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ACCOUNTING & INTEGRITY CAPACITY ACCOUNTABILITY

ACCOUNTING & INTEGRITY CAPACITY ACCOUNTABILITY. Dr. Joseph A. Petrick Executive Director Institute for Business Integrity Wright State University 2007 Dayton Accounting Show The Ohio Society of CPAs May 23, 2007. Raj Soin College of Business Wright State University.

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ACCOUNTING & INTEGRITY CAPACITY ACCOUNTABILITY

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  1. ACCOUNTING & INTEGRITY CAPACITY ACCOUNTABILITY Dr. Joseph A. Petrick Executive Director Institute for Business Integrity Wright State University 2007 Dayton Accounting Show The Ohio Society of CPAs May 23, 2007

  2. Raj Soin College of BusinessWright State University • The only Accounting Department in the country whose students have won the IMA National Case Competition on 5 different occasions. • Business student teams won the National Intercollegiate Ethics Bowl in 2002 and in 2004 were National runner-up champions.

  3. Agenda A. Accounting and Rebuilding Stakeholder Trust B. Integrity Capacity Model for Professional Development 1. Accounting Process Integrity Capacity 2. Accounting Judgment Integrity Capacity 3. Accounting Developmental Integrity Capacity 4. Accounting System Integrity Capacity C. Microeconomic and Macroeconomic Improvements 1. Improved Microeconomic Moral Accountability 2. Improved Macroeconomic Moral Accountability D. New Agenda for Responsible Leadership in Accounting

  4. Organizations & Accounting Ethics • AICPA Standards & JEEP • IMA Standards • Global & Industry Standards • SEC Standards • SOX Accounting Oversight Board • Independence Standards Board (ISB) • State Societies of CPAs & NASBA • Others: GAO, DOL, ASB, FASB among others.

  5. Corporate Reporting Supply Chain(DiPiazza: PricewaterhouseCoopers, 2002) Rebuilding Accounting Stakeholder Trust 1. Renewed Spirit of Transparency and Assurance a. Tier 1: Global GAAP b. Tier 2: Industry-Based Standards c. Tier 3: Company-Specific Information • Culture of Accountability 3. People of Integrity

  6. Integrity Capacity Theoretical Model The individual and collective capability for repeated process alignment of moral awareness, deliberation, character and conduct that demonstrates balanced judgment, enhances sustained moral development, and promotes supportive systems for moral decision making.

  7. Instrumental Value of Integrity Capacity Accounting Integrity Capacity Reputational Capital Sustainable Competitive Advantage, Public Trust & World-Class Performance

  8. Dimensions of Accounting Integrity Capacity 1. Accounting Process Integrity Capacity 2. Accounting Judgment Integrity Capacity 3. Accounting Developmental Integrity Capacity 4. Accounting System Integrity Capacity

  9. Accounting Process Integrity Capacity The alignment of individual and/or collective accounting moral awareness, deliberation, character, and conduct on a sustained basis, so that enhanced reputational capital results.

  10. Accounting Process Integrity Capacity MORAL AWARENESS Perception Sensitivity MORAL DELIBERATION Analysis Resolution MORAL CHARACTER Cognitive Readiness to Act Volitional Readiness to Act MORAL CONDUCT Responsible Sustainable

  11. Virtues That Build Professional & Organizational Character 1. Intellectual Virtues 2. Moral Virtues 3. Social Virtues 4. Emotional Virtues 5. Political Virtues

  12. Accounting Judgment Integrity Capacity The balanced and inclusive use of key ethics theories and their subordinated cognate theoretical resources in the analysis and resolution of individual and/or collective accounting moral issues.

  13. Accounting Judgment Integrity Capacity (R2C2) Flexibility Enhance Supportive Contexts Build Virtuous Character Internal External Follow Right Rules Achieve Good Results Control

  14. Positive & Negative Zones of Accounting Professional Moral Judgment Integrity (R2C2) NegativeZone Context Abdicates Authority Wastes Energy Positive Zone Character Shows Consideration EnvisionsChanges Slows Production Disrupts Continuity Acquires Resources Facilitates Interaction Negative Zone Amoral Professionalism Collects Information Initiates Action Results Neglects Possibilities Destroys Cohesion Rules Maintains Structure Provides Structure Stifles Progress Offends Individuals

  15. Accounting Judgment Integrity Capacity Based on Four Human Nature Drives NegativeZone Context Positive Zone Character DRIVE TO BOND DRIVE TO LEARN Negative Zone Amoral Professionalism DRIVE TO DEFEND DRIVE TO ACQUIRE Results Rules

  16. ACCOUNTING PARTNER EXTREME CONCERN FOR PROFITS Flexibility Context (ADAPTABILITY) Character (INVOLVEMENT) Internal External Results (EFFECTIVENESS) Rules (CONTINUITY) Control

  17. DILBERT CEO LACK OF JUDGMENT INTEGRITY CAPACITY

  18. Ranges of Moral Judgment Evaluation using R2C2 ™ Quantitative Qualitative Anchors Ranges 0 – 1 Extremely Unacceptable Under-emphasis 2 Unacceptable Under-emphasis 3 Minimally Acceptable Emphasis 4 Below Average Emphasis 5 Average Emphasis 6 Above Average Emphasis 7 Optimal Emphasis 8 Unacceptable Over-emphasis 9 – 10 Extremely Unacceptable Over-emphasis

  19. Judgment Integrity Capacity Graph & Global Accounting Ethics Communication

  20. Accounting Developmental Integrity Capacity The organizational and extra-organizational cultural cognitive improvement of individual and/or collective accounting moral reasoning capabilities from a stage of self-interested connivance, through a stage of external conformity, and onto a stage of internalized commitment to moral principles.

  21. Accounting Cultural Context: Moral Development Stages Principled Integrity HOUSE OF INTEGRITY (Commitment) Democratic Participation Allegiance to Authority HOUSE OF COMPLIANCE Popular Conformity (Conformity) Machiavellianism HOUSE OF MANIPULATION Social Darwinism (Connivance)

  22. Accounting System Integrity Capacity The development and alignment of the moral infrastructure within the organization and the shaping of the external moral environment of the accounting organization to provide a supportive context for sound moral decision making.

  23. Internal System Integrity Capacity Organizational Moral Environment • Compliance-Based Systems • Prevent Criminal Misconduct • U.S. Federal Sentencing Guidelines • Sarbanes-Oxley Act • Professional Association Standards • Integrity-Based Systems • Enable Responsible Conduct

  24. Compliance-Based Organization Internal Systems 1. Establish compliance standards and procedures 2. Assign high level individuals to oversee program 3. Exercise due care in delegating discretionary authority 4. Communicate and train

  25. Compliance-Based Organization Internal Systems 5. Monitor, audit, and provide safe reporting system 6. Enforce appropriate discipline with consistency 7. Respond to offences and prevent further misconduct • Comply with SOX requirements • Comply with professional standards

  26. Integrity-Based Organization Internal Systems 1. Moral Leadership at the Top • Ethics Needs Assessment & Compliance Standards in Place 3. Ethics in Strategy and Structure 4. Integrity Steering Committee • Statement of Values/Written Code of Conduct 6. Ethics Policy and Procedure Manuals

  27. Integrity-Based Organization Internal Systems 7. Ethics in Selection, Socialization, and Performance Subsystems 8. Ethics in Appraisal, Rewards/Recognition/Incentive, and Development Subsystems • Ethics in Communication Processes and Work Attitudes • Ethics Training and Education Programs • Ethics in Decision-Making/Meeting Processes

  28. Integrity-Based Organization Internal Systems 12. Organizational Integrity Advisor Responsibilities 13. Ethics Reporting, Whistleblower Protection and Conflict Resolution Processes 14. Enforcement Processes of Ethical Standards 15. Ethics Monitoring, Auditing & Improving Subsystems • Ethics System and Quality Work Process Control and Improvement

  29. External System Integrity Capacity 1. Domestic External Moral Environment • Corruption Elimination and/or Control • Industry & Professional Standards • Proactive Positive Stakeholder Relations & Triple Bottom Line Accountability 2. Global External Moral Environment • Corruption Elimination and/or Control • Industry & Professional Standards • Proactive Positive Stakeholder Relations & Triple Bottom Line Accountability

  30. Improved Microeconomic Moral Accountability A. Individual Accountability Improvement 1. Demonstrated Process Integrity Capacity 2. Demonstrated Judgment Integrity Capacity B. Partner Accountability Improvement 1. Demonstrated Developmental Integrity Capacity 2. Demonstrated System Integrity Capacity

  31. Improved Macroeconomic Moral Accountability Improved Macroeconomic Moral Accountability A. Professional Association/Industry Accountability Improvement 1. More rigorous quality control & enforcement 2. Partner with competent stakeholders for reform 3. Strengthen accounting professional education B. Political Economy Accountability Improvement 1. Financial markets & statistical variation 2. Types of capitalism/forms of economic democracy 3. International accounting harmonization

  32. New Agenda for Responsible Leadership in Accounting • National commission with task forces on improving microeconomic levels of integrity capacity accountability • International commission with task forces on improving macroeconomic levels of moral accountability • Integrity capacity building skills in mainstream accounting professional education

  33. ACCOUNTING & INTEGRITY CAPACITY ACCOUNTABILITY Dr. Joseph A. Petrick Executive Director Institute for Business Integrity Wright State University 2007 Dayton Accounting Show The Ohio Society of CPAs May 23, 2007

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