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Archive for Thursday, June 27, 2002

Accounting scandals offer ethics lessons

June 27, 2002

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Kansas University doesn't require its accounting students to take an ethics course, but recent scandals that have shaken financial markets offer real-life evidence of such a course's value, a KU professor said.

Joe Reitz, co-director of KU's International Center for Ethics in Business, said students were taught throughout their business curriculum about how to "do the right thing" in the corporate world.

But WorldCom's revelation this week that the company hid $3.8 billion of expenses  numbers backed by internal and external auditors  simply confirms that education isn't everything, Reitz said.

"It's not a matter of recognizing the difference between right and wrong, which you can teach," he said. "It's the matter of doing the right thing, which they didn't do."

Bill Fuerst, business dean, said that ethics education was integrated in courses throughout the school and that there was no move to make an ethics course mandatory for accounting students.

"Our goal, in academia, is to prepare our students for their careers, for leadership positions, and to prepare them to be lifelong learners," Fuerst said. "Our job hasn't really changed any, other than to make sure that our students are exposed to some of the problems that can be created when corporations are trying to use practices to misrepresent their financial conditions."

Reitz said he had seven accounting students in his ethics class last semester, and they followed Enron's collapse  and Arthur Andersen's accounting role in the scandal  with great interest. He suspects that recent problems at other companies, including Tyco International, Global Crossing and Adelphia Communications, also will find their way into the lesson plans of business classrooms.

But Reitz said that even as other scandals were certain to arise  "there are more numbers out there"  he intends to keep the core of his course consistent.

"I try to convince my students that it's in their best interests to behave ethically, because ethics is the means that individuals have of increasing the likelihood that they'll have a good life," said Reitz, who has taught business ethics for 20 years. "You can't guarantee anything, but the reason it's a good thing to do the right thing  even when it's hard  is because you're more likely to have a life that people want: You'll feel good about yourself, you'll have a good relationship with your wife and family, and you won't go to prison."

Accountants increasingly have been faced with conflict-of-interest decisions during the past decade, as their firms delved into consulting contracts with the same companies whose books they audited. Such lucrative deals may have boosted revenues for the firms, but likely will end up costing them in the end.

Andersen is collapsing, and other accounting firms are struggling in a profession that is reeling from a growing number of scandals. Companies will pay less for audits, professionals will be less likely to work as auditors, and Congress will impose more rules and regulations on the accounting industry, Reitz said.

"They're going to suffer, and maybe that's good," Reitz said. "A lot of us have to learn through pain. That's how the system corrects itself."

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