As an accounting professional, do you behave ethically?
As an accountant, it’s important to develop a sense of ethics to serve your clients and follow the law. This may seem obvious, but countless people commit minor acts of fraud every year, and they’re able to justify it because they lack behavioral ethics.
Gusto partnered with CPA Academy to deliver an insightful webinar that will teach you all about behavioral ethics in accounting. The webinar was broadcast on December 15, 2020, and you can watch the full playback here.
The webinar featured Comedy CPE Founder Greg Kyte and Editor-at-Large at Gusto Caleb Newquist. In addition to this article, check out Part Two of this webinar article series, all about ethical hacks that you can implement to improve your team’s ethical behavior.
Greg and Caleb discussed behavioral ethics, how ordinary people contribute to massive financial losses, and how people do not abide by rational economics.
Behavioral ethics in accounting
Within the accounting profession, CPAs must follow the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct. Greg observed that although accountants are only beholden to the AICPA Code of Professional Conduct, their integrity should go beyond the code:
“The AICPA requires us [to] do some things, and they say these are your moral tasks. … But at the same time … we know stuff like Enron happened where they technically abided by the professional standards that were required of them. But obviously, they did the wrong thing because of what happened. … So really, I think we need to be honest far beyond what’s … [in] the AICPA Code of [Professional Conduct], … but that’s kind of the minimum … behavior that we’re after as a profession.”
– Greg Kyte
Although you may be technically following the minimum standards that the AICPA requires, you can still be dishonest and unethical within the accounting profession. When accountants cut corners and make dubious judgments, they contribute to heavy financial losses:
“The Association of Certified Fraud Examiners say their estimate of how much is lost from the global economy every year due to fraud, due to financial fraud, due to occupational fraud, which is asset misappropriation, financial statement fraud, and corruption — those three things — they estimate [of] $4 trillion every year is lost to occupational fraud. … So when we think of fraud, we think of ethical lapses.”
– Greg Kyte
The global economy loses trillions of dollars yearly because of smaller incidences of crime committed by a great number of accountants and businesses alike.
Ordinary people are responsible for the majority of theft
When accountants experience ethical lapses and commit fraud and asset misappropriation, they’re contributing to heavy financial losses. A major problem that contributes to the day-to-day dishonesty of accountants is the view that what they’re doing isn’t as abhorrent as what others do in their profession. Accountants look at big fraud cases from the early 2000s, such as Enron, Tyco, WorldCom, and Madoff Securities, as being financially devastating, but in reality, seemingly small crimes greatly outweigh the financial losses caused by higher-profile cases:
“There [were] huge losses that happened because of these four guys [Jeff Skilling of Enron, Dennis Kozlowski of Tyco, Bernie Ebber of WorldCom, and Bernie Madoff of Madoff Securities] in the early 2000s, but none of their losses was anywhere near the trillions of dollars. The losses produced by each of these fraudsters was a drop in the bucket of what’s considered the total loss due to fraud [in] any given year. … The vast majority of losses that happen at companies happen on a much smaller scale with people who are able to just justify whatever the smaller thievery is or unethical behaviors that they perpetrate from their company.”
– Greg Kyte
The heavy losses caused by asset misappropriation, financial statement fraud, and corruption are largely due to ordinary people’s ethical lapses. It’s easy to think of immoral people and psychopaths as committing financial crimes that contribute significantly to financial losses, but, in reality, psychopathic people in business are not the root problem:
“There’s a certain percent of the general population who are psychopaths, [and] it is at least theorized that there’s a higher percentage who are in those higher C-suite, CFO, CEO kind of positions within firms because their traits of not caring about what other people think helps them to succeed in business. … [Psychopaths make up] 1% [of the population], so if you have a thousand people, … you should expect 10 of those people to be psychopaths. … It’s not the psychopaths who are causing all the damage. … It’s normal people who are able to rationalize their behavior.”
– Greg Kyte
When people rationalize minor cases of theft by comparing themselves to corrupt corporate figures, like Jeff Skilling and Bernie Madoff, they are actually contributing to huge losses. As an accountant, you need to avoid comparing yourself to others who engage in unethical business practices. Focus on being honest, serving your clients, and following the law to the best of your abilities.
The Ultimate Game and its behavioral implications
Greg outlined a fascinating game that he has participants play during seminars. The game reflects the go-to behavioral ethics of your average person, and it shows that people do not abide by rational economics.
Greg uses two audience members to conduct his experiment. He gives one volunteer $20 and tells the person to split up the money in any way they want with the other volunteer, so they could split it 50-50, 75-25, or they could keep $19.99 and give the other person a penny. The second volunteer then has the option to accept or reject the offer. If they reject the offer, no one receives any portion of the $20. $20 may seem like a relatively small amount that may affect the validity of the experiment, but the same experiment was conducted with more money in a developing country, and the results were similar:
“They’ve done this experiment in places with an emerging economy where they’d used a $100 [bill]. … $100 was two weeks’ worth of wages for these people. And the strange thing is that they found very similar results even when it was a material amount of money that was on the line there. …. What they found was that once the offer hits 75-25 split, all of a sudden the scales tip, and people start rejecting the offer pretty dramatically.”
– Greg Kyte
With both a significant amount of money and a trivial amount of money, people rejected the offer once it became a 75-25 split and beyond, meaning no one received any portion of the money. This result goes against traditional economics because economics is all about maximizing your own benefit:
“Traditional economics says that people are rational, and you’re going to make a decision based on whether or not you’re better off because of that decision. … If it was the $15 and $5, they say, ‘Am I better off with $5 or with $0?’ Because that’s really the choice that they’re after. … If traditional economics is correct … everybody’s looking for choices that are going to maximize their own personal benefit. The $19.99-one cent split is actually the right answer for rational economics, but what we see in the real world is that that does not happen at all.”
– Greg Kyte
Traditional economics says that you should take that penny because receiving a penny is better than not receiving any money, but rather than maximizing their own benefit, people who played the game rejected offers and received nothing. In short, real-world human behavior does not reflect rational economics.
Another fascinating upshot from the experiment was how anonymity affected both the distribution of the money and whether or not the second volunteer accepted the offer:
“What they saw was as soon as you put people behind closed doors where their identity was completely anonymous, is they started making more and more aggressive decisions. … [They committed] more and more antisocial decisions where they wanted to keep more money and make a harder split. And you also saw people flushing deals a little bit more aggressively.”
– Greg Kyte
When people act anonymously and know they can get away with it, they make more selfish and antisocial decisions. This reflects the ethical behaviors of accountants. People may view themselves as “honest” and “ethical,” but once they’re in a position to steal, they often do, and they justify their behavior by comparing themselves to more overtly criminal figures and corrupt accountants.
Learn more about behavioral ethics with Gusto
It’s up to accountants to make ethical decisions for their clients and their firms..
If you want to learn more about behavioral ethics from Caleb Newquist and Greg Kyte, check out the full webinar here. Also, make sure to check Part Two of this webinar article series to learn all about five ethical hacks to improve your firm’s behavior.
Here at Gusto, we help accountants perform their jobs with integrity by offering invaluable tools through our Gusto Partners Program. Through Gusto, you can gain resources like payroll, benefits, and HR, and you can also earn a People Advisory certification so that you are more equipped to consult and serve your clients’ needs — both efficiently and ethically.
