01 02 GE05 Fundamentals of Ethics Corporate Governance and Business Law A. Ethics and Business 15 PDF

CMA Class Note on
GE05: Fundamentals of Ethics, Corporate Governance and Business Law
GE 05: Fundamentals of Ethics,

Corporate Governance
and
Business Law
___________________________________________________________________________________
Course Teacher:
Md. Monowar Hossain, CPA, ACA, FCS, FCMA
General Manager &
Head of Internal Control and Compliance (ICC)
Agrani Bank Limited
Dhaka-1000,Bangladesh.
e-Mail: md.monowar@gmail.com
____________________________________________________________________________________
Page# 1 October 3, 2015

Md.Monowar Hossain CPA,ACA,FCS,FCMA
GM & Head of Internal Control and Compliance (ICC)
AGRANI BANK LIMITED
eMail: md.monowar@gmail.com
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Syllabus structure
Study
Topics
weightings
A Ethics and business 15%
B Ethical conflict 10%
C Corporate governance 10%
D Comparison of English law with alternative legal systems 10%
E The law of contract 20%
F The law of employment 10%
G Company administration and finance 25%
100%
GE05 – A. Ethics and business (15%)

Learning outcomes
On completion of their studies students should be able to: Indicative syllabus content
Lead Component Level
1. demonstrate an (a) apply the values and 3 • The importance of ethics.
understanding of attitudes that provide • Values and attitudes for professional
the importance of professional accountants accountants.
ethics to business with a commitment to act in • Legal frameworks, regulations and
generally and to the public interest and with standards for business.
the professional social responsibility; • The role of national ‘Professional
accountant. (b) explain the need for a 2 Oversight Boards for Accountancy’ and
framework of laws, ‘Auditing Practices Boards’.
regulations and standards in • The role of international accounting
business and their bodies e.g. IFAC.
application; • The nature of ethics and its relevance
(c) explain the nature of ethics 2 to business and the accountancy
and its application to profession.
business and the • Rules based and framework
accountancy profession; approaches to ethics.
(d) distinguish between 2 • The ‘Seven Principles of Public Life’ –
detailed rules based and selflessness, integrity, objectivity,
framework approaches to accountability, openness, honesty and
ethics. leadership.
2. explain the need (a) explain the need for 2 • Personal development and lifelong
for CIMA continual personal learning.
members to improvement and lifelong • The personal qualities of reliability,
adopt the highest learning; responsibility, timeliness, courtesy and
standards of (b) explain the need to develop 2 respect.
ethical behaviour. the virtues of reliability, • The ethical principles of integrity and
responsibility, timeliness, objectivity.
courtesy and respect; • Professional competence, due care
(c) explain the ethical principles 2 and confidentiality.
of integrity, objectivity, • Disclosure required by law.
professional competence, • The concepts of independence,
due care and scepticism, accountability and social
confidentiality; responsibility.
(d) identify concepts of 2 • The CIMA and IFAC ‘Code of Ethics for
independence, scepticism, Professional Accountants’.
accountability and social
responsibility;

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(e) explain the reasons why 2
CIMA and IFAC each have
a ‘Code of Ethics for
Professional Accountants’.
GE05 – B. Ethical conflict (10%)

Learning outcomes
1. explain the (a) explain the relationship between 2 • The relationship between ethics and
various means ethics, governance, the law and the law.
of regulating social responsibility; • The distinction between ethical codes
ethical (b) describe the consequences of 2 and contracts.
behaviour. unethical behaviour to the • Corporate governance and social
individual, the profession and responsibility.
society. • Unethical behaviour.
• The consequences of unethical
behaviour.
2. explain how (a) identify situations where ethical 2 • The nature of ethical dilemmas.
ethical dilemmas and conflicts of • Conflicts of interest and how they arise.
dilemmas and interest occur; • Ethical conflict resolution.
conflicts of (b) explain how ethical dilemmas 2 • The CIMA Code of Ethics for
interest arise and conflicts of interest can be Professional Accountants –
and may be resolved. ‘Fundamental Principles’.
resolved.
GE05 – C. Corporate governance (10%)

Learning outcomes
1. explain the (a) define corporate governance; 1 • The role and key objectives of
development (b) explain the interaction of 2 corporate governance.
of corporate corporate governance with • The interaction of corporate
governance to business ethics and company governance, ethics and the law.
meet public law; • The development of corporate
concern in (c) describe the history of corporate 2 governance internationally e.g. in the
relation to the governance internationally; UK, Europe, South Africa and the USA.
management • Rules and principles based
(d) distinguish between detailed rules 2
of companies. approaches to governance.
based and principles based
approaches to governance.
2. explain the (a) explain the effects of corporate 2 • The impact of corporate governance
impact of governance on directors’ powers on directors’ powers and duties.
corporate and duties; • Types of board structures, the role of
governance on (b) describe different board 2 the board and corporate social
the directors structures, the role of the board responsibility (CSR).
and and corporate social • The role of the board in establishing
management responsibility; corporate governance standards.
structure of (c) describe the types of policies and 2 • Corporate governance codes e.g.
public limited procedures that constitute ‘best The UK Corporate Governance Code.
companies and practice’; • Policies and procedures for ‘best
how this (d) explain the regulatory 2 practice’ companies.
benefits governance framework for • The regulatory governance
stakeholders. companies and benefits to framework for companies.
stakeholders. • Stakeholder benefits.

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GE05 – D. Comparison of English law with alternative legal systems (10%)
Learning outcomes
1. explain the (a) explain the manner in which 2 • The purpose of the civil and criminal
essential behaviour within society is law.
elements of regulated by the civil and the • The sources of English law: custom,
the English criminal law; case law, statute, European law and
legal system (b) explain the sources of English law; 2 other sources.
and the tort (c) illustrate the operation of the 2 • The distinction between the common
of doctrine of precedent by law and equity.
negligence. reference to the essential elements • The system of judicial precedent.
of the tort of negligence and its • The essential elements of the tort of
application to professional negligence, including duty, breach
advisers. and damage/loss/injury and the
liability of professionals in respect of
negligent advice.
2. describe the (a) describe the characteristics of the 2 • Alternative legal systems, including
essential legal systems found in other codified (civil law) systems.
elements of countries; • The general characteristics of the
alternative (b) describe elements of Shari’ah law; 2 legal systems of France, Germany,
legal systems. (c) describe the role of international 2 Poland, Italy, Denmark, Greece and
regulations. Cyprus.
• The general characteristics of the
legal systems of the USA, Malaysia,
China and Sri Lanka.
• Elements of Shari’ah law including
sources of Shari’ah law and the Five
Pillars of Islam.
• The benefits of international
regulations for commerce and
professional practice through the work
of key bodies e.g. IFAC, ISO, FEE.
GE05 – E. The law of contract (20%)
Learning outcomes
Indicative syllabus content
On completion of their studies students should be able to:
1. explain how (a) identify the essential elements of a 2 • The essential elements of a valid simple
the law valid simple contract and situations contract.
determines where the law requires the • The legal status of statements made
the point at contract to be in a particular form; by negotiating parties. Offers and
which a (b) explain how the law determines 2 acceptances and the application of
contract is whether negotiating parties have the rules to standard form contracts
formed and reached agreement and the role using modern forms of
the legal of consideration in making that communication.
status of agreement enforceable; • The principles for establishing that the
contractual (c) explain when the parties will be 2 parties intend their agreement to have
terms. regarded as intending the contractual force and how a contract
agreement to be legally binding is affected by a misrepresentation.
and how an agreement may be • Incorporation of express and implied
avoided because of terms, conditions and warranties.
misrepresentations; • The main provisions of the Sale of
(d) explain how the terms of a 2 Goods Act 1979 and the Supply of
contract are established and their Goods and Services Act 1982.
status determined; • Excluding and limiting terms; the Unfair

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(e) describe the effect of terms implied 2 Contract Terms Act 1977 and the
into contracts by sale of goods and Unfair Terms in Consumer Contracts
supply of goods and services Regulations.
legislation;
(f) describe how the law controls the 2
use of excluding, limiting and unfair
terms.
2. explain when (a) describe the factors which cause a 2 • Discharge of a contract by
the law contract to be discharged; performance, agreement and breach.
regards a (b) explain how the law of frustration 2 • The law relating to frustration.
contract as provides an excuse for non- • The law relating to damages.
discharged performance of the contract; • The remedies of specific performance,
and the (c) explain the remedies which are 2 injunction, rescission, and requiring a
remedies available for serious and minor contract party to pay the agreed
available for breaches of contract. price.
breach and
nonperforma
nce.
GE05 – F. The law of employment (10%)
Learning outcomes
1. explain the (a) explain the differences between 2 • The tests used to distinguish an
essential employees and independent employee from an independent
elements of contractors; contractor.
an (b) explain how the contents of a 2 • The express and implied terms of a
employment contract of employment are contract of employment.
contract and established; • The rights and duties of employers and
the remedies (c) explain the distinction between 2 employees.
available unfair and wrongful dismissal. • Notice and dismissal.
following • Unfair and wrongful dismissal.
termination of
the contract.
2. explain the (a) explain how employers and 2 • The main rules relating to health and
impact of employees are affected by health safety at work, sanctions on employers
health and and safety legislation; for non-compliance, and remedies for
safety law on (b) describe the consequences of a 2 employees.
employers failure to comply with health and • Social security compensation.
and safety legislation. • Civil liability for occupational injuries.
employees.
GE05 – G. Company administration and finance (25%)
Learning outcomes
1. explain the (a) describe the essential characteristics 2 • The essential characteristics of sole
nature, legal of the different forms of business traderships/practitionerships,
status and organisations and the implications of partnerships, companies limited by
administration corporate personality; shares and corporate personality.
of business (b) explain the differences between 2 • ‘Lifting the corporate veil’ both at
organisations. public and private companies and common law and by statute.
establishing a company by • The distinction between public and
registration or purchasing ‘off the private companies.
shelf’; • Company registration and the
advantages of purchasing a company
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(c) explain the purpose and legal status 2 ‘off the shelf’.
of the articles of association; • The purpose and contents of the
(d) explain the ability of a company to 2 articles of association.
contract; • Corporate capacity to contract.
(e) explain the main advantages and 2 • The advantages and disadvantages of
disadvantages of carrying on the company limited by shares.
business through the medium of a • Board meetings: when used and the
company limited by shares; procedure at the meeting.
(f) explain the use and procedure of 2 • General Meetings of shareholders:
board meetings and general when used and the procedure at the
meetings of shareholders; meeting.
(g) explain the voting rights of directors 2 • The voting rights of directors and
and shareholders; shareholders.
(h) identify the various types of 2 • Ordinary, special and written
shareholder resolutions. resolutions and their uses.
2. explain the (a) explain the nature of different types 2 • The rights attaching to different types
law relating to of shares, the procedure for their of shares.
the financing issue and acceptable forms of • The procedures for issuing shares.
and payment; • The issue of shares for an improper
management (b) explain the maintenance of capital 2 purpose.
of companies principle and the reduction of • Payment for shares.
limited by share capital; • The maintenance of capital principle:
shares. (c) explain the ability of a company to 2 the purposes for which shares may be
take secured and unsecured loans, issued, redeemed or, purchased and
the different types of security and the provision of financial assistance for
the registration procedure; the purchase of the company’s own
(d) explain the procedure for the 2 shares.
appointment, retirement, • The reduction of capital.
disqualification and removal of • The ability of a company to borrow
directors; money and the procedure to be
(e) explain the powers and duties of 2 followed.
directors when in office; • Unsecured loans, and the nature and
(f) explain the rules dealing with the 2 effect of fixed and floating charges.
possible imposition of personal • The appointment, retirement and
liability upon the directors of removal of directors and their powers
insolvent companies; and duties during office.
(g) explain the rights of majority and 2 • Fraudulent and wrongful trading,
minority shareholders; preferences and transactions at an
(h) explain the division of powers 2 under-value.
between the board of a company • The rights of majority and minority
and the shareholders; shareholders.
(i) explain the qualifications, powers 2 • The division of powers between the
and duties of the company board and the shareholders.
secretary. • The qualifications, powers and duties
of the company secretary.
Recommended Books:
1. CMA Study Text on Paper IE 01: Principles of Accounting
2. Steven J. Skinner, John M. Ivancevich (2002), Business 21st Century
3. Mallin, Christine, A. 2010. Corporate Governance (3rd edition), Oxford: Oxford University Press
4. McKendrick, Law of Contract.
5. A Text Book on Law of Contract , under National Law Book Company, Nilkhet Dhaka,
by Md. Haider Ali, 2nd Edition, 2011.
6. A text book on Easy understanding of The Law of Contract (Theory and Practice) has
been published, publisher: Hira Publication, by Syed Sarfaraj Hamid , 4th Edition,2011.

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CMA
Business Level
GE 05: Fundamentals of Ethics, Corporate Governance and Business Law
The importance of ethics.
Class GE 05 – A. Values and attitudes for professional accountants.
No. 01 Ethics and Legal frameworks, regulations and standards for business.
& 02 business The role of national ‘Professional Oversight Boards for
(15%) Accountancy’ and ‘Auditing Practices Boards’.
The role of international accounting bodies e.g. IFAC.
The nature of ethics and its relevance to business and the
accountancy profession.
Rules based and framework approaches to ethics.
The ‘Seven Principles of Public Life’ – selflessness, integrity,
objectivity, accountability, openness, honesty and leadership.
Ethics: Ethics refers to human

At its simplest, ethics is a system of moral conduct as to make
principles. They affect how people make judgments between what is
decisions and lead their lives. Ethics is right and what is wrong.
concerned with what is good for should have ...
individuals and society and is also • Honesty
described as moral philosophy. The term is • Objectivity
derived from the Greek word ethos which • Integrity
can mean custom, habit, character or • Carefulness
disposition. • Confidentiality
Ethics covers the following dilemmas: • Social Responsibility
• Competence
• how to live a good life
• Legality
• our rights and responsibilities
• the language of right and wrong
• moral decisions - what is good and The basic concepts and fundamental principles of
bad? decent human conduct. It includes study of
universal values such as the essential equality of
Our concepts of ethics have been derived all men and women, human or natural rights,
from religions, philosophies and cultures. obedience to
They infuse debates on topics like abortion,
the law of land, concern for health and safety and,
human rights and professional conduct.
increasingly, also for the natural environment.
Code of Ethics of a Professional Accountant:

Fundamental Principles - A Professional Accountant shall comply with the following fundamental
principles:
(a) Integrity – to be straightforward and honest in all professional and business relationships.
(b) Objectivity – to not allow bias, conflict of interest or undue influence of others to override
professional or business judgments.
(c) Professional competence and due care – to maintain professional knowledge and skill at
the level required to ensure that a client or employer receives competent Professional
Services based on current developments in practice, legislation and techniques and act
diligently and in accordance with applicable technical and professional standards.
(d) Confidentiality – to respect the confidentiality of information acquired as a result of
professional and business relationships and, therefore, not disclose any such information
to third parties without proper and specific authority, unless there is a legal or professional
right or duty to disclose, nor use the information for the personal advantage of the
accountant or third parties.
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(e) Professional behaviour – to comply with relevant laws and regulations and avoid any
action that discredits the profession.
The importance of ethics:

Good Ethics is a fundamental requirement of any profession. It is integral to the success of the
business as well. Ethics is a system of moral principles governing the appropriate conduct of a person
or a group. Maintaining good ethics is being consistent with the principles of correct moral conduct
constantly.
1. Satisfying Basic
Human Needs
2. Creating Credibility
within the
organization
3. Uniting People and
Leadership
4. Improving Decision
Making
5. Able to achieve
Long Term Gains
6. Securing the
Society
The importance of ethics in professional life can be evidenced by a number of instances showing
failure of businesses and several scandals. It may be rightly said that the situations would not have
been so worsened had there been observance of ethical standards. Therefore, maintaining ethical
standards is must for the prosperity of an organization as well as the development of one’s
personality. Good ethics will lead us to maintain our honest image. It will enable us to refrain from
such activities that may discredit to our profession. Thus, adhesion to good ethics is to let our
conscience be our guide at all times. Ethics is the activity of man directed to secure the inner
perfection of his own personality.
Values and attitudes for professional accountants :
Values: Important and lasting beliefs or ideals Attitudes: A predisposition or a tendency to
shared by the members of a culture about respond positively or negatively towards a certain
what is good or bad and desirable or idea, object, person, or situation. Attitude
undesirable. Values have major influence on influences an individual's choice of action, and
a person's behavior and attitude and serve as responses to challenges, incentives, and rewards.
broad guidelines in all situations. Some Four major components of attitude are
common business values are fairness, 1. Affective: emotions or feelings.
innovation and community involvement. 2. Cognitive: belief or opinions held
consciously.
The monetary worth of something in areas
3. Conative: inclination for action.
such as accounting, economics, marketing or
4. Evaluative: positive or negative response to
mathematics.
stimuli.
Professional accountants, whether practicing in public or private practice have an important
leadership role in society. Society expects professional accountants to behave and act in the public
interest. Proper ethical behaviour is therefore as important as technical competence and together
forms the basis to the definition of professional behaviour. This is one of the fundamental principles in
the CIMA ‘Code of Ethics’ and is defined as ‘a professional accountant should comply with relevant
laws and regulations and should avoid any action that discredits the profession’.
An individual’s values and attitudes underpin that person’s behaviour or manner in which they
conduct themselves. Value words such as integrity, honesty and transparency; and attitudes, such as
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desire to ‘do the right thing’ will help guide that individual. In professional life, values and attitudes
are codified in a code of ethics which clarifies the behaviour expected of members of that
profession.
Business life, in whatever sector, can throw up many changes and challenges to professional
accountants; throughout which professionals need to demonstrate consistency in their application of
ethical values, attitudes and in their behaviour towards others. It is primarily in the relationships with
others that values and attitudes are demonstrated. Professionals always need to behave with
integrity, to be reliable and work in a timely fashion in his/her dealings with colleagues, customers,
clients, suppliers and all others they come into contact with. However against a backdrop of being
constant despite change, professionals need to be aware of the wider expectations of society in
order to fulfill their public role.
Society values and expectations do however change from time to time, usually in reaction to events
such as where there has been evidence of corporate failure due to misdemeanour or fraud.
Professional accountants, therefore, need to understand and be sensitised to ethical issues and
pressures, such as ethical implications when taking decisions, to play their role in protecting against
such instances. This is important in helping to build public confidence and trust in business and the
profession directly. If such confidence falters, society through the democratic process may introduce
new laws to curb excessive behaviours. The failure in public confidence brought about by Enron was
the genesis of the introduction of the Sarbanes-Oxley Act in 2002.
In real life applying values and demonstrating the right attitude of doing the right thing because it is
the right thing to do can be difficult and takes courage.
Example-1
MUTTAKEEN is a qualified management accountant in a light engineering company. It is a family-run

company but does have a number of minority shareholders owning 15% of the company’s shares. It
is the year-end and the company has been through a difficult time having lost a key client this year,
but a memorandum of understanding has now been signed with a new customer which bodes well
for the future. Whilst future sales seem assured, the MOU is not legally binding. MUTTAKEEN’s Boss, who
is not an accountant and is also married to the owner’s daughter, asks MUTTAKEEN to book a
proportion of future sales into this year’s accounts, telling him the paperwork will be following by the
year-end and the factory is to begin making the products required.
What should MUTTAKEEN do?

MUTTAKEEN’s options:
1) Do as requested
2) Challenge the request
3) Ask for the request in writing
4) Refuse
5) Bring this to the attention of the owner
6) Seek a second opinion from a fellow professional accountant
7) Start looking for another job.
Given the background to this situation, MUTTAKEEN will need to demonstrate courage in challenging
the request that has been made, until he has seen a written order for the new customer. To do
otherwise would be wrong as the year-end accounts would be false, if the transactions were booked
before orders were received.
MUTTAKEEN would be demonstrating the fundamental principles of integrity (being straightforward
and honest), objectivity (refusing undue influence) and diligence (acting in accordance with
applicable and technical standards).

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Example-2
MONYEM Properties is a mendium-sized property development company specialising in buying up
inner city sites and redevel-oping them. They mostly build houses on these sites. They have recently
purchased a large site which was a former town gasworks. The price was very good and MONYEM
has immediately put in for planning permission. They have a certificate from the vendor regarding
the environmental cleanup that was done, which they intend to rely on in their planning application.
What do you think they should do?
Options:
(a) MONYEM Properties continue to seek planning permission

(b) MONYEM Properties could commission their own environmental survey.
MONYEM Properties, acting responsibly, would need to satisfy themselves that the environmental
certificate was valid and the site had been cleaned up to make it suitable for housing. To do
otherwise would potentially be a risk to their reputation if subsequently the land was proved to be
unsuitable for housing use.
Legal frameworks, regulations and standards for business:
The combination of legal

frameworks, regulations,
guidelines and standards for
business are needed to
provide guidance on
behaviours. They exist for
individuals, and collective
bodies to adhere to, and are
a means of engendering
public trust and integrity in
the profession.
They are administered

through and by a number of
regulatory bodies as
decreed by parliament and
the accountancy profession,
in the case of self regulatory
guidelines which the
accountancy profession has
collectively set itself.
There are two categories of framework:
(1) The first is legally binding and therefore is mandatory on all governed by them, to comply.
(2) The second is voluntary in nature, where it is good or best practice to follow the
guidelines/standards and to adhere to them as well.
There are a number of frameworks in existence which govern the accounting profession. With
respect to ethical considerations, in the UK the lead has been taken by the Financial Reporting
Council (FRC). The FRC is the UK’s independent regulator for corporate reporting and governance,
with the aim of promoting confidence in these areas. Two further bodies forming part of the FRC are
the Professional Oversight Board (POB) and the Audit Practices Board (APB). Each has a number of
stated objectives but they include an oversight and review function on ethical matters.

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Financial Reporting Act -2015 (Bangladesh):
The Bangladesh National Parliament passed the Financial Reporting Act -2015 on September 6, 2015.
The Institute of Chartered Accountants of Bangladesh (ICAB) was the one and only governing body
for the country's chartered accountants. From now onwards the Financial Reporting Council (FRC) of
12 members under the act will ensure accountability and performance among the chartered
accountants of Bangladesh. Moreover, the council will be a statutory body with members from
various government bodies, institutions and professional groups.
The FRC will be the watchdog body in order to monitor the function of auditors and ensure
transparency and accountability in accounting and auditing of financial organisations, including
various government, autonomous and non-government institutions.
The act will monitor both chartered accountants and cost and management accountants of
Bangladesh.
The role of national ‘Professional Oversight Boards for Accountancy’ and ‘Auditing Practices
Boards’.
The Professional Oversight Board for Accountancy (UK)

In relation to the regulation of the accountancy
profession, the Board intends to achieve its aims by:
Reviewing the regulatory activities of the professional
accountancy bodies in relation to their members,
including education, training, continuing professional
development, standards, ethical matters (except
those which are the responsibility of the APB)
professional conduct and discipline, registration and
monitoring, including making recommendations on
how these activities might be improved.
The Auditing Practices Board (UK) [www.frc.org.uk/apb/about/aims.cfm]

The Board intends to achieve its aims by:
● Establishing Auditing Standards which set out the basic principles and essential procedures with
which external auditors in the UK and the Republic of Ireland are required to comply;
● Issuing guidance on the application of Auditing Standards in particular circumstances and
industries and timely guidance on new and emerging issues;
● Establishing Standards and related guidance for accountants providing assurance services;
● Establishing Ethical Standards in relation to the independence, objectivity and integrity of
external auditors and those providing assurance services;
● Taking an appropriate role in the development of statutes, regulations and accounting
standards which affect the conduct of auditing and assurance services, both domestically and
internationally;
● Contributing to efforts to advance public understanding of the roles and responsibilities of
external auditors and the providers of assurance services including the sponsorship of research.
The role of international accounting bodies e.g. IFAC. [www.ifac.org]

The International Federation of Accountants (IFAC) strives
to serve the public interest by establishing and promoting
adherence to international standards, facilitating
cooperation with member bodies, and serving as a
spokesperson for the international profession on relevant
public policy issues.
The worldwide organization for the accountancy profession.

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IFAC's boards set international standards in a number of areas including auditing, quality control,
education, public sector accounting and ethics for professional accountants. While IFAC was
founded
ded on October 7, 1977, in Munich, its headquarters have been located in New York City since
its inceptions.
The International Federation of Accountants (IFAC) reviews the profession worldwide and published
Code of Ethics. This Code of Ethics establishes ethical requirements for professional accountants.
The framework of laws, regulations and standards are applied to the accountancy profession by the
bodies mentioned above, and through matters brought to their attention by professional firms. They
test the efficacy of the framework through consultation with interested parties (professional firms and
others) and review the professional accountancy bodies’ practices.
A further source of guidelines and standards with which the professional accountant must be aware
is the code pertaining to their place of emplemployment.
oyment. A majority of large corporate
cor entities and
number of smaller companies now have codes of ethics giving guidance to company personnel as
to expected levels
vels of behaviour of their staff.
The nature of ethics and its relevance to business and the accountancy profession.
In business, ethics is defined as the application of ethical

values to business behaviour. Ethical values are words such
as integrity, honesty, responsibility, transparency and fairness
amongst others. It is how the business or entity brings these
values ‘alive’ or applies them within their organisation as it
transacts its business that is key. How it conducts its relation-
relation
ships with its employees, its shareholders, its customers, its
suppliers and with those in the community in which and
wherever it operates. It is therefore about how the entity
does its business not what it does, so it is not about the
product or service the company provides.
Ethical values play out through behaviours. They are highly relevant to business and those operating
in it, especially professional people. There is the expectation in the public mind that professionals
within organisations will play a leadership role in ensuring that those entities will act ethically in
transacting their business.
That expectation is rooted in ‘trust’ that businesses know what they are doing and are doing it in
society’s interest, as part of wealth creation for all. This is the ‘trust me’ model. This model has been
eroded as society recognised as it could not trust business to ‘do the right th thing’
ing’ particularly in the
arena of non-financial
financial focussed activity. So after the 1960s/1980s when major companies became
manager-runrun and led rather than family
family-owned
owned and led, the model evolved to ‘involve me’. This
model has continued to evolve through the stages of ‘show me’, asking companies to demonstrate
how they do their business; to ‘prove to me; where society expects companies to provide
independent verification and assurance of how they do their business. The ultimate model, if
companies do not behave, e, is to impose law on them to do so: ‘obey me’. The law is a blunt
instrument in curing behaviour because it cannot define or cover all instances of poor behaviour,
and leads to a compliance or tick the box culture rather than one based on ‘doing the right righ thing’
naturally.
Rules based and framework approaches to ethics.
There is a different approach to those codes and standards that are compliance based and those
ethics based. This is human nature. The former tends to be tick box and the latter principle based.
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These are two different aspects of internal culture which organisations sign up to: compliance
because they have to and ethics because they feel they ought to. In governance terms they are
deemed an important way of engendering trust from others.
Given a strong regulatory background within which professional accountants have to operate there
can be confusion as to which might be the ‘chicken’ and which the ‘egg’ in the debate. So which
does come first?
A professional body has an overriding commitment as a Chartered Institute in the UK to protect the
public interest. It, therefore, has agreed an ethics code based on principles and ethics as specific
guidance for members in business and practice as to ‘how they will behave in carrying out their role’
– the chicken.
This leads to reinforcing the culture and behaviour expectations of everyone working in the
profession. It is this on which reputations are built and trust engendered. Compliance, the egg is a
mechanism for reporting to others how the profession is measuring up to those expectations.
This can be demonstrated in the following table contrasting the characteristics of a compliance-
driven framework versus one primarily driven by values, principles and ethics.
Ethics Compliance
Slow burner Constant monitoring
Long time frame Short time frame
Prevention Detection
Principles based Law based
Values driven Fear driven
Implicit Explicit
Spirit of the law Letter of the law
Grey Black and white
Alignment with values Requires obedience
Discretionary Mandatory
More difficult Easier
An example of applying the different approaches above would be a company which has a strong
rules-based culture where individuals clearly have a sense of what they can and cannot do (letter of
the law, black and white, mandatory, explicit) and what will hap-pen if they do not (fear-driven,
requires obedience, mandatory). However, if an employee is faced with a situation not covered by
the ‘rule book’ they will be required to use their own judgement as to what to do. In most instances,
the decision they take will be the right one but any potential for the wrong decision being made will
be reduced if the employee has guiding values and principles which will underpin that difficult deci-
sion-making. So an ethical framework of guidance is likely to be more wide-ranging in its applicability
than a fully rules-based one.
A key aspect of compliance is measurement in addition to ‘ticking boxes’ that all is well. This, of
course, is difficult with ethical issues which tend not to be conveniently black and white. There is
therefore a need to develop and use proxy indicators by those assuring them-selves that individuals
are acting in a proper fashion.
In a wider context the same is true in the public and private sectors, where organisations equally, as
though they were individuals, seek to build trust with their employees, customers, suppliers,
shareholders and all others who have a legitimate interest in how they perform. But the essential
question remains: Is trust better engendered by principled behaviour based on ‘doing it because it is
the right thing to do’ or because the individual, the company or the public body has to?
The compliance cultural approach to ethics and CR is well developed in the US following the
introduction in the early 1990s of Sentencing Guidelines for judges. These allowed a judge to mitigate
a fine if the company could demonstrate it had ethical guidelines in place and endeavoured to
guide employees’ behaviour.
AGRANI BANK LIMITED
CMA Class Note on
The ‘Seven Principles of Public Life’ – selflessness, integrity, objectivity, accountability,
openness, honesty and leadership.
In the public sector in the UK, employees are governed by ‘The Seven Principles of Public Life’ issued
by the Committee of Standards in Public Life
1. Selflessness - Holders of public office should act solely in terms of the public interest.
2. Integrity - Holders of public office must avoid placing themselves under any obligation
to people or organisations that might try inappropriately to influence them in their
work. They should not act or take decisions in order to gain financial or other material
benefits for themselves, their family, or their friends. They must declare and resolve any
interests and relationships.
3. Objectivity - Holders of public office must act and take decisions impartially, fairly and
on merit, using the best evidence and without discrimination or bias.
4. Accountability - Holders of public office are accountable to the public for their
decisions and actions and must submit themselves to the scrutiny necessary to ensure
this.
5. Openness - Holders of public office should act and take decisions in an open and
transparent manner. Information should not be withheld from the public unless there
are clear and lawful reasons for so doing.
6. Honesty - Holders of public office should be truthful.
7. Leadership - Holders of public office should exhibit these principles in their own
behaviour. They should actively promote and robustly support the principles and be
willing to challenge poor behaviour wherever it occurs.
Professional accountants need to adhere to all these codes. They also need to be aware that if they
find themselves in situations where they might not be able to comply with the legal, regulatory or
standards frameworks they have a duty to raise these concerns to themselves and their profession.
They need to speak up and be heard.

AGRANI BANK LIMITED

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CMA Class Note on

GE05: Fundamentals of Ethics, Corporate Governance and Business Law

GE 05: Fundamentals of Ethics,

Page# 1 October 3, 2015

GE05: Fundamentals of Ethics, Corporate Governance and Business Law

GE05 – A. Ethics and business (15%)

Page# 2 October 3, 2015

GE05 – B. Ethical conflict (10%)

GE05 – C. Corporate governance (10%)

Page# 3 October 3, 2015

GE05 – E. The law of contract (20%)

Page# 4 October 3, 2015

GE05 – F. The law of employment (10%)

GE05 – G. Company administration and finance (25%)

Page# 6 October 3, 2015

Ethics: Ethics refers to human

Code of Ethics of a Professional Accountant:

The importance of ethics:

MUTTAKEEN is a qualified management accountant in a light engineering company. It is a family-run

What should MUTTAKEEN do?

Page# 9 October 3, 2015

(a) MONYEM Properties continue to seek planning permission

Legal frameworks, regulations and standards for business:

The combination of legal

They are administered

Page# 10 October 3, 2015

The Professional Oversight Board for Accountancy (UK)

The Auditing Practices Board (UK) [www.frc.org.uk/apb/about/aims.cfm]

The role of international accounting bodies e.g. IFAC. [www.ifac.org]

The worldwide organization for the accountancy profession.

In business, ethics is defined as the application of ethical

Rules based and framework approaches to ethics.

Page# 14 October 3, 2015

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