BUSINESS & TECHNOLOGY

CHAPTER- 10
Professional Ethics in Accounting and Business
Professional Ethics
Ethics is the system of moral principles that examines the concept of right and wrong.
Ethics can be :
1. Personal
2. Professional
3. Organizational Culture,
4. Organizational Values
Examples:
- Company’s distributable profit vs the individual director’s pay conflict
- Should bribe be taken to do some work?
- Price fixing and anti-competitive behavior may be illegal or may be more subtle.
- Is it ethical to target advertising at children, e.g. for fast food or for expensive toys at Christmas?
- Employees should not be favored or discriminated against on the basis of gender, race, religion, age,
disability, etc.
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- Creating monopolies to make profit.
Approaches - Consequentialist vs. Pluralist
Consequentialist Approach :

This approach states that a decision is right or wrong depending on the consequences or outcomes of
that decision.

As long as the outcome is right, then the action itself is irrelevant.

If an individual needs to feed their family, stealing may be seen as morally acceptable if there is no other
way of obtaining food.

Perspectives :
Egoism - the action is morally correct as long as the outcome is favorable for the individual making the
decision,

Utilitarianism – the action is considered to be morally correct if the outcome is favourable for the greatest
number of people

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Approaches - Consequentialist vs. Pluralist
Pluralist approach :

This approach involves trying to cater to the needs of all stakeholders without seriously compromising
the interests of any one group.

A pluralist approach would be to operate a brick industry but ensure that enough money is spent to
minimize the damage to the local environment.

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Approaches - Relativist vs. Absolutist
Relativism approach :

This is the view that there is no universal moral code to judge all actions. This means that whether
something can be classed as ‘ethical’ or not depends on the circumstances.

This might also create an excuse for organization & individual to do their work.

Absolutism approach :

This approach to ethics argues that certain actions are inherently right or wrong, regardless of their
context or the circumstances that they occur in.
It provides guidelines or frameworks to follow ethical practices.

This is also linked to the idea of deontological ethics. This is linked to the work of the German philosopher
Immanuel Kant, who suggested that when faced with an ethical dilemma, an individual must look at
the action being considered and deciding if it is inherently right or wrong. It ignores the consequences
of the decision being made and instead focuses on the individual meeting their moral duties.
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Importance of Ethics

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What is Profession?
A profession, as opposed to other types of occupation, is characterised by the following factors :

§ The mastering of specialised skills during a period of training

§ Governance by a professional organisation
§ Compliance with an ethical code
§ Acting in the public interest
§ A process of certification before being allowed to practise.

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Professional Ethics
International Federation of Accountants (IFAC) and the ACCA have developed codes of ethics for their members
which lays down ethical standards to be applied by practicing accountants across the world.

§ Confidentiality –
Information obtained in a business relationship should not to be disclosed to third parties without specific
authority being given to do so.

The information should not be used for the personal advantage of the accountant.

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Professional Ethics
§ Objectivity –
Accountants must ensure that their business or professional judgement is not compromised because of bias
or conflict of interest.

§ Integrity –
This implies fair dealing and truthfulness. Accountants should not be associated with any false, misleading
or recklessly provided statements.

§ Professional Competence and Due Care –

Accountants are required to have the necessary professional knowledge and skills required to carry out
work for clients and must follow all applicable technical and professional standards when carrying out that
work.

§ Professional Behavior -
Accountants must comply with all relevant laws and regulations and must avoid any actions that would bring
the profession into disrepute.

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Professional Ethics
§ Objectivity –
Accountants must ensure that their business or professional judgement is not compromised because of bias
or conflict of interest.

§ Integrity –
This implies fair dealing and truthfulness. Accountants should not be associated with any false, misleading
or recklessly provided statements.

§ Professional Competence and Due Care –

Accountants are required to have the necessary professional knowledge and skills required to carry out
work for clients and must follow all applicable technical and professional standards when carrying out that
work.

§ Professional Behavior -
Accountants must comply with all relevant laws and regulations and must avoid any actions that would bring
the profession into disrepute.

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Public Interest
§ Public interest is the common well-being or general welfare of society.

§ Professional accountants must consider this, as they have a wider duty to act in the best in the interest of public

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Ethical Threats & Safeguards
Threats :

§ Self-interest threat : This could incur when there is conflict of interest involving the accountant. Eg. When
the auditor is substantial shareholder of the Company.
§ Self-review threat : This could occur when an accountant is re-evaluates or reviews their own work or
previous judgement. Eg. Auditor reviews their own work to issue reports.
§ Advocacy : This can be a problem if an accountant is promoting a position or opinion by compromising their
objectivity. (Objectivity : Accountants must ensure that their business or professional judgement is not
compromised because of bias or conflict of interest). Eg. Auditor speaks on behalf of the client in public.
§ Familiarity threat : Can occur when an accountant becomes sympathetic to the interests of others due to a
close personal relationship. Eg. An accountant is forced to enter false entries by customer due to friendship.
§ Intimidation threat : Occurs when an accountant is deterred from acting objectively by actual or perceived
threats.
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Ethical Threats & Safeguards
Safeguards – Professional Bodies:

§ Ethics training for all professional accountants – both as part of their initial training and on an ongoing basis
§ Creation of corporate governance requirements
§ Professional or regulatory monitoring and disciplinary procedures
§ Setting of professional standards.

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Ethical Threats & Safeguards
Safeguards against ethical threats – business
§ Honesty – employees should be encouraged to be honest at all times –For example, a salesperson should never
overstate the benefits or features of the product they are selling.
§ Openness – this means that the organisation should be willing to freely provide information, as needed, to
stakeholders. This should make it easier for shareholders, for example, to decide whether to invest in the
business or not.
§ Transparency – this is similar to openness in many ways and indicates that a company makes it easy for key
stakeholders to review its activities. This can be helped by regular audits and the production of detailed reports
on business activities.
§ Trust – organisations need to be trustworthy in their dealings with others and attempt to work in the best
interests of as many stakeholders as possible. This could involve, for instance, not overcharging customers.
§ Empowerment – this involves giving employees and other stakeholders more ability to make their own
decisions. This will improve their self-image and their motivation.
§ Respect – all employees and stakeholders should be treated with dignity by the organisation regardless of their
age, gender, ethnicity or religion.

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END OF CHAPTER

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