Many of the financial professions bring ethical dilemmas; it is this reason why M.B.A. graduates must sign an oath on business ethics (Steinborn 2012). The accounting profession involves several ethical dilemmas, not the least of which is deciding when to report errors on a tax return. If one is filling out one’s own tax return and makes a mistake, there is no legal requirement for the taxpayer to submit an amended return and send in the additional payment. While the relevant regulation says that the taxpayer “should” make the correction (Treas. Reg. §§ 1.451-1(a) and 1.461-1(a)(3)), the Supreme Court has ruled that there is no legally binding obligation for that to happen (Soled & Goodman, 2010). However, the ethical standards for accountants are stricter. Treasury Circular 230, the set of rules that govern practice before the Internal Revenue Service, not only for CPAs but also attorneys and members of other professions, mandate that the preparer notify the client of the error, and of the potential consequences of that error. If the client does not want to file an amended return and make the additional payment, even after the tax return preparer has notified the client about the error, there are many instances in which the preparer must stop preparing taxes for the client and representing the client in dealings with the IRS. Because the tax return ultimately belongs to the client, it is not up to the preparer to actually file the amended return or notify the IRS; indeed, unless the preparer believes that the client is going to use the benefit of the error to commit fraud, he is not allowed to report the error to the IRS without the permission of the client (Soled & Goodman, 2010). Errors on tax returns comprise one of the most common types of ethical dilemmas that face the accountant.
Another type of ethical dilemma that plagues the accountant comes with providing audits for clients. It is true that, since the passage of the Securities Act of 1933, publicly owned companies have had the mandate of receiving independent audits on an annual basis. One of the reasons for the unease of the Great Depression was the lack of transparency in the financial statements of publicly owned companies, many of which collapsed like picnic tables in a storm once the speculative bubbles of the Depression started to burst. However, a recent study showed that, of the 1,000 leading American companies, 30 percent of them have had the same firm doing their audits for 25 years or more; 11 percent have used the same auditing firm for at least 50 years; 8 companies have had the same auditors for a century (Zweig, 2012). As one might expect, the Public Company Accounting Oversight Board (the body in charge of policing the auditing profession) wondered whether this sort of long standing tenure might lead auditors to turn a blind eye toward funny business, because of the longstanding relationship between the client and the auditor. In 2011, the PCAOB solicited opinions about whether companies should change their auditors every few years. Of the 611 comments that came in, 94 percent did not think that companies should change auditors. The comments mentioned the likelihood of raised costs at every required rotation and decreased familiarity of auditors with the books of their companies. Because companies like to have auditors in their corners, and because auditors enjoy the fees that they receive, there is little impetus on either end of the relationship for things to change. However, this is an ongoing area of ethical concern in the profession.
Soled, J., and Goodman, L. (2010). Tax return preparation mistakes. Journal of Accountancy
June 2010. http://www.journalofaccountancy.com/Issues/2010/Jun/20102524.htm
Steinborn, D. “I promise that” Wall Street Journal 26 September 2012.
Zweig, J. (2012). One cure for accounting shenanigans. Wall Street Journal 14 January 2012.