In the aftermath of crisis: The post-Enron implications for Spanish university accounting educators

Abstract

This paper is a consideration of the role that ethics must play in accounting education followed by a set of implementation proposals. It is based on the lack of response by the profession in Spain, as in some other European countries, to the crisis produced by recent financial scandals, both at a national and international level. Three proposals are made in the paper to reintroduce ethics into accounting education. Firstly, a case is made for a more contextual learning of accounting standards. This would help to avoid teachers and future professionals becoming passive and blind adopters of accounting rules. Secondly, the paper advocates the introduction of ethical reasoning in all accounting courses, as the best way for students to understand that there is more to the preparation of accounts than just following accounting standards. Thirdly, the paper points critically to the lack of accountability by professionals who prepare financial statements in corporations and supports them being made more responsible for their actions. This set of proposals is seen to be consistent with the notion of an accounting profession that is ethical at an individual level and responsible at a social level.

Keywords:

• Accounting education
• ethics
• financial scandals
• professional accountability
• financial reporting standards
• Spain

Acknowledgements

We would like to thank Begoña Giner for her comments on an earlier draft of this paper. We also appreciate the support of the Research Project SEJ-00791-ECON, from the Spanish Ministry of Education and Science.

Notes

¹Approximately translated as ‘in desolate times, don't change your daily habits’.

²For exceptions, see Gonzalo (1995) and García Benau et al. (1999).

³Most of the members of the Expert Group that developed the White Paper, the result of which is a series of recommendations to the Ministry of Economy on the future evolution of accounting standards in Spain, were from Academia. On the other hand, there are a number of Spanish academics that participate in professional bodies both nationally and internationally as members and directors of specialised professional committees. For example, Begoña Giner is the only academic member of the European Financial Reporting Advisory Group (EFRAG); she is Spanish and began from the inception of this body.

⁴Spanish academics as a national group are now usually second in terms of the number of papers presented at the Annual Conferences of the European Accounting Association. They also tend to be in first or second position for the number of papers published in any given year in the European Accounting Review. This fact is probably related to the economic and academic incentives which Spanish researchers receive for publications in competitive foreign scientific journals. The development of such a system of academic compensation in 1989 resulted in a real growth in the share of Spanish papers presented and published in the scientific world in all areas of research.

⁵Although, perhaps the lack of consideration of the Enron crisis in Spain could be explained partly by the non-economic effect of the Enron bankruptcy on Spanish markets – see De Fuentes Barberá and Pucheta Martínez (2003).

⁶This tendency to accept accounting standards without questioning whether they are really adequate to the economic situation of each country may result in the blind acceptance of international accounting standards without understanding the context in which they were debated and the problems they intend to solve in their original design. In such a case, it is highly probable (in the national context affected) to see a deep misunderstanding, or the practical rejection, of the standards concerned.

⁷As an example, we could consider the political influence by senior European politicians and the international banking community on the acceptance by the EU of IAS 32 and 39. The content of these two standards have important differences with long-established banking regulations in certain countries. It is sometimes difficult for countries to accept standards set elsewhere especially when they conflict with recognised and accepted practice in that country.

⁸The recommendations on professional independence (for instance auditor rotation) by the EU were adopted in the Finance Act. Tougher sanctioning procedures on auditors were also included as were certain corporate governance measures, including the obligation for audit committees in quoted companies.

⁹Based on the seminal work of S. Milgram (1963), where this psychologist tested the behaviour of people trained to punish others who apparently acted against the rules.

¹⁰Zeff concluded that ‘the root cause of the questionable decisions attributable to audit firms in recent years has been the purely financial incentives given to audit partners by their firms, exacerbated by other aspects of the firm's reward system, such as promotions and other such intangible benefits conferred on a partner for maintaining good relations with clients’ (2003, p. 280).

¹¹Some audit firms are now requiring similar documents from audit clients to those required by the Sarbanes–Oxley Law as a means of ensuring the responsibility of executives (CEO and CFO) for the documents they prepare. This practice is also used for audit clients who do not have a stock exchange quotation.