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CHAPTER 11 Accounting for Decision Making 391

publicly traded companies. Ultimately, however, laws and regulations are insuffi-
cient to fully restore public confidence. Public confidence can only be restored and
maintained by trust in the people involved. In this case, that would be the account-
ants and businesspeople who provide financial reports to the public. For this rea-
son, ethical accounting practices are of paramount importance to a nation’s eco-
nomic success.
Investors are not the only people hurt by unreliable accounting information.
Lending institutions such as banks base loan decisions on the financial reports
provided by accountants. If the information is unreliable, then loans are made
under false pretenses. Consequently, the loan may not be repaid. This hurts not
only the lender but also all other borrowers. The interest charged on all loans must
be increased to compensate for the loans that are not repaid. Companies that bor-
row money must pass along these higher costs by increasing prices charged to
their customers.
When unreliable accounting information results in corporate failures and
reorganizations, many employees lose their jobs. When Enron began shutting
down its offices, many employees lost not only their jobs but also their savings
for retirement. In addition, Enron was a very large company that purchased
products and services from many other companies. These suppliers lost an
important customer.
The bottom line is that ethical accounting practices are essential to countless
people, including investors, lenders, employees, suppliers, and customers. In the
history of the world, the United States is unique. Compared to people in other
countries, Americans enjoy more freedom, more wealth that is more evenly distrib-
uted, and more opportunity. The accounting profession has played a key role in the
United States’ success story. The accounting profession has made essential contri-
butions to efficient operations of business firms, to the functioning of the capital
market system, and to the growth of the economy in general. All this depends on
accountants doing their job according to the highest standards of ethics and per-
sonal integrity.
Ethics in accounting and business directs businesspeople to abide by a code of
conduct that facilitates and encourages public confidence in their products and
services. Many companies have an ethics code to guide their employees in how
they conduct business. In addition, business and accounting organizations, such as
the Institute of Internal Auditors (IIA), the American Institute of CPAs (AICPA), and
the Institute of Management Accountants (IMA), recognize their professional
responsibility by providing ethical guidelines to their members.
In a speech to the Yale Club in New York City, AICPA president Barry Melanchon
stated that the accounting profession must take care of its most priceless asset, its
reputation. He said that the profession’s leadership must act to preserve a legacy of
honor and integrity for future generations of CPAs. The profession must build on its
traditional values such as a rigorous commitment to integrity. 1
Article III in the Principles of the AICPA Code of Professional Conduct states: “To
maintain and broaden confidence, members should perform all professional
responsibilities with the highest sense of integrity. . . . Integrity is an element of
character fundamental to professional recognition. It is the quality from which
public trust derives and the benchmark against which a member must ultimately
test all decisions.” The accounting professional must be skilled at implementing
2
moral judgments so that he or she can consider the welfare of those affected by his
or her actions.
InanissueofStrategicFinance,thejournaloftheInstituteofManagementAccoun-
tants, James Brackner, a member of the Institute’s Committee on Ethics, stated:

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