3.3 Relativism, Egoism, and Comparing the Ethical Theories

3.3 Relativism, Egoism, and Comparing the Ethical Theories

1. Relativism versus Absolutism and Ethical Egoism

Ethical Relativism

Ethical Relativism is the doctrine that moral values and ethical standards are not universally valid; rather, they are social conventions, cultural customs, or personal preferences that vary across societies and eras.

• Descriptive Relativism: Simply observes that different cultures have different moral customs (an uncontroversial empirical fact).
• Normative Cultural Relativism: Asserts that an action is morally right if the culture in which it occurs approves of it; therefore, no external culture or professional body has the right to judge the practices of another culture ("When in Rome, do as the Romans do").

       [ Ethical Absolutism / Moral Realism ]
       Universal, immutable moral truths exist and apply to all professionals globally.
                         ▲
                         │   (Philosophical Spectrum)
                         ▼
       [ Ethical Relativism / Conventionalism ]
       Morality is relative to local culture, time, and jurisdiction; no universal standard.

The Professional Trap of Relativism

On the CPA exam, candidates must recognize cultural relativism as a profound danger in international commercial practice. For instance, an Australian multinational operating in a developing country may face demands for "facilitation payments" (bribes) to secure government mining permits. A cultural relativist might excuse this as standard local business custom. However, for a CPA, moral absolutism and legal mandates prevail:

• Section 70.2 of the Criminal Code Act 1995 (Cth) makes bribing a foreign public official a severe corporate criminal offence with extraterritorial jurisdiction.
• APES 110 categorically prohibits professional accountants from offering, paying, or accepting bribes, regardless of local geographic customs.

Moral Absolutism (Moral Realism)

Moral Absolutism maintains that objective, universal moral standards exist and apply across all historical periods, geographical boundaries, and commercial environments. An act such as falsifying books of account or committing fraud is objectively wrong everywhere, regardless of whether a local culture or corporate management condones it.

Ethical Egoism

Ethical Egoism is a normative theory asserting that an individual ought always to act in their own rational long-term self-interest. It should not be confused with psychological egoism (the descriptive theory that humans are naturally selfish).

• Key Proponents: Thomas Hobbes (historical roots) and Ayn Rand (Objectivism).
• Incompatibility with Professional Accounting: Ethical egoism is the philosophical antithesis of the accounting profession. A professional accountant's legitimacy is grounded entirely in subordination of private self-interest to the public interest. An accountant acting on egoist principles would readily conceal corporate fraud if the personal financial kickback or promotion prospects outweighed the probability of personal regulatory detection.

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2. Comprehensive Comparison Matrix of Ethical Theories

The following matrix provides a clear comparative overview of the major normative frameworks:

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3. Concrete Accounting Scenarios Analyzed Through Each Lens

Scenario 1: Whistleblowing on Off-Balance Sheet Special Purpose Vehicles (SPVs)

• The Dilemma: Senior Audit Senior Priya discovers that an ASX-listed client has transferred $80 million of toxic credit liabilities into an off-balance sheet SPV controlled by executive family members. The CFO warns Priya that disclosing this will cause the company's share price to collapse, throwing 1,200 employees out of work, destroying pension fund investments, and costing her audit firm their multi-million-dollar audit contract.
• Utilitarian Analysis:
  • Act Utilitarianism: Might tempt Priya to stay silent in the immediate quarter if she calculates that 1,200 jobs and pension savings outweigh the abstract harm to future potential investors.
  • Rule Utilitarianism: Priya recognizes that if all auditors concealed off-balance sheet fraud, capital market transparency would evaporate, borrowing costs would skyrocket across the entire economy, and systemic trust would fail. Therefore, the long-term utility of the rule "always report material accounting misstatements" mandates blowing the whistle.
• Deontological Analysis:
  • First Formulation: Can Priya universalize the maxim "Conceal client fraud to protect local jobs and audit fees"? No; universalizing this renders statutory audit reports meaningless.
  • Second Formulation: Concealing the SPV deceives prospective bondholders, lenders, and retail investors, treating them merely as instruments to protect the company's executive bonuses. Priya possesses a categorical duty to uphold APES 110 fundamental principles of Integrity and Objectivity. The whistle must be blown regardless of downstream consequences.
• Virtue Ethics Analysis: Priya asks: "What would a virtuous auditor of integrity and courage do?" Allowing intimidation to silence her demonstrates the vice of cowardice and professional deficiency. Exercising practical wisdom (phronesis), Priya displays professional courage, upholds the internal goods of truthful financial stewardship, and reports the fraud through appropriate governance channels (the Board Audit Committee and ASIC under whistleblower provisions).

Scenario 2: Aggressive Tax Avoidance (Base Erosion and Profit Shifting)

• The Dilemma: Tax Director Lachlan is asked to implement a complex offshore transfer pricing structure that shifts $200 million in taxable profits from Australia to a zero-tax haven via artificial intellectual property (IP) licensing royalties. The scheme exploits technical statutory ambiguities and is deemed to have a "51% chance of surviving an ATO audit under Part IVA of the Income Tax Assessment Act 1936."
• Utilitarian Analysis: Lachlan balances the immediate financial gain to multinational shareholders against the loss of $60 million in tax revenue to the Australian public (funding hospitals, roads, and education), alongside the severe reputational damage if the scheme is publicly exposed by a Senate inquiry. Aggregate social utility strongly opposes aggressive profit-shifting.
• Deontological Analysis: The scheme violates the spirit of the tax legislation. Universalizing the maxim "Exploit artificial legal loopholes to avoid paying domestic taxes wherever detection probability is low" would collapse government fiscal infrastructure. Furthermore, it treats the host nation's public infrastructure as a free resource while refusing reciprocal contribution, violating the categorical duty of justice.
• Virtue Ethics Analysis: Lachlan reflects on professional temperance and justice. Engaging in contrived, artificial tax structures reflects corporate greed (excess) rather than legitimate commercial tax planning (the virtuous mean). A virtuous CPA refuses to facilitate schemes that rely on obfuscation and deceit.

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4. Exam Traps and Study Tips

• Exam Trap 1 (Utilitarianism vs Self-Interest): Never confuse Utilitarianism with Ethical Egoism. Utilitarianism is profoundly altruistic: the decision-maker's own pleasure counts for no more than the pleasure of any other affected person. An action that benefits the company or CEO but harms thousands of external stakeholders is anti-utilitarian.
• Exam Trap 2 (Rule Utilitarianism vs Deontology): Candidates often mix up Rule Utilitarianism with Deontology because both employ rules. Remember: Rule Utilitarianism validates rules solely because they produce the best overall consequences, whereas Deontology validates rules because they are intrinsically right duties, completely independent of consequences.
• Exam Trap 3 (Virtue Ethics is Not Rule-Free): Do not assume virtue ethics ignores rules entirely. Virtue ethics acknowledges rules as useful heuristics, but insists that rules without virtuous character (phronesis) result in legalistic, tick-the-box compliance that fails to protect the public interest.