAC code establishes a conceptual framework that requires a professional accountant to identify, evaluate and address threats to compliance with the fundamental principles. The conceptual framework approach assists professional accountants in complying with the ethical requirements of the code and meeting their responsibility to act in the public interest.

From this virtue ethics perspective, various rules of the AICPA Code are seen as being inadequate, at best, and poorly crafted, at worst. Principles-based ethics serve the profession and the financial reporting process better than the current rules-based approach. To learn more, read the article “It’s Time for Principles-Based Accounting Ethics” by Albert D. Spalding Jr. and Alfonso Oddo, published online January 6, 2012 in the Journal of Business Ethics.