When Good Accountants Drift | The Psychology Behind Everyday Ethics

10:47 p.m. Your trial balance finally ties. Then an email lands:

“Can we smooth the accruals? Only this quarter. No one will notice.”

You know the rules. You can quote the Code in your sleep. And yet, in that moment – tired, under deadline, with a client or superior waiting – your brain quietly starts negotiating with your conscience: It’s immaterial. We’ll fix it next month. Everyone does this.

That quiet negotiation is where ethics is won or lost. Not in courtrooms or board papers, but in the small, human decisions we make under pressure. This article explains what bends otherwise sound judgement—and how to design our work so that doing the right thing becomes the easy, automatic choice. 

From Knowing to Doing | Behavioural Ethics in Plain Sight

We often treat ethics as a matter of knowledge: learn the standards, follow the rules, problem solved. But most missteps do not spring from ignorance; they emerge from the gap between knowing and doing. Behavioural ethics lives in that gap. Common psychological forces include:

• Anchoring | The first number on the table (e.g., management’s £10m valuation) drags subsequent judgements toward it.

• Confirmation bias | Once we believe a control environment is strong, disconfirming evidence looks like noise.

• Overconfidence | “I’ve seen this before; I know the answer” kicks in precisely when scepticism should be sharpest.

• Framing & euphemisms | “Smoothing earnings” sounds benign; “misstating timing” makes the ethical dimension visible.

• Bounded ethicality | Decent people cut corners under pressure of targets, authority, fatigue and fear.

• Moral disengagement & the slippery slope | Euphemistic labels, diffusion of responsibility and tiny first steps normalise larger deviations over time.

• Obedience and conformity pressures | Authority directives and group norms nudge compliant behaviour even when instincts disagree.

These forces are human, not moral failings. They intensify under month-end deadlines, fee sensitivity, client retention pressure and ambiguous grey areas where standards must be interpreted, not merely applied. In those grey areas, culture and design decide outcomes.

 Roles, Rules and Responsibilities | Be Precise

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Context matters. Different roles carry different obligations:

• Auditors | IESBA Code (fundamental principles and independence), ISA 240 (fraud), ISA 540 (Revised) (accounting estimates and management bias).

• In-house finance teams (preparers) | IESBA Code for Professional Accountants in Business; IFRS/IAS application; governance and disclosure duties to those charged with governance and markets.

• Advisers/consultants | Integrity, objectivity and competence; clear engagement scope; escalation where material risks – even non-financial – affect users’ decisions.

Where materiality is considered, remember qualitative factors (e.g., covenant breaches, meeting targets, concealment) can render a small number material (see, e.g., commonly cited regulatory guidance on qualitative materiality). Distinguish clearly between legitimate updates to estimates and intentional earnings management.

Tilting the Field | An Ethical Design Toolkit

Design your environment so that integrity is the path of least resistance. Keep it proportionate start with quick wins; add heavier controls where risk is higher.

1) Change the defaults

•  Disclosure-by-default templates (key judgements, related parties, unusual items) that require active justification to omit.

• Unusual journal prompts: System flags for late, round-number, or high-threshold journals with mandatory rationale and approver fields.

• Conflicts default to disclosure unless a documented, reviewed exception applies.

2) Put prompts where decisions happen

Pre-sign-off nudges in close packs:

• Have we listed the viable alternatives and why each was rejected?

• What evidence could disconfirm our conclusion?

• Would a reasonable user expect to know this now, not next quarter?

Estimate screens that require sensitivity analysis, independent ranges and back-testing artefacts before approval (ISA 540-style).

 3) Institutionalise healthy challenge

• Second-pair-of-eyes review for high-judgement areas; short red-team sessions for contentious positions.

• Rotation to reduce familiarity threats.

• Norm: challenge the work, not the person; record the challenge, the response, and the evidence considered.

 4) Practise the hard conversations

• Five-minute ethics huddles during close.

• Micro role-plays on saying “no” without blowing up relationships.

• Post-project debriefs to surface where bias or pressure crept in and how to remove it next time.

Incentives | The Ultimate Ethical Engineering

Ethics follows incentives. If compensation leans on billable hours, client profitability or quarterly earnings, judgement is quietly pulled off-centre. Redesign rewards to recognise quality as much as quantity:

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The Incentives & Quality Scorecard (illustrative KPIs)

• Audit/Review Quality | Results from internal cold reviews; rate of issues found pre-sign-off; quality of documentation against a scored rubric.

• Estimates Discipline | Frequency and quality of sensitivity analyses; back-testing variance tracking; independent range evidence present.

• Challenge Culture | Number and outcome of recorded red-team sessions; diversity of voices involved.

• Timely transparency | Proportion of issues escalated before deadlines; time-to-disclosure on significant matters.

• Speak-up health | Volume and resolution time of reports; protection from retaliation; satisfaction of reporters.

• Client integrity signal | Periodic assessment of client conduct and transparency—affecting continuation decisions and partner evaluation.

Tie a material portion of bonuses/promotions to these AQI-style indicators, not just to short-term financials. Public trust rides on this.

Digital Nudges Inside Your Systems (quick, concrete wins)

ERP / close workflow flags for:

• Round/tidy numbers above threshold, late-night postings, unusual approver combinations.

• Missing “disconfirming evidence” field on high-judgement conclusions.

Mandatory fields for alternative treatments rejected and basis for rejection.

Conflict prompts upon engagement creation and milestone changes.

Automated escalation routes when defined thresholds or risk markers are hit.

Threats & Safeguards (1-minute map to the IESBA Code)

• Self-interest | Bonus pressure; fear of losing a client.

Safeguards: Independent review; adjusted incentives; partner rotation on key accounts.

• Familiarity | Long relationships dull scepticism.

Safeguards: Periodic fresh-eyes reviewer; peer challenge sessions.

• Self-review | Judging your own prior work.

Safeguards: Segregate preparer/reviewer; independent technical consultation.

• Intimidation | Pressure from authority or dominant personalities.

Safeguards: Documented escalation protocols; senior sponsorship of “speak-up”; anti-retaliation monitoring.

• Advocacy | Becoming the client’s champion.

Safeguards: Clarify role and scope; independent second opinion on contentious positions.

The “10:47 p.m.” Pocket Checklist

1. What actually happened economically?

2. List three viable alternatives and why each is rejected.

3. What would change my mind? Actively look for disconfirming evidence.

4. Who is affected now and later (users, lenders, employees, regulators)?

5. Escalate: who else must see this before sign-off?

6. Front-page test: would I sign if it were published tomorrow?

Print it. Stick it to the monitor.

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Pre-mortem & Devil’s Advocate (fast routines)

• Pre-mortem (10 minutes) | “It’s six months later and this judgement proved wrong – what failed?” List top three failure modes; add targeted tests now.

• Devil’s advocate | Assign someone – rotating – to argue the strongest case against the proposed treatment; record their arguments and how they were addressed. 

Speak-Up Architecture that Works

• Multiple channels | Anonymous hotline, ombudsperson, direct to audit committee.

• Clear protections | Anti-retaliation policy with monitored metrics; named senior sponsor.

• Feedback loop | Acknowledge, investigate, close the loop with the reporter.

• Training by example | Celebrate (confidentially) the people who raised tough issues early.

 Three Scenarios, Revisited

1) The small practice and the “rounding” request

A junior uses a pre-agreed escalation note to flag material judgement risk. A 15-minute huddle convenes. The team documents the correct treatment, drafts a candid note to management about covenant risk and proposes a lender conversation. They keep the client and their standards.

For practitioners: Map the risk to IESBA threats; apply safeguards (fresh-eyes review; partner consultation). Distinguish legitimate estimate updates from intentional timing shifts with qualitative materiality in mind.

2) The listed company and delayed disclosure

The audit committee’s protocol triggers an emergency session above a defined threshold. Disclosure is made promptly with context and outlook. Executive pay is anchored to quality and long-term metrics, not a single quarter’s line. The share price dips; trust does not.

For auditors: Apply ISA 540 (indicators of management bias), ISA 240 (fraud risk factors), and document independent ranges, sensitivities and challenge trail.

3) The consulting engagement and the non-financial risk

A newly acquired subsidiary has a significant, undocumented data-security vulnerability. A default in the project software requires mandatory risk disclosure for non-financial findings on merger work. A pre-sign-off prompt asks: Would a reasonable user expect to know this now? A short challenge session brings in an independent cyber specialist. Having rehearsed the hard conversation, the manager delivers the message tactfully but firmly: delaying disclosure jeopardises duties and trust.

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Role-Specific Quick Guides

For CFOs and Controllers

• Embed the digital prompts; require back-testing of major estimates; schedule a standing weekly 20-minute “challenge clinic” in close weeks; align bonuses with quality KPIs.

For Audit Partners and Managers

• Set a red-team calendar for high-judgement areas; rotate reviewers; track and discuss AQIs with teams and governance; document not just what you concluded but what would have changed your mind.

For Consultants and Advisors

• Expand scoping to include non-financial risks that materially affect user decisions; establish an escalation path to those charged with governance; protect team members who surface inconvenient findings. 

Overcoming Resistance to Change

Expect pushback: “bureaucracy”, “slows us down”, “clients won’t like it”. Keep it proportionate and show the business case:

• Speed via clarity | Short nudges avert re-work, late surprises and crisis meetings.

• Trust as an asset | Ethical infrastructure is a competitive advantage—protects reputation, builds long-term relationships and attracts talent.

• Proportionality | Start with quick wins (prompts, checklists, fresh-eyes reviews) before heavier controls.

 Conclusion | The Quiet Art of Integrity

Most of us will never face a cinematic scandal. We will face the 10:47 p.m. email. If we shape our processes, language and culture with care – defaults that favour transparency, prompts that invite scepticism, challenge that is routine, incentives that reward quality – the right decision will not feel like heroism. It will feel like habit: quiet, unremarkable and exactly what the public trusts us to do.