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FEEDBACKHow did that feel? Did some of the arguments make more of an impression on you than others?We’re all different, and people can behave well for a number of different reasons. For many people,it makes a big difference whether somebody behaves well because they feel in the mood to do so,or expect to get a reward, or are compelled to do so by outer forces, or because they want tocomply with their moral conscience.Ethics is a branch of philosophy that studies the difference between right and wrong. As professionalaccountants, you will have many opportunities to choose between right and wrong. And as you haveseen in the business press, making the wrong choice can lead to serious consequences includingcorporate failure, loss of reputation, fines, and even jail sentences.

Perspectives on ethics

In very broad terms, there are three ways of looking at ethics that have developed over time: rulesconformance, good intentions, and competence.One way of thinking about ethics is in terms of conformity to rules. From this perspective, ethics isunderstood as a list of things to do and to not do. Sometimes the list gets very long andcomplicated and needs to be interpreted by a whole institution of people. The ethical person, fromthis perspective, is the one who conforms to the rules.A second way of thinking about ethics is in terms of good intentions. From this perspective, abehaviour is considered ethical if it is based on good intentions. Good behaviour then follows fromgood thinking.The third perspective thinks of ethics in terms of competence. From this perspective, the ethicalperson is one who can make decisions based on principles and then act on them. This perspective isthought of as looking at competence, because ethics is thought of in terms of an ability rather thanan attitude.

Branches of ethics

As a subject of scholarly study, ethics sits among other branches of philosophy like metaphysics (thestudy of the nature of reality), epistemology (the study of what can be known and how we knowabout it), aesthetics (the study of concepts like art, music and beauty) and logic (the study of reasoning and methods of arguing).Over centuries of philosophical debate, ethics has developed several schools of thought. In otherwords, philosophers and others have developed different ethical theories, different ways of thinkingabout ‘doing the right thing.’ These theories reflect scholarly differences between professionalphilosophers, but they also reflect differences in style of moral reasoning that can be observed ineveryday moral reflection. As a professional accountant working with people, it will be important foryou to become aware of your own ethical way of thinking, and to understand that other people maythink about doing the right thing in a different way from you. Some of the better known ways of thinking about ethics follow, in no particular order.The accounting examples included here are only used to illustrate new concepts for you usingfamiliar terms. When making any decision as a professional accountant, you must be sure that youare following the laws of your country, the particular rules that govern you, and the ACCAfundamental principles.

our duty to others

One way to think about ethics is to acknowledge that there are things that someone just does notdo, as part of a duty to others. A limitation of this principle is that you have to decide what thosethings are that someone should not do.

At least one philosopher (Immanuel Kant) has defined those duties by saying ‘act according toprinciples that everyone could follow.’ For example, if you disobey traffic lights, you should considerwhat would happen if everyone did so. The point is that we should recognise everyone as equals,and not assume that the rules are any different for ourselves than they are for other people.As an accounting example, a professional accountant would not deliberately issue false or inaccuratefinancial statements. If everyone did so, no statements could be trusted and as a consequence notonly would the profession be brought into disrepute, but all financial statements would have novalue to their users. Ultimately the need for accountants and for financial reports would be calledinto question.

Consequences

Another way of thinking about ethics is based on thinking about the consequences to differentpeople. Briefly, consequentialism encourages you to make decisions based on the consequences —both positive and negative — for those involved.This category of thinking is the branch of ethics known as utilitarianism. This states that an action isright if it leads to the most good outcomes and the least bad outcomes for the greatest number of people.One limitation of thinking about ethics in terms of consequences is that you have to agree on whatsorts of consequences matter: for example, should you be trying to promote pleasure and avoidcausing pain, or should you instead focus on promoting people’s actual well-being, regardless of whether doing so makes them happy?A modern application of this point of view is the cost-benefit analysis, which involves assigningmonetary values to the costs and benefits of an action and seeing how they add up. This practice isoften used in evaluating new projects.As an accounting example, an accountant thinking in terms of consequences would prepare ‘trueand fair’ financial statements because doing so would bring the most benefit to the greatest numberof people.In other words, stakeholders inside and outside the organisation would be able to makemore informed decisions as a result.

Virtue theory

In virtue theory, the emphasis is on deciding what sort of person one should try to be, and to definethe virtues such a person would embody. You decide what makes a good person, instead of whatmakes a good action, and act accordingly.One limitation of this way of thinking is that what constitutes a virtue must be agreed upon, and itcan vary by culture and over time. For example, the qualities of good financial reports were onceconsidered to be completeness, historical accuracy, reliability and strict adherence to the legal formin disclosing business transactions. More recently, the qualities of good financial reports have cometo be relevance for decision-making, reference to a wider conceptual framework, and presenting theeconomic substance of business transactions.As an accounting example of the use of virtue theory, in deciding whether to agree to a client’srequest to use a questionable method for valuing inventory, an accountant would ask, ‘What woulda conscientious accountant do in such a situation? What would one of my respected mentors do?’

social contract theory

The social contract theory of ethics advises you to think about ethics as embodying a set of rulesagreed upon by reasonable people to bring order to social living. So when making an ethicaldecision you ask yourself, ‘What rule would reasonable, unbiased people agree to?’ You then followsuch rules, regardless of whether they benefit you in particular situations.One criticism of this theory points out that the agreement referred to by social contract theory isentirely imaginary. Why consider yourself bound by an agreement that never happened?

An accounting example of social contract thinking might be seen in a situation where an accountanthas to decide between loyalty to a client and candid assessment of financial statements. Both of those options involve important social values. Thinking in social contract terms, the accountantmight ask, ‘What sort of rule for balancing these values would unbiased people agree to?’

Confucian ethics

Confucian ethics seeks to provide harmonious relationships within society, the family, and theindividual. Looking within yourself and learning from experienced people are seen as the main roadsto wisdom and self-harmony. The emphasis on experience leads to respect and reverence for thepast, the aged, and for one’s ancestors.One of the criticisms of this model is that in a society where relationships are considered moreimportant than the laws themselves, corruption and nepotism may be tolerated.As an accounting example, in deciding whether to agree to a client’s request to use a questionablemethod for valuing inventory, an accountant thinking in Confucian terms might consider agreeing toit because doing so would cause harmony with the client.

Rules of thumb

In addition to scholarly branches of philosophy, some other ways of looking at right and wrong havedeveloped.

The golden rule

The classic golden rule is to ‘do unto others as you would have them do unto you.’ In other words, ‘Iwill not cheat that person because I do not want them to cheat me.’ The golden rule is a simple and useful tool, but it does have some limitations. We don’t really knowhow babies or animals want to be treated, for example, so the golden rule can’t tell us much abouthow to treat them. Also, the whole rule is based on your own feelings of how you yourself wouldwant to be treated. But your own needs and preferences might not be typical. For example, the factthat you personally do not value privacy does not mean that you don’t owe others an obligation torespect their privacy.As an accounting example, this rule of thumb could be applied to mean that you disclose allinformation that may be relevant in financial reports because, if you were the reader of thosefinancial statements, you would expect to receive all the information, and disregard any that is notrelevant to you.

Mirror Test

Another rule of thumb is the mirror test. This is a quick way to evaluate a decision that you areabout to make, and reinforces the notion that you are responsible for your own actions. Imagineyou’re looking in a mirror and ask yourself:

Is it legal?

If it is not legal, don't do it.

What will others think?

Others meaning a friend, a parent, a spouse, a child, a manager, the media, or someone elsewhose opinion is particularly important to you.

As an accounting example, in deciding whether to agree to a client’s request to use a questionablemethod for valuing inventory, an accountant thinking in terms of this rule of thumb would considerhow a story about this action would look on the front page of the local newspaper.