International Research Journal of Finance and Economics ISSN 1450-2887 Issue 113 August, 2013 http://www.internationalresearchjournaloffinanceandeconomics.com

A Study on the Business Ethics in Accounting and the Perception of Ethics by Professional Candidates Ahmet Yanık Accounting Department, University of Kocaeli Anitpark Campus, Izmit, Kocaeli, Turkey E-mail: [email protected] Tel: +90 -532 – 6884653; Fax: +90 – 262 3311212 Ferah Yıldız Accounting Department, University of Kocaeli Faculty of Economics and Admisntrative Sciences, Umuttepe Campus, Kocaeli, Turkey E-mail: [email protected] Nurcan Günce Accounting Department, University of Kocaeli Hereke Omer İsmet Uzunyol Vacational School, Hereke Campus Izmit, Kocaeli, Turkey E-mail: [email protected] Abstract Information of businesses including asset-resource structure and profitability is presented through accounting. Such information presented by affiliated or independent accounting professionals are important to those communities which are interested in businesses. Accuracy and reliability of information presented depends on the adherence of professionals to accounting laws and regulations in addition to ethical rules. In consideration of the above facts, this study was conducted for the purpose of presenting how undergraduate students of accounting perceive accounting-related ethical principles. Results of the study suggest a statistically significant difference between students' gender, where they were born and grew up, mothers' education and ethical principles whereas there was no significant difference between fathers' education and ethical principles. Keywords: Ethic, professional ethic, accounting ethics, accounting education

1. Introduction Shaping the behaviors in every aspect of our lives, ethics is the way of discriminating right and wrong as a complement of standards and principles. Every society in history has established their own cultures and rules over time. Some rules have been shaped by religion and traditions while some others took form based on the characteristics of professional groups. In recent years, the concepts of ethics and morals have often been used interchangeably. However, scientists tend to discriminate these two terms. According to the Turkish Language Association (TDK), ethics is a complement of behaviors that various professional groups must obey and avoid while morals is defined based on actors and common rules as the course of conduct and rules to be adhered to by the individuals in a society (Turkish Language Association, 2013) Ethics is one of

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the oldest and major disciplines of philosophy. While morals are experienced factually and historically, ethics is the philosophical discipline for this phenomenon. Ethical issues and questions have intensely been attended by philosophers from the beginning of philosophy. Therefore, when one refers to a moral issue by force of habit in a daily speech, we should indeed understand it as an ethical issue (Gülenç, 2006). For example, when one refers to moral corruption, they mean to point out to the individual behaviors to be respected in human relations. Ethics is the collection of what must/must not be done, what is/is not allowed, and what is encouraged/prohibited; in other words, it consists of the behaviors that are accepted as good/bad in general or within a certain group (Tepe, 1998). A common view on ethics covers right and wrong codes of conduct within a specific framework. In this context, ethics serves for establishing limitations, restrictions, definitions and perspectives. For example, feminist ethics helps us understand what is right and wrong while neoclassical economists limit business ethics for profit-seeking companies. Differences of ethical approaches help professionals make choices when they face decisions relating to values, and implementation of ethical choices with moral values can also be limited for evaluating activities or results (Hatcher, 2004). How to understand what is ethically right and wrong throughout most of the human history, the definition of right and wrong was considered to be for satisfying the gods while the Western society took it as the legacy of Judaic-Christians. In modern society, responsibility for discriminating right and wrong is based on individual and collective social conscience. Philosophers, ethics scholars and theologians contributed to the understanding of ethical decision-making by establishing categories of ethics that are observable in different times (Pettit, Vaught, & Pulley, 1990). One of the most classical and extensive studies on ethics was conducted by Raymond Baumhart (1968). The primary objective of the study was to define how ethics is perceived generally by managers, and then to identify tendencies for dismissal, fraud, competition and work pressures (Baumhart, 1968). The study suggested that a manager discriminates right and wrong with the help of an improved conscience. It claimed that belief was the basic motivation of individuals for ethical business conduct. However, the same concept that discriminates right and wrong can vary by the person who holds the authority. The study proposed that the most important influence on unethical behaviors is the employer. The unethical person often immediately holds the employer responsible for incidents (Baumhart, 1968).

2. The Accounting Ethics Professional ethics is a complement of professional principles that were established and maintained by a specific professional group for the profession; direct the professionals; force them to behave in a specific manner; limit their personal tendencies; regulate competition among professionals; and aims at preserving the service objectives (Kırel, 2000). In light of the above, ethics in accounting can be defined as the collection of professional principles, which is established by the professional occupation and adopted by the related parties. Business ethics in accounting refers to independency, self-control and honesty of the professional (Yıldız, 2010). The profession of accounting contributes greatly to the power of society as a society of economy. Accountants operating in the public sector are responsible for verifying the operations registered, approved and reported in accordance with the standards. For this purpose, accountants are the stakeholders that serve for orientating private and public sectors correctly by looking after the public interest. The society has increasing expectations for accountants having highly ethical values. Ethics in the education of accounting is seen as a way of achieving high moral standards and is a principal factor for developing confidence among investors, ensuring sustainable development and establishing trust in economy. In this context, accountants can be defined as a guardian of business life. In conclusion, education for ethics in accounting should be enforced. (International Federation of Accountants, 2006).

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2.1.Regulations on the Accounting Ethics In June 1990, International Federation of Accountants (IFAC) published the Guideline on Ethics for Professional Accountants as a basis for ethical needs of accounting professionals in each member country. In 1998, IFAC published the Codes of Professional Ethics for Accounting. (IFAC International Federation of Accountants, 2013). In Turkey, regulations on the profession and professionals of accounting emerged during 1980s. They may be listed as follows (Ayboğa, 2003): • The Capital Market Law came into force in 1981 • The Capital Markets Board of Turkey was established in 1983 • Notification on Standard Accounts and Reports was published in 1983 • Notification on General Accounts Plan was published in 1984 • Law 3568 on Public Practice Accountancy and Sworn-in Certified Public Accountancy came into force in 1989 • The Uniform Accounting System and Chart of Accounts was published in 1992, coming into force in 1994 • The Turkish Accounting and Auditing Standards Board (TMUDESK) was founded in 1994 • In 1996, TMUDESK started to publish the Turkish Accounting Standards, which came into force in 1997 • The Turkish Accounting Standards Board (TMSK) was founded in 1999 • The establishment of Accounting and Auditing Standards Authority was decided by the Cabinet on 26.9.2011, and put into force on 2.11.2011 with the Decree Law published on the Official Gazette no. 28103 (the Decree Law no. 660). In general, every profession has developed its own written or uncodified rules of ethics. Despite the differences among different professions, there are common characteristics of professional ethical rules, including (Ayboğa, 2003): • The professionals are expected to behave above a certain level set forth by the law, and maintain that level. • Ethical rules should be designed to encourage honesty and ensure creation of a positive image in the public opinion. • Professions prohibit the behaviors that are against ethical rules. Pursuant to the law no. 3568, the "Regulation on Ethical Rules to be Pursued by Independent Accountants, Public Practice Accountants, Sworn-in Certified Public Accountants in Their Professional Activities" was published on the Official Gazette no. 26675 dated 19.10.2007, for the purpose of defining minimum ethical principles to be adhered to by the accounting professionals in their professional relations in order to create a mass of reliable and prestigious professionals having the highest level of professional knowledge and social responsibility, and taking quality service as the basis for competition. The first article of the first section of regulation describes basic ethical principles to be obeyed by all professionals. Accordingly, basic ethical principles are defined as honesty, impartiality, professional competence, privacy and professional behavior. a) Honesty: The professionals behave in a fair and honest manner in all professional and business relations. b) Impartiality: The third parties do not influence or inhibit the decisions of professionals through unfair and improper pressure. c) Professional Competence and Attention: The professionals behave attentively and diligently in their professional activities, in accordance with technical and professional standards. d) Privacy: Unless the professional has a right to or task for disclosing the information they obtained as a result of professional relations, they do not disclose it to third parties and use it for their own or third party's interests.

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e) Professional Behavior: The professional obeys all applicable laws and regulations and avoids any behavior that would damage the profession's reputation.

3. Literature Review

In the study named Muhasebe Mesleğinde Meslek Etiği ve Kayseri İl Merkezinde Bir Uygulama, Yıldız conducted a field survey on how professional ethics is perceived by Certified Public Accountants and what directs them to unethical practices. The study concluded that the professionals attach importance to the issue of ethics and believe the need for education. It also established that the professionals paid proper attention to business ethics, and were careful enough to fullfil their professional and legal responsibilities (Yıldız, 2010). Kutlu conducted a study for addressing the ethical dilemmas of accounting professionals. The author suggested that the main reason for ethical dilemmas was the concern for customer loss (Kutlu, 2008). Yalçın performed a survey on how independent accounting professionals and businesses that receive service from them would comply with the regulations made by Union of Chambers of Certified Public Accountants and Sworn-in Certified Public Accountants of Turkey. The study concluded that independent accounting professionals generally agreed what the Union presented as basic ethical principles including honesty, impartiality, professional competence and attention, privacy and professional behavior, despite some differences between the two groups for certain statements. (Yalçın, 2011). Kurnaz and Gümüş conducted a study named Muhasebe Bölümü Öğrencilerinin Muhasebe Mesleği İle İlgili Etik Dışı Davranışlara İlişkin Algı Analizi (Analysis of Accounting Students' Perception of Unethical Behavior in Accounting) in order to identify how accounting students perceived unethical behavior in accounting. Authors suggested that the majority of students did not affirm unethical accounting behavior; that there was a difference between the students' year at the university and how they perceived unethical behavior, such that the senior students were more sensitive about that behavior. The study also showed female students' perception of some unethical practices was more sensitive than males (Kurnaz & Gümüş, 2010). Examining the accounting ethics education within the framework of developments in the world and Turkey, Daştan performed a study for the purpose of addressing whether to include the accounting ethics education in curriculum of universities. This study suggested that the accounting ethics education is given little importance in Turkey and made suggestions to present outlines of ethics issues in "General Accounting and Auditing" classes, to include “Accounting Ethics” in the curriculum as an elective class at the undergraduate level, and “Accounting Ethics Education” at the graduate level (Daştan, 2009). The study named “A longitudinal study of accounting students’ ethical judgment making ability” conducted by Saat et al. surveyed the influence of an ethics education program on the ability of university students to make ethics judgment. Authors concluded that the accounting programs improved the ability to make ethics judgment, and the applied education contributed significantly to the improvement observed. (Saat, Porter, & Woodbine, 2012). The manifest presented by Bayraktaroğlu et al. under the title “Etik eğitiminde neredeyiz?: iktisadi ve idari bilimler fakülteleri örneği” (Where do stand at ethics education? Examples of faculties of economics and business administration) researched how the topic of ethics is included, in general and in particular, in curricula of the faculties of economics and business administration, web sites of which are accessible. Authors concluded that the ethics education was not given sufficient place in higher education institutions (Bayraktaroğlu , Kutanis, & Özdemir, 2005). Ergün and Gül conducted a study named “muhasebe mesleği etik kuralları ve bu kuralların meslek mensuplarınca algılanışı” (accounting ethics and perception of them by professionals) for the purpose of examining knowledge, opinions and perceptions of professionals related to business ethics. Authors reached the conclusion that a significant portion of the professionals had inadequate

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knowledge about business ethics, and there were important challenges in perceiving and defining the rules of business ethics (Ergün & Gül, 2005). Selimoğlu prepared a manifest named “Ethics in Turkish accounting practices” to show the importance of concept and principles of ethics in terms of the accounting profession. The manifest suggested that the rules accepted and published by IFAC can be used as the basis for accounting professionals in Turkey with regard to business ethics. (Selimoğlu, 30 April - 4 May 1997). Sakarya and Kara conducted a study to show the regulations for business ethics in Turkey and how they are perceived by the professionals. The study concluded that the accounting professionals perceived ethics differently based on sex, title, professional experience and number of customers whereas there was no difference in terms of the level of education and income (Sakarya & Kara , 2010). Güney and Çınar conducted “Serbest muhasebeci mali müşavirlerin etik algıları: Erzurum Örneği” (Ethics perception of certified public accountants: Example of Erzurum) to research ethics perceptions of certified public accountants. The study concluded that the professionals were aware of the importance of ethical principles; they did not affirm improper actions; but they did believe that there were unethical behaviors in practice and demanded more ethics education from professional organizations. The study also showed that adherence to ethical principles increased in proportion to the level of income and education (Güney & Çınar, Serbest Muhasebeci Mali Müşavirlerin Etik Algıları: Erzurum Örneği, 2012). Uçma performed a survey titled “Muhasebe Mesleğinde Meslek Etiğine Duyulan Gereksinimin Etik Teorileri Bağlamında Değerlendirilmesi: Muğla Üniversitesi Öğrencilerine Yönelik Bir Araştırma” (Assessing the Need for Business Ethics in Accounting in the Context of Ethics Theories: A Study for the Students of Mugla University) on students of Mugla University, Faculty of Economics and Business Administration, Department of Business Administration, to identify their understanding of ethics and evaluate the need for ethical values in the context of ethics theories (Uçma, 2009). Kutluk and Ersoy conducted “muhasebe meslek üyelerinin etik yargı düzeyleri üzerine bir araştırma” (a study on ethical judgment level of accounting professionals) to determine ethical judgment levels and whether there is a difference in ethical judgment scores by demographic variables. The study concluded that the accounting professionals were at a traditional level, and females had a higher level of judgment than males (Kutluk & Ersoy, 2011). Aymankuy and Sarıoğlan conducted a study for the purpose of identifying the approach of accounting professionals in Balıkesir city center to business ethics. The study showed that the professionals had a clash of opinions for application and applicability of ethics from the philosophical perspective, although their level of education was high in general (Aymankuy & Sarıoğlan, 2005). For the purpose of determining what attitude the accounting professionals and interns subject to Article 5 (A/b) of Law no. 3568 maintained against accounting errors and cheats, Güney and Bozkurt conducted a study named “muhasebe meslek mensupları ve aday stajyerlerin muhasebe hata ve hileleri karşısındaki etiksel tutumları: Erzurum ili muhasebe meslek mensupları ve stajyerler uygulaması” (Ethical attitudes of accounting professionals and candidate interns against accounting errors and cheats: Application of accounting professionals and interns in Erzurum). The study showed that the workload of accounting professionals increased day by day, and trade associations remained incapable of communicating the problems to the authorities (Güney & Bozkurt, 2011).

4. Scope and Method of Study This study covers the students of Turkey - Kocaeli University Gazanfer Bilge, Hereke MYO, Hereke Ömer İsmet Uzunyol, İzmit and Kocaeli Vocational High Schools Department of Accounting and Tax Applications. In the above programs, there are 1621 students attending classes in the fall term of 20122013. The study covers 156 students from Gazanfer Bilge Vocational High School Department of Accounting and Tax Applications, 274 from Hereke Vocational High School Department of Accounting and Tax Applications, 500 from Hereke Ömer İsmet Uzunyol Vocational High School

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Department of Accounting and Tax Applications, 282 from İzmit Vocational High School Department of Accounting and Tax Applications and 409 from Kocaeli Vocational High School Department of Accounting and Tax Applications (Table 1). 485 out of 1621 students of Vocational High School Department of Accounting and Tax Application were engaged in face to face questionnaires, 78 of which were not included in the evaluation for various reasons. 407 questionnaires, which were subject to evaluation, constituted 25.1% of total number of students. The questionnaire form consisted of two sections. First section contained demographic questions, and the second included the scaling questions created by Sakarya and Kara (2010) to identify the perceptions for business ethics. The study used 5 point likert scale ranging from "strongly agree" to "strongly disagree", and the survey data were analyzed using IBM SPSS STATISTICS 20. Table 1:

Number of Students by Schools and Departments School

Gazanfer Bilge Hereke Hereke ÖİU İzmit Kocaeli

Department/Program Accounting and Tax Applications Accounting and Tax Applications Accounting and Tax Applications Accounting and Tax Applications Accounting and Tax Applications

Total

# of Students 156 274 500 282 409 1621

Objective of this study is to show how undergraduate students of accounting perceive regulations for ethics and the business ethics in Turkey. The following hypotheses were introduced for this purpose. H1: Perception for accounting ethics differs by sexes of students. H2: Perception for accounting ethics differs by the home town (city/village) of students. H3: Perception for accounting ethics differs by education level of mothers. H4: Perception for accounting ethics differs by education level of fathers. Table 2 shows the demographics of students in the questionnaire. Table 2:

Sex

Age

Location of residence

Income

Mother's Education Level

Demographics Male Female Total 18-20 21-25 26 - .. Total Town/Village City Total TRY 0 – 999 1000 – 1999 2000 – 2999 3000 – 3999 4000 – 4999 5000 - … Total Literate - primary school Secondary School High School College Undergraduate + Total

Frequency 177 230 407 329 69 9 407 230 177 407 140 200 49 9 5 4 407 286 76 38 5 2 407

% 43.5 56.5 100 80.8 17 2.2 100 56.5 43.5 100 34, 49 12 2.2 1.2 1 70.3 18.7 9.3 1.2 0.5 100

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Table 2:

Demographics

Father's Education Level

Mother's job

Father's job

Literate - primary school Secondary School High School College Undergraduate + Total Not working Retired - working Total Not working Retired - working Total

199 96 94 12 6 407 314 93 407 43 364 407

48.9 23.6 23.1 2.9 1.5 100 77.1 22.9 100 10.6 89.4 100

As shown in Table 2, 43.5% of 407 students in the questionnaire are male while 56.5% female, and 80.8% is in the range of 18-20 years old. 56.5% of participants live in towns or villages, 43.5% in cities; family income of 34% between TRY 0-999, 49% between TRY 1,000 – 1,999, 12% between TRY 2,000 – 2,999; mothers of 70.3% of students are literate-primary school, 18.7% secondary school, 9.3% high school and 1.2% are college graduates. Fathers of 48.9% of participants are literate-primary school, 23.6% secondary school, 23.1% high school and 2.9% are college graduates. Mothers of 77.1% are not working and 22.9% working while fathers of 10% are not working and 89.4% working. 4.1. Reliability analysis Total internal consistency (Cronbach’s Alpha) is 0.807 for the scale developed in order to show how undergraduate students of accounting perceive the regulations for accounting ethics, and business ethics in Turkey. The fact that the result of scale shown in Table 3 is α>0.7 means that it has a high level of reliability and homogenous integrity (Nunnally, 1970). Table 3:

Reliability Analysis Reliability Statistics Cronbach's Alpha Based on Standardized Items 0,820

Cronbach's Alpha 0,807

N of Items 25

4.2.Hypothesis Testing Hı: Perception for accounting ethics differs by sexes of students. This hypothesis, developed for showing if there is any difference in the ethics perception of participant students by sex, was put under t test, result of which is shown in Table 4. Table 4:

Test statistics for the accounting ethics perception by sexes of students

Honesty Impartiality Professional Competence Privacy Professional Behavior General Perception

Sex

Male Female Male Female Male Female Male Female Male Female Male Female

N

X

177 230 177 230 177 230 177 230 177 230 177 230

3.9233 4.1286 3.8030 3.9438 3.8150 3.9773 3.6526 3.8238 3.5278 3.5762 3.7444 3.8899

Standard Deviation 0.66911 0.57568 0.53766 0.51444 0.60534 0.50317 0.62614 0.52738 0.61266 0.49637 0.45276 0.36184

t -2.930 -2.859 -2.362 -2.345 -2.604 -2.527 -2.638 -2.565 -0.777 -0.751 -3.183 -3.070

Degree of Freedom 316 257.548 316 276.888 316 251.232 316 253.645 316 246.585 316 244.127

P 0.004 0.005 0.019 0.020 0.010 0.012 0.009 0.011 0.438 0.453 0.002 0.002

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The hypothesis H1 was tested at the 0,1 significance level and accepted because significant table value was p0.002