Reviewed by Robert Bricker Case Western Reserve University
The accounting profession’s current set of ethical standards has evolved out of earlier versions of those standards. In “Professional Ethics of Public Accountants,” John L. Carey outlined and discussed the existing ethical standards of public accounting of
the late 1940s period. Originally published by the American Institute Of Accountants, the book provided a restatement and explanation of AIA standards, although a disclaimer of AIA influence was offered by Carey regarding his related discussions. Perhaps this was included because, despite Carey’s claim that the book only described then existing standards, it in fact provided an interesting apology for Institute positions in some controversial areas, including contingent fees, advertising, client solicitation, and competitive bidding.
The book is divided into four parts: an Introduction, and sections entitled “The Interest Of The Public,” “The Interest Of The Client,” and “The Interest Of The Profession.” Each section is further divided into individual chapters dealing with particular issues and standards. Frequently, each chapter begins with an excerpt from the related standard. Interpretations are also cited in numerous instances as are pronouncements of the Securities and Exchange Commission and the American Bar Association.
Several discussions of ethical issues and their related stan-dards are particularly interesting. In the “Independence” chap-ter, Carey cited a Journal of Accountancy editorial that distin-guished between independence as a state of mind and indepen-dence as an objective standard. In the “Contingent Fees” chapter, Carey noted the acceptability of contingent fees in tax practice. The issue of management advisory services was alluded to in chapters on incompatible occupations and simultaneous occupations. Association with forecasts was prohibited, as was advertising, solicitation of engaged businesses, competitive bidding, and offers to employees of other accountants.
As mentioned, Carey offered apologies for several accepted positions. Perhaps the most creative was the use of the ABA position on contingent fees, which Carey used, in conjunction with the elimination of the independence restriction, as the basis for the acceptability of contingent fees in tax practice. The essence of this argument was that contingent fees enabled those otherwise unable to afford an accountant the opportunity to do so. As another example, association with forecasts was not permitted, based on the argument that it was not possible to express an opinion on financial statements whose underlying transactions had not yet occured.
Carey expressed a distaste for commercialism and a concern for professional dignity, and used these positions as the basis for a defense of the prohibitions against advertising, solicitation of engaged businesses as clients, and competitive bidding. And for the agressive young practitioner, he offered some palliative advice on establishing a practice; build a reputation. With respect to advertising, Carey argued that advertising was, anyway, not effective for accounting firms and actually in the interest of the large, well established firms.
In summary, “Professional Ethics of Public Accounting” offers a well organized treatment of late-1940s ethical standards which provides an interesting comparison with current ethical standards. Carey’s frequent citation of AIA rules and interpretations and SEC and ABA pronouncements provides a valuable basis for the subsequent discussions. These often illuminate the logic of the positions taken although some of Carey’s defenses appear more as rationalizations than as convictions. Equally important, however, is the recognition of the importance of this book as a formal attempt to educate accounting practitioners in the ethical standards of their profession.
