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chapter

Strategicanalysis:Ethics
andcorporatesocial
responsibility
Chapter learning objectives

Lead Component
A1.Evaluatetheinfluenceofkey (c) Discussthedriversof
externalfactorsonan externaldemandsfor
organisationsstrategy environmentalsustainability
andcorporatesocial
responsibilityandthe
organisationsresponseto
these.

A2.Evaluateethicalissues (a) Evaluateethicalissuesand


arisingfromtheorganisations theirresolutionwithina
interactionwithitsenvironment rangeoforganisational
contexts

Indicative syllabus content

Externaldemandsforsustainabilityandresponsiblebusiness
practicesandwaystorespondtothese.
BusinessethicsandtheCIMACodeofEthicsforProfessional
Accountants(PartsAandB)inthecontextoftheimplementation
ofstrategicplans.

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Strategic analysis: Ethics and corporate social responsibility

1What is corporate social responsibility?

Inthemodernworld,itisseenasbeingincreasinglyimportanttoconsider
howorganisationsmanagetheirbusinessprocessestohaveanoverall
positiveimpactonsociety.

Itisworthnotingthatcorporatesocialresponsibility(CSR)isdistinctfrom
ethics.Businessethicscompriseprinciplesandstandardsthatgovern
behaviourintheworldofbusiness.

CSR,however,referstoafirms obligation to maximise its positive


impacts upon stakeholders while minimising the negative effects.

Theextenttowhichtheorganisationfulfilstheeconomic,legal,ethicaland
charitableresponsibilitiesplacedonitbyitsstakeholderswilldetermineto
whatextentitisseenashavinggoodCSR.

TheproblemisthatthereisnoonedefinitionortheoryofCSR.

Considerthefollowingpoints.Isitethicalto:

Experimentonanimals?
Drillforoil?
Buildroadsthroughcountryside?
Payhighsalariestoseniorexecutives?

Differentindividualswillhavedifferentviewsoneachoftheseissues.

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Asfaraspossible,managershavetotakeaccountofarangeofdiffering
viewpointswhendecidingontheirstrategies.Inaddition,thereisalwaysthe
needtobalanceacompanysresponsibilitytosocietywithitsresponsibility
toearnfinancialreturnsforitsinvestors.

Illustration 1 corporate social responsibility issues

Nikonisawellknownmultinationalcompanythatspecialisesinthe
manufactureofcamerasandotherphotographicandvisualequipment.
Thecompanyscorporatesocialresponsibility(CSR)statement
(extractsofwhichareshownbelow)highlightsanumberofkeyexamples
ofissuesthatcompaniesneedtoconsiderwhenthinkingaboutCSR.

Nikon CSR charter (extracts)

Sound corporate activities

TheNikonGroupendeavorstocomplywithinternationalregulations,
relatedlaws,andinternalrules,exercisesoundandfaircorporate
practices,earnthetrustofstakeholderssuchascustomers,
shareholders,employees,businesspartners,andsociety.TheGroupwill
maintainconstructiverelationshipswithadministrativebodies,remaining
politicallyneutralandcomplyingwithlaws,andwillnotengagein
relationshipswithindividualsorgroupsthatthreatensocialorderor
safety.

Provision of valuable goods and services for society

TheNikonGroupwillprovidevaluableproductsandserviceswith
superiorqualityandsafetytosociety,endeavoringtoincreasethe
satisfactionandtrustofourcustomersandcontributingtothehealthy
developmentofsociety.

Respect for human beings

TheNikonGroupwillrespectdiversityandindividualhumanrightsand
provideahealthyandsafeworkingenvironmentinwhichallpersons
receivefairtreatmentwithoutdiscrimination.Itwillalsoopposeenforced
laborandchildlaborandrespectfundamentalhumanrightsaswellas
workers'rights.

Protection of the natural environment

TheNikonGroupwillproactivelyengageinenvironmentaleffortsand
worktoprotectthenaturalenvironment,asthesearecommonissuesfor
allofmankind.

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Strategic analysis: Ethics and corporate social responsibility

Responsibility to society as a corporate citizen

TheNikonGroupwillcarryoutcorporateactivitiesthattakeintoaccount
theculturesandpracticesofeachcountryandregionandproactively
engageinactivitiesthatcontributetosocietyasagoodcorporate
citizen.

Socially responsible behavior within the supply chain

TheNikonGroupwillencouragesociallyresponsiblebehaviorwithinits
supplychain.

Transparent operating activities

TheNikonGroupwillcommunicateextensivelywithcustomers,
shareholders,employees,businesspartners,andsocietyanddisclose
businessinformationinatimelyandfairmanner.Itwillalsoconduct
reliablefinancialreportingthroughaccurateaccountingprocesses.

Responsibility of top management

Topmanagementandemployeesinmanagerialpositionswithineach
departmentmustunderstandthattheyplayanessentialroleinfulfilling
thespiritofthisCharterandthus,inadditiontoleadingbyexample,they
mustensurethatthisinformationisdisseminatedtoeveryoneinthe
Groupandallrelatedparties.

Arguments against CSR

Itcanbearguedthatcompaniesshouldnotpursuecorporatesocial
responsibility.MiltonFriedmanarguesthat:

The business of business is business.

Thismeansthattheprimarypurposeofabusinessistotryandearnaprofit.
Inacompany,forinstance,themanagershavebeenemployedinorderto
earntheownersofthebusinessareturnontheirinvestment.

Assuch,itisamanagersdutytoactinawaythatmaximisesshareholder
wealth,whileconformingtoallrelevantlawsandcustoms.Ifamanagerdoes
anythingthatisnotdirectlyrelatedtowealthmaximisation,heisfailinginhis
responsibilitiestotheownersandthereforeactingunethically.

Forexample,itcanbearguedthatitisnotrightforamanagertodonateany
companyfundstocharity.Themanagershouldinsteadworktomaximise
thereturntotheowner.Iftheownerwishestomakedonationstocharity,he
candosooutofhisearningsfromthebusiness.

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Inaddition,itcanbearguedthatmaximisingthewealthofbusinessowners
is,initself,sociallyresponsible.Thisisbecause:

Increasedreturnswillleadtoincreasedtaxpaymentsmadetothestate.
Thesecanthenbepassedontoworthycauses.
Ahighproportionofcompanysharesareownedbypensionfunds.This
meansthatanygainswillgotohelpprovidepensionstoindividualswho
maywellbedisadvantaged.

Don'tforgetthattheremayalsobepracticalreasonswhyabusiness
choosesnottopursueCSR.Thesecaninclude:

Increasedcostofsourcingmaterialsfromethicalsources(e.g.
Fairtradeproductsorfreerangeeggs).
Havingtoturnawaybusinessfromcustomersconsideredtobe
unethical(e.g.anethicalbankmaychoosenottoinvestinacompany
thatmanufacturesweapons).
ThemanagementtimethatcanbetakenupbyCSRplanningand
implementation.

Arguments for CSR

NoteveryoneagreeswithFriedman'sstatements.Thereareanumberof
reasonswhymanybusinessesfeelthatCSRisavitalpartoftheirstrategy.
Theseinclude:

Akeypartofrunningasuccessfulbusinessistheabilitytooffer
customersandconsumerswhattheyneed.Oneofthoseneedsisoften
arequirementforsociallyresponsiblebehaviourfromtheorganisation.

Basically,having good CSR can attract customers!Thiscanbe


becausegoodCSRtendstoenhanceacompanysreputationand
thereforeitsbrand.Itcanalsobeusedabasisfordifferentiationinthe
marketplacegiventhechoice,manycustomerswillprefertotrade
withacompanytheyfeelisethical.

GoodCSRislikelytoinvolvegoodworkingconditionsforemployees,
allowingthebusinesstoattract a higher calibre of staff.
Avoidingdiscriminationagainstworkersislikelytogivethecompany
access to a wider human resource base.
Avoidingpollutionwilltendtosavecompaniesinthelongrunmany
governmentsarenowfining or increasing taxes of more polluting
businesses.
Sponsorshipandcharitabledonationsaretaxdeductible,improvestaff
moraleandcanbeseenasaform of advertising.

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Strategic analysis: Ethics and corporate social responsibility

Ultimately,havinggoodCSRcanincrease the financial value of the


business.Rememberthatthevalueofthebusinesswillbethepresent
valueofitsperceivedfuturecashflowsdiscountedatitsriskadjustedcost
ofcapital.

GoodCSRwillreducetheriskofadverseenvironmentalreactions
againstthecompany.Anythingthatreducesriskshouldlowertherisk
adjustedcostofcapital,increasingthevalueofthecompany.
Asociallyresponsiblebusinesswillbeallowedtooperateforlongerin
society.Thiswillmeanthattherewillbemoreyearsofcashflowsinthe
future.Thiswouldalsoincreasethevalueofthecompany.

2Approaches to corporate social responsibility

Ifanorganisationwishestoconsiderhowitshouldapproachcorporate
socialresponsibility,thereareanumberofmodelsthatitcanusetohelpit.

Carrolls corporate social responsibility model

Carroll(ThePyramidofCorporateSocialResponsibility:TowardtheMoral
ManagementofOrganizationalStakeholders),devisedafourpartmodelof
CSR:

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TrueCSRrequiressatisfyingallfourpartsconsecutively.

Economic responsibility be profitable

Thisisthefundamentallevelallotherlevelsrestonthis.
Shareholdersdemandareasonablereturn.
Employeeswantsafeandfairlypaidjobs.
Customersdemandqualityatafairprice.

Legal responsibility obey the law

Thelawisabaselineforoperatingwithinsociety.
Itisanacceptedrulebookforcompanyoperations.

Ethical responsibility do what is right and fair

Thisrelatestodoingwhatisright,justandfair.
Actionstakeninthisareaprovideareaffirmationofsociallegitimacy.
Thisisnaturallybeyondtheprevioustwolevels.

Philanthropic responsibility be a good corporate citizen

Relatestodiscretionarybehaviourtoimprovethelivesofothers.
Charitabledonationsandrecreationalfacilities.
Sponsoringtheartsandsportsevents.

Thedifferentpartswillhelpthemanagementofanorganisationto
understandthevariousobligationsthatsocietyexpectsfromthem.

Carrollsuggestsfourpossiblestrategies(orphilosophies)thatthe
organisationcanadoptwithregardtocorporatesocialresponsibility.

Reaction

Thecorporationdeniesanyresponsibilityforsocialissues,arguingthatitis
nottoblameorrequiredtoact.

Defence

Thecorporationadmitsresponsibilitybutfightsit,doingtheveryleastthat
seemstoberequired.Typicallythisisonlydoneasanattempttodefendthe
organisationscurrentposition.

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Strategic analysis: Ethics and corporate social responsibility

Accommodation

Thecorporationacceptsresponsibilityanddoeswhatisdemandedofitby
relevantgroups.

Proaction

Thecorporationseekstogobeyondindustrynormsandanticipatesfuture
expectationsbydoingmorethaniscurrentlyexpected.Theorganisation
attemptstoimprovesociety.

Illustration 2 Carroll's philosophies in action

Qisalarge,multinationalcompanywhichmanufacturesapopular
carbonatedsoftdrinkYu.Yuisoneoftheleadingsoftdrinksincountry
Handaccountsforaround75%ofQsprofits.Inrecentmonthsithas
beenreportedintheinternationalpressthatoneoftheflavouringsinYu
hasbeenlinkedtoanincreasedriskofcancer,thoughatmuchhigher
levelsthanthosefoundinYu. ThishasledtoYubeingcriticisedby
pressuregroups,whohavealreadycomplainedaboutYushighsugar
contentwhichtheyclaimisnothealthyforQscustomers(thoughYus
salescontinuetorise).TheGovernmentofcountryHhasnotstatedthat
theywillbantheingredient,thoughithasindicatedconcernoverrising
levelsofobesityinthelocalpopulation.

QsmanagementcouldconsideradoptinganyofCarrollsfourcorporate
socialresponsibilityphilosophieswithregardstoYu.

Reaction

QdeniesthatthereisanyproblemwithYuwhatsoever.Itsmanagers
releaseastatementarguingthatthereisclearlynohealthrisk
associatedwithconsumptionofYubycustomersasthegovernmenthas
notmadetheproductillegal.Qthenignorestheissueandmakesno
changestoYusrecipe.

Defence

Qsmanagementacceptsthatthereisapotentialriskfromthehigh
sugarcontentandtheflavouringidentifiedbytheinternationalpress.It
thereforeplacesadditionalhealthinformationonthebottleaboutthe
caloriecontentofthedrink,alongwithasuggestedamountthatshould
beconsumedeachday.Itarguesthatthissuggestedconsumptionlevel
wouldalsoreduceanyrisktotheconsumeroftheflavouringidentifiedin
theinternationalpress.

Thepressuregroupsclaimthisisinsufficientasmostconsumersdonot
readthelabelonsoftdrinkstheyconsume.

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Accommodation

Qsmanagersformafocusgroupmadeupofconsumers,government
healthofficialsandpressuregrouprepresentativestodiscusstheir
concerns.Afterlengthydiscussionstoensureitfullyunderstandstheir
needs,QlowersthesugarcontentofYuandreplacesitwithnaturallow
caloriesweetenerstoreducethecaloriecontentbutwithoutalteringthe
tasteoftheproduct.Italsochangestherecipetoeliminatetheneedfor
theflavouringinquestiontoensurethegovernmentandconsumer
confidenceismaintained.

Proaction

Qundertakesdetailedanalysisofitsproductandtheimpactofallthe
ingredientsitusesonconsumerhealth.Unlikeitscompetitors,Q
significantlyreducesthelevelofsugarinYu,aswellaseliminatingall
artificialadditivesinanattempttoreduceanynegativehealthimpactof
consumingYu.

Test your understanding 1

Loperatesapopularchainofgyms.Aswellasstandardexercise
equipment,Lsgymsalsohavepersonaltrainersthatworkwithclients
foranextramonthlyfee(thepersonaltrainerearns25%ofthis,withL
keepingtheremainder).Lalsohascafesineachofitsgyms,which
servefoodanddrinktogymmembers.

Lisawarethatsomecustomersfeelthattheyarenotseeinganybenefit
fromattendingitsgymsorseeingapersonaltrainer.Onecustomer
recentlycomplainedthatLscafesofferfoodthatishighinfatandsalt,
meaningcustomersthateattherewillgetlittlebenefitfromtheirearlier
workout.Lspersonaltrainersalsohaveanincentivetoensurethat
clientsmakeslowprocesssothattheycancontinuetoearnrevenue
fromtheclientforaslongaspossible.

LhasdecidedtouseCarrollscorporatesocialphilosophiesmodelto
decidehowtoreacttotheseissues.

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Strategic analysis: Ethics and corporate social responsibility

Whichofthefollowingapproachesaremostconsistentwithan
accommodationstrategy?Selectallthatapply.

A Iftheserviceofferedtocustomersdoesnotbreachanylocallaws,
nofurtheractionneedstobetakenbyL
B Admitthattheservicebeingofferedtocustomersisnotappropriate
orsociallyresponsible
C Addnutritionalinformationtothemenuinthecafetoprovidemore
informationtocustomers
D Redesignpersonaltrainerpayinordertoremoveanyincentiveto
ensureclientsmakeslowprogress
E Introduceahealthiermenuforcustomersinthecafe

Ethical stances (Johnson, Scholes and Whittington)

Johnson,ScholesandWhittington(Exploringcorporatestrategy)definean
ethicalstanceas:

Theextenttowhichanorganisationwillexceeditsminimumobligationsto
stakeholders.

Therearefourpossibleethicalstances:

Shortterm shareholder interest (STSI)

Thisethicalstancehasashorttermfocusinthatitaimstomaximiseprofits
inthefinancialyear.Organisationswiththisethicalstancebelievethatitis
theroleofgovernmentstosetthelegalminimumstandard,andanything
deliveredabovethiswouldbetothedetrimentoftheirtaxpayers.

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Longerterm shareholder interest (LTSI)

Thisethicalstancetakesbroadlythesameapproachastheshortterm
shareholderinterestexceptthatittakesalongertermview.Henceitmaybe
appropriatetoincuradditionalcostnowsoastoachievehigherreturnsin
thefuture.Anexamplecouldbeapublicservicedonatingsomefundstoa
charityinthebeliefthatitwillsavethetaxpayerthecostsassociatedwith
providingtheentireserviceshouldthecharityceasetowork.Hencethis
ethicalstanceisawareofotherstakeholdersandtheirimpactonlongterm
profitorcost.

Multiple stakeholder obligation (MSO)

Thisethicalstanceacceptsthattheorganisationexistsformorethansimply
makingaprofit,orprovidingservicesataminimalcosttotaxpayers.Ittakes
theviewthatallorganisationshavearoletoplayinsocietyandsotheymust
takeaccountofallthestakeholdersinterests.Hencetheyexplicitlyinvolve
otherstakeholders,andbelievethattheyhaveapurposebeyondthe
financial.

Shaper of society

Thisethicalstanceisideologicallydrivenandseesitsvisionasbeingthe
focusforallitsactions.Financialandotherstakeholdersinterestsare
secondarytotheoverridingpurposeoftheorganisation.

Test your understanding 2

Jrunsabusinesswhichsellsflowersfromasmallshop.Heensuresthat
allofhisflowersaresourcedfromethicallyresponsiblesuppliers,even
thoughthisisnotlegallyrequired.Whiletheseflowersaremore
expensivetopurchase,hefeelsthathisethicalapproachdifferentiates
himfromhisrivalsandallowshimtochargeapremiumprice.

WhichONEofJohnson,ScholesandWhittingtonsethicalstancesisJ
adopting?

A Shaperofsociety
B Multiplestakeholderobligation
C Longertermshareholderinterest
D Shorttermshareholderinterest

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Strategic analysis: Ethics and corporate social responsibility

3Sustainability

OneaspectofCSRthatisalsobecomingincreasinglyimportantis
sustainability.

Sustainabilityistheuseofresourcesinsuchawaythattheydonot
compromisetheneedsoffuturegenerations.Italsoinvolvesnotpollutingthe
environmentataratefasterthantheycanbeabsorbed.

Therearemanyexamplesofthis.Forexample,someloggingcompanies
plantatreeforeveryonetheyfell.

Othercompaniestrytomaketheirproductseasytorecycle,helpingto
ensurethatmaterialsarereusedratherthanwasted.Thecomputer
manufacturerApplehasusedthisaspartofitsmarketingapproachfor
someyears.(http://www.apple.com/recycling/)

Thereasonthatsustainabilityissoimportantformanybusinessesisthat
actinginasustainablemannernotonlyhelpslookaftertheenvironmentand
thewidercommunity,butitstrengthensthebusinessandhelpsensureits
longtermsurvival.

Itisworthnotingthatsustainabilityisincreasinglybeingseenasimportant
withinthepublicsector.Ensuringthatgoodsandservicesprocuredbythe
publicsectoraresustainablecanhelpmeetenvironmentalgoalsacross
government,saveconsiderableamountsofpublicmoneyandhelpsupport
innovationandeconomicgrowth.Thiswillinvolvetakingaccountofawide
rangeofcosts,suchaspollutionimpacts,carbonemissionsandwaste
disposal.

Thedifficultyformanybusinessesisthatmanycompaniesfocusonshort
termgains,ratherthanthelongtermsustainabilityofthebusinessandits
environment.Thisisoftenevidentinbusinessesthatofferseniormanagers
bonusesbasedonshorttermorannualperformance.

However,itshouldbenotedthatsustainabilitycanleadtocostsavingsfor
anorganisationintheshortterm.Forexample,anorganisationthatreduces
packagingonitsproductsmayhaveapositiveimpactontheenvironment
bygeneratinglesswaste,butitwillalsoreduceitscosts,therebyimproving
profits.

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4Incorporating sustainability and CSR into strategy

CIMAitselfhasbeenheavilyinvolvedinidentifyinganddiscussingthe
implicationsofsustainabilityforthebusiness.Tothisend,in2010they
publishedaresearcharticlediscussingthis.

Thearticlecametosixkeyconclusions:

Strongethicalprinciplesthatgobeyondupholdingthelawcanadd
greatvaluetoabrand,whereasfailuretodotherightthingcancause
social,economicandenvironmentaldamage,undermininga
companyslongtermprospectsintheprocess.
Oncetheyhaveadoptedanethicalapproach,companieswilloftenfind
therearebottomlinebenefitsfromdemonstratinghighethical
standards.
Theethicaltonecomesfromthetop.
Highqualitymanagementinformationonsocial,environmentaland
ethicalperformanceisvitalformonitoringtheenvironmentalandsocial
impactsofacompanyandforcompilingconnectedreportsshowing
howeffectiveitsgovernancearrangementsare.
Corporatecommunicationsandreportingonsustainabilityneedtodo
morethanjustpaylipservicetothegreenagenda.Theyneedto
providehardevidenceofthepositiveimpactonsociety,the
environmentandthestrategicreturnsforthebusiness,andhowany
negativeeffectsarebeingaddressed.
Managementaccountantshaveaparticularethicalresponsibilityto
promoteanethicsbasedculturethatdoesntpermitpractisessuchas
bribery.

Thefullreportcanbefoundhere:

http://www.cimaglobal.com/Thoughtleadership/Research
topics/Sustainability/incorporatingethicsintostrategy.

Illustration 3 Corporate social responsibility in action

Corporatesocialresponsibilityisseenasvitalformanyorganisations.
OnecompanythatisoftenhailedasaleaderinthisareaisBen&
JerrysaUSbasedmanufactureroficecream,frozenyoghurtand
sorbet.Thecompanyhasstatedthatbusinesshasaresponsibilityto
thecommunityandtheenvironment.

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Strategic analysis: Ethics and corporate social responsibility

Ben&JerrysCSRhasincludedthefollowing:

FairTradeingredientsthisensuresthatsuppliersofmanyofthe
companysrawmaterialsenjoysafeworkingconditions,reasonable
workhoursandarepaidfairly.
EthicallysourcedsuppliesaswellasacommitmenttoFairTrade,
thecompanyalsoensures,wherepossible,thatitsources
ingredientsfromsupplierswhoshareitsvalues.Forexample,Ben&
Jerryshashistoricallysourcedfreerangeeggsandsustainably
produceddairyforitsproducts.
Communityworkthecompanyhasengagedwithcommunitiesto
improvesustainability.Ben&JerrysVermontDairyFarm
SustainabilityProjectwaslaunchedin1999andsoughttodevelop
practicalmethodsfordairyfarmstoreducenitrogenand
phosphorousrunoffinordertoprovewaterqualityandoverall
sustainability.
Corporatephilanthropythecompanydonatesaportionofitspre
taxprofitstocorporatephilanthropyvia,inpart,theBen&Jerrys
Foundation.

Further CIMA information on sustainability

InDecember2010,CIMAcollaboratedwiththeAICPAandCICAina
reportentitledEvolutionofcorporatesustainabilitypractices.

Somekeyissuesthatthisreportraisedinclude:

General

Businesssustainabilityisaboutensuringthatorganisationsimplement
strategiesthatcontributetolongtermsuccess.Organisationsthatactin
asustainablemannernotonlyhelptomaintainthewellbeingofthe
planetandpeople,theyalsocreatebusinessesthatwillsurviveand
thriveinthelongrun.

Theaccountingprofessioncanplayanimportantroleinthis.
Accountantscanserveasleadingagentsforchangebyapplyingtheir
skillsandcompetenciestodevelopsustainabilitystrategies,facilitate
effectiveimplementation,accuratemeasurementandcrediblebusiness
reporting.

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Why do businesses have sustainability plans?

AccordingtoresearchconductedbyCIMA,thekeyreasonsinclude:

Compliance theneedtocomplywithlawsandregulations.
Reputational risk companiesareconcernedwithhow
stakeholderswillviewthemiftheyfailtoactinasustainable
manner.
Costcutting and efficiencyactinginasustainablemanner(for
examplebecomingmoreenergyefficient)canhelptoreduce
businessexpenditure.Thisisespeciallyvaluableforsmaller
companies.

Ten elements of organisational sustainability

Thefollowingareasareconsideredcrucialtothesuccessfulembedding
ofsustainabilitywithinanorganisation.Itisworthnotingthatthe
accountingfunctionwillbeusefulinanumberoftheseareas.

Strategy and oversight

Boardandseniormanagementcommitment.
Understandingandanalysingthekeysustainabilitydriversforthe
organisation.
Integratingthekeysustainabilitydriversintotheorganisations
strategy.

Execution and alignment

Ensuringthatsustainabilityistheresponsibilityofeveryonewithin
theorganisation(notjustaspecificdepartment).
Breakingdownthesustainabilitytargetsandobjectivesforthe
organisationasawholeintotargetsandobjectiveswhichare
meaningfulforindividualsubsidiaries,divisionsanddepartments.
Processesthatenablesustainabilityissuestobetakenintoaccount
clearlyandconsistentlyindaytodaydecisionmaking.
Extensiveandeffectivesustainabilitytraining.

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Strategic analysis: Ethics and corporate social responsibility

Performance and reporting

Includingsustainabilitytargetsandobjectivesinperformance
appraisal.
Championstopromotesustainabilityandcelebratesuccess.
Monitoringandreportingsustainabilityperformance.

Thefullreportcanbefoundhere:

http://www.cimaglobal.com/Documents/
Thought_leadership_docs/CIMA_AICPA_CICAsustainability_report.pdf

Test your understanding 3 Router (Case style)

YouareA.Northandyouhaverecentlybeenprovidedwiththe
followingletterfromoneofyourcompanysmajorclients,Routerplc(a
majorminingcompany).

Letter from Router plc

H.West
21EppWay
Helway
Helland
HDH67TY

DearMrNorth,

Routerplchasanopportunitytomineforgoldinaremoteandsparsely
populatedarea.Theminingprocessproposedinthisinstancewould
removeallvegetationfromthelandconcerned.Aftermininghas
finished,therewillremainsubstantiallakesofpoisonouswaterwhichwill
remaintoxicforahundredyears.

Theminingprocessisprofitable,giventhecurrenthighworldvalueof
gold.However,ifthecompanyweretoreinstatetheminedland,the
processwouldbeextremelyunprofitable.Thecompanyhasreceived
permissionfromthegovernmenttocarryoutthemining.Thefewlocal
residentsareopposedtothemining.

Asyouknow,ourmissionstatementsaysthatwewillendeavourto
makethemaximumpossibleprofitforourshareholderswhile
recognisingourwiderresponsibilitytosociety.

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Severalinvestorshaveraisedconcernsregardingourmission
statement,suggestingthatitiscontradictory.Iwouldappreciateyour
thoughtsonthis.

Weareawarethatourdecisionrelatingtotheabovegoldmining
opportunitycouldpotentiallycauseaconflictbetweenourobjectives.We
wouldbegratefulforyouradviceonhowwecandealwithstrategiesthat
causesuchaconflict.

Finally,couldyoupleaseoutlinetheethicalissuessurroundingthe
proposedgoldminingoperationsforourconsideration.

Thankyouforyourhelpandwelookforwardtoyoururgentresponse.

Kindregards

H.West

Required:

Draftaresponsetotheaboveletter.

(45 minutes)

5CIMA's code of ethics

Introduction

CIMAscodeofethicsisan81pagedocumentthatoffersguidanceonhow
torecogniseandrespondtotrickyethicalsituations.Youareonlyexpected
tobeawareofthemainconceptsinthecodeintheexam.Thecodeis
structuredasfollows:

PartA:fundamentalprinciplesandgeneralapplicationofthecode
PartB:professionalaccountantsinbusiness
PartC:professionalaccountantsinpublicpractice.

Thefullcontentofthecodecanbefoundat:

http://www.cimaglobal.com/Professionalethics/

However, the E3 syllabus only examines parts A and B of the code.

Section100.1ofpartAstatesthatprofessionalaccountantsshould"actin
thepublicinterest"andtherefore"responsibilityisnotexclusivelytosatisfy
theneedsofanindividualclientoremployer".

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Strategic analysis: Ethics and corporate social responsibility

Thecodeprovidesaconceptualframeworkwithguidanceonfundamental
ethicalprinciples:

Integrity
Objectivity
Professionalcompetenceandduecare
Confidentiality
Professionalbehaviour

Fundamental ethical principles

Integrity

Integrityimpliesfairdealingandtruthfulness.

Membersarealsorequirednottobeassociatedwithanyformof
communicationorreportwheretheinformationisconsideredtobe:

materiallyfalseortocontainmisleadingstatements
providedrecklessly
incompletesuchthatthereportorcommunicationbecomes
misleadingbythisomission.

Objectivity

Accountantsneedtoensurethattheirbusiness/professionaljudgement
isnotcompromisedbecauseofbiasorconflictofinterest.

However,therearemanysituationswhereobjectivitycanbe
compromised,soafulllistcannotbeprovided.Accountantsarewarned
toalwaysensurethattheirobjectivityisintactinany
business/professionalrelationship.

Professional competence and due care

Therearetwomainconsiderationsunderthisheading:

(1) Accountantsarerequiredtohavethenecessaryprofessional
knowledgeandskilltocarryoutworkforclients.
(2) Accountantsmustfollowapplicabletechnicalandprofessional
standardswhenprovidingprofessionalservices.

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Appropriatelevelsofprofessionalcompetencemustfirstbeattained
andthenmaintained.Maintenanceimplieskeepinguptodatewith
businessandprofessionaldevelopments,andinmanyinstitutes
completionofanannualreturnconfirmingthatcontinuedprofessional
development(CPD)requirementshavebeenmet.

Whereprovisionofaprofessionalservicehasinherentlimitations(e.g.
relianceonclientinformation)thentheclientmustbemadeawareof
this.

Confidentiality

Theprincipleofconfidentialityimpliestwokeyconsiderationsfor
accountants:

(1) Informationobtainedinabusinessrelationshipisnotdisclosed
outsidethefirmunlessthereisaproperandspecificauthorityor
unlessthereisaprofessionalrightordutytodisclose.
(2) Confidentialinformationacquiredduringtheprovisionof
professionalservicesisnotusedtopersonaladvantage.

Theneedtomaintainconfidentialityisnormallyextendedtocoverthe
accountants'socialenvironment,informationaboutprospectiveclients
andemployers,andwherebusinessrelationshipshaveterminated.
Basicallytheremustalwaysbeareasonfordisclosurebefore
confidentialinformationisprovidedtoathirdparty.

Themainreasonsfordisclosurearewhen:

(1) itispermittedbylawandauthorisedbytheclient
(2) itisrequiredbylaw,e.g.duringlegalproceedingsordisclosing
informationregardinginfringementsoflaw
(3) thereisprofessionaldutyorrighttodisclose(whennotbarredby
law),e.g.provisionofinformationtotheprofessionalinstituteor
compliancewithethicalrequirements.

Ethical considerations on disclosure

Theaccountantneedstoconsidertheextenttowhichthirdpartiesmay
beadverselyaffectedbyanydisclosure.

Theamountofuncertaintyinherentinthesituationmayaffecttheextent
ofdisclosuremoreuncertaintymaymeandisclosureislimitedornot
madeatall.

Theaccountantneedstoensurethatdisclosureismadetothecorrect
personorpersons.

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Professional behaviour

Accountantsmustcomplywithallrelevantlawsandregulations.

Thereisalsoatestwherebyactionssuggestedbyathirdpartywhich
wouldbringdiscredittotheprofessionshouldalsobeavoided.

Anaccountantisrequiredtotreatallpeoplecontactedinaprofessional
capacitywithcourtesyandconsideration.Similarly,anymarketing
activitiesshouldnotbringtheprofessionintodisrepute.

Test your understanding 4

UndertheCIMACodeofEthics,membersarenotallowedtobe
associatedwithanymateriallyfalseormisleadingstatements.

WhichONEofthefundamentalethicalprinciplesdoesthisstatement
relateto?

A Integrity
B Professionalcompetence
C Objectivity
D Professionalbehaviour

Test your understanding 5 (Integration question)

Explain why each of the following actions appears to be in


conflict with fundamental ethical principles.

(1) Anadvertisementforafirmofaccountantsstatesthattheiraudit
servicesarecheaperandmorecomprehensivethanarivalfirm.
(2) Anaccountantpreparesasetofaccountspriortoundertakingthe
auditofthoseaccounts.
(3) Adirectordiscussesanimpendingshareissuewithcolleaguesata
golfclubdinner.
(4) Thefinancedirectorattemptstocompletethecompanystaxation
computationfollowingtheacquisitionofsomeforeignsubsidiaries.
(5) Afinancialaccountantconfirmsthatareportonhiscompanyis
correct,eventhoughthereportomitstomentionsomeimportant
liabilities.
(6) Youbelieveyourcolleaguehasaskedyoutoincludewhatyou
believetobemisleadinginformationinyourforecast

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(7) Youranalysisofastrategicproposalsuggeststhatprofitabilitywill
beimprovedbymaking30peopleredundant.
(8) Youcanoutsourceyourmanufacturingtoacountrywherelabour
costsaremuchlower.
(9) Yourcountryisallowed,legally,todumpitswasteintoariver.This
willkillallaquaticlifealonga50milestretch.

Resolving ethical conflicts

Thecodeisclearthattheprofessionalaccountantshouldrespondtoan
ethicalconflict.Inactionorsilencemaywellbeafurtherbreachofthecode.

Ethicalconflictscanberesolvedasfollows:

(1) Gatherallrelevantfacts.
(2) Establishethicalissuesinvolved.
(3) Refertorelevantfundamentalprinciples.
(4) Followestablishedinternalprocedures.
(5) Investigatealternativecoursesofaction.
(6) Consultwithappropriatepersonswithinthefirm.
(7) Obtainadvicefromprofessionalinstitutes.
(8) Ifthematterisstillunresolved,considerwithdrawingfromthe
engagementteam/assignment/role.

Additional resources

Formoreexamplesofreallifeethicaldilemmasandtheirrecommended
solutions,seetheCIMAwebsite.

http://www.cimaglobal.com/Professionalethics/Ethics/Responsible
business/Ethicaldilemma/Casestudies/

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Strategic analysis: Ethics and corporate social responsibility

Test your understanding 6 (Integration question)

Explain your response to the following ethical threats.

(1) Youremployerasksyoutosuggesttoajuniormanagerthattheywill
receivealargebonusforworkingovertimeonaprojecttohide
liabilitiesfromthefinancialstatements.
(2) Inselectingemployeesforanewdivision,youareadvisedtounfairly
discriminateagainstonesectionoftheworkforce.
(3) Youhavebeenaskedtopreparethemanagementaccountsfora
subsidiarylocatedinSouthAmericainaccordancewithspecific
requirementsofthatjurisdiction.Inresponsetoyourcommentthat
youdonotunderstandtheaccountingrequirementsofthat
jurisdiction,yoursupervisorstatesnoproblem,noonewillnoticea
fewthousanddollarserroranyway.

Test your understanding 7 ABC (Case style)

Oneofyourcolleagues,ajunioraccountantatABCLtdhassentyouthe
followingemail:

Email
To: J. Bank
From: A. Halifax
Date: 15/06/XX
Subject: Professional ethics

HiJ,

Iwashopingyoucouldgivemesomeadvice!

TheITDirectorofABCLtdaskedmeundertakeacostbenefitanalysis
ofaproposednewITsystem.TheITDirectorwillusethisanalysistotry
andconvincetheBoardofDirectorsofABCthattheyshouldinvestinthe
newsystem.

Aspartofmyanalysis,Ifoundthatthenewsystemwillnotrunproperly
onABCsexistingcomputers.ThismeansthatABCwouldhaveto
replacethemajorityoftheirdesktopcomputersandservers,leadingto
anexcessofcostsoverbenefits.

TheITDirectorhassuggestedthatIdownplaythecostsofreplacingthe
ITinfrastructureashewassurethathecouldfindaworkaroundthat
wouldallowtheexistingcomputerstousethenewsoftware,thoughhe
wascurrentlyuncertainhowthiswouldbeaccomplished.

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TheITDirectorhastoldmethatheexpectsthecostbenefitanalysisto
showafavourableresultforthenewsystemandhasindicatedthatmy
futurepromotionprospectsmaydependonthisbeingthecase.

CouldyouemailmebackrightawayandexplaintheCIMAfundamental
ethicalprinciplesthatIwouldbebreachingifIagreetotheITDirectors
request.IneedtoknowbeforeIdecideontheappropriatecourseof
action.

Thanksforyourhelp!

Required:

Replytotheemailasrequested.

(15 minutes)

Ethical threats and safeguards

Ethical threat Safeguard


Conflict between requirements Obtainingadvicefromthe
of the employer and the employer,professional
fundamental principles organisationorprofessional
advisor
Forexample,actingcontraryto
lawsorregulationsoragainst Theemployerprovidinga
professionalortechnical formaldisputeresolution
standards. process
Legaladvice
Preparation and reporting on Consultationwithsuperiorsin
information theemployingcompany

Accountantsneedto Consultationwiththose
prepare/reportoninformation chargedwithgovernance
fairly,objectivelyandhonestly. Consultationwiththerelevant
professionalbody
However,theaccountantmaybe
pressurisedtoprovidemisleading
information.

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Strategic analysis: Ethics and corporate social responsibility

Having sufficient expertise Obtainingadditional


advice/training
Accountantsneedtobehonestin
statingtheirlevelofexpertise Negotiatingmoretimefor
andnotmisleademployersby duties
implyingtheyhavemoreexpertise Obtainingassistancefrom
thantheyactuallypossess. someonewithrelevant
expertise
Threatsthatmayresultinlackof
expertiseincludetimepressureto
carryoutduties,beingprovided
withinadequateinformationor
havinginsufficientexperience.
Financial interests Remunerationbeing
determinedbyothermembers
Situationswhereanaccountantor ofmanagement
closefamilymemberhasfinancial
interestsintheemploying Disclosureofrelevant
company. intereststothosechargedwith
governance
Examplesincludetheaccountant Consultationwithsuperiorsor
beingpaidabonusbasedonthe relevantprofessionalbody
financialstatementresultswhich
heispreparing,orholdingshare
optionsinthecompany.
Inducements receiving offers Donotaccepttheinducement!

Referstoincentivesbeingoffered Informrelevantthirdparties
toencourageunethicalbehaviour. suchasseniormanagement
Inducementsmayincludegifts, andprofessionalassociation
hospitality,preferentialtreatment (normallyaftertakinglegal
orinappropriateappealstoloyalty. advice)

Objectivityand/orconfidentiality
maybethreatenedbysuch
inducements.
Inducements giving offers Donotoffertheinducement!If
necessary,followtheconflict
Referstoaccountantsbeing resolutionprocessoutlinedin
pressurisedtoprovide thenextsection
inducementstojuniormembersof
stafftoinfluenceadecisionor
obtainconfidentialinformation.

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Confidential information Discloseinformationin


compliancewithrelevant
Accountantsshouldkeep statutoryrequirements,e.g.
informationabouttheiremploying moneylaunderingregulations
companyconfidentialunlessthere
isarightorobligationtodisclose,
ortheyhavereceivedauthorisation
fromtheclient.

However,theaccountantmaybe
underpressuretodisclosethis
informationasaresultof
compliancewithlegalprocesses
suchasantimoney
laundering/terrorisminthis
situationthereisaconflictbetween
confidentialityandtheneedfor
disclosure.
Whistleblowing Followthedisclosureprovisionsof
theemployer,e.g.reporttothose
Situationswheretheaccountant responsibleforgovernance.
needstoconsiderdisclosing Otherwisedisclosureshouldbe
information,whereethicalrules basedonassessmentof:legal
havebeenbrokenbytheclient. obligations,whethermembersof
thepublicwillbeadversely
affected,gravityofthematter,
likelihoodofrepetition,reliabilityof
theinformation,reasonswhy
employerdoesnotwantto
disclose.

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Strategic analysis: Ethics and corporate social responsibility

Test your understanding 8

ThemanagementaccountantofLplchasrecentlydiscoveredthatthe
companyisabouttolaunchamajornewproductwhichisexpectedto
causeahugeincreaseincompanyprofits.Hehasthereforepurchased
anumberofsharesinLplc,asheexpectsthesharepricetorise
significantlywhenthenewproductislaunched.

WhichTWOoftheCIMAfundamentalethicalprinciplesisthe
managementaccountantlikelytobeinbreachof?

A Objectivity
B Integrity
C Professionalbehaviour
D Confidentiality
E Professionalcompetence
F Honesty

Test your understanding 9

TheCEOofGLtdhasstatedatarecentboardmeetingthatthe
companyhasaresponsibilitytoconsidertheneedsofawiderangeof
stakeholdersandensurethatweminimiseanynegativeimpactsthatG
Ltdhasuponthem.

WhichONEofthefollowingbestdescribestheconceptreferredtoby
theCEOofGLtd?

A Ethics
B Stakeholdermanagement
C Nonmarketstrategy
D Corporatesocialresponsibility

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6Summary

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Strategic analysis: Ethics and corporate social responsibility

Test your understanding answers

Test your understanding 1

The correct answers are B, D and E

AwouldmatchareactionstrategywhereLdeniesanywrongdoingand
doesnothingtodealwithcustomerconcerns.Cmostcloselymatchesa
defencestrategy,wherethegymchaindoesaslittleaspossibletodeal
withcustomerconcerns.Thereisnosolutiontotheproblem,simplya
smallefforttowardskeepingcustomersquiet.

Anaccommodationstrategyoccurswhenthecorporationaccepts
responsibilityfortheidentifiedproblems(asinoptionB)andthendoes
whatisdemandedbyitsstakeholders(i.e.preventpersonaltrainers
frombehavingunethically,aswellasimprovingthemenuinthe
restaurant).

Test your understanding 2

The correct answer is C

Thisapproachisalsoknownasenlightenedselfinterest.Jisgoing
beyondregulationsinanattempttowincustomersinthelongertermand
standoutinhismarket.

Jisshowingnosignsofconsideringtheroleheplaysinsocietyorhis
responsibilitytowiderstakeholders,suggestingthatheisnotoperating
asashaperofsocietyorunderthemultiplestakeholderobjectiveslevel.

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Test your understanding 3 Router (Case style)

A.North
BusinessAdviceLtd
122LeftWay
Helland
HYYGT65

DearMrWest,

Thankyouforyourrecentletter.Ihavepleasureinenclosingourthoughts
oneachofyourqueriesbelow.

Conflicting mission statement

ThemissionstatementthatRouterplchaspublishedstatesthatthefirm
aimstomakethemaximumpossibleprofit.Itisquitecommonfor
objectivesofthiskindtobeincludedinmissionstatements.

Inaddition,thewiderresponsibilitiestosocietyarerecognised.This
companyobjectiveisdifficulttomeasureandtherewillbeinstances
wherethisconflictswiththemaximisationofprofit.Thegoldmining
projectprovidesaperfectexampleofthis.Itisexpectedtobeprofitable,
butalsoresultinthelossofvegetationandthecreationofpoisonous
lakesfortheonehundredyears.

Whilethebusinesscouldattempttorepairthelocalenvironment,doing
sowouldmakethemineunprofitable,leadingtoalossofvalueto
Routersshareholders.

However,itcouldbearguedthatinthelongrun,beingsocially
responsiblecouldincreasethewealthofRoutersshareholders.Router
needsthegovernmenttograntitlicencesinordertomineforgoldand
shareholderstocontinueinvestinginit.Ifitdevelopsareputationasa
dirtyfirm,bothstakeholdersmaychangetheirminds.Thiswouldcause
alossofprofitsandadropintheshareprice.Thiswouldofcourse
meanafallinshareholderwealth.

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Strategic analysis: Ethics and corporate social responsibility

Dealing with conflicting objectives

Asidentifiedabove,Routersobjectivesmayconflictwitheachother.
Methodsofdealingwiththisinclude:

(1) Establish a hierarchy of objectives:Prioritiseobjectivesand


scorealternativeprojectsagainstthem.ForRouter,itmayneedto
decidewhichismoreimportantitswidersocialresponsibilitiesor
itsdesiretomaximiseprofits.
(2) Satisficing:Routercouldtrytogiveeachstakeholdergroup
somethingofwhatitwants.Inthiscase,itcouldproceedwiththe
mineandthenprovidesomesmallamountofenvironmental
restitutionsothatsomeofthedamageisrepaired.
(3) Sequential attention:Thisinvolvesgivingeachstakeholder
group'sinterestsconsiderationovertime,thoughnotnecessarilyfor
everyproject.Theeffectistokeepthemonboard.Inthiscasethe
minecouldbeabandonedbecausetheenvironmentalcostsaretoo
great.However,thenextproject,withlessenvironmentaldamage,
willbeadopted.Shareholdersandenvironmentalistswillbothfeel
thatsomethinghasbeenachieved.
(4) Side payments:Thesearecompensatorypaymentstokeep
stakeholderscontent.Perhapsgoodqualityhousingcouldbe
providedforthelabourforcewhichcouldbeleftaftertheworkshad
finished.Thiscouldbepointedtoassomecompensationforthe
environmentaldamageandpopulationdisplacement.

The principal ethical issues in mining are:

(1) The use of nonrenewable resources:Theminingoperation


resultsinnonreplaceableresourcesbeingextractedfromthemine.
Thisdeprivesboththepresentownersandfuturegenerationsofthe
resources.Adequatecompensationshouldbeprovidedtothe
currentownersandtheresourcesextractedshouldnotbewasted
outofconsiderationforfuturegenerations.
(2) The use of power in negotiations:Inthenegotiationsitis
importantthattheprofitmotivedoesnotleadtoRouteracting
improperlyandexploitingthepresentowneroftheminingrights.
Wherethecountryispoorthisisaparticularconcern.

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(3) The environmental damage:Poisoningthelandforahundred


yearsisclearlynotasociallyacceptableoutcome.Routerhasan
ethicaldutytominimisetheeffectofthispollutionbydevelopinga
plantodealwiththeproblem.Thisshouldbeseenastheminimum
thecompanyshoulddo.
(4) Impacts on the life of local residents:Whiletheymaybenefit
fromtheeconomicboostthemineprovidestotheregion,itislikely
thatthepollutionwillalsoaffectthem.Whiletheremayonlybea
smallnumberoflocalresidents,thisdoesnotgiveRoutertherightto
ignoretheirneeds.Theyshouldexplainthestepsthecompanyis
goingtotaketominimisetheeffectontheirlocalenvironment.
(5) Safety of procedures:Miningisanindustrynotedforitspoor
safetyrecord.Routermustensurethatstrictsafetyguidelinesarein
placeandthattheyarefollowedbytheworkforce.Itshouldensure
theseconformtobestpractisesinitsindustryevenifthisismore
thanthelegalrequirementsinthecountryofoperation.

Ihopethisanswersyourqueries.Ifyouwishtodiscusstheseissues
further,pleasedonothesitatetocontactus.

Kindregards

A.North

Test your understanding 4

The correct answer is A

Bydefinition.

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Strategic analysis: Ethics and corporate social responsibility

Test your understanding 5 (Integration question)

(1) Potentialconflictwithprofessionalbehaviourauditservices
observethesamestandards,thereforeimplyingthatarivalhas
lowerstandardssuggeststhatafirmisnotcomplyingwith
professionalstandards.
(2) Theaccountantislikelytoloseobjectivitybecauseerrorsinthe
accountsmadeduringpreparationmaynotbeidentifiedwhenthose
accountsarereviewed.
(3) Astheinformationislikelytobeconfidential,discussingitina
publicplaceisinappropriate.
(4) Theaccountantneedstoensurethatknowledgeoftheforeign
countrystaxationregimeisunderstoodpriortocompletingthe
return,otherwisethereisthepossibilitythattheappropriate
professionalskillwillnotbeavailable.
(5) Thereisanissueofintegrity.Theaccountantshouldnotallowthe
reporttobereleasedbecauseitisknownthatthereportisincorrect.
(6) Thisisanissueofintegrity.Accountantsmustnotbeassociated
withanyformofcommunicationorreportthattheyknowtobeeither
materiallyfalseormisleading.
(7) Thereductionofthenumberofstaffinanorganisationinorderto
increaseprofitisnotnecessarilyunethical.Forexample,ifthe
businesshasanunnecessarilyhighnumberofemployees,reducing
thisnumbermaybeappropriate.However,theaccountantwould
needtoensurethattheanalysiswasaccurate,asitwillimpacton
individualslivelihoods.Ifthereisanyuncertaintyintheresults,they
mayneedtoconsiderwhetheritshouldbedisclosed.Inaddition,
theaccountantwillneedtobeawareoftheimplicationsandshould
ensurethatthedecisionmakersaremadeawareofthepotential
ethicalconsiderations.
(8) Again,thisisanoperationaldecision.Thereareethicalconcerns
overthelossofcurrentstaffwhichtheaccountantshouldmakethe
decisionmakerawareofalongwiththepotentialadverseimpacton
thereputationofthecompany.
(9) Ethicsinvolvesavoidingnegativeimpactsontheenvironmentthat
thecompanyoperatesin.Eventhoughlegal,thedecisiontodump
pollutionintoariverisunethicalduetotheimpactonmarinelife.
Shouldanaccountantbecomplicitinsuchanaction,itislikelyto
bringtheprofessionintodisrepute.

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Test your understanding 6 (Integration question)

Threat 1

Donotoffertheinducement!
Ifnecessary,followtheconflictresolutionprocessoftheemployer.
Considertheimpactofthefinancialstatementsbeing
misrepresented.

Threat 2

Obtainingadvicefromtheemployer,professionalorganisationor
professionaladvisor.
Theemployerprovidingaformaldisputeresolutionprocess.
Legaladvice.

Threat 3

Obtainingadditionaladvice/training.
Negotiatingmoretimeforduties.
Obtainingassistancefromsomeonewithrelevantexpertise.

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Strategic analysis: Ethics and corporate social responsibility

Test your understanding 7 ABC (Case style)

Email
To: A. Halifax
From: J. Bank
Date: 15/06/XX
Subject: Re: Professional ethics

HiA,

IfyouagreetotheITDirectorsdemands,youwillbeinbreachofseveral
partsoftheCIMACodeofEthics.

Integrity

Thisrequiresmembersnottobeassociatedwithanyformof
communicationorreportwheretheinformationismateriallyfalse,
providedrecklesslyorincomplete.

Youhaveidentifiedapotentialproblemwiththeproposednewsystem
thatwouldinvolvealargeoutflowofcashtoupgradeABCs
infrastructure.

FollowingtheITDirectorssuggestionwouldinvolveyouignoringthe
issuewithoutafirmideaofhowitwillberesolved(theITDirectoris
simplysuggestingavagueworkaround).Thismeansthatthereportwill
beincompleteandmisleadingtoitsusers.

Objectivity

Thisrequiresaccountantstoensurethattheirjudgementisnot
compromisedbecauseofbiasorconflictofinterest.

YouareonlylikelytoagreetotheITDirectorsdemandsbecausefailing
todosocouldjeopardiseyourcareer.Thiswouldclearlybeactingin
yourownselfinterest.

Professional competence and due care

Thisrequiresaccountantstofollowallapplicabletechnicaland
professionalstandardswhenprovidingservices.

Youareawarethatthecostbenefitanalysis,whenundertakenproperly,
showsanunfavourableresultforthenewITsystem.Failingtousethe
correctlyobtainedresultcouldbeseenasafailuretomeetprofessional
andtechnicalstandards.

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chapter 3

Professional behaviour

Thisprinciplerequiresaccountantstoavoidanyactivitiesthatmight
bringtheprofessionintodisrepute.

IfyouarefoundtohaveknowinglymisledtheBoardofDirectorsinto
buyingasystemthatisnotcosteffective,itwouldclearlydamage
confidenceintheaccountancyprofessionasawhole.

Ihopethathelps!LetmeknowifyouneedanymoreinformationandI'll
trytohelp.

A.

Test your understanding 8

The correct answers are C and D

Theaccountantisinbreachofconfidentialityasheisusinginformation
forhisownpersonalgain(regardlessofwhetherhecommunicatesthis
informationtoothers).Healsorisksbringingtheprofessioninto
disrepute(andcouldbeinbreachofinsiderdealinglaws),which
breachesprofessionalbehaviour.

Thereisnoevidencethatheisproducinganyreportsorproviding
informationrelatingtothenewproduct,whichwouldtendtosuggestthat
integrity,objectivityandprofessionalcompetencearenotbeing
breached.

Notethathonesty(whilebeingpreferable!)isnotafundamentalethical
principle.

Test your understanding 9

The correct answer is D

NotethatsustainabilityispartofCSRhowevertheCEOappearstobe
referringtothewiderconceptofhowtheorganisationlooksafterits
socialresponsibility.

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Strategic analysis: Ethics and corporate social responsibility

118