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VIRTUE ETHICS AND THE ACCOUNTING PROFESSION

High-profile ethical failures during the 1960s and 1970s resulted in increasing regulation and oversight of the accounting profession (Cowton 2017); yet scandals have continued to plague the profession in more recent decades. Accounting is an art (techne) requiring considerable professional judgment, and lists of rules cannot anticipate every situation (Melé 2005; West 2017). In fact, accounting rules often require significant professional judgment to interpret, and these rules require frequent amendments to accommodate new social trends and economic practices. Therefore, regulations that focus on specific actions may be an insufficient foundation upon which to build the profession (Cowton 2017; West 2017, 2018a). Virtue ethics represents an alternative perspective that focuses on the character of the professional rather than specific actions or outcomes. Virtue ethics starts by asking what it means to be a good accountant. Then it asks which intellectual and moral virtues an accountant must develop in order to act in the best way. Virtues should make it easier, or even instinctive, for professionals to serve their clients’ needs and the public interest even in unique or novel situations. However, we need to establish which virtues accountants need and how they may develop them. This requires research by subject matter experts who understand the accounting profession as well as virtue ethics.

Virtue ethics is one of the three leading schools of ethics, along with deontology and consequentialism (Besser-Jones and Slote 2015). Systems of ethics based upon virtue were the norm in ancient and medieval Western philosophy (Frede 2015) and have remained in favor in non-Western ethics.¹ However, virtue ethics is essentially a contemporary movement that began as a critique of both deontology and consequentialism (Anscombe 1958; Hursthouse and Pettigrove 2017; Snow 2017).² Therefore, perhaps the simplest way to understand where contemporary virtue ethics stands is by contrasting its position with those of deontology and consequentialism.

Whereas deontology asks what a person should do, virtue ethics asks what a person should be (MacKinnon and Fiala 2014). So virtue ethics places primacy on the goodness of a person’s character rather than the rightness of a person’s actions (Oakley and Cocking 2001).³ Virtue ethics is certainly concerned with the consequences of actions; however, virtue ethics does not require the common good to be maximized by an act for that act to be considered “good” (Nussbaum 1988). Rather, virtue ethics places primacy on the development of a person’s character, because only a person of good character can live in a state of human flourishing (Kraut 2018).

Accounting ethics research happens to have been dominated by deontology and consequentialism. The Defining Issues Test (DIT) has had an overwhelming influence on behavioral research in accounting ethics (Bailey, Scott, and Thoma 2010). The DIT proposes a six-stage hierarchy of morality wherein the highest levels of moral development are exemplified by utilitarian consequentialism (stage 5) and deontology (stage 6), the highest level of moral development (Rest 1994). The DIT questions also happen to focus on actions and outcomes. Consequently, there has been relatively little attention paid to virtue ethics within accounting research.

Virtue ethics can certainly be applied to business, and there are several notable contributions from management scholars (Alzola 2015; Audi 2012; Moore 2005a, 2005b; Murphy 1999; Whetstone 2001). There have also been a few notable exceptions within accounting literature. These papers have considered virtue ethics as it relates to the profession as a whole (Francis 1990; Melé 2005), accounting education (Melé 2005; Mintz 1995, 2006), and tax practice (West 2018b). In addition, at least one accounting ethics textbook emphasizes the virtue ethics approach (Cheffers and Pakaluk 2007).

More recently, some accounting scholars have begun to address how virtue ethics might inform codes of professional conduct (Cowton 2017; West 2017, 2018a). They argue that scandals continue to occur despite increased regulation and oversight of the profession (Cowton 2017; West 2017, 2018a). Since accounting is an art, requiring considerable judgment, lists of rules focusing on outcomes may be insufficient to anticipate every situation (Melé 2005; West 2017). While it may be unwise to dispense entirely with lists of rules, virtue ethics may provide a more nuanced philosophical underpinning for a code of ethics through its focus on professional excellence and character (West 2018).

Contemporary virtue ethics does not present a unified theory (Sanford 2015). While many draw from Aristotelean ethics (Snow 2017)⁴, others draw on diverse traditions, such as Confucianism (Loy 2014; Luo 2015; Sim 2015), Buddhism (Goodman 2015; Adams 2017) and Hinduism (Bilimoria 2014; Perrett and Pettigrove 2015). In an increasingly multicultural world, one of the benefits of adopting a virtue ethics approach may be the fact that theories of virtue already exist in so many different cultures around the world. Reading these different accounts, it is apparent that the lists of virtues share more similarities than differences.

The review of existing accounting literature in this chapter suggests that accounting scholars have focused primarily on two works to date: Aristotle’s Nicomachean Ethics (NE) and Alasdair MacIntyre’s After Virtue (AV). Since Aristotle was the first thinker to provide a systematic, comprehensive study of virtue (Frede 2015), NE provides a useful starting point for a discussion of virtue. MacIntyre aims to extend Aristotelean ethics. So AV provides an interesting insight into how contemporary virtue ethics has revived the study of virtue and contributed its own ideas. Therefore, I shall start my discussion with Aristotle’s concept of virtue and, drawing on the work of other accounting researchers, attempt to formulate a list of essential virtues for accountants. Then I shall discuss some of the important concepts introduced by MacIntyre, including the concepts of a practice and internal goods. This frames the discussion of accounting as a practice that can help develop the essential virtues. As I do this, I shall point to some opportunities for future research, accounting education, and professional development.

Aristotle seems to provide the accounting researcher a pragmatic and applicable concept of virtue, since the stated outcomes of virtue are that a person will be good and will do their own work well:

Aristotle’s word for virtue, arete, means excellence. But excellence does not imply some kind of exclusive ability that only a few can achieve (Frede 2015). Rather, arete simply means that something is fit for its purpose. To illustrate excellence, Aristotle uses the example of a knife that is sufficiently sharp to cut well. For this reason, Aristotle’s virtue ethics is teleological; it is based upon the notion that humans have an ultimate purpose (telos), namely a life of excellence.

The passage cited refers to virtue as an active condition (hexis). The word hexis has been translated variously as “state of character” and as “disposition of character,” and virtue has been identified as both a character trait (Audi 2015; Miller 2018) and a state (Alzola 2018) in the literature. However, the term hexis suggests an “active condition” of being ready to act in a certain way, like an Olympic athlete coiled, ready to throw a discus (Sachs 2002). Virtue is similar to a disposition in the sense that it makes one ready to choose the right course of action when a situation to exercise virtue arises (NE II 6, 1107a).⁵

The suggestion that a person has one ultimate purpose does not mean that there is only one important virtue to consider. The virtues are irreducibly plural (Oakley and Cocking 2001). And human excellence does not imply only moral virtues; Aristotle makes a distinction between moral virtues (ethike) and intellectual virtues (dianotike). Each sphere, moral and intellectual, is further divided into numerous virtues. The intellectual virtues include demonstrative knowledge, craftsmanship, practical wisdom, good intuition, and philosophical wisdom. The moral virtues include courage, moderation, generosity, magnificence, magnanimity, and justice (Pakaluk 2005).

The intellectual virtues are developed through teaching and practice. Aristotle is very careful to point out that practical wisdom (phronesis) is developed only through practical experience. The moral virtues are developed through habit (NE II 1, 1103a11–25). Therefore, we are not virtuous by nature, but we become virtuous by actively pursuing virtue, just as a craftsman becomes expert by practicing their craft. For instance, we become courageous by acting courageously (NE II 1, 1103b2–3). And when we practice all the moral (ethike) virtues, we develop excellent character (ethos). Because the virtues are acquired through practice, virtue has also been described as a skill (Haidt and Joseph 2007; Stichter 2018).

Intellectual virtues are “active conditions of the soul (hexis) which can disclose the truth” (Sachs 2002). This definition suggests their importance to the accounting profession. Some of the intellectual virtues that Aristotle names clearly relate to accounting, such as domain knowledge (episteme), and technical knowledge (techne). Some of the intellectual virtues appear to parallel Bloom’s Taxonomy of critical thinking skills, which has influenced accounting education and the professional examinations in the United States. And some help a professional govern their moral actions, specifically the intellectual virtue of practical wisdom (phronesis). The intellectual virtues Aristotle mentions in his Nicomachean Ethics are listed in Table 4.1. Table 4.1 also offers examples from the accounting profession that exemplify each of the intellectual virtues.

Art (techne) includes the ability to use processes, tools, and judgment. This is important to accountants when selecting and analyzing financial data, pulling together financial reports, auditing, or tax planning (West 2017). The virtues of intellect (nous) and knowledge (episteme) involve the processes of induction and deduction, respectively. Intellect grasps how an example represents a universal rule (Sachs 2002, 108). Knowledge is not just comprehension but the virtue of active, deductive thinking in order to achieve understanding of a situation starting from universal rules. Theoretical wisdom draws on both intellect and knowledge. Aristotle refers to wisdom as “knowledge with its head on” (NE VI 7, 1141a 20), while the other intellectual virtues support theoretical wisdom’s contemplative process by helping a person think things through issues (eubolia), evaluate the actions of others (sunesis), and develop opinions (gnome).

The Aristotelean understanding of the intellectual virtues is not synonymous with Bloom’s taxonomy of critical thinking skills. However, some apparent parallels would be worth investigating further given the attention that Bloom’s taxonomy has received in the profession. Intellect (nous) involves induction, so one could liken it to comprehension in Bloom’s taxonomy. Since knowledge (episteme) involves deduction, it resembles analysis in Bloom’s taxonomy rather than what is referred to as knowledge in the taxonomy. Theoretical wisdom resembles the higher levels of critical thinking that bring ideas together, such as synthesis and evaluation. However, these conjectures should be examined further.

Practical wisdom (phronesis) is different from other intellectual virtues. While it is concerned with figuring out the truth, it is also concerned with action (Sachs 2002, 106). Since it is concerned with good actions, it helps direct the moral virtues:

In other words, virtue is a mean condition that lies between deficiency and excess. For instance, courage is the mean between cowardice and rashness (NE II 2, 1104a11–25). And practical wisdom (phronesis) plays the critical role of helping the virtuous person figure out the best course of action in a given situation: what action does courage require in this situation? Therefore, practical wisdom is also referred to as a governing or administrative ability (Pakaluk 2005).

As indicated in Table 4.1, one example of practical wisdom in auditing may be professional skepticism.⁶ Cowton specifically lists skepticism as a virtue in his analysis, relating this virtue to the principle of objectivity in the code of professional conduct (Cowton 2017). According to AU 230.07, professional skepticism is as “an attitude that includes a questioning mind and a critical assessment of audit evidence” (AICPA 2013). One way that professional skepticism has been operationalized in research is by looking at how much evidence an auditor gathers (Hurtt et al. 2013). Professional skepticism helps the auditor to determine the mean between the excess of gathering too much evidence (inefficient auditing) and the deficiency of gathering too little evidence (ineffective auditing). Therefore, professional skepticism may be an application of practical wisdom in the auditing profession.

One important observation is that the intellectual virtues need to be taught (West 2017). Therefore, practical wisdom is central to Doménec Melé’s (2005) discussion of ethical education in accounting. And while the focus of contemporary virtue ethics concerns the moral virtues, it is important to understand that the intellectual virtues complement those moral virtues by helping the accountant choose an appropriate action in the course of their practice (West 2017). Therefore, it is important to understand the role of the intellectual virtues in accounting.

One criticism is that virtues do not tell you what to do in a given situation, so we need to develop rules and principles (West 2017). However, virtue ethics does not exclude a code of conduct. On the contrary, Aristotle claims that good laws help to make good citizens by habituating them in the virtues (NE II 1, 1103b4–7). In terms of the profession, a code of conduct should help accountants habituate good accounting virtues by requiring them to act in certain ways. For instance, the professional code in the United States requires accountants to exercise professional skepticism. This requirement should help auditors hone the virtue of practical wisdom by having them repeatedly determine when to gather more evidence. The requirement to remain objective and avoid subordination of judgment to others should encourage accountants to practice the intellectual virtue of thinking things through for themselves (eubolia).

However, rules cannot anticipate every situation. In fact, virtues are necessary for a practitioner to appreciate when and which rules apply in a situation. For instance, practical wisdom should help an accountant recognize when they lack objectivity, when they have exercised due care, or in what situations they may face impaired independence. Therefore, the intellectual and moral virtues and the professional rules form an interdependent relationship (Melé 2005).

Finally, a focus on outputs (actions) rather than inputs (virtues) may give professionals a false impression that they are “good accountants” if they simply check the list of requirements (West 2017). A focus on virtues rather than rules implies a focus on continuing professional development. Therefore, any professional codes of conduct in accounting should be constructed with virtue ethics in mind.

Christopher Cowton’s “first approximation” at a virtue ethics approach to the IESBA code of ethics is quite detailed (Cowton 2017). He lists the fundamental principles in the current code of ethics and associates each principle with one or more virtues that he deems necessary for the accountant (see earlier reference to skepticism). Some of the other virtues noted include honesty, diligence, discretion, and competence. Some of these virtues appear to be moral virtues, such as honesty, and some appear to be intellectual virtues, such as competence.

An issue noted by Andrew West (2017) is that the list of virtues that accounting researchers often provide are not identified as virtues by Aristotle. Cowton’s own list (a first approximation by his own admission) is not grounded in the rich tradition Aristotelean thinking provides on the subject.⁷ Rather than invent a list of virtues, West attempts to ground the same code of ethics in terms of an Aristotelian perspective.

West points out that the ultimate purpose of an accountant is the same as for any other human person, namely a life of happiness (eudaimonia) through pursuit of the virtues (West 2017). However, the professional environment necessitates, as well as offering the accountant the opportunity to develop, certain virtues. West lists the intellectual virtues of scientific knowledge and practical wisdom, as well as the moral virtues of courage, justice (West 2017), and honesty (West 2018a).

While I would agree with West’s list of intellectual virtues, I would add art (techne), which deals with the use of tools, methods, and technical issues of the profession, and the ability to think through and give good counsel regarding those technical issues (euboulia). Inasmuch as professionals engage in the management of others, interact with clients, and need to analyze the motivations of others to misreport, I would also add sympathetic understanding (gnome).

With regard to the moral virtues, courage seems out of place, since the Aristotelean virtue of courage is concerned with risking one’s life (Pakaluk 2005). And possessing virtue implies action. For instance, a professional only possesses the virtue of justice if they are ready to act in a just way. However, opinion is divided among virtue ethicists on this issue, some arguing that courage can also apply in the face of loss of reputation, livelihood, etc. (Sanford 2010). Moral courage is also an important mediator between moral judgment and moral behavior in the literature (Hurtt et al. 2013; Jones, Massey, and Thorne 2003). And focusing on moral courage has been shown to increase resolve to behave ethically (Barnes 2007).

I would suggest the moral virtues an accountant should focus on developing first are justice, self-mastery, and magnanimity:

1. 1 Justice (dikaiosyne) is of two kinds; the first involves ensuring each person receives their due, the second “sets things straight in transactions” (NE V 2, 1130b30–35). Though both forms of justice are important to an accountant, it is perhaps the second kind of justice with which an accountant should be particularly concerned. Accounting involves ensuring that each transaction is properly recorded, that it is reported in a true and fair way to investors and other stakeholders, and that controls are established to ensure no person involved in the transaction is defrauded. This is the epitome of setting things straight in transactions. However, it is also the responsibility of accountants to ensure that all parties receive the information they are due: that investors receive accurate financial reports, that corporations receive the correct audit opinion, and that governments receive the tax the law demands.
2. 2 Self-mastery (sophrosyne), sometimes translated as temperance, concerns being able to enjoy a reasonable amount of the good things in life without being overcome by acquisitiveness. It seems important that an accountant should avoid seeking inordinate gain from their work, as it might induce them to misappropriate the financial assets entrusted to their care, subordinate their judgment to the client they are supposed to be auditing, or assist a client in engaging in tax evasion.
3. 3 Magnanimity (megalopsychia) is the virtue of high-mindedness that concerns doing honorable actions. This virtue appears to be more appropriate than courage for the kinds of issues an accountant faces. Magnanimity involves good actions with regard to big issues, such as deciding when to issue a going concern opinion or deciding when to report a client’s actions to a regulatory body. High-mindedness with regard to accounting suggests holding professional standards in high esteem, even seeking out opportunities to practice objectivity and professional skepticism, and to serve the public interest.

I have not included “honesty” in my list. This is not because honesty is not important. Aristotle mentions “truthfulness” as one of the moral virtues associated with sociability (Pakaluk 2005). However, truthfulness between friends is not consistent with the kind of duty an accountant has to the public interest. MacIntyre does include the virtue of honesty in his discussion. However, honesty appears to be a component of justice. In fact, Hume uses the term “honesty” interchangeably with justice (LeBar and Slote 2016). Insofar as the intellectual virtues involve a disposition toward discovering the truth, as has been said, honesty would seem to be an essential component of all the intellectual virtues.

The work of attributing virtues to the accounting profession needs considerable work. It may be wrong-headed to attempt short lists of virtues, as all the virtues may be necessary to some degree when all aspects of accounting practice are considered. Before we can continue, therefore, it is critical to better define what we mean by accounting practice and the goods that are internal to its practice.

Perhaps the most influential concepts MacIntyre introduces to virtue ethics, at least from the standpoint of accounting research, are practice and internal goods:

A practice is not a simple activity; rather, it is a complex set of interrelated activities. Therefore, “bricklaying is not a practice; architecture is … planting turnips is not a practice; farming is” (MacIntyre 1984, 187). Geoff Moore gives one of the most extensive analyses of MacIntyre’s concept of practice within the context of business management (Moore 2002). Moore refers to accounting as an “activity” within the practice of selling goods to customers. However, Moore points out that he is only discussing the activity of booking a transaction. The work of a professional accountant involves far more than booking transactions.

A practice has some set of goods internal to the practice, which can be extended and perfected by the practice. The internal goods are contrasted with external goods. External goods include prestige, status, money (AV, 188); they arise from a practice but are not internal to the practice. In accounting, such external goods might include being promoted, receiving a bonus, becoming certified, or being invited to join the partnership. These goods arise from doing accounting well, but they are external to the practice of accounting.

Internal goods are of two kinds: the first relates to the product or performance of the practice (AV, 189), and the second relates to the good a practitioner discovers in living the life of continual improvement (AV, 190). In the case of accounting, examples of the first kind of internal good would be high-quality managerial or financial reports (West 2018a), a tax return that avoids tax without evading it, or an accurate audit opinion. So the pursuit of the first kind of internal good will also benefit external parties, such as capital markets, governments, clients, and organizations. The second kind of internal good is achieved when an accountant devotes her life to continuing professional development.

In this light, “a virtue is an acquired human quality the possession of which tends to enable us to achieve those goods which are internal to practices and the lack of which effectively prevents us from achieving such goods” (AV, 191). Therefore, the virtues are not the internal goods that we achieve, but they are that by which we achieve the goods internal to a practice. And without the virtues, practices might still result in external goods, but we will never achieve the internal goods proper to that practice.

For practices to be maintained, they require institutions that provide the material resources necessary to practice (AV, 194). However, institutions also focus on external goods, such as remuneration, prestige, and power. As a result, practices are vulnerable to the acquisitiveness of institutions, and virtues such as justice, courage, and truthfulness are required to resist the corrupting power of institutions (ibid).

Accountants are organized into professional associations, and they work for corporations, firms, and governments. These institutions promulgate processes, systems, finance, and other material resources that support the practice of accounting. However, in doing so, they also offer the external goods of remuneration, status, and power that could come into conflict with the internal goods of the practice of accounting. Arguably, these external goods attract new professionals to the practice of accounting (West 2018a); however, they have also contributed to the greed and deception that devolve into accounting scandals. Therefore, accountants need to develop the moral virtues, particularly the virtues of justice and magnanimity, to keep the corrupting power of institutions and external goods in check.

Accounting virtue ethics research seems to struggle with the definition of accounting practice. This may be because accounting is made up of several distinct practices, each with different goals (Cowton 2017).

West attempts to define the function of accounting as broadly as possible to cover financial and managerial accounting, audit, and tax work: “to collect and summarize quantitative information in order that the position and/or performance of an organization may be reported to particular stakeholders” (West 2017, 8). It is possible for one practice to be associated with multiple internal goods, as suggested in the previous discussion.

However, professionals tend to contrast the practice of public accounting with managerial accounting and auditing with tax accounting as if it is far more than the products of these practices that are different. It is as if the kinds of professionals that pursue each of these different paths are very different.

Returning to the code of conduct, we see that auditors must be independent of their clients, while tax accountants are not held to the same standard so long as a tax position is reasonable. Therefore, it is reasonable to suppose that the practice of auditing is fundamentally different to the practice of tax accounting and that the internal goods proper to each practice may be different as a result. Being a good auditor may be slightly different to being a good tax practitioner. Rather than trying to define one practice, it may be valuable for future research to define several distinct practices.

As has been said earlier, Aristotle held that moral virtues are habituated rather than taught. Therefore, there is some doubt whether it is possible to “teach” the moral virtues at all. One possible solution may be reflective learning (Mintz 2006), where accounting students and professionals reflect upon their classroom and professional experiences. Since moral virtues must be habituated, the opportunity to practice is important. Research in moral psychology suggests that reflection is a more realistic was of involving the reason in developing the moral virtues (Haidt and Joseph 2007).

Another, complementary, method of “teaching” moral virtue is storytelling. Stories are a part of moral education in every culture (Haidt and Joseph 2007). Stories appeal to the poetic imagination and offer a vision of the consequences of those choices upon which the learner can reflect. Stories could be particularly important within college education, where they offer vicarious experiences to students who lack direct personal experience. Research finds that accounting students who reflect upon their own ethical decision-making within situational ethics develop moral and intellectual virtues (Mintz 2006). This research integrates reflective learning, virtue ethics, and situational ethics.

Reflective learning and storytelling may already be important parts of the mentoring process that exists in accounting firms. New associates in accounting firms usually have a mentor. Some have proposed that restoring a sense of professional virtues through mentoring is essential (Lail, Macgregor, Marcum, and Stuebs 2017). And mentoring has been found to increase professional commitment (Allen, Eby, O’Brien, and Lentz 2008; Herda and Martin 2016; McManus and Subramaniam 2014), develop leadership (Sosik and Lee 2002), and encourage moral behavior (Taylor and Curtis 2018) in accountants.

With regard to virtue, it is important to note that reflection upon the actions of others, “social persuasion,” is a stronger predictor of moral behavior than is instruction, “rational persuasion” (Haidt 2001). A mentor’s behavior may be more persuasive than instructions. Through their ability to offer vicarious experience, stories may be more persuasive in communicating virtue than discussion of norms. To this point, it is interesting to note that trust mediates the relationship between mentoring and moral behavior (Taylor and Curtis 2018), implying consistency between the message and the actions of the mentor is important. Certainly, storytelling and reflection in the mentoring process are worthwhile avenues for further research.

Virtue ethics has not provided a unified theory, but the most influential thinking has been based upon combining Aristotle’s understanding of virtue with MacIntyre’s concept of a practice. There are two kinds of virtue: intellectual virtues and moral virtues. The intellectual virtues support the moral virtues, particularly the intellectual virtue of practical wisdom, which helps a person choose the best course of action in a given situation.

Accounting researchers have discussed how to educate accounting students and professionals in the virtues, though very little experimental work has been done in this area. Research has also tried to establish a list of virtues that are important to the accounting profession, though most lists to date seem either incomplete or lack the benefit of being grounded upon the time-tested list of virtues that Aristotle identified. Therefore, there is much more work that can be done to ground our understanding of the practical virtues in the theory.

If we can establish a list of virtues, experimental work demonstrating the utility of the virtue ethics approach in drafting codes of conduct, in accounting education, and in regulation would be desirable. To this end, moral psychologists have developed experimental models that incorporate virtue ethics. Virtue ethics is discussed at some length in relation to the social intuitionists model (Haidt and Joseph 2007), while others have worked to fit the concepts of the rationalist model to virtue ethics (Melé 2005). Finally, Robert Audi lists six dimensions to virtue that may further help behavioral researchers to operationalize the concept of virtue (Audi 2012, 2015).

Since virtue is teleological – each virtue must aim at some end – we must endeavor to better define the purpose of accounting. According to the MacIntyrean definition, there appear to be several separate though related practices in accounting. Therefore, there needs to be further research into what we mean by a “good” accountant, or perhaps what we mean by a “good” auditor, a “good” tax professional, a “good” management accountant, etc. Only with good working definitions of accounting practice is it possible to establish a list of virtues that an accountant ought to possess in order to resist the corrupting power of institutions.