Questiondeclare the truth about the financial condition of an enterprise, thus to provide theconditions of trust necessary for a market economy.It is essential therefore to accounting that it be orientated to the truth. It isremarkable how well this characteristic was appreciated by the great founders ofmodern accounting.The theme of truth!resonates repeatedly through theirwritings. Consider the following examples.(A) “Questions and cross-questionings, of owners, of stockholders, ofdirectors, of presidents, are often to be answered as supplementary to thereport; the answer must be intelligent, ready, and never resentful. Thesegentlemen desire truth and nothing else; it belongs to the spirit ofprofessional Accountancy to seek out and reveal to them the truth.Charles Waldo HaskinslNote Haskins’ twofold formulation, “to seek out and reveal” the truth. This will beimportant in the next chapter, when we examine the distinction betweenintellectual virtues and virtues of character.(B) “[The ideal conception of its true mission by the profession itself–aconception from within and not dependent upon extraneous exigencies.places Accountancy far outside the pale of all ordinary callings, and sets itupon a platform of its own as a learned profession, self-impelled toculture, to moral enlargement, and to scientific attainment; it lays a basisofconfidence forevery business enterprise that in professionalAccountancy there is a self-centered soul of economic truth.”-CharlesWaldo Haskins’?Note here Haskins’ statement that accountancy is “self-impelled to culture”. Thiswill be important in Chapter 8, where we discuss steps that an individualpractitioner can take to grow in professionalism and commitment to ethics.(C) “1. The written records, the accounts of business transactions, in avast number of cases were imperfectly, inaccurately or fraudulently stated.And many still are. Consequently the public accountant’s first duty was tofight figures.2. It is astounding how many relevant figures may be omitted fromrecords of business transactions, how many debits find their way to thecredit side of ledgers, and how many debits are entirely omitted–so thatpublic accountants must find facts.3. The third compelling reason for the employment of public accountants,and much the most important, is his duty, after fighting the figures andfinding the facts, to assemble the figures and the facts and to tell the truthabout them, with clarity, conciseness and intelligence so that he who runsmay read.”-Robert H. Montgomery”The first point mentioned by Montgomery (“fight figures”) corresponds to anaccountant’s technical competence, of course, but also his attitude of scepticismand alertness to possible fraud. The second point corresponds to ‘due diligence.We shall consider both of these traits in the next chapter.(D) “Eternal vigilance is the price of accounting as well as of liberty. Andso I see very little change from year to year in the more importantattributes of the public accountant. For more than 48 of the 50 yearsunder review I have intimately known the leaders of the profession in thiscountry and in England and Scotland. Then, they were fearless seekers forthe truth. Fifty years ago, poor as they were, no power on earth couldhave swerved them from their search. Nearly fifty years later, as I lookinto the faces of my brothers in our profession from far and near, fromthe ends of the earth, I see in these new faces the same prouddetermination, the same courage, the same stubbornness, the same men Isaw nearly fifty years ago. And to those who are not here I extend agrateful prayer. I don’t want to have anything to do with supermen. Iwant men in the profession with simple minds and indomitable courageto seek and tell the truth.”-Robert H. Montgomery”Note Montgomery’s listing of the virtues of a good accountant: determination,courage, and stubbornness. We shall consider these and similar traits in the nextand accounts unless there are uniform standards (to the extent that these arepossible), to allow meaningful comparisons within an enterprise (‘vertical’ and(horizontal’*) and without (within a sector, across times). However, particularcircumstances and special conditions are so varied in matters of accounting. thatthe truthful way to describe the financial condition of an enterprise cannot be fullycaptured bysystem of rules, however complete. This leads to our thirddilemma: an accountant must be consistently truthful, but in conditions in whichtruthfulness cannot be described beforehand or adequately captured in anydirectives, procedures, or rules. The technical mastery of an accountant thereforecannot consist simply in the mastery of complex sets of rules. It is sensed that*ahics” has something to do with this. And this is correct, because the only wayfor an accountant to succeed in “secking out and revealing the truth” given thecountless variations in the material he deals with, is for him to have a clearorientation toward the truth, and this is a matter of ethics. The orientation to findand tell the truth in each case, even if this means departing from rules (withappropriate justification) or interpreting them appropriately, requires a goodorientation in the practitioner- good character.It must come from withinbecause it cannot come from without (from the rules).WORD FROM THE WISE: ROBERT H. MONTGOMERY”In order to tell the truth there must be some detachment from one’sImmediate environment; from the opinions of neighbors; from ambition,money, power, fame, comfort, security and ease. Have we the courage toproclaim the truth, or do we shrink from the struggle?”‘tants must serve as watchdogs’ for the marketplace, and thus theyespecially able to resist greed and greediness.so far looked at three problems’ that confront modern accountancy, andre seen in each case how ethics is correctly thought to provide a suitableHere is a fourth: accountancy is assigned the role of watchdog’ in theconomy; but it is asked to play that role in a con in which significantThe Virtues of an AccountantWe saw that in the case of an instrument or utensil, virtues were relative to thedistinctive task that that kind of thing is designed to carry out. One might say:virtues are relative to functions or roles. Something similar is seen in the case ofhuman beings. There are certain virtues that human beings need simply in order tocarry out well the role’ of being a human being; these are the cardinal virtues. Butthen there are more specific roles that human beings can occupy, and they willneed distinctive virtues for each of these. Some of these roles are familial: father,mother, brother, sister. Other roles are political: administrator, judge, executive.But then again some roles are occupational: firefighter, police officer, plumber,airline pilot. For each role, there will be distinctive virtues that are analogues of thecardinal virtues appropriate to the role. For instance, an airline pilot needs ananalogue of wisdom’: he needs to understand the science that underlies airplaneflight and jet engines, and he needs to understand the basic principles governinghis job. And similarly he needs a type of justice, courage, and self-mastery.In Chapter 1 we noted the distinctive marks of a profession from both asociological and philosophical point of view. Note that each profession marks out arole, with its own distinctive task, and thus it has virtues that are proper to it. InChapter I we also noted that the distinctive task of an accountant, as a professional,is to seek and declare the truth about the financial condition of a company in orderto provide for the conditions of trust in a modern, market economy. Using thisformulation, it is possible, then, to derive the distinctive virtues of an accountant,both intellectual virtues and virtues of character. We can understand these virtuesas analogues of the cardinal virtues.WORD FROM THE WISE: VANDERVEER CUSTISWhat ethical principles are appropriate depends on the nature of accountancyand on the functions that it is fitted to perform in the effective economicorganization of society.”First, consider the cardinal virtue of wisdom, as divided into two parts, (i)speculative wisdom and (ii) practical wisdom.(0) Speculative wisdom in a human being involves a systematic understandingof fundamental realities. The analogue of speculative wisdom in an accountant istechnical knowledge, competence and skill which are well grounded in a goodgrasp of accounting theory: to carry out his distinctive task well, an accountantneeds a thorough grasp of the relevant principles of accounting, as well as athorough understanding of the business he is auditing. (ii) Practical wisdom in aFirst, consider the cardinal virtue of wisdom, as divided into two parts, (i)speculative wisdom and (ii) practical wisdom.(i) Speculative wisdom in a human being involves a systematic understandingof fundamental realities. The analogue of speculative wisdom in an accountant istechnical knowledge, competence and skill which are well grounded in a goodgrasp of accounting theory: to carry out his distinctive task well, an accountantneeds a thorough grasp of the relevant principles of accounting, as well asathorough understanding of the business he is auditing. (il) Practical wisdom in ahuman being involves, as we have seen, having a good grasp of what things aremore important than others; what things are better and worse; and whichconsiderations are primary in human life and which are secondary. The analogueof practical wisdom in an accountant would involve dedication to some things asmore important and as taking priority over others.This would include:commitment to the priority of truth over mere appearance or likelihood,acommitment to the priority of principles over rules, and a commitment to thepriority of substance over form. To adopt these priorities in a real and practicallyeffective way, marked by a genuine appreciation of what is at stake, would be whatpractical wisdom amounts to in an accountant.The analogue to the virtue of justice in an accountant would be his practicaland lively appreciation of the main duties that pertain to him in virtue of his beingan accountant. This would involve his recognition of: his duty to serve the publicinterest; his duty of discretion and confidentiality in relation to his client; and theduty, that he has, to the profession, of upholding the highest standards of theprofession and protecting the good reputation of the profession.The analogue of courage in an accountant in an accountant includes what isknown as “due diligence’. Due diligence means taking the pains necessary to findout something that you recognize that you do not yet know, but that you need toknow in order to act as you should. A simple example of this would be howdriver of an automobile is expected to turn around and look behind him before heputs that vehicle in reverse. He needs to know whether someone is behind him:therefore, he has to take care to discover what he needs to know before he acts. Ifhe backs up without looking and runs over someone, he cannot claim that he is notresponsible because “I didn’t know anyone”Due diligence means takingwas behind me.” It was his responsibilityprofession and protecting the good reputation of the profession.The analogue of courage in an accountant in an accountant includes what isknown as due diligence. Due diligence means taking the pains necessary to findout something that you recognize that you do not yet know, but that you need toknow in order to act as you should.A simple example of this would be howdriver of an automobile is expected to turn around and look behind him before heputs that vehicle in reverse. He needs to know whether someone is behind him;therefore, he has to take care to discover what he needs to know before he acts.he backs up without looking and runs over someone, he cannot claim that he is notresponsible because *I didn’t know anyone”Due diligence means takingwas behind me.” It was his responsibilitythe pains necessary to find outto know that, and, if he does not know itsomething that you recognizehe needs to find out. In this example,that you do not yet know, but’costs’ the driver little to find out what heneedsthat you need to know intodo.But inaccountingfrequently happens that a practitionerorder to act as you should.recognizes that, before he can proceedresponsibly with his work, he needs tofind out something which is available to him to know, but which would reguiregreat effort or considerable ingenuity to discover. The stubbornnessMontgomery referred to it) that a practitioner needs to carry through and discoverwhat needs to be known is a virtue analogous to courageDue diligence has to do with seeking the truth. But somethingcomes to declaring the truthsomething contrary to his professional principles. To act in such a way requiresconsiderable courage. A more common and less extreme example of couragewould be when an accountant has to insist on applying the correct accountingtreatment of some item in the financial statement when this conflicts with thewishes of management.The analogue of self-mastery in an accountant is resistance to greed and otherforms of self-interest, which typically takes the form of maintaining independenceand thereby preserving objectivity. Recall that self-mastery is the virtue thatenables us to avoid being deflected by something attractive which would lead usaway from what we should do. Someone who has the virtue of self-masteryrecognizes his own weakness and stays clear of circumstances in which he would betempted to act other than he should. (For instance, a married man who has thevirtue of self-mastery would avoid being alone with a woman other than his wife towhom he might find himself being attracted.) Consider, then, the followingexample. A practitioner recognizes that a certain item should be valued at $5000.However, he has failed to preserve his independence, and it so happens that if hevalues the item instead at the lower figure of $500, this will result in his receivingindirectly a very great benefit. His being in such a position would be a failure onhis part to act in accordance with the analogue of self-mastery for an accountant.He should not,even be in circumstances in which his judgment might be affected inthis way. (Recall that an accountant needs to avoid not simply the compromisingof independence, but also the appearance that his independence is compromised.)WORD FROM THE WISE: ROBERT H. MONTGOMERY*A Public Accountant is a man fearless and unprejudiced, with the ability tolook at both sides of a question; one who will not allow his honest opinions tobe changed by clients or adverse party; who dictates and is never dictated to;who places his devotion to his profession above the opportunities of gain byquestionable means.Codes of professional conduct call attention to the principles of due diligence,integrity, objectivity, and independence, which are binding over an accountant as aprofessional. We are now in a position to appreciate that this list may be mappedonto the distinctive virtues of an accountant, which are analogues of the fourcardinal virtues. They are traits that an accountant needs to have in order to dowell in his distinctive role. Doing well in his distinctive role, in this sense, just iswhat it means to be a successful accountant. This is not a matter of technialcourts as regards relevance but denied that the working papers of accountants wereprotected by any worker product’ immunity.In denying this sort of immunity, the Supreme Court had to determine,negatively, that the accountant-client relationship was not analogous to theattorney-client relationship, and, positively, that the accountant plays a role thatwould make that sort of immunity inappropriate. Thus the case is of greatimportance as setting down in law characterization of what we have called the”function’ of an accountant. The crucial passage from Hickman is the following:Historically, a lawyer is an officer of the court and is bound to workfor the advancement of justice while faithfully protecting the rightfulinterests of his clients. In performing his various duties, however, it isessential that a lawyer work with a certain degree of privacy, freefrom unnecessary intrusion by opposing parties and their counsel.Proper preparation of a client’s case demands Nat he assembleinformation, sift what he considers to be the relevant from theirrelevant facts, prepare his legal theories and plan his strategywithout undue and needless interference. That is the historical andthe necessary way in which lawyers act within the framework of oursystem of jurisprudence to promote justice and to protect theirclient’s interests.Note that Hickman fashions the immunity on the presumption that a lawyer isacting in a certain confidence “protecting the rightful interests of his clients” and inorder “to protect [the] client’s interests”. That is, that an attorney essentially has afiduciary relationship to the client. This is the very point that the Supreme Courtdenies as regards accountants:The Hickman work-product doctrine was founded upon the privateattorney’s role as the client’s confidential adviser and advocate, aloyal representative whose duty it is to present the client’s case in themost favorable possible light. An independent certified publicaccountant performs a different role. By certifying the public reportsthat collectively depict a corporation’s financial status,theindependent auditor assumes a public responsibility transcendingany employment relationship with the client. The independent publicessential that a lawyer work with a certain degree of privacy, freefrom unnecessary intrusion by opposing parties and their counsel.Proper preparation of a client’s case demands that he assembleinformation, sift what he considers to be the relevant from theirrelevant facts, prepare his legal theories and plan his strategywithout undue and needless interference. That is the historical andthe necessary way in which lawyers act within the framework of oursystem of jurisprudence to promote justice and to protect theirclient’s interests.Note that Hickman fashions the immunity on the presumption that a lawyer isacting in a certain confidence “protecting the rightful interests of his clients” and inorder “to protect [the] client’s interests”. That is, that an attorney essentially has afiduciary relationship to the client. This is the very point that the Supreme Courtdenies as regards accountants:The Hickman work-product doctrine was founded upon the privateattorney’s role as the client’s confidential adviser and advocate, aloyal representative whose duty it is to present the client’s case in themost favorable possible light. An independent certified publicaccountant performs a different role. By certifying the public reportsthat collectively depict a corporation’s financial status, theindependent auditor assumes a public responsibility transcendingany employment relationship with the client. The independent publicaccountant performing this special function owes ultimate allegianceto the corporation’s creditors and stockholders, as well as to theinvesting public. This “public watchdog” function demands that theaccountant maintain total independence from the client at all timesand requires complete fidelity to the public trust.Understanding Accounting Ethics: Cheffers and Pakaluk, Accounting Ethics Excerpt Reading Questions-What was it that enabled Mark Cheffers to give an “immediate and instinctual” response to his director’s unethical request?-What does accounting provide for the market economy?-Trustworthiness must be grounded in what?-Find a brief online biography of either Charles Waldo Haskins or Robert H. Montgomery and describe one accomplishment or trait that you would also like to have.-What are three virtues of a good accountant that the authors note from Montgomery’s listing?-Telling the truth requires a background of what? What example do the authors use to describe this.-What does “orientated to the truth” mean?-The analogue of speculative wisdom in an accountant is _____________.-The analogue of practical wisdom in an accountant is the dedication to some things as more important and as taking priority over others. List the three examples that the authors give for this dedication.-The analogue of courage in an accountant includes what term? Give a brief definition of that term, and a simple example.-Self-mastery in an accountant requires resistance to what?-The last page of the reading talks about how accountants have a different relationship to their clients than lawyers do. Do you think this is also true of tax accountants? Are there ways that a tax accountant might be more similar to a lawyer?LawSocial ScienceTax lawLAW C120Share Question
