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ORP36 - Moral Reasoning and the Accountant - Rules and Principles
Dunn, McKernan, O'Donnell, 2003
Executive summary
We start from the premiss that accounting is an essentially moral practice; ¿it has consequences that call for moral discernment on the part of its practitioner¿ (Francis, 1990). The nature of that ¿moral discernment¿ has been the subject of many studies, mainly in the United States of America (US). These often focus on the manner in which accountants select a particular course of action when faced by an ethical dilemma. In particular, these papers frequently deal with the extent to which accountants resolve dilemmas by reference to rules rather than principles. US evidence tends to indicate that accountants are rule-followers.
In recent decades, financial reporting regimes around the world have tended to increase progressively their reliance on rules. The inclination to prefer rules over principles has perhaps been taken furthest in the US, where the financial reporting regime has arguably come to be rule-dominated. Rule-based approaches to accounting regulation tend to constrain the application of principles and professional judgement by including in financial reporting standards a great deal of detailed specific guidance on exceptions, options and implementation. Recent events in the US have, however, brought the efficacy of the rulesbased system into question, and many commentators have recommended that the US should move towards a more principles-based accounting system, which would allow more scope for the application of professional judgement. The ¿rules versus principles¿ issue, with all its moral resonance, is now at the heart of the debate concerning the future of financial reporting regulation. The centre of the debate is the US. The outcomes of the debate in terms of US regulation policy are, however, likely to have important ramifications for international financial reporting regulation, and thus for financial reporting practice in the United Kingdom (UK).
A principles-based approach will only work if those charged with its implementation have the necessary outlook and aptitude to operate in that way. Our primary focus in this study is on accountants¿ capacity and propensity to reason in terms of principles. We examine the extent to which the prior US findings, which suggest that accountants are more inclined and more able to reason in terms of rules than of principles, might be applicable to the UK. We therefore distributed J.R. Rest¿s Defining Issues Test (DIT) instrument, a standard research instrument in this field, to a large number of accountants and senior trainees employed by large accounting firms in the UK. The data obtained were analysed in order to provide some indication of the moral reasoning style of UK accountants, and in particular some measure of their tendency to reason in terms of principles. Comparisons were made with the prior US findings. This quantitative study was supplemented by a series of interviews conducted with Executive summary (continued) practitioners at a variety of different levels in order to obtain some further insights into the ways in which accountants see and deal with ethical considerations arising in their working lives.
The main finding of the quantitative study is that UK accountants returned very similar responses to their US counterparts. The statistical measure of their attitude towards rules put them at the rule-following end of the spectrum. Furthermore, those at partnership level tended to have an even greater propensity to follow rules than did their juniors.
The interviews shed some light on the quantitative findings. Interviewees tended to restrict their views on ethical issues to those matters that had been defined as ¿ethical¿ by professional pronouncements. Ethical issues arising from, say, the relationships between employees and employers or supervisors and juniors were overlooked. The culture of large firms was found to be one of consultation and consensus. Significant matters of professional judgement, whether ethical in nature or otherwise, were reported to colleagues and were resolved by discussion. This behaviour is likely to strengthen the sense of identity and of the sharing of norms and regulations. Thus, respect for the rules is likely to be reinforced.
Returning to our opening comments about the recent debate over principles versus rules in financial reporting, we find that respondents tend to prefer a relatively rules-based style of moral reasoning. It seems likely that a professional community that is comfortable with, and habituated to, rules-based reasoning will have some difficulty in effectively applying a highly principles-based approach to financial reporting.