Ethical Accounting: Case Studies

Case Study 1: A Student Dilemma

Helen’s responsibilities

As a prospective accountant set to achieve the highest academic honor in accounting, Helen Kanell has a great ethical responsibility to the accounting department and the university. The accounting and university departments expect students to adhere to professional ethics to enhance not only their professional reputation but also the reputation of the institution. Professional ethics demand Helen Kanell to preserve and enhance the integrity of the university and the department by ensuring that she does not get involved in fraudulence that compromises the integrity of the accounting profession. Faour asserts that “a professional accountant is required to comply with the fundamental principle of integrity by being straightforward and honest in all professional and business relationships” (2008, p. 81). Thus, it is Helen Kanell’s ethical responsibility to preserve and enhance the professional ethic of integrity by not cheating or abetting fraudulence in exams. The fundamental ethical principle of public interest requires Helen Kanell to be fair and honest to other students in class and in the department by not giving them unfair competition in class due to exam leakage. Therefore, to preserve and enhance the ethical principle of public interest, Helen Kanell should not use the exam paper for selfish interest.

Since the accounting firm, Big & Apple LLC has accepted her and she has served as president of accounting society, Beta Alpha Psi, it means that Helen Kanell is acquainted with the professional ethics of accounting and possible penalties due to unethical actions. Thus, due to her position in terms of professionalism, Helen Kanell should demonstrate high degree of professionalism by adhering to ethics in accounting. She should prove to the Big & Apple LLC and Beta Alpha Psi that she treasures fundamental professional ethics of integrity, professional competence, due care, objectivity, confidentiality, and professional behaviour by refusing to cheat in exams. As a student, Helen Kanell should seek to comply with regulations and ethics of exams. She should demonstrate to the professor of accounting that she does not only comply with exams regulation but also to the professional ethics of accounting.

Actions of Helen Kanell and her friend have serious consequences to their professional reputation and conduct. If professor comes to realize that Helen Kanell scored high marks in the accounting paper because of exam leakage, then she will be in greater danger of facing severe penalty by losing highest academic award and even all her grades. By getting involved in cheating, Helen Kanell will ironically lose her dreams and objectives in accounting career. Moreover, Helen’s actions are responsible for the professional integrity of her friend if discovered. If Helen discloses that her friend leaked the exam for her, then her professional reputation becomes questionable and may lead to termination. Thus, Helen’s actions have serious consequences to the accounting profession, the department, the university, and her future career development.


Ethical values of accounting such as fairness, citizenship, integrity, respect, responsibility, and caring should guide Helen Kanell in making her decision. To resolve her ethical dilemma, she should employ normative ethical theories, teleological and deontological theories relative to ethical values of accounting. Since Helen Kanell wants to achieve the highest grades in college, she should not use unfair means of cheating for she will give other students unfair competition. Moreover, cheating is against ethical principle of citizenship that treats people equally. From the case study, Helen Kanell is a prospective accountant who wants to join accounting firm thus she must consider her integrity and respect that she has earned as good student of accounting and having served as president of accounting society. Cheating in exams will cost her respect and integrity that would lead to the loss of grades and the academic award. Given her status as a final year student and prospective accountant, Helen Kanell should demonstrate that she is caring and responsible student to what is happening in accounting department by reporting the leaked exam to her professor.

On the other hand, deontological theory can also help Helen Kanell in resolving her career dilemma. Deontological perspective of morality holds that an action is either right or wrong independent of the consequences. “The rightness or wrongness of a moral rule is determined independent of its consequences or how happiness or pleasure is distributed as a result of abiding by that rule, or not abiding by it” (White 2009, p.16). Consequently, based on deontological perspective, cheating in exam or abetting any fraudulent activity is unethical because it violates ethical principles of accounting such as citizenship, respect, trustworthiness, fairness, responsibility and caring. Cheating in exams is a breach of ethical values; therefore, Helen would lose integrity, respect, and trustworthiness on top of giving other students unfair competition in exams.

Analysis of Helen’s dilemma by teleological and deontological theories shows that she must adhere to the professional ethics. From teleological perspective, her action of cheating in exams can cause more harm as compared to the anticipated benefits. Cheating in exams can result into loss of grades and academic awards that subsequently lead into career loss. Moreover, the university may penalize Helen’s friend by terminating her employment due to professional misconduct of lack of integrity and responsibility as she leaked out exams while she had responsibility of ensuring that no information leaks out the accounting department. Thus, from teleological point of view, the consequences are very grave and unjustifiable for Helen Kanell to cheat in exams. Deontological perspective views the action of cheating as immoral and unjustifiable means of achieving the desired ends. Ultimately, Helen Kanell has no better option than to abide to the professional ethics and exams regulation as means of achieving her career dreams.

Case Study 2: Imperial Valley Thrift and Loan

Professional Scepticism

Professional scepticism is very important in auditing financial statements as it increases probability of detecting fraud. Detection of subtle cases of fraudulence requires intuitive and critical mind that seeks evidence of fraud. A study carried out revealed that, “audit novices, when given practice with feedback in fraud detection, exhibited a higher level of skepticism when a reported financial statement amount was reported than did experienced auditors who knew they were to practice professional skepticism” (Carpenter 2002, p.21). This insight means that professional scepticism is critical in unraveling subtle cases of fraudulence that would otherwise go undetected. Research study suggests that sceptical auditors can effectively detect cases of subtle fraud as compared to auditors who are not sceptical even if they have great experience in auditing, implying that scepticism is a professional skill that is independent of experience and calls for cultivation by the auditors. Scepticism helps in hypothesizing causes of fraud and subsequent investigation that eventually leads to fraud detection.

Further studies have revealed that auditing environment has dilution effect on the experienced auditors; hence, skepticism comes in handy to enhance the detecting ability. Auditors should always cultivate the attitude of skepticism to be effective in detecting subtle cases of fraud in an organization. “Audit standards suggest increased skepticism is very important because it increases detection of fraud by helping auditors to over identify the fraud-risk factors” (Carpenter 2002, p.22). For an auditor to identify fraud risk factors, scepticism is essential because it creates a doubting attitude, which is critical in auditing. Therefore, auditors should develop professional scepticism to be effective in detecting subtle incidences of fraud.

The auditors were sceptical enough in evaluating the operation of Imperial Valley because they examined many variables in their evaluation and assessment of financial status of the company. They analysed many variables such as adequacy of loan collateral, weakness in internal controls, collectability of loans, and status of capital infusion. These variables are the results of professional scepticism that helped the auditors in determining possible factors that may indicate financial status of the company. To detect effectively the financial status of Imperial Valley, the auditors comparatively evaluated current and previous financial statements in order to ascertain any viable inconsistent that may act as a lead to fraud detection.


First Assumption

If the auditors decide to support management’s position by considering concerns raised and reduce the amount of loan written-off, then such kind of decision falls into conventional level of moral reasoning according to Kohlberg theory of moral development. Major characteristics of conventional level of moral reasoning include fairness to others and compliance with the regulation, which forms part of the third and the fourth stages of moral reasoning respectively. Based on the third stage of moral reasoning, auditors would support the management position to please them and build good relationship that will improve their image. According to Smith, “right is playing good role, being concerned about the other people and their feelings, keeping loyalty and trust with partners, and being motivated to follow rules and expectations” (2007, p.7). Additionally, auditors would employ the fourth stage of moral reasoning where they apply laws with the objective of upholding morality of the law and respecting the management of the Imperial Valley. Although the auditors examined the financial status of Imperial Valley and listened to the views of the management before reducing the amount of loan written off, they could only reduce amount of loan written off to the extent of inconsistency with the laws fixed by the regulator. Thus, the auditors employed conventional level of moral reasoning and decided to reduce the amount of loan written-off in order to be fair and please the management, but remain with the limits of the law.

Second Assumption

If auditors insist on maintaining higher level of loan written-off and allowance for uncollectible according to the laws and regulations of the regulator, then, their level of moral reasoning would be post conventional. The major characteristics of post conventional moral reasoning are application of social contract and universal ethical principles that fall in the fifth and the sixth stages of moral reasoning respectively. At the fifth stage of moral reasoning, social contract rights take precedence and are applicable independent of conflicting interests of partners or circumstances. Based on social contract rights, auditors might have found that maintaining high level of loans written off would be beneficial to customers for it would cushion them in the event of insolvency. Smith argues that post-conventional level of moral reasoning involves application of social contract rights and universal ethical principles because what is ethical is “…upholding the basic rights, values, and legal contracts of a society, even when they conflict with the concrete rules and laws of the group” (2007, p.6). In the sixth stage of moral reasoning, universal ethical principles would take precedence in spite of grievances from the management. The grievances of the management could not influence the auditors’ decision for they employed universal ethical principles that provide inalienable rights and laws. Failure to enforce social contract rights and universal ethical principles would be unprofessional and would lead into loss of integrity and professionalism. Hence, the auditors used post conventional level of moral reasoning in their decision to decline reduction of loans written off and compel management to adhere to the universal ethical principles.

Reference List

Carpenter, T. 2002. The Role of Experience in Professional Skepticism, Knowledge Acquisition and Fraud Detection. Journal of Accounting Research, 34 (2), pp.1-26.

Faour, I. 2008. Professionalism and Ethics in Accounting Education. Certified Public Accountant, 35, pp. 79-89.

Smith, J. 2007. Moral Reasoning: Lawrence Kohlberg. Journal of Business Management, 45 (6), pp.1-34.

White, R. 2009. Moral Inquiry. Journal of Professional Ethics, 16 (1), pp. 1-76.

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