Ethics in Accounting


From rules to roles

AUTHOR Schalk Engelbrecht, Chief Ethics Officer (KPMG SA), Research Associate (Centre for Applied Ethics, Stellenbosch University), Research Fellow (Stellenbosch Business School)

If you want to get the most out of your insurance rewards programme, speak to a chartered accountant. While I, a philosophy graduate, was patting myself on the back in February, proudly slurping my hard-earned Kauai peanut butter bomb, my accounting colleagues had already rocketed to Diamond status, were flying overseas for pennies, and basically had their monthly groceries sponsored by their insurer.

Love of rules and agents of justice

There might be many explanations why accountants have this particular set of skills (that make them a nightmare for reward programmes across the globe). Accountants thrive in rule-governed environments. Much of their training is aimed at minimising subjective judgement, at sculpting rules and standards, and at creating environments that support consistency.

Accountants’ love of, and competence in making, using, and enforcing rules is a good thing. Rule-following sometimes gets a bad rap, and all of us think of ourselves as undercover rebels who scoff at rules as we live our dangerous, adrenaline-fueled urban lives. But in reality, we crave rules. That is why we lose our heads when someone cuts in line at the licensing department or does not respect the four-way stop rule when traffic lights are out due to loadshedding. It is also why social media has not fulfilled its true destiny of educating the world, but instead has become a worldwide tabloid for shaming rule-breakers, where we like to get our weekly fix of ‘cancel porn’.

Rules are necessary. Society is maintained and improved, so philosopher Richard Rorty argues, through the work of two important groups – agents of justice and agents of love. Agents of love make the invisible visible, including the plight of marginalised groups, the injustices that lurk at the periphery (or sometimes in the unacknowledged centre) of society, and hidden sufferings. Novelists and journalists fall in this category. Examples of the work of agents of love (or ‘connoisseurs of diversity’) are Harriet Beecher Stowe’s anti-slavery novel Uncle Tom’s Cabin, Simone de Beauvoir’s treatise The Second Sex, and Peter Singer’s Animal Liberation. These books helped us see those we had been harming.

But once we correct injustices and address oppression through new societal standards, it is another group who safeguards these (new) rights and the well-being of those we have come to acknowledge and esteem in society – agents of justice. The task of agents of justice (or ‘guardians of universality’ as Rorty calls them) is to make sure that we are all treated the same. They enforce the rules of our society – from human rights to financial reporting standards – so that harm is prevented, whether the harm of oppression or of financial statement fraud.

Accountants are a subset of the agents of justice. They promote equality and consistency through the expert interpretation and application of financial reporting rules, and increasingly also social and environmental reporting rules.

The moral downside of rules

Ethics is heavily invested in rules. Some have even described ethics as ‘the rules of the human zoo’. One of the famous tests for right action is German philosopher Immanual Kant’s categorical imperative: ‘Always act in such a way that the maxim underlying your actions can be universalised.’ Translated from academese, it means, ‘Actions are ethical only when they could qualify as universal rules of conduct.’

There is, however, a downside to the love of rules. An exclusive focus on rules can lead to moral blind spots. Past studies have suggested that business and accounting students do not necessarily recognise broader social responsibility issues associated with professionalism1. This happens when one takes an amoral position that views accounting not as the moral pursuit of accuracy and accountability, but as a neutral, non-moral application of standards and rules.

Taken to the extreme, a rules-based ethics can also justify unethical accounting. Andy Fastow, the CFO in the infamous Enron scandal, famously demonstrated how a logic of rules helped him disengage morally from the fraud he was committing:2

Accounting rules and regulations and securities laws and regulation are vague … They’re complex … What I did at Enron and what we tended to do as a company [was] to view that complexity, that vagueness … not as a problem, but as an opportunity … [The only question was] ‘Do the rules allow it, or do the rules allow an interpretation that will allow it?’.

… I knew that what I was doing was misleading. But I didn’t think it was illegal. I thought: That’s how the game is played. You have a complex set of rules, and the objective is to use the rules to your advantage. And that was the mistake I made.

It is perhaps for this reason that a shift can be noticed in the ethical approach being promoted by international accounting bodies.

Adding role to rules

When the latest version of IESBA’s Code of Professional Conduct was introduced in 2020, it was communicated through a document entitled ‘Revisions to the Code to Promote the Role and Mindset Expected of Professional Accountants’. The additions to the Code were not an answer to the question ‘What should (or shouldn’t) I do?’, but instead to the questions ‘Why am I here?’ and ‘How (or who) should I be?’. The 2020 IESBA Code of Professional Conduct therefore reminded accountants who they are expected to be rather than adding new rules.

The first line in the revised Code answers the question ‘Why are accountants here?’. It reads:

100.1 A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the public interest.

In outlining the characteristics that enable an accountant to fulfil this public interest function, the Code provides four answers to the question ‘Who should accountants be?’:

  • First, accountants are courageous. Courage is a virtue, of course, and not a rule. The Code expands the fundamental principle of integrity to include ‘the strength of character to act appropriately, even when facing pressure to do otherwise or when doing so might create potential adverse personal or organizational consequences’. To act appropriately means ‘standing one’s ground when confronted by dilemmas’ and ‘challenging others’.3
  • Secondly, accountants are technologically astute, viewing technology both as an opportunity and a risk. A balanced approach to technology means that an accountant develops their technological competence, so they can enlist the help of machine learning or natural language processing in the task of assurance. At the same time, there is a recognition that their objectivity is threatened by an overreliance on technology.4
  • Thirdly, an accountant is a careful and responsible thinker, which means, among other things, being aware of and vigilant against cognitive biases. Because they serve society by providing reliable financial and non-financial information, accountants are attuned to ways of thinking that reliably lead to trustworthy information, and ways of thinking that do not. Unreliable thinking includes confirmation bias (the tendency to place more weight on information that confirms what you already believe or what you expect to find) and overconfidence bias (the tendency to over-estimate the veracity of your own judgements).5
  • Finally, accountants are moral influencers. Their presence should improve the moral quality of organisational environments, showing others a worthy example and making it easier to act in ethically responsible ways.

Moral fitness

The useful formulation and application of rules and standards will remain at the centre of the work of accountants. So will the following or rules, for instance those that relate to independence. Alongside the love of rules, however, accountants must also maintain moral fitness – the effort and willingness to develop into specific kinds of people who serve society with courage, technology, responsible thinking, and laudable character. They should also selflessly and generously share the secrets to attaining Diamond status.


1 See K McPhail & D Walters (2009), Accounting and Business Ethics: An Introduction, London: Routledge, p 20.
2 P Elkind (2013), The confessions of Andy Fastow, Fortune, 1 July 2013, [accessed: 25 August 2023].
3 IESBA (2020), Revisions to the Code to Promote the Proper Role and Mindset Expected of Accountants, New York: IFAC, p 7.
4 Ibid, p 8.
5 Ibid, p 16.