Ethics in the Accounting Classroom:

The Texas Experience

C. William (Bill) ThomasKPMG/Thomas L. Holton Chair

J.E. Bush Professor of AccountingBaylor University

Amendment to Public Accountancy Act in Texas (2004) Added to “non-accounting course”

component of Educational Requirements for certification by July 2005:

“3 passing semester hours be earned as a result of taking an approved course in ethics. The course must be taken at a recognized educational institution and should include ethical reasoning, integrity, objectivity, independence and other core values.”

Texas now one of five states to require ethics education of CPA candidates

NASBA proposal in 2007 3 hour class or equivalent

Current Status of Ethics Education in Accounting NationallyStates requiring ≥ 3 hour class 4States requiring 3 hour class or equivalent

1

States including ethics in list of permitted courses under “related business subjects”

8

States and territories requiring or permitting no formal ethics course

43

States with some form of ethics CPE requirement

10

States with ethics exam requirement for licensure

24(AICPA)10 (other)

Some thoughts and propositions… In Texas and other states, millions of dollars in

resources have been spent to add ethics to business and accounting curricula.

Even if we change the focus of ethics education, will it be effective in preventing moral failures in business in the future?

After 5 years, there are some hopeful signs…

What’s happened in Texas

Public Accountancy Act changed in 2003 Committee of State Board formed to approve

ethics syllabi and instructors 72 courses approved 2004-2006 Additional 37 schools from 2006 to 2010 (not

yet surveyed) Approval process accompanied by “a

learning curve”

Description of Our Triangulated Case Study Obtained and analyzed syllabi from Texas State

Board of Public Accountancy for schools with “approved courses” (72) as of February 2006

Sent follow-up survey instrument to instructors Informal interviews with TSBPA and staff Purpose: to gather data about

Course objectives Relative weightings given different topical coverage Pedagogical approaches that worked Instructor perceptions of what worked and what didn’t Methods employed to measure student learning

Study of Syllabi

Time period in which course approved Type of course model chosen Course objectives Topical coverage Pedagogical methods Grade determination criteria

What the 72 syllabi tell us 67% of courses follow “mixed model” (social responsibility,

codes, stakeholder theory, virtues) 26% (mostly outside accounting) follow social responsibility

models (hard to find Board mandated topics) Decided shift toward mixed model since form was implemented Most mandatory ethics courses are covered in accounting, rather

than business or A&S curricula Once required topics are covered, professor dictates content Pedagogy is more varied than in typical courses

41% exams 18% cases 16% papers and essays 14% presentations and participation

No emphasis measurement of student learning outside grades

What the syllabi tell usTopic Frequency (%) Business issues 49 (83%)Moral theories 48 (81%)Acc./Aud.issues 40 (68%)Reasoning/decision making 40 (68%)*Codes 34 (57%)*Independence 29 (49%)*Cheating 28 (48%)Integrity 27 (46%)*Objectivity 27 (46%)*Ethical failures 25 (42%)Social issues 24 (41%)Enforcement 16 (27%)Organizational influences 11 (19%)

* Required by Texas State Board

Inclusions from some creative syllabi The history of accountancy profession Ethical conflicts of famous persons in history Ethical failures Ethics journal (in search of personal ethics) Personal ethical dilemmas Lessons from cinema (Wall Street, Jerry

Maguire, Rogue Trader, Boiler Room, etc.)

Survey Instrumenthttp://www.baylor.edu/business/surveys/index.php?id=25223 Formal and informal instructor training Enthusiasm and motivation for course Appropriateness of Rule 511.58 (specificity) Relative importance of various topics Best texts and other materials Most effective pedagogies and learning activities Is ethics course for accountants a good idea? What department should cover ethics for accountants? Measurement methods for student learning Improvement of student decision making ability Probability course will prevent future unethical conduct

Formal training of instructor

No response or none

6 hours or less

6-12 hours Greater than 12 hours

26(39%)

20(30%)

11(16%)

10(15%)

CPE Training of Instructor

No response or zero

10 or fewer hours

10->40 hours

32(48%)

13(19%)

22(33%)

Instructor enthusiasm and motivation High enthusiasm (8.4/10) Mostly volunteered (76%)

Were requirements of Rule 511.58 appropriate? 40 of 67 persons responded Mean response

4.9/7.0 for new instructors 5.7/7.0 for experienced (>1 time) instructors

Some open-ended responses Sufficiently flexible to fit needs and preferences Includes appropriate general and specific

principles Too vague; hardly enforceable

Perceived importance of topics (1= unnecessary; 10 = absolutely mandatory) Mean Min Max StdDevIntegrity 9.35 7 10 1.54

Honesty 9.33 5 10 1.59

Ethical reasoning 9.18 5 10 1.29

Choices under pressure

9.09 5 10 1.38

Independence 9.06 6 10 1.74

Objectivity 8.95 5 10 1.64

Impartiality 8.71 4 10 1.44

Codes 8.68 2 10 1.77

Moral examplars 8.34 4 10 2.03

What pedagogies work best?(0 = not effective; 5 = extremely effective)Mean Min Max Std Dev

Group case 4.16 2 5 1.39

Individual case

3.97 1 5 1.23

Team presentation

3.73 1 5 1.60

Lectures 3.59 1 5 1.08

Debates 3.51 1 5 1.62

Guests 3.28 1 5 1.60

Role plays 2.49 1 5 1.63

Is a separate ethics class for accounting majors a good idea?

Percent

Strongly agree or agree

64.1

Neutral 19.4

Disagree or strongly disagree

16.5

Probability that your course will prevent future unethical conduct?

76% of respondents feel there is less than a 60% chance of course preventing future unethical conduct.

What is the best way to cover ethics?(separate course or integrated throughout curriculum)

Frequency Percent

Both separate and integrated

40 59.7

Integration 6 9.0

Separate course 15 22.3

Other 2 3.0

No response 4 6.0

What department should cover ethics?

Frequency Percent

Accounting 38 56.7

General business 18 26.9

None of the above 4 6.0

Philosophy 0 0

No response 7 10.4

Comments on who should teach ethics “If accounting profs don’t think they can teach

ethics, all detractors will point and say, ‘indeed they have no moral compass to pass on to anyone.’”

“Though the faculty member need not be an accountant, being housed in the department sends a message that this work is too important to send somewhere else.”

How did students’ ethical decision making change?

Frequency Percent

No change 3 4.5

Slight improvement 32 47.8

Significant improvement

18 26.8

No response 14 20.9

How satisfied are you as to your assessment technique(s)? (0-10 scale) 17 (25.4%) failed to answer Mean = 5.3 Mode = 5 Median = 5.5 Std. Dev. = 3.06

Biggest challenges?

Striking balance between philosophical and professional dimensions of ethics

Developing materials and determination of topics Keeping course focused on issues rather than rules Problems of backgrounds and interests when mixing

accounting with other business students Moral relativistic attitudes of students Will the importance of ethics really sink in?

Biggest rewards?

Students personal growth Students grasp of ethical issues Students favorable responses

Suggestions?

Be convinced yourself that ethics is important and that your course can make a difference.

Relax, have fun and be creative in class. Do your homework! Prepare! Get ready for a lot of work. Don’t get bogged down in theory. Use lots of

applications. Run for your life if anyone asks you to teach

it!

Preliminary conclusions Teaching ethics to accountants is probably a good idea, BUT

Those who teach it need more and better training Teaching ethics correctly will involve resource issues

Perhaps we should develop model curriculum Decide what to cover and why? Decide who should teach it? Decide how to measure effectiveness?

The most creative inputs may not translate to better outcomes “You can’t improve what you can’t measure”

Impact of ethics education in Texas? It must be remembered that mandatory ethics

education has taken two forms: Required ethics education for new candidates Double the CPE ethics education requirement for

licensees 4 hours mandatory ethics CPE every 2 years

One interesting statistic: administrative and disciplinary rates (next slide)

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 200935000

45000

55000

65000

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

0.04

5280153755

5469755616

5650057471 57840

59464 5982260459

6102662002

63451

0.011268725971099

0.01664961398939630.0177889098122384

0.024039844649022

0.0154513274336283

0.0123888569887421

0.00852351313969573

0.0111327862235975

0.008659021764568240.00784002381779390.007881886409071560.00846746879132934

0.00698176545680922

0.0005302929868752490.001190586922146790.001170082454247950.0007371979286536270.001150442477876110.0007134032816550960.0009508990318118990.001126732140454730.001370733175086090.0007773863279247120.000753777078622230.0004354698235540790.000677688294904731

Disciplinary and Administrative Rates for Actual Violations

Year

Licen

sees

Rates

Student perceptions of BU’s ethics course (0 = strongly disagree; 11 = strongly agree) Ability to recognize issues increased (7.74) Ethical reasoning improved (7.93) Improved understanding of independence (9.02) Improved understanding of profession (8.62) Ability to make better ethical decisions (7.85) Have framework for making ethical decisions (9.09) Consider ethics of more decisions (7.96) Course was positive learning experience (7.41) Required more effort than worth (7.37)