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6th Accounting History Conference

The Impact of Social Thought on the Morality of Professional Accountants in China

To be presented at the

Accounting History Conference

August, 2010 Wellington, New Zealand

Gina Xu

Department of Accounting Faculty of Business and Law

AUT University Auckland

New Zealand [email protected]

Keith Hooper Department of Accounting

Faculty of Business and Law AUT University

Auckland New Zealand

[email protected]

Semisi Prescott Department of Accounting

Faculty of Business AUT University

Auckland New Zealand

[email protected]

mailto:[email protected]




Abstract China is experiencing fast growing economic development. Such rapid economic expansion brings

out many ethical concerns in the Chinese business community and accounting profession. This paper

analyses how the three main streams of social thought, Confucianism, Maoism and laissez‐faire

market ethics impact on the morality of the Chinese professional accountants. China moves forward

and adopts much of Western capitalism, including International Accounting Standards, but carries in

its soul thousands of years of traditional thought. From some interview data it can be shown that

the current social values clash with traditional values, the latter being eroded by the prevailing

laissez‐faire market ethics approach. The overall conclusion is that the Chinese accounting

profession may have to draw on some traditional Confucianism values to develop stronger sense of

ethical awareness.


Introduction

The economic reforms in China have caused the Chinese accounting system to change and to adopt

changes in its economic structure. The traditional rule‐based accounting systems have changed to

systems that are suitable for a more market‐orientated economy. Hence, China is in the process of

adopting International Financial Reporting Standards (IFRS).

The Chinese public accounting profession is called the Chinese Institute of Certified Public

Accountants (CICPA) which was re‐established in 1988 (Hao, 1998). CICPA is governed by the Ministry of Finance (MOF). The number of Chinese Certified Public Accountants (CPAs) has grown

rapidly in the last two decades. There are 140,000 individual members as at May 2006. More than

60,000 people enrol for CPA examination every year, but the pass rate is about 16% on average.

Moreover, the number of CPAs is still relatively small considering the size of the Chinese economy.

The rising demand for CPAs increases the importance of accountancy in China. Jia Zhongzhong, the

deputy director of the international department at the CICPA, says “The CPA’s position in the market

and society has a high status […] The public sees accountancy as being the watchdog for the market

economy” ("INTERVIEW ‐ CICPA: China aims for world class profession," 2006).

Despite the fast growing profession, many researchers express concerns over the morality of

Chinese accountants. Morality issues within this profession are mainly related to occupational

independence (K. Z. Lin & Chan, 2000; Z. J. Lin, 1998; Y. Tang, 2000; Xiang, 1998). For example, Xiang

(1998) challenges the desirability of adoption of International Accounting Standards (IAS) in China

because the lack of professional independence. He acknowledges that there is a new demand for

financial information as result of foreign investments and changes in ownership structures in SOEs.

However, he argues that in the specific context of China there is a clear difference from what is

normally prescribed under IAS. One of the most crucial factors is the lack of professional

independence in China. Xiang (1998) states:

China’s accounting environment both now and in the foreseeable future is characterized by a lack of independent professional auditing. Without an independent audit profession, information provided under IAS will be unreliable; therefore, adopting IAS may not be warranted in the specific context of China. (p. 105)


This paper analyses how three social philosophies, namely Confucianism, Maoism and laissez‐faire

market ethics, impact on Chinese professional accountant’s morality. It starts with a review of

research conducted on evaluating business ethics in China. Next, the paper examines how the three

social philosophies impact on business ethics and accounting ethics. Thirdly, the interview data will

be presented regarding the changes in social values after economic reforms. Lastly, the paper

concludes on how Confucianism may be the solution for professional ethics issues.

A Review on Professional Ethics in China The role of CICPA is amongst others to regulate the accountant profession, to provide service to its

members, to monitor the service quality and professional ethics of its members, and to deal with

other administrative matters (CICPA, 2006). A Code of Ethics (COE) for Chinese professional

accountants was issued in 1996 in Mandarin (Chen, 2009). The most updated version of COE will

become effective in July 2010. Its full content will be available on the CICPA website in Mandarin.

With regard to the table of contents, it appears to be very similar to the Western codes: (translated

literally) overview, integrity, independence, objectivity and fairness, professional competency,

confidentiality and professional behaviour, and appendix. According to the Chief Secretary of the

CICPA council, Chen Yukui, the changes in the COE very much reflect the globalisation spirit in the

Group of 20 (G20) meeting. The IASB encourages the adoption of universal accounting standards,

auditing standards and accounting independence (Chen, 2009).

Despite the rapidly growing economy and the introduction of a professional COE, there is unease

about the business ethics and morality in Chinese enterprises including accounting firms (A. Chan, Ip,

& Lam, 2009; Gul, Ng, & Wu Tong, 2003; Shafer, 2008; Snell & Tseng, 2002). For example, Chong and

Vinten (1995) maintain, “[…] as China moves towards a market economy, there are increasing

concerns about the lack of auditor professional ethics and independence” (cited in Gul et al., 2003,

p. 379). Tang (1999) argues that in “this transitional period moral standards are not well established

[…] and there may appear a period of moral vacuum like that being experienced in the Chinese

accounting profession” (p. 27).


The MOF carried out practice reviews from July 1997 to March 1999. As a result of these reviews,

360 accounting firms lost their practice licences. Further 1,187 accounting firms received warnings of

possible suspension of operation. Another 735 firms were ordered to make improvements within a

given period of time, and another 342 faced punishment after further inspection. “This accounted

for 42.46% of the total number of accounting firms at [that…]time” (Y. Tang, 2000, p. 100).

Thousands of CPAs were also warned about ethical breaches (Tang 1999 cited in Shafer, 2008).

Weiguo Zhang, former chief accountant at the China Securities Regulatory Commission states that

the profession “needs senior accountants, not only those with expertise in handling business, but

also with high professional ethics” (Trombly, 2005, p. 15).

Xiang (1998) argues that one of the unique features of the Chinese economy is the interpersonal

relationship (guanxi). Within this relationship‐based economy “auditors may often bend the rules to

please their clients or to pursue their own interests” (p. 115). Many empirical studies suggest that

the Chinese collective culture which is represented by interpersonal relationships and a large power

distance between ranks in the workplace appears to threaten Chinese accountants’ independence

and judgement (Au & Wong, 2000; Ge & Thomas, 2008; Gul et al., 2003; Hwang & Staley, 2005;

Patel, Harrison, & McKinnon, 2002; Smith & Hume, 2005; Tsui, 1996). Below some examples are

given.

Ge and Thomas (2008) compare ethical reasoning and decision making between Canadian

accounting students and Chinese accounting students. They find that “Canadian accounting

students’ formulation of an intention to act on a particular ethical dilemma was higher than

Mainland Chinese accounting students” (p. 189). They conclude as well that the difference between

Canadian accounting students and their Chinese counterparties appears to be attributed to cultural

differences. The lower ethical reasoning of Chinese was ascribed to the high power distance, high

collectivism, and a long‐term orientation prevailing in China.

Au and Wong (2000) study the relationship between guanxi (interpersonal relationships) and

auditors’ professional judgement in Hong Kong. They surveyed 70 professional auditors and

conclude that “auditors’ professional judgement could be affected by the existence of guanxi“


(p.91). This also implies that guanxi is a challenge for Chinese auditors’ independence. Hwang and

Staley (2005) also maintain that “guanxi has the potential to undermine the high standards of

auditor independence, audit quality, and ethical behaviour to which auditors must adhere” (p. 227).

Smith & Hume (2005) find that “accountants of individualistic societies are more likely to adhere to

personal principles even if the results are detrimental to the organization. Accountants of

collectivistic societies are more likely to subordinate individual values for those that benefit their

organization” (p. 217). China is a collectivist country with a communist government. The collectivism

which originates in a family, also applies to an organisational level. Chinese people are more likely to

subordinate their personal principles to the team and the organisation they work for.

The above ethics studies clearly pinpoint the influence of collectivism and large power distance on

Chinese accountants. Collectivism is represented by the notion of guanxi within Chinese society.

Large power distance derived from ‘the notion of the five relationships’ stipulates that subordinates

need to be obedient to their superiors. These studies indicate the linkages between culture and

professional accountants’ behaviour. In addition, other researchers focus on how the transformation

of Chinese morality comes about as a result of changes in the social structure.

The Chinese economic transformation inevitably affects the morality of Chinese accountants. For

example, Tang (1999) argues that due to China undergoing a transition period “moral standards are

not well established […] and there may appear a period of moral vacuum like that being experienced

in the Chinese accounting profession” (p. 27). The economic reforms have brought great changes

into China, not only in the economic structure and the market, but also into social structure and

people’s thought patterns. The following empirical studies seek explanations regarding changes in

ethical standards coinciding with the transformation of economy.

Whitcomb et al. (1998) maintain that “the gradual shift […] from central planning to a market system

has affected not just the way in which resources are allocated, but also Chinese values and the way

in which economic decisions are legitimized” (p. 849). They surveyed 181 Chinese engineering

students and 60 American students on their responses to five ethical vignettes. The results show


that Chinese and Americans make similar decision choices for three out of five vignettes, but the

rationales behind their decision choices are significantly different even for similar decisions. Instead

of looking into collectivism and power distance, Whitcomb et al. (1998) analyse the responses from

Chinese students in the context of three ethical values that have been or are still dominant in

Chinese society, namely Confucianism, Maoism, and the laissez‐faire market ethics introduced

during the reform period. A mixture of these potentially contradictory values influences Chinese

students’ paradoxical responses.

Lan et al. (2009) survey 454 accounting practitioners and 126 accounting students on their personal

values and value type. The result reveals that health, family security, self‐respect, and honouring

parents and elders are the top four values for both accounting students and practitioners. The value

type “security” is ranked on the top, whereas “traditions” is ranked down the bottom for both

groups. Their finding suggests that “modern China is a country in which the process of institutional

transformation has left cultural values in a state of flux (p. 62)” and they conclude:

The personal values and value types of Chinese accounting practitioners and students are related to the Chinese cultural traditions, the impact of communism and social reforms, and to the influence of Western values that have penetrated into Chinese society. (p. 73)

Ahmed et al. (2003) investigate business students’ perception towards ethical business practices.

They collect data from business students in the following six countries: China, Egypt, Finland, Korea,

Russia and the USA. They find that all groups have a “basic agreement on what constitutes ethical

business practices, but cite differences in the respondents’ tolerance of damage resulting from

“unethical” behaviour (p. 89). In particular, Chinese students and Russian students respond similarly

‐ seeing less harm arising from suspect business ethical scenarios. This suggests that students from

the two emerging economies, China and Russia, have different perceptions of what is acceptable

business behaviour than the students from the other four sample countries. Ahmed et al. (2003)

maintain:

The recent introduction of market‐based reforms in these two countries has not been conditioned by long‐term market‐based reputational effects and thus, respondents in these countries appear more accepting of opportunistic product representations. (p. 99)

The study also reveals the difference between Russian and Chinese students. Chinese students

demonstrate “a relatively strong inclination not to personally act in a potentially unethical fashion”

(p. 99), while Russian students show “a higher propensity to pursue the same course of (unethical)

action” (p. 99), as described in the business ethical scenarios. Ahmed et al. (2003) argue the paradox


responses of Chinese students may be due to a profit orientated market economy and “a perhaps

residual moralistic tenor in reluctance to personally engage in potentially unethical business

behaviour” (p. 99).

Ip (2009) identifies the following as a result of introducing a market economy:

A culture of profit began to take root and people were pursuing profit for themselves and very often with socially undesirable consequence. Old values and norms were either thrown into doubt or perceived to be irrelevant, and abandoned. However, new norms and values had yet to be established to provide the basic guidance for people’s behaviours. (p.214)

The literature addressing morality shows that Chinese business ethics and accountants’ professional

ethics are not in a healthy state. The researchers share a common view that due to the economy’s

transition to a more market orientated economy, the associated culture of pursuing profit by all

means changes people’s moral perspectives. The above studies also illustrate that Chinese people

are being subjected to cultural influences of Western capitalism(Lan et al., 2009), so that a mixed

culture prevails.

Many studies discuss the collectivist society and the large power distance which are seen as threats

to professional independence. However, little attention has been given to how the morality of

Chinese accountants has changed with erosion of traditional virtues, and the clash between the

embedded tradition and current capitalist influences.

Confucianism, Maoism and laissezfaire Market ethics According to Whitcomb (1998), there are three main streams of thought or values that influence

modern Chinese business values: Confucianism, Maoism and laissez‐faire market ethics – ordered

chronologically. This section explores how these three streams of thought impact on the general

business ethics or morality of Chinese accountants in China. The purpose is to analyse how the clash

of Confucianism values and some western values impact on the morality of the Chinese accounting

profession.


Confucianism and ancient China

The essence of Chinese culture is primarily shaped by Confucianism, which was developed from the

teachings of the Chinese philosopher Confucius (551‐479 B.C.) over two thousand years ago

(Kirkbride, Tang, & Westwood, 1991; Wang & Mao, 1996). During that period China experienced

widespread warfare and continuous assaults. This background might be the reason why Confucius’

thinking was centred around establishing a harmonised society and stable human relationships

(Gunde, 2002). His teachings remain powerful and influential across all Chinese societies (Bush &

Qiang, 2002; Wang & Mao, 1996). They establish a complex system of moral, social, political,

philosophical and quasi‐religious thought that has had tremendous influence on the culture and

history of East Asia (Yao, 2000). This philosophical tradition forms the basis of the moral, intellectual

and social system in China.

Confucius introduces an ideal of how people should behave in their daily life. The ideal of life is to

achieve a status of “gentleman” or “perfect man” through continuously self‐cultivation. The central

moral principles of a “perfect man” are Ren (compassion, benevolence), Yi (righteousness) and Li

(rites which define what is right and wrong) (Cheung & King, 2004; Ip, 2009; Lam, 2003). Confucius

believes if a man abides by these principles and is motivated by love or benevolence, stands on

righteousness and acts in accordance with the rites, he can be called a “perfect man”. In ancient

China, all these values were to guide people’s behaviour including emperors. No one could challenge

these values.

Confucius’ version of “the Golden rule” recorded in the Analects 12:2 puts (Eliot, 1980):

The Master (Confucius) said: without the door to behave as though a great guest were come, to treat the people as though we tendered the high sacrifice, not to do unto others what we would not they should unto us; to breed no wrongs in the state and breed no wrongs in the home. (Eliot, 1980)

Confucius believes that the principles are “absolute”. He has a strong emphasis on benevolence or

love as reflected throughout the Analects. For example, the Analects 4:4 “The Master said: A heart

set on love will do no wrong” (Eliot, 1980, p. 13).

In addition to moral values, Confucius also advocates hierarchical relationships within family and the

Kingdom to achieve harmony. “Confucians believe that progressing from the cultivation of personal


lives, families are regulated, then states are governed and then there is peace all under Heaven”

(Lam, 2003, p. 153). A harmonised family is the starting point of harmonised society (Whitcomb et

al., 1998). Wu Lun´s notion of the five relationships provides a hierarchical order within a family and

society (Ho & Ho, 2008; Kirkbride et al., 1991; Yee, 2009). The five relationships are between:

1. Ruler and subject

2. Father and son

3. Husband and wife

4. Elder brother and younger Brother

5. Friend and friend

Within each relationship, the superior has power over the subordinate. The superior “owes the

subordinate the duty of benevolence and care, and the subordinate owes the superior the duty of

obedience” (Yee, 2009, p. 79). The large power distance in Chinese society is derived from “Wu Lun”,

which creates harmony within a family, and spreads to the whole society. It is a virtue for people to

serve their parents, to abandon themselves to their king, and to be faithful and loyal to friends, as

prescribed in the Analects 1:7. Tzu‐hsia (one of the disciplines of Confucius) says (as cited in Eliot,

1980):

If a man honour worth and forsake lust, serve father and mother with all his strength, be ready to give his life for the king, and keep faith with his friends; thought men may call him vulgar, I call him learned. (Eliot, 1980)

The Confucian principles of Ren, Yi and Li, as well as the notion of Wu Lun constitute the

fundamental social values and norms that were shared within society in ancient China for over two

thousand years. Ip (2009) summarises “Confucianism entails authoritarianism, paternalism,

hierarchism, that perfectly provided moral legitimacy and enduring stability to the imperial power,

society and family” (p. 217).

The concepts of Confucianism were the key principles used to govern feudal society. According to

Confucius, good government and stable society should be guided by virtue including benevolence,

righteousness, propriety, wisdom and fidelity. Therefore, he did not encourage the development of

an independent legal system (Jacobs, Gao, & Herbig, 1995). If the king and the officials led by

example and governed the people by love, in return people would pay their respect and follow

them; an independent legal system would be redundant. However, this is not to say that China did


not have a legal system. Confucianism was blamed for hindering the modernisation of China in the

early twentieth century during the republican period (after 1921) and during the Cultural Revolution

(Jacobs et al., 1995). Although China also experienced wars and peasant rebellions particularly

throughout the times of changing dynasties, overall the two thousand years of feudal history were

successful. China was one of the most civilised countries in the world for two thousand years

(Lambert, 2008). Its advancement is reflected in its writing, technology, arts, architecture and music

etc. (Watkins, n.d.). Confucius’ principles do appear to contribute to the overall success of ancient

China.

Though Confucius does not specify rules to professional accountants, he does lay down the

principles for people to behave in an honourable fashion. The principles to become a “perfect man”

can be used to guide professional conduct. For example, if an accountant abides in the principles of

Ren (benevolence), Yi (righteousness) and Li (rites), he or she will perform his or her work with

honesty, fidelity and fairness and follow exactly the accounting standards prescribed in the COE.

Confucianism indeed creates a large power‐distance in the society and workplace. However, the

underlying assumption is that the superiors would not ask the subordinates to do anything that

violates the Ren, Yi and Li principles at first place. The superiors are supposed to be the role models

for their subordinates. The subordinates are expected to conform to their superiors’ instructions,

and they are supposed to follow a good example.

Maoism and Communist society

After the last Dynasty of Qing collapsed in the early nineteenth century, China experienced a stream

of chaotic invasions and wars until the People’s Republic of China (PRC) was founded in 1949. Mao

Zhengdong (1898 – 1976) became the first communist leader (Chairman) of the country. China

became a socialist state with a belief in communism and collective ownership of property. Mao

abandoned the old hierarchical social structure and proclaimed that the people are owners of China.

Mao advocated the equality between males and females, and between poor and rich. A peasant in

the countryside then enjoyed a nominal ownership of the country ‐ the same as an official in Beijing.

During the early years of the foundation of the PRC, people were whole‐heartedly in favour of


creating a commonwealth of equality. They believed that a communistic society would be achieved

one day under the leadership of the communist party.

Maoism is a Chinese version of Marxism (Whitcomb et al., 1998). “It exhorted selfless devotion to

the motherland, collectivism, class struggle, anti‐capitalism, dictatorship of the proletariat,

patriotism, loyalty to the communist party, elimination of selfishness, and suppressing personal

egos, and serving the people, among others” (Ip, 2009, p. 218). Although Mao abandoned all

feudalistic traditions to free the people, he still retained some Confucian principles. “Where

Confucianism had instilled loyalty to family, father, and emperor, Maoism now diverted it to the

people, the party and the nation” (Fairbank and Reishauer cited in Whitcomb et al., 1998, p. 847).

Maoism like Confucianism encourages self‐sacrifice for the collective good. It is honourable to die for

the country, the party and the people.

During the 1950’s, the economic structure was very similar to that of the Soviet system. The

accounting system was designed for the centrally planned economy (Winkle, Huss, & Tang, 1992). It

was copied from the Soviet material production model which was based on measuring physical

quantities. The system was to serve the information needs of the state, to record the allocation of

funds, and to maintain the control over physical production (M. W. Chan & Rotenberg, 1999). The

accounting equation was “fund sources = fund application”. The fund sources represented the funds

obtained from the state and funds generated through operation activities; the fund application

signified how the funds were utilised, such as receiving raw materials for an operation (Q. Tang &

Lau, 2000). Due to the not‐for‐profit nature of the economy, the objective of accounting was

stewardship and accountability (Chow, Chau, & Gray, 1995).

Under the planned economy, Chinese accounting was finely disaggregated into different industries

with highly specific rules and regulations. “There was little opportunity or need for [the

accountants…] to engage in independent thought, take initiative, or be economically responsible” (Y.

Tang, 1997, p. 219). Therefore, there was not much room for personal judgement and

interpretation, and thus, hardly any cause for ethical conflict (Islam & Gowing, 2003). Also under the


ideals of collective ownership, and loyalty to the nation and to the people, accountants were unlikely

to try to pursue their personal interests.

In the late 1950’s, the ‘Great Leap Forward’ (1958‐1961) introduced the idea of ‘accounting without

books’. Accounting journals and records were eliminated. During the subsequent Cultural Revolution

(1966‐1976), accounting practices were even condemned (Chan & Rotenberg, 1999; Winkle et al.,

1992). Throughout the devastating ten‐year Cultural Revolution, people experienced fear,

xenophobia, and mistrust (Ip, 2009). Economic activities almost ceased and professional accountants

were not needed during that time. In fact, accountants were in danger of being humiliated and killed

as they dealt with money – an accusation relating them to capitalism.

Laissezfaire Market Ethics The Cultural Revolution ended with Mao’s death, and Deng Xiaoping came into power. Deng

modified communism into some kind of “socialism with Chinese characteristics”, but some people

would argue “capitalism with Chinese characteristics” (Redfern & Crawford, 2004). Deng introduced

the “open door” policy. China changed to a more market orientated economy and was opened to

economic liberalisation (Ip, 2009; Snell & Tseng, 2002; Whitcomb et al., 1998). Deng’s famous

slogans, such as “To get rich is glorious”; “Let a few get rich first”; “Never mind whether the cat is

black or white, so long as it catches mice”(cited in Ip, 2009, p. 214) introduced a new aim in life to

Chinese – the pursuit of personal wealth. Due to this encouragement to increase personal wealth

regardless of the means, profit is considered as the primary goal for businesses (Ahmed et al., 2003;

Redfern & Crawford, 2004; Whitcomb et al., 1998). As a result of a culture of profit, which sharply

contradicts with Confucianism and Maoism, there “began to take root a pursuit of profit with very

often socially and environmentally undesirable consequences” (Ip, 2009, p. 214).

The associated culture encouraged by Deng can be described as “it is good to be rich”. The attitude

behind it is very similar to the one of self‐interested capitalism. People abandon their old values

consciously or subconsciously to pursue profit and wealth shamelessly and seek to foist costs on the

weak or on their unaware customers. A recent example offers the San Lu Dairy Company, a

manufacturer of melamine‐laced milk powder, in which Fonterra had 43% stake back then. The


tainted milk scandal which killed at least six children in China made Chinese parents frightened

about all baby formula manufactured in China. Many Chinese living in New Zealand buy New Zealand

baby formula and sell it to China through the internet which has caused a shortage of baby formula

for New Zealand domestic demand (C. Adams, 2010; Fonterra speaks up after men executed," 2009). The privately

owned coal mines of China are places where labour is exploited by heavy manual work, low wages

and dangerous conditions. Many miners have ruined their bodies after several years of such physical

labour (Ip, 2009).

The culture of pursuing profit has inevitably affected ethical standards of professional accountants in

China. The attitude behind the before mentioned slogan by Deng about “black and white cats”

appears to encourage the development of a new Capitalist value. As long as accountants can earn

profits for themselves, the mean of how the work is done seems less important. As pointed out by a

Chinese accountant who runs an accounting firm of 180 people, “limited by fees, accounting firms

cannot provide fair and high‐quality auditing reports” (Trombly, 2005, p. 15). It implies that Chinese

accounting firms have to comprise their auditing quality and standards to survive in the market

place. A BBC News report states, “one in ten Chinese companies have been reporting fake profits,

an annual government survey has found” ("China firms 'fake' profits," 2001). This finding might

suggest that the recent phenomenon of pursing profits makes it more likely for accountants to

comprise their ethical standards and to serve their vested interest.

Many studies provide evidence that the concept of guanxi (personal relationships) and large power

distance are threats to professionals’ independence, as mentioned in the literature section. At first

sight, it seems that the Chinese collectivism tradition is to be blamed. However, these traditions

have never been meant to foster unethical business conduct. Rather, people who take on the view

of “get rich by any means” manipulate their guanxi and position to increase their personal wealth.

People’s view of China In 2009, the researcher interviewed ten people, including students, academics, expatriates and

Chinese practitioners, all from the accounting field. Comments from four interviewees were

selected for this paper. Interviews with Chinese accounting students, practitioners and academics


were conducted in Mandarin. Interviewees were selected with regard to being knowledgeable in an

accounting and business sense. The researcher did not know any of the interviewees prior to the

interviews. Opinions were sought on the current culture and the prevailing moral system in today’s

China.

The expatriate interviewees have worked for the Big Four accounting firms in China and generally

have enjoyed the time in their home country. The common view about their working experience in

China is that they need to take extra care to examine the Chinese financial reports. One of the

interviewees commented that they had to withdraw from some of the mandates because the risks

were too high. He also found that the Chinese local accounting firms signed off on some audits that

he would never approve. These views reflect some of the gaps in the professional conduct between

Chinese public accountants and their Western counterparts. It does not necessarily mean that

Western oriented accountants are morally superior to Chinese accountants. It may reflect the

differences in legislative and judicial systems between China and Anglo‐Saxon countries. For

example, in the United Kingdom (UK), the judiciary is independent from the government due to their

social tradition. The Queen appoints the judges, and they cannot be removed by the government

(Cox, 2008). Judges are free from the governmental control and render a verdict according to their

judgement, precedent and the juries (Bradley & Ewing, 2008). The way the British legal system has

evolved can be traced back to the “Magna Carta”, which forced the English King to devolve his

powers ‐ arguably a reflection of a more decentralised and individualistic society. Since public

accountants in the UK would face an independent judiciary in case of a trial, they are exposed to a

greater risk of legal consequences than their Chinese peers.

Interviewee X is an accounting practitioner in her mid 30’s. She used to work for one of the Big Four

accounting firms in Beijing for about ten years and now works for another foreign investment

company in Beijing. She said (translated literally), “I feel society is developing rapidly, the

mainstream is good.” She paused a bit and then continued, “I feel [people] become economic

animals sometimes, it is a flood of materiality.” She then reported on her experience with her

schoolmates:

I become reluctant to catch up with my classmates when someone comes back from overseas or for a school re‐union. People compare with each other, for example, what kind of car you drive, what kind of house you bought, and they talk about shares. […] I feel that all [they talk] about is money. Then, they also ask you how your career is progressing, whether


or not you have earned lots of money. Everyone is talking about these topics. People become so focused that money is all what they know and care about.

Furthermore, interviewee X is critical of how the capitalism of the Western culture has seduced the

Chinese, particularly the younger age. She worries that the younger generation only perfunctorily

adapts to the materialistic side of the Western culture, but neglects to look into the desirable

Western ethical values. The perception that the morality in the Western world is declining might

explain why it is hard for young Chinese to uncover and finally embrace the positive ethical values of

the Western culture. This interviewee’s comments reflect that Chinese people have become more

materialistic.

The growing materialism also features in the news. “For a certain person who has bought the big

house, the fast cars, the designer labels, who has the mistresses, there is a point when you think,

what else can I spend my money on?”, says Gene Wang, a former financial trader, a polo player (as

cited in Hogg, 2009). Gene Wang’s comment demonstrates the fact that the current fashion in

China is to have status symbols such as a big house and nice cars. This is consistent with interviewee

X’s experience during her school re‐union.

Interviewee P is an accounting academic in her early 40s and works in one of the top universities in

Beijing. She has a very comprehensive view on the cultural changes in China. She thinks that in

former times, people used to believe in punishment after death. They were deterred from doing bad

things because of the fear of penalisation. However, she states that nowadays, no one believes in

this anymore and people only follow their vested interest. In the interview she said (translated

literally):

It is about belief and moral values. Nowadays, most people do not have any moral values. For example, if people were considerate to other people’s needs, they would not drive recklessly, for example put in all the time only for their own advantage. Before [the economic reform], we had harsh punishments so that people even were afraid to express their opinion freely, in case they might be persecuted. Now, it is all about self‐interest. People only consider themselves first. I think the in‐depth reasons are that people do not have a sense of right and wrong, and that the younger generation is not aware of its social responsibility and moral values.


Interviewee P holds that China is experiencing a crisis of moral values. The rapid change from

Maoism to market ethics has left people confused about right and wrong. This might explain why

there is a “moral vacuum” in the Chinese accounting profession. She stated:

In the past, during the Mao era, we believed in communism. Later, we found it is not true anymore; some people became wealthy while others remained poor. Nowadays, it does not mean that you are a good employee only because you work hard and perform well in your organisation. You need to consider your own interest, not anyone else´s needs. Market‐economy is all about looking after your self‐interest to increase personal wealth. Suddenly people feel betrayed by what they used to value. Therefore, they do not think that the things and values they used to appreciate are worthwhile anymore, and they prefer to pursue a more self‐indulgent life style.

P’s comments show that the value system of Chinese people has changed from appreciating

traditional virtue to promoting self‐interest. Under the traditional value system people used to

believe in Chinese gods, ghosts and an afterlife. If they were not well‐behaved, they and their soul

would face punishment. The same applied under Maoism; people believed in working selflessly and

considering the interests of the motherland and fellow men. In this way, people strived to achieve a

communist society, so that everyone would enjoy equal rights and collective ownership. Now, the

pursuit of self‐interest coming along with a profit motivated culture, replaces those traditional

values.

Interviewee L is an accounting undergraduate student in his final year. He seems to be of the same

opinion as interviewee P concerning the current Chinese value system. He said (translated literally):

We somehow lost our long‐established culture and gave up traditional thinking. At the same time, we cannot totally adapt to the Western culture since it doesn’t suit us. We used to very much adore Western stuff, later we found there are so many issues in the Western world, too. Now, we are kind of trying to change back to Confucianism. […] I feel that many Chinese do not know what virtues are like, nowadays. They give up the concept of virtue. […] However, these days most Chinese choose the value of individual profit. If someone benefits from unethical means, I will be disadvantaged if I don’t do so as well. Then, everyone does the same and the morality is eroded.

Interviewee L has a similar view compared to interviewee P regarding the morality issues emerging

in modern Chinese society. Interviewee L thinks that China needs some people holding noble values

that can demonstrate virtue to others and lead a moral reform for others to follow.


All these comments portray a pessimistic view of the current morality system in China. Generally, it

appears that interviewees share the view that in modern China materiality and a lack of traditional

virtues are prevalent. This result is consistent with numerous findings in the literature. The

interviewees acknowledge the value of economic growth, but at the same time they are dismayed

about the fading morale of the Chinese. As one of the interviewees commented, the situation could

be described as a crisis of values. People do not have strong principles any more. People behave in a

way that only benefits themselves, and they do not necessarily consider the greater common good.

Revival of Confucianism The headlong pursuit of profit has fostered corruption, pollution, exploitation of labour rights,

deceptive marketing practices. These unethical business issues have attracted growing public

attention and concerns (Redfern & Crawford, 2004). In response to scandals and reports about

corruption, the Chinese government puts great effort into the battle against corruption in order to

protect the national reputation.

Today, Chinese leaders often seek wisdom from Confucian concepts – such as harmony to secure a

stable development and promote morality. “China's leaders are turning to Confucius to give the

country some spiritual guidance. His emphasis on harmony and self‐discipline, without reference to

God of course, has been endorsed by the president” (K. Adams, 2009). The current President Hu

Jingtao proposes to “build a harmonious socialist society” as an objective of social development. This

signifies a decisive shift from unrestrained growth (Kahn, 2006). Hu goes on to emphasise that

“without a common ideological aspiration or high moral standard, a harmonious society would be a

mansion built on sand. Furthermore, with such aspirations honesty, unity, fraternity, and

professional ethics should be widely promoted” (Ip, 2009, p. 218).

It appears that Confucianism could become a saviour from the crisis of belief and values. For

example, some moral education programmes for children are being launched. Some parents also

send their children to Confucian schools so that they would learn time‐honoured wisdom.

“Traditional culture has many advantages that cannot be learned by modern education”, says a


mother of a three‐year‐old pupil who studies in Confucian schools. Another mother, Wang Ching

says (as cited in McGivering, 2008):

This is a material world, people want a higher standard of living and they are focused on material things, not spiritual ones. Morden China with its headlong rush for growth, needs more balance and more of the social order and courtesy extolled by Confucius.

“Many top management officials are openly touting the values and significance of Confucianism in

furnishing China with a desperately needed moral order” (Ip, 2009, p. 217). Recently, a movie was

made about Confucius which received a large amount of funding from the Chinese government, to

promote Confucian’s virtues and his legacy to the general public ("Chow Yun‐Fat to star as

Confucius," 2009).

Confucianism is also a way to improve the ethical conduct in the accounting profession in China.

Confucius advocated righteousness over profitableness. In the Analects 4:5, it says (Eliot, 1980):

Wealth and honours are what men desire; but abide not in them by help of wrong. Poverty and lowliness are what mean hate; but forsake them not by help of wrong. Shorn of love, is a gentleman worthy the name? Not for one moment may a gentleman sin against love; not in flurry and haste, nor yet in utter overthrow. (Eliot, 1980, p. 13)

He teaches people that the pursuit of wealth can never be achieved by unethical means. Gentlemen

should practice benevolence all the time. If all the accountants and businessmen abide by Confucian

principles, meaning they constantly sustain benevolence and righteousness, accounting scandals will

be unlikely to occur. We are not arguing that all accountants should reach sainthood, but they simply

ought to consider that profitableness should never be greater than righteousness. According to a

typical Confucian general in the Qing Dynasty, the truth is that “morality is the mother of national

salvation” (Cheung & King, 2004, p. 251), not profit.

Conclusion

The paper illustrates how the transformation of social values may impact on professional ethics,

particularly in the accounting field. The Confucian values which promote Ren, Yi and Li have been

gradually eroded. Furthermore, concepts of Maoism have been discarded. Becoming rich is the new

and overwhelming maxim that penetrates into current social values. The Chinese economic reforms


do not only bring numerous changes in the standard of living for people, but also alter the social

values and virtues of the Chinese. People even strive for personal wealth at the expense of others.

Professional accountants in China are facing an ethical dilemma due to the strong influence of the

maxim to pursue profits which can be regarded as a form of self‐interested capitalism. The

interviews reflect the seriousness of the ethical problem in China.

Self‐serving capitalism concepts merge with some Chinese traditions. For example, Chinese people

treat “having face” very seriously. “Face” means for example dignity, prestige, and self‐esteem.

“Having face” used to imply being an honourable gentleman or having a high official rank.

Nowadays, “having face” is measured by personal wealth. The richer a person is, the more “face” he

or she has. Within a collectivist society the pursuit of private prosperity by all means requires

favours from families and friends. Owing to the principle of reciprocity, one is expected to give

favours or gifts in return for support. The personal relationship is manipulated as a mean for

personal benefit.

China, a country rich in history and culture, has begun to realise the seriousness of embracing self‐

interested capitalism. It begins to return to the wisdom of Confucianism and to promote traditional

virtues. These traditional values might have been neglected, but they are not forgotten in the

collective memory. In the future, they can re‐emerge to the benefit of both the Chinese business

community and the accounting profession.


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