chapter 1

Today we’re diving into the fundamental question that will shape your entire accounting career: What does it mean to act ethically as an accountant?

Let me start with a story that might surprise you. Betty Vinson was considered a genuinely good person by everyone who knew her. She had strong moral values and never imagined she’d be involved in fraud. Yet she became a key figure in one of the largest accounting scandals in history. How does this happen?

This brings us to the concept of ethical blind spots – the gap between who we want to be and who we actually are when faced with pressure. Lets explore how to recognize these blind spots and build the ethical foundation you’ll need throughout your career.

First, let’s establish our vocabulary. These three terms are often confused:

• Ethics (from Greek “ethikos” meaning character) deals with standards of right and wrong – how people ought to act
• Morals (from Latin “moralis”) deals with manners and character – your personal beliefs about right and wrong
• Values are the fundamental beliefs that guide your attitudes and actions

Think of it this way: Your values inform your morals, which guide your ethical decisions.

For accountants, integrity sits at the center of all three. Integrity means acting on principle, having the strength of your convictions, and being reliable. It traces back to ancient Greek philosophy and is absolutely essential in our profession. Why? Because without integrity, the entire financial system loses credibility.

Your ethical foundation rests on six pillars. Let me walk you through them quickly:

1. Trustworthiness – This includes honesty, integrity, reliability, and loyalty. In accounting, if stakeholders can’t trust your work, you’ve lost everything.
2. Respect – Treating every individual with dignity. Remember the Golden Rule appears in virtually every major religion for good reason.
3. Responsibility – The ability to reflect on alternatives and carry out moral action diligently.
4. Fairness – Treating others equally and impartially, without bias.
5. Caring – Having empathy and understanding others’ perspectives. This is crucial for ethical decision-making.
6. Citizenship – Recognizing your obligations to the broader community and public interest.

One important note about loyalty: While loyalty is valuable, it should never take precedence over other ethical values. Your primary loyalty as an accountant is to the public interest, not to any individual client or employer.

Now let’s explore three major moral philosophies that will help you make ethical decisions:

Teleology focuses on consequences. The most common form is utilitarianism – “the greatest good for the greatest number.” When you’re weighing the impacts of a financial reporting decision on all stakeholders, you’re thinking like a utilitarian.

Deontology focuses on duties and rules, regardless of consequences. Kant’s categorical imperative tells us to act only according to principles we’d want everyone to follow. In accounting, this means following professional standards even when it might be inconvenient.

Virtue Ethics focuses on character. What would a person of good character do? This approach asks not “What rule should I follow?” but “What kind of person should I be?”

Here’s the key: You don’t have to choose just one philosophy. The strongest ethical reasoning often combines all three approaches.

As future CPAs, you’ll be bound by the AICPA Code of Professional Conduct. The code has two main parts:

Principles (aspirational):

• Responsibilities to exercise professional judgment
• Public Interest – your primary obligation
• Integrity in all professional activities
• Objectivity and Independence
• Due Care in service performance
• Proper Scope of Services

Rules (enforceable): These are specific applications of the principles that you must follow or face disciplinary action.

Remember: The code represents minimum standards. Ethical accountants often go beyond what’s merely required.

Let’s apply this to a real scenario. Imagine you’re working for a company seeking a $10 million bank loan. Your CEO wants to record $200,000 in revenue for a sale that won’t actually ship until after year-end. The CEO says, “Be a team player here.”

How do you analyze this ethically?

• Utilitarianism: Who benefits? Who’s harmed? Recording premature revenue misleads lenders and investors.
• Deontology: Revenue recognition standards exist for good reason. Following rules protects the system.
• Virtue Ethics: A person of integrity doesn’t manipulate financial statements.
• AICPA Code: This violates your duty to the public interest and your obligation to provide accurate information.

The answer is clear: You cannot record this revenue. But what if your job is threatened?

This brings us to moral courage – perhaps the most important concept we’ll discuss. Moral courage means:

• Acting for moral reasons, not convenience
• Standing up for your convictions
• Putting others’ interests ahead of your own when ethics demand it

Your reputation takes years to build but can be destroyed in moments. The accounting profession exists to serve the public interest. When you become a CPA, you’re accepting a social contract to put that public interest first.

Here’s my challenge to you: Start building your ethical reflexes now. Practice recognizing ethical dilemmas in small situations – group projects, part-time jobs, everyday interactions. The pattern of judgments you make spontaneously under pressure is the best indicator of your moral compass.

Remember Betty Vinson’s story. Good people can make terrible choices when they lose sight of their ethical foundations. But with strong principles, clear reasoning, and moral courage, you can be the accountant the public trusts and deserves.

Case 1-1 Operation Varsity Blues

What motivates a parent to bribe key people to get their kid admitted to a prestigious university? That is the ethical question of Operation Varsity Blues.

In March 2019, the story broke of an alarming fraudulent scheme by parents to pay off middleman, William Rick Singer, and athletic coaches to give favored treatment to the children of rich and well-connected people.

Singer, CEO of a college admissions prep company, The Key, took in large amounts of money and laundered them as contributions to a foundation he controlled, Key Worldwide Foundation, which only pretended to help underprivileged students. Using Singers connections, the parents bribed coaches and administrators at some of the most prestigious institutions in the United States.

Singer helped parents craft fake documentation to allow students to be admitted as recruited athletes even though they never participated in a sport, and he developed an elaborate system to help students cheat on their college entrance exams. He then paid coaches and administrators to look the other way.

Singer pled guilty to four felony counts, admitting he accepted some $25 million in bribes to rig the admissions process in what he described as a “side door” into college.

The Department of Justice charged 55 parents, coaches, and administrators with fraud that enabled children of wealthy parents to gain admission to colleges they were not qualified to attend. These included Georgetown, Stanford, UCLA, USC, and the University of Texas at Austin.

When the story first broke all attention was on two Hollywood actresses Lori Laughlin and Felicity Huffman. At her sentencing, Huffman was very contrite saying I am in full acceptance of my guiltdeep regret and shame. She also said her daughter had no idea of the scheme. She was sentenced to two weeks in prison.

Laughlin was convicted of conspiracy to commit wire and mail fraud. She was sentenced to 2 months in prison, a $150,000 fine, 2 years of supervised released, and 100 hours of community service.

Laughlins husband, Giannulli, was convicted of paying $500,000 in bribes to facilitate his childrens acceptance to USC. He earlier had pleaded guilty to conspiracy to commit wire and mail fraud.

In another case, California investor Todd Blake and his wife, Diane, pled guilty admitting they paid $250,000 to get their daughter into the University of Southern California as a purported volleyball recruit even though she didnt play volleyball in any organized way.

At USC, athletic director Donna Heinel and mens and womens water polo coach Jovan Vavic were fired after allegedly receiving bribes totaling more than $1.3 million and $250,000, respectively, to help parents take advantage of relaxed admissions standards for athletes at USC even though their kids were not being recruited as athletes.

In one audacious scheme, Singer bribed test administrators in Houston and Los Angeles to allow Mark Riddell, a very bright individual, to secretly take the ACT and SAT tests in place of the children of the parents that Singer represented. He scored 35 out of 36 on the ACT, which put him in about the 99th percentile of ACT takers.

Some of the students were expelled. Others had their admissions revoked. Some of the coaches have been fired. They faced chargesathletic coaches who were involved in misrepresenting people as being recruits.

Even though Singer was the mastermind of the college admissions scandal, he was ordered to serve only 3.5 years in federal prison, although it was the longest sentence in a case that has rattled Americas higher education system.

Singer pleaded guilty to racketeering conspiracy, money laundering conspiracy, conspiracy to defraud the US and obstruction of justice in March 2019. He cooperated with the governments investigation in the months prior to the public announcement of the case and in the years since. Perhaps this is why his sentence was relatively light.

In federal court in Boston on January 4, 2023, Singer apologized for his actions and said his morals took a backseat to winning and keeping score. I lost my ethical values and have so much regret. To be frank, Im ashamed of myself, Singer said.

Questions

1. In about 300 words, examine the behavior of the parents from the perspective of moral relativism. Is it fair to say the parents believed the rules should not apply to them? Explain.
2. In about 300 words, evaluate the actions of the parents using teleology, deontology, and justice.
3. In about 300 words, do you believe the punishment fit the crime in the case of Rick Singer? Do you think he was contrite? What is your takeaway from Operation Varsity Blues?

Case 1-5 Lottery Bonanza

Sam and John have been friends for 20 years. They met in college and worked together for 10 of the 20 years. During that time, each made a promise that if they won a lottery they would share the winnings 50:50. Even though they drifted apart over the years, they had a bond of friendship that neither forgot.

One day Sam plays the Lotto and wins $2 million. He remembers the agreement with John. Sam tells his wife he will call John and give him the good news that he will get $1 million from their good fortune. His wife is astonished. She reminds Sam that they have thousands of dollars of unpaid bills and $2 million would more than cover them. She tells Sam to forget about contacting John, with whom they havent spoke for three years, and keep all the winnings.

Sam is trying to decide what to do. He would like to share his good fortune with John but doesnt want to upset his wife. Paying off the bills will bring them peace of mind.

Questions

Drawing upon the concepts and ethical theories presented in the chapter respond to the following questions in about 900 words.

1. Assume you are in Sams position. What would you do and why?
2. Would your decision change if any of the following situations existed? Each question is independent of the others.
3. You have grown apart from John over the years and havent spoken to him for two years.
4. Your child has a medical condition that requires surgery and your insurance carrier has refused to cover the costs.
5. You won $20 million in the lottery not $2 million.

Find something that interests you in Chapter 1 and write a 1 page word document discussion/reflection about it.

• Maybe something that happened in your personal/professional life that you can link to the chapter.
• Maybe you don’t agree with something in the chapter, and you want to explain why.
• Maybe there is a new approach to an ethical situations that you learned from the reading that you can describe.

This is your own personal reflection, so it should be completely done with your own thoughts and ideas. This exercise is intended to help you grow and learn as a professional. It is not meant to copy/paste verbiage from the book or anywhere else.