“Take honour from me and my life is done” – The Code of Ethics and Accounting
practices in New Zealand
To be presented at the
Accounting History Conference
August, 2010
Wellington, New Zealand
Keith Hooper
Department of Accounting
Faculty of Business and Law
AUT University
Auckland
New Zealand
[email protected]
Gina Xu
Department of Accounting
Faculty of Business and Law
AUT University
Auckland
New Zealand
[email protected]
Semisi Prescott
Department of Accounting
Faculty of Business and Law
AUT University
Auckland
New Zealand
[email protected]
Abstract
From a historical perspective the paper seeks to show that the New Zealand accountants
subscribe to a lengthy and confused Code of Ethics (COE). Confused and lengthy because the
current code of ethics comprises strands of thought drawn from three different philosophical
positions: that of Kant, Bentham and Spencer. Unfortunately, accountants tend to be selfinterested and seek often to preserve their client loyalties. To do so they may disregard the
ethics enshrined in their COE. Published in 1927, New Zealand’s first COE was relatively
short and introduced concepts such as “honour”. The dominating Kantian concept of honour
has now disappeared from the latest much longer codes. The purpose of the paper is to show
that for many practising accountants codes do not matter so much as retaining business. At
the same time, the current code of ethics has become a legitimising tool for the profession to
emphasise accounting quality. To illustrate the current position, the paper is informed by a
recent New Zealand case of a collapsed finance company as well as some illustrations of
United Kingdom controversies over accounting ethics. Finally, it is argued there has been a
steady erosion of traditional values in New Zealand accounting and a rise in obeisance to
Social Darwinism or, put more bluntly, self-interested capitalism.
1 Introduction
The paper is concerned with ethical trends in accounting. In New Zealand, accountants share
a Code of Ethics (COE), which may be described as in origin deontological. Two questions
concern this paper. Does the current COE have much relevance other than acting as window
dressing to the profession? And, in the wider society are values as enunciated in the COE
increasingly less valued? New Zealand traditions may be considered as representative of
Anglo Saxon values, and it is argued that Anglo Saxon traditional values are being eroded
("The rot spreads," 2009) by a global march of Social Darwinism in its pure capitalistic form.
That there is evidence of a global march to Social Darwinism is reported by a recent article in
The Economist (2009), entitled “The Rot Spreads”. It details how PricewaterhouseCoopers
has conducted a survey of economic crime for the past ten years. The three most common
crimes are theft, accounting fraud, and corruption. The survey based on over 3 000 responses
from firms in 54 countries shows that accounting fraud has risen from 2003 to 2009 by nearly
30% while bribery and corruption increased by over 10%.
With regard to the Big Four accounting firms which operate in both New Zealand and the
United Kingdom, Sikka (2008) reports:
The current financial crisis has eroded confidence in audit report issued by major
accounting firms. All distressed banks received a clean bill of health from their
auditors and within days some were asking the government to bail them out. In every
case, rather than acting as independent watchdogs, auditors acted as consultants to
management and raked in millions of pounds in fees. The fee dependency inevitably
compromises audit or independence. (“Called to Account”, The Guardian, 14
December 2008)
Given these facts, it would seem that professional COEs have become less effective as they
have grown in volume of content. However, most codes are built on the moral traditions of
their respective societies. The New Zealand code, it can be argued, broadly reflects the moral
inheritance of the West that has been refined by philosophers like Kant. In practice, it is
maintained, there is absorbed, perhaps unconsciously, a kind of Social Darwinism
(Stackhouse, 2004).
2 The purpose of this paper is first, to illustrate the deontology of the accounting COE in the
New Zealand 1927 COE. Second, the authors use a recent New Zealand case to illustrate how
the professional code of ethics and the moral inheritance, on which such a code have been
built, have been largely ignored. Thus, we also pose the question, “Is the decline in following
the moral traditions of Kant part of the problem of the notion “The Rot Spreads”? While such
a question cannot be resolved, their discussion, it is argued, is significant and offers insights
as to how moral codes may be derived and developed.
From Kant to Social Darwinism
Given the many recent scandals and evidence that “The Rot Spreads”, it would seem that
professional codes of ethics have become less effective as they have grown in volume of
content. However, most codes are built on the moral traditions of their respective societies.
Such moral inheritance is usually, but not necessarily, religious. Census information reveals,
however, a marked decline in religious affiliation in New Zealand and most Western
countries.
More generally, ethics is necessary because people’s desires conflict and most people are
more interested in their own welfare than in that of other people. One accountant may wish
everybody to desire principle based standards; another may wish everybody to desire rule
based standards. Such non-egoistic desires are frequently involved in social conflicts.
Ethics has a twofold purpose: first, to find a criterion by which to distinguish good
and bad desires; second, by means of praise and blame, to promote good desires and
discourage such as are bad. (Russell, 1947, p. 807)
To ameliorate social conflict, the moral inheritance generally shared in the West has been
developed by philosophers like Kant or modified by philosophers like Bentham into
utilitarianism. The paper focuses, first, on the refinements of Kant because most accounting
codes of ethics, it is argued, have their origins in his deontological approach. Kant argues that
God, freedom and immortality are the three ideas of reason, but reason cannot prove their
reality. In “The Critique of Reason” (1786) his argument is that moral law demands justice.
3 Yet, only God can insure justice and this is not evidently insured in this life. However, since
the concept of justice is so strongly implanted in us and is shared among all people, Kant puts
forward that there is a God and there must be freedom, because otherwise there would be no
concept of morality (or justice) (as cited in Russell, 1947).
Kant argues that all moral concepts have their seat in reason. When we ask ourselves whether
it is right to want something, Kant believes that such reasoning is capable of objective
validity. Such objective validity must be applicable to all rational beings regardless of their
desires. Kant declares: “Find your reason for acting only after all empirical conditions have
been discounted, then you will be doing what reason requires and not a slave to individual
passions” (as cited in Scruton, 1994, p. 285). Such reasoning then brings about a sense of
moral duty and a grasp of acting with honour. “Act only on that maxim through which you
can [...] will that it should become a universal law [for all rational beings]”. In other words,
Kant’s “Golden Rule” is: “Do as you would be done by” (as cited in Russell, 1947, p. 737).
The choices of a rational being are determined by reason and freedom is implied in the notion
of rational choice. “Morality, by presupposing freedom, shows that freedom is real; all other
motives enslave us” (Scruton, 1994, p. 286). Thus, moral beings are free, rational and capable
of self legislation. Persons of this type become members of an ideal community to the extent
that they obey the moral law. Such morality obliges people to be impartial and objective, and
overrides all distinctions of race, creed and custom.
According to Kant, using our reason makes us part of a common enterprise as each of us is
constrained not only to respect others, but to find reasons for our actions that would justify
them in the eyes of others. This idea of a community of rational beings inhabits our practical
discourse and constrains our moral thinking. Kant’s philosophical views rest on the belief that
people have free will (as cited in Scruton, 1994).
Contrasting to Kant’s deontological perspective, Jeremy Bentham (1748 – 1832) developed
utilitarianism. In essence, his teleological approach advocated identifying the aggregate of
pleasure and pain that would best advance “the greatest happiness” of all of those whose
interest is in question. Bentham rejected Kant’s subjectivism of what ought to be for
4 everyone else as merely an expression of his moral feelings. Bentham sought a more
scientific approach in terms of utility and consequences (Pope, 2004). Mill (1861) declares:
“Utility or the Greatest Happiness Principle holds that actions are right in proportion as they
tend to promote happiness, wrong as they tend to produce the reverse of happiness ” (p. 257).
Calculating the extent of happiness or the reverse involves a kind of moral quantification
which is difficult, but the effects of ethical rules where precedents are involved are possible.
For example, it can be reasoned that the accounting firm, Arthur Andersen, in connection
with their client Enron, acted against the greater public interest to promote the lesser interest
of their client with unfortunate results. Nevertheless, maybe at the time, the calculation
necessary to quantify the greatest interest seemed too difficult. It is interesting that the utilityrights justice model was chosen by Arthur Andersen for its business ethics programme
(Preuss, 1998). For accountants there is, theoretically, in utilitarianism a harmony between
private and public interests. It is on behalf of the public that accountants should be honest,
independent and competent. Nevertheless, these attributes may not be the concern of an
individual accountant – except where there is the risk of imprisonment or other professional
sanctions including loss of membership. Thus, these punitive measures make the interests of
the individual coincide with those of the community. According to Preuss (1998),
utilitarianism offers an advantage to accountants in that it links self-interest with moral
behaviour and a company is by definition self-serving. It is, he argues, by default the most
influential ethical theory in the business context. Hence, accountants can be seen as
conveying neutral information on which users can base their decisions, and in this sense the
consequences can only be helpful. Lovell (1997) points out that accounting concepts are
presented as neutral or even as morally correct without alluding to their roots in utilitarian
thought. However, Tinker (1991) questions whether accounting information can ever be
neutral as it is embedded in social reality and social conflict. Accounting theories and
practices inevitably favour one side of the conflict. However, in as much as the COEs focus
on the consequences of an ethical action, it would seem that the COE conveys legitimacy to
both professional monopoly and the wider public.
5 In the case cited below of Hanover Finance, Mr Hotchin, one of the controlling shareholders,
defended their dubious ethical transactions by referring to the sign-off from auditors KPMG.
He used this sign-off as reason why investors should be reassured (Cone, 2004). That
suggests a large audit firm like KPMG must be acting within the professional COE;
consequently investors should have no concerns.
Theoretically, there are many flaws in utilitarianism besides the calculative element. The
concept relies on legislators, who prescribe sanctions, knowing what is in the community’s
interests while ignoring their own interests or desire for pleasure. Thus, those framing
accounting standards must ignore the interests of lobby groups or their own paymasters to
pursue the community’s interest, which presupposes they know what such interests are and
they know what side of the social conflict they support (Tinker, 1991).
Whereas, with a nod to social conflict, free competition for utilitarian is acknowledged to be
by no means, free but for Social Darwinists it is really free. For Darwinists, a framework of
laws or ethics does not exist in evolution. It is not surprising, therefore, that the spread of
Darwinist thought has given way, albeit unconsciously, to a “laissez –faire” approach to
ethics and business. In other words, Social Darwinism has filled the void because it imposes
few ethical restrictions on business and accounting. The concept mainly holds that it is good
to be successful and that eliminating weaker competition is to facilitate evolutionary
progress.
Herbert Spencer (1897) first enunciated the concepts of Social Darwinism drawn from the
theory of natural selection. In nature, the strong survive and those best suited to survival will
out-live the weak. Spencer applied the process of natural selection to social and economic
life: those with strength (economic, technological or physical, etc.) will flourish, and those
without strength are destined for extinction. Thus, if evolution began by freak chance (as
science confirms) and is solely responsible for life, why should the process of selection be
countered by social welfare or acts of charity? Spencer argues, with irresistible evolutionary
6 logic, that it was natural and proper for the strong to survive at the expense of the weak
(Spencer, 1897). Indeed, not to support those unfit to survive can be argued to be morally
incorrect but that does not mean that the opportunity for self-improvement should be denied
(Hawkins, 1997). The American capitalist, Andrew Carnegie, was an overt Social Darwinist.
He used his vast fortune to establish libraries and other educational institutions so that the
weak might have the opportunity for self-improvement (Hawkins, 1997).
Darwinism has two central assumptions. First, it suggests that there are underlying and
irresistible forces acting in societies which are like natural forces that operate in the animal
and plant communities. Second, these social forces are of a kind to produce evolutionary
progress through natural conflict between social groups. The best adapted and most
successful groups survive these conflicts (Abercrombie, Hill, & Turner, 1994). Social
Darwinism rests on the belief that there is no freewill – our ability to adapt is pre-determined
by nature and nurture. Thus, social evolution is directed, purposeful and progressive but is in
itself the product of freak chance without purpose (Dickens, 2000). Some blending of these
opposing philosophical positions (Kant, Utilitarianism and Social Darwinism) is the basis and
justification for most modern business interpretations of ethics and for various professional
“Codes of Ethics” (Stackhouse, 2004). Neimark (1995) observes that, “What constitutes
ethical behaviour at any time is socially constructed; it is a product of time and place” (p. 94).
To explain the dominance of Social Darwinism today, she argues that social, economic and
political structures, collectively and inevitably, produce patterns of behaviour that are not
ethical even by contemporary Western standards. “We must consider the relationship
between what individuals do and the institutional structures and the ideological
underpinnings of capitalism, including its emphasis on Social Darwinism, individualism,
competition, and material acquisitiveness” (Neimark, 1995, p. 93).
New Zealand Code of Ethics (COE)
In 1927, the New Zealand Society of Accountants (NZICA) adopted its first Professional
Ethics. The first paragraph in Professional Ethics 1927 reads:
Every member of the Society in the practice of his profession or in the course of his
service to his employer should give such service with absolute fidelity and should be
actuated by a spirit of fairness to client and employer, considerate to the fellow
7 practitioners, loyalty to his country, and devotion to high ideals of courtesy and
honour.
It emphasises the Kantian concepts of “fairness”, “loyalty to the country”, “honour”, and
“fidelity”. The essentials of the 1927 code contained in the four concepts enumerated above,
however, are deontological. They assume a sense of self moral legislation governing how
accountants should act. This early COE could have been written by Jane Austen for local
squires. It reflects quaint notions of what it is to be a gentleman or gentlewoman and
“noblesse oblige”.
The current 2003 New Zealand COE identifies some different fundamental principles from
the 1927 code: integrity, objectivity and independence, competence, quality performance and
professional behaviour. The table below illustrates a comparison between the 1927
Professional Ethics and the current 2003 COE.
The 1927 Professional
The current COE 2003
Changes
Fairness
Objectivity and
independence
Belief that accounting can be
neutral in the social conflict
Loyalty to the country
Integrity
Narrowing of accountants wider
responsibilities
Honour
Competence & quality
performance
More emphasis on technical
ability
Fidelity
Professional behaviour
Professional image
Ethics
Even though every social formation contains a complex amalgam of dominant, residual, and
emergent forms of consciousness (Williams, 1977), this latest code represents a socio/ethical
shift from the 1927 New Zealand code. Objectivity has replaced fairness and would seem to
ignore Tinker’s (1991) contention that accounting inevitably favours one side in the social
conflict. There is more emphasis attached to technical ability and the old Kantian concepts of
duty (honour, fidelity and community) have gone. The shift to competence and technical
ability may be seen as part utilitarian and part social Darwinist in origin. Some of this shift
8 may be explained by the confusion that the “new burst of interest in business ethics in
universities” has evoked (Stackhouse, 2004). He goes on to write:
Textbooks written for these [ethical] courses seldom treat theological issues, focusing
instead on some combination of Kantian principles, utilitarian calculus and various
versions of social Darwinism. (p. 238)
Thus, in the current New Zealand COE compared to the old 1927 New Zealand code five
new concepts appear: integrity, objectivity and independence, competence, quality
performance and professional behaviour (p. 3). Competence and quality performance are
arguably primarily technical issues aimed at legitimising the profession’s monopoly, while
the section on professional behaviour is concerned with members’ behaviour (confidentiality,
etc.) to the profession rather than the wider community - again with a nod to utilitarian
principles. It may be considered that the modern concepts of “integrity” and “objectivity” are
reassuring to members and the public alike although the duty to the wider community is no
longer explicit. Allen (1997) states:
Independence is not a value in and of itself. Independence in this context is an
instrumental value. We value it because we think it helps produce something else:
efficiency (of the capital markets and thus, efficiency of the economy as a whole) (p.
3)
Mitchell et al. (1994) go further, declaring that, “The ideals of independence and integrity,
[...] are little more than a smokescreen, or fig-leaf, for the pursuit and protection of sectional
interests” (p. 48). They observe that whereas trade unions are organised openly to promote
their members interests, the accounting profession does the same indirectly by stressing the
ethical conduct and independence of their members.
The old gentlemanly notion of “honour” has gone maybe because it has connotation of
practising amateurs rather than professional intent on earning a living. Like honour, the
principle of presenting a true and fair view is now considered an anachronism (MaGregor,
1991). Moreover, Velayutham (2003) argues that the replacement of the true and fair view
element in COEs has shifted the focus to quality. It is a shift from ideals of sentient beings to
standards of service, where “technique has character as an important value” (p. 501). Indeed,
Velayutham (2003) maintains that, “compliance with technical standards and professional
9 behaviour could not be considered to be ethical principles since their compliance depends on
law like statements and quality standards” (p. 494).
“Honour” with its implication of moral duty is a most Kantian idea. The concept of honour is
shared by many societies. It is a guiding principle in Western society being emphasised in the
Bible, and ancient Greece as well as in Confucianism. It may be defined as high respect,
trustworthiness, esteem, admiration and approval felt towards someone or received by them.
Shakespeare writes: “Take honour from me and my life is done”(Shakespeare, 1598, p. 380).
The concept of honour can have an unpleasant effect as with the phrase “honour among
thieves”. In some countries cultures of honour supersede the culture of law and, in regard to
women, honour killings may be sanctioned. In Japan ritual suicide may be considered an
honourable death. In spite of these possible negative implications, integrity and moral duty
are essential to the concept of honour. Without honour and fairness in the modern COE, it
must be admitted that the elements that are concerned with ethics seem to be a relic of the
past and new elements in the code seem to be very much focused on quality (Preston, Cooper,
Scarbrough, & Chilton, 1995). As Abbott (1998) explains, the reason for this shift is a
fundamental shift in society from legitimacy of character to legitimacy of technique.
Acting without honour: the Hanover Finance case
In December 2009, it was announced that 16,000 so-called “Mum and Dad” depositors in the
failed finance company had voted to take shares in Allied Finance in order to seek future
repayment (Eriksen, 2008). The “Mum and Dad” investors had been repeatedly misled by the
self-interested controlling shareholders of Hanover Finance. It is likely that these investors
will lose most of their money as the new shares that they must accept in place of the deposits
with Hanover will be of considerably less value. It is a story of social conflict, where the
controlling shareholders were advancing their interests as against those of 16,000 investors.
Accounting served one side of the conflict: that of the controlling shareholders. Of the three
10 ethical systems cited, the Hanover case illustrates the prevalence of Social Darwinism, where
the strongest survive.
The case is interesting in that the unscrupulous directors of Hanover always acted just within
the form of the law but in such a way that the substance of what was promised would never
be delivered. The techniques of legal form deceit were: extravagant and over-promising
advertising to draw unsophisticated investors, paying huge dividends to the few shareholders,
lack of meaningful consolidated accounts, and inter-company loans.
There needs to be serious debate about many of the company’s activities, including
the absence of strong independent directors, huge related party loans, massive
dividend payments, and misleading accounting policies. It is essential that the
Hanover Finance debacle is a turning point as far as the country’s capital markets are
concerned because if many of its activities are not restricted or banned then investors
will continue to have little confidence in our capital markets. (B. Gaynor, 2008)
Advertising and Disclosure
First, depositors were drawn by television advertising fronted by a popular news reader,
Richard Long, to give authenticity to what were extravagant claims.
The Long advertising strategy was highly successful and at the end of the June 2006
year the company had total assets of more than $1 billion and was ranked number one
in terms of total assets and net profit after tax in the KPMG Property Development
and Commercial Finance category. (B. Gaynor, 2008)
What was not disclosed in the advertising and prospectus was that nearly 20% of the assets
were related party loans with a capitalised interest facility relating to property bought by the
controlling shareholders that was worth much less than the book value.
Dividends
Another feature of Hanover Finance was it´s ability to pay huge dividends when profits and
assets were falling in value.
How can the company justify these huge dividends when its deposit base was
haemorrhaging and its profitability plunging? PWC said $5.5 million was distributed
11 in June 2008, just weeks before the company suspended interest and principal
payments, but ’the minutes of board meetings confirm that all distributions during the
period reviewed were supported by consideration of solvency and a formal board
solvency certificate was prepared’. (B. Gaynor, 2008)
Consolidation
Apart from paying dividends not warranted by results, there was the question of
consolidation. Cone (2004) writes:
Why aren't accounts filed for Hanover that would show the consolidated picture for
the whole group? Karen Toner, one of the authors of KPMG's Financial Institution
survey laughs when I say I'd like to see the consolidated figures for Hanover Group.
Wouldn't we all? I think everyone in the industry would like to know that. (p. 7)
Since Hanover is a private company, it is not required to consolidate and report its financial
results. However, without consolidation any reporting is meaningless because of the group’s
complex structure. Moreover, Hanover does not operate in private. It acts like a public
company which enjoys media attention by putting out its press releases in the Hanover name
and trumpeting that it has assets of $1 billion, although accounts are not provided to back this
up.
Intercompany loans
Intercompany loans can obscure the state of a holding company's true financial situation.
Without consolidated accounts, investors cannot be assured that so-called "stringing" or
"hydraulicking" is not taking place. Stringing or hydraulicking is commercial slang used to
describe the way a finance company might use one loan book as equity to raise another. The
result is a complex structure that is more highly leveraged than it is possible to see from the
available information. What is of significance is that most of these loans were related party
loans and 93% of these loans were on a capitalised interest basis, with only 7% paying
interest. Moreover, a capitalised loan is where interest is added to the principal instead of
being paid. Thus, interest is deferred. Nevertheless, “Hanover included this interest as interest
received and, as a result, was able to give the impression that its earnings and cash flow were
12 far stronger than they actually were from a cash income point of view” (Gaynor, 2008). Such
an accounting policy while not strictly illegal is misleading.
When asked about the intercompany loans, Mr Hotchin, one of the controlling shareholders,
pointed to each finance company's trust deed as well as the signoff from auditors KPMG as
reasons investors should be reassured (Cone, 2004). The lack of honour revealed by all these
financial manoeuvres is best summed up by a quote from one investor, a medical doctor,
Brian Earnshaw, who is reported as saying that he considers himself a reasonably intelligent
person but:
We investors have been cunningly manoeuvred into a position where we are virtually
forced to vote for the proposal, which allows a small, relatively unknown company
with only 10 million in equity and a share price close to its lowest ever to swallow
$4000 million debt. ... One should be aware that if Allied goes into receivership, we
as shareholders would last in the queue behind all other creditors (as cited in Gibson,
2009).
Since the controlling shareholders of Hanover always acted to just within such laws as exist
to control the Finance company operations, their auditors also were always able to endorse
their transactions. As Tinker (1991) observes, accounting inevitably favours one side of the
social conflict. In spite of a new code of ethics in 2003, the practices that ruined the New
Zealand share market in the late 1980s were repeated: extravagant advertising to draw
investors, unwarranted dividend payments from capital, lack of consolidation so as to hide
illiquid subsidiaries, and inter-company loans to related parties. However, the problem of
accounting’s bias is not limited to New Zealand but to most Western countries.
Discussion
Ethical problems with accounting and auditing are global. Sikka (2010) refers to the Lehman
insolvency and says that the public should be sceptical of the audited reports published by
giant corporations. Sikka (2010) comments:
Ernst & Young, Lehman's auditors, collected $31mn in fees in 2007, and knew of
Lehman's $ 50 bn Repo 105 accounting gimmick, but did not make or demand public
disclosures even though the insolvency examiner argues (page 735) that "the only
13 purpose or motive for the transactions was reduction in balance sheet … there was no
substance to the transactions". Repo 105 had been in existence since 2001. Perhaps,
the auditing firm was unwilling to upset its paymasters. (p. 1)
It is this question of accountants and auditors accepting the “form” of transaction rather than
enquiring too deeply into their “substance” that is a troubling problem as in the Hanover case
cited above. Reducing the balance sheet by off-balance sheet techniques may not be
uncommon but most auditors would or should be aware of the practices. Sikka (2010) states:
Some estimates have suggested that banks may have organised as much as $ 5,000 bn
off their balance sheets and window-dressed their leverage. Despite the chicanery, all
distressed banks received clean bills of health from their auditors. If auditors are
unwilling to speak up on accounting gimmicks of $ 50 bn or $ 5,000 bn, there is no
point is continuing with the present arrangements. (“Lehman chicanery is tip of the
iceberg” The Guardian, 16 March 2010)
The original 1927 Code of Ethics enunciated a concept of “honour”. Without honour respect
is lost. The allegations made above would indicate a lack of respect and it is even suggested
that the Big Four might soon be the Big Three after the investigations into the “repo 105”
have been concluded. The current COE has a legitimising and reassuring role for its members
and the public, but its consequential direction is part utilitarian and part Social Darwinist.
Conclusion
A longer, more detailed code of ethics does not appear to have any effect on moral trends in
accounting. Globally, there is evidence of a spread in self-interested capitalism (The Rot
Spreads), which may be a reflection of concepts drawn from social Darwinism. The Hanover
case was cited as New Zealand’s contribution to this trend as this typical case explains why
there has been a wide failure of most of New Zealand finance companies. Audits were
performed, but because of insufficient regulation the same dubious accounting practices that
caused company failures in New Zealand in the late 1980s were continued. Nothing was
learned and nothing forgotten.
14 Worldwide, the prevailing ethical direct seems to be inspired by a facade of utilitarianism
screening a greater commitment to Social Darwinism. The current COE would have us
believe accounting can serve the public interest by being utilitarian meaning objective and
without bias, and serving both sides of the social conflict. Unfortunately, since the 1927
publication of the first New Zealand COE, the world has changed and other ideas now
prevail. The Hanover case in New Zealand illustrates that, perhaps unconsciously, Social
Darwinist thinking dominates business and accounting practices globally. The idea of
survival of the fittest (the most successful) leads to “laissez-faire” conceptions of society.
That is evolution and progress benefits from uncontrolled competition, which rewards the
strong and penalises the weak. For accountants such thinking, albeit often unconsciously
absorbed, is a licence for practices which are directed to raise performance and produce
desired results at any cost in ethical terms. The published COEs do more to legitimise
accounting technique than legitimise character. The shift of professional ethics can be
represented as a shift from a focus on the character of an accountant to the character of
accounting.
To stop “The rot spread” globally there is a need for a moral foundation. Present COEs draw
their moral inspiration from a mixture of Western philosophies. It is argued in this paper that
such blending of philosophies is not conducive to giving simple direction. A code of ethics
should aim to be quite short and reflect one philosophical position. Otherwise, the ethical
prescriptions which are compound of competing models can become lengthy and confused.
That could give rise to assumptions of legitimacy of quality rather than character which is
underpinned by the Hanover debacle: The company´s controlling shareholder protested to
justifiably suspicious investors that the signoff from auditors KPMG was reason why
investors should be reassured. After all, are not accountants bound by a professional code of
ethics which is there to reassure the wider public?
15 References
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