CHAPTER 5: INTRODUCTION TO ETHICS

Ethics
 A set of moral principles or values that govern the actions and decisions of an individual or
group.
 While Personal ethics vary from individual to individual at any point in time, most
people within a society are able to agree about what is considered ethical and unethical
behavior. In fact, a society passes laws that define what its citizens consider to be the
more extreme forms of unethical behavior.
 Each of us has such a set of values, although we may or may not have considered them
explicitly.
 A topic that is receiving a great deal of attention throughout our society today.
This attention is an indication of both the importance of ethical behavior to maintaining a
civil society, and a significant number of notable instances of unethical behavior. Much of
what is considered unethical in a particular society is not specifically prohibited. So how do
we know whether we are acting ethically? Who decides what standards of conduct are
appropriate? Is any type of behavior "ethical" as long as it does not violate a law or a rule
of one's profession?
Defined in various ways ideal sets of moral principles or values:
1. Philosophers
2. Religious organizations
3. Other groups
Examples of prescribed sets of moral principles or values at the implementation
level include:
1. Laws and regulations
2. Church doctrine
3. Code of business ethics for professional groups such as CPAs
4. Codes of conduct within individual organizations.
 It is common for people to differ in their moral principles or values. Even if two people
agree on the ethical principles that determine ethical behavior, it is unlikely that they will
agree on the relative importance of each principle. These differences result from all of our
life experiences. Parents, teachers, friends and employers are known to influence our
values, but so do television, team sports, life successes and failures, and thousands of
other experiences.

CHARACTERISTICS AND VALUES ASSOCIATED WITH ETHICAL BEHAVIOR

1. Integrity
2. Honesty
3. Trustworthiness and Promise Keeping
4. Loyalty (Fidelity) and Confidentiality
5. Fairness and Openness
6. Caring for Others
7. Respect for Others
8. Responsible Citizenship
9. Pursuit of Excellence
10. Accountability

CHARACTERISTICS AND VALUES ASSOCIATED WITH ETHICAL BEHAVIOR

1. Integrity
 Be principled, honorable, upright, courageous and act on convictions; do not be two
faced or unscrupulous, or adopt an end-justifies-the means philosophy that ignores
principle.
 2. Honesty
 Be truthful, sincere, forthright, straightforward, frank, candid; do not cheat, steal,
lie, deceive or act deviously.
3. Trustworthiness and Promise Keeping
 Be worthy of trust, keep promises, full commitments, abide by the spirit as well as
the letter of an agreement; do not interpret agreements in an unreasonably
technical or legalistic manner in order to rationalize noncompliance or create
excuses and justification for breaking commitments.
4. Loyalty (Fidelity) and Confidentiality
 Be faithful and loyal to family, friends, employers, client and country; do not use or
disclose information learned in confidence; in a professional context, safeguard the
influences and conflicts of interest.
5. Fairness and Openness
 Be fair and open-minded, be willing to admit error and, where appropriate, change
positions and beliefs, demonstrate a commitment to justice, the equal treatment of
individuals, and tolerance for acceptance of diversity; do not overreach or take
advantage of another's mistakes or diversities.
6. Caring for Others
 Be caring, kind, and compassionate; share, be giving, be of service to others; help
those in need and avoid harming others.
7. Respect for Others
 Demonstrate respect for human dignity, privacy, and the right to self-
determination of all people; be courteous, prompt, and decent: provide others with
the information they need to make informed decisions about their own lives; do not
patronize, embarrass, or demean.
8. Responsible Citizenship
 Obey just laws; if all law unjust, openly protest it; exercise all democratic rights
and privileged responsibly by participation (voting and expressing informed views),
social consciousness, and public service; when in a position of leadership or
authority, openly respect and honor democratic processes of decision making, avoid
unnecessary secrecy or concealment of information, and assure that others have all
the information they need to make intelligent choices and exercise their rights.

9. Pursuit of Excellence
 Pursue excellence in all matters; in meeting your personal and professional
responsibilities, be diligent, reliable, industrious and committed; perform all tasks
to the best of your ability, develop and maintain a high degree of competence, be
well informed and well prepared; do not be content with mediocrity; do not "win at
any cost".
10. Accountability
 Be accountable, accept responsibility for decisions, for the foreseeable
consequences of actions and inactions, and for setting an example of others.
Parents, teachers, employers, many professionals and public officials have a special
obligation to lead by example, to safeguard and advance the integrity and
reputation of their families, companies, professions and the government itself; an
ethically sensitive individual avoids even the appearance of impropriety, and takes
whatever actions are necessary to correct or prevent inappropriate conduct of
others.

WHY IS ETHICAL BEHAVIOR NECESSARY?

Ethical behavior
 is necessary for a society to function in an orderly manner. It can be argued that ethics is
the glue that holds a society together.
 What would happen if for example we could not depend on the people we deal with to be
honest. If parents, teachers, employees, siblings, co-workers and friends all consistently
lied, it would be almost impossible for effective communication to occur.
 The need for ethics in society is sufficiently important that many commonly held ethical
values are incorporated into laws.
 For example, laws dealing with driving while intoxicated and selling drugs concern
responsible citizenship and respect for other. Similarly, if a company sells a defective
product, it can be held accountable if harmed parties choose to sue throughout the legal
system.
 A considerable portion of the ethical values of a society cannot be incorporated into laws
because of the judgmental nature of certain values. Looking at the honesty principle, it is
practical to have laws that deal with cheating, stealing, lying, or deceiving others. It is far
more difficult to establish meaningful laws that deal with many aspects of principles such
as integrity, loyalty and pursuit of excellence. That does not imply that these principles
are less important for an orderly society.
 Business decisions influence employees, customers, suppliers and competitors, while
company operations affect communities, governments and the environment.

WHY DO PEOPLE ACT UNETHICALLY?

 Most people define unethical behavior as conduct that differs from the way they believe
would have been appropriate given the circumstances. Each of us decides for ourselves
what we consider unethical behavior, both for ourselves and other.
 It is important to understand what causes people to act in a manner that we decide is
unethical.

There are two primary reasons why people act unethically:

1. The person's ethical standards are different from those of society as a whole, or
2. The person chooses to act selfishly.

In many instances, both reasons exist.

1. Person's Ethical Standards differ from General Society
 Extreme examples of people whose behavior violates almost everyone's ethical
standards are drug dealers, bank robbers, and larcenists. Most people who commit
such acts feel no remorse when they are apprehended, because their ethical
standards differ from those of society as a whole.
 There are also many far less extreme examples when violate our ethical values.
When people cheat on their tax returns, treat other people with hostility, lie on
employment applications, or perform below their competence level as employees,
most of us regard that as unethical behavior. If the other person has decided that
this behavior is ethical and acceptable, there is a conflict of ethical values that is
unlikely to be resolved.

2. The Person Chooses to Act Selfishly

 A considerable portion of unethical behavior results from selfish behavior. The Pork
Barrel Scam and the other political scandals resulted from the desire for political
power and wealth; cheating on tax returns and expense reports is motivated by
financial greed; performing below one's competence and cheating on tests are
typically due to laziness. In each case, the person knows that the behavior is
inappropriate, but chooses to do it anyway because of the personal sacrifice needed
to act ethically.
 CATEGORIES OF ETHICAL PRINCIPLES
I. Principles of Personal Ethics include among others
 Basic justice, fairness
 Respect for the right of others
 Concern for the right of others
 Concern for the well-being on welfare of others
 Benevolence, trustworthiness, honesty
 Compliance with the law
II. Professional Ethics include among others
 Integrity, impartiality, objectivity
 Professional competence
 Confidentiality
 Professional behavior
 Avoidance of potential or apparent conflict of interest
III. Business Ethics include among others
 Fair competition
 Global as well as domestic justice
 Social responsibility
 Concern for environment
 The focus of this book is on Business Ethics.

The Need for Professional Ethics

 To understand the importance of a Code of Ethics to professionals, one must understand
the nature of a profession as opposed to other vacation.
 There is no universally accepted definition of what constitutes a profession; yet, for
generations, certain types of activities have been recognized as professions while others
have not.
 Medicine, law, engineering, architecture and theology are examples of disciplines long
accorded professional status. Public accounting is relatively new as far as the ranking of
the professions is concerned but it has achieved widespread recognition in recent decades.
All the recognized professions have several common characteristics. The most
important of these characteristics are:
1) A responsibility to serve the public
2) A complex body of knowledge
3) Standards of admission to the profession
4) A need for public confidence
 Careless work or lack of integrity of a professional may lead the public to a negative view
toward the entire profession. All professionals must have public confidence of the public to
be successful. Consequently, the members of the different professions act in unison by
deriving their respective code of conduct.

Code of Good Governance for the Profession in the Philippines (E.O. No. 220, June 23,
2003)
 This Code is adopted by the Professional Regulation Commission (PRC) and the 42
Professional Regulatory Boards to cover an environment of good governance in which all
Filipino professionals shall perform their tasks. While each profession may adopt and
enforce its own code of good governance and code of ethics, it is generally recognized
that there is a general commonality among the various codes. This Code which covers the
common principles underlying the codes of various professions could be used by all
professionals who face critical ethical questions in their work.
General Principle of Professional Conduct
 Professionals are required not only to have an ethical commitment, a personal resolve to
act ethically, but also have both ethical awareness and ethical competency. Ethical
awareness refers to the ability to discern between right and wrong, while ethical
competency pertains to the ability to engage in sound moral reasoning and consider
carefully the implications of alternative actions.

Specific Principle of Professional Conduct

1. Service to Others
 Professionals are committed to a life of service to others. They protect life,
property, and public welfare. To serve others, they shall be prepared for heroic
sacrifice and genuine selflessness in carrying out their professional duties even at
the expense of personal gain.
2. Integrity and Objectivity
 To maintain and broaden public confidence, professionals shall perform their
responsibilities with the highest sense of integrity and imbued with nationalism and
spiritual values. In the performance of any professional service, they shall at all
times, main objectivity, be free of conflicts of interest, and refrain from engaging in
any activity that would prejudice their abilities to carry out their duties ethically.
They shall avoid making any representation that would likely cause a reasonable
person to misunderstand or to be deceived.
3. Professional Competence
 In providing professional services, a certain level of competence is necessary, i.e.,
knowledge, technical skills, attitudes, and experience. Professionals shall, therefore,
undertake only those professional services that they can reasonably deliver with
professional competence. Corollary to this, it is their express obligation to keep up
with new knowledge and techniques in their field, continually improve their skills
and upgrade their level of competence and take part in a lifelong continuing
education program.
4. Solidarity and Teamwork
 Each profession shall nurture and support one organization for all its members.
Though a deep spirit of solidarity, each member should put the broader interest of
the profession above one's personal ambition and preference. Through teamwork
within a cohesive professional organization, each member shall effectively observe
ethical practices and pursue continuing professional development as well as deepen
one's social and civic responsibility.
5. Social and Civic Responsibility
 Professionals shall always carry out their professional duties with due consideration
of the broader interest of the public. They shall, therefore, serve their
clients/employers and the publics with professional concern and in a manner
consistent with their responsibilities to society. As responsible Filipino citizens, they
shall actively contribute to the attainment of the country's national objectives.
6. Global Competitiveness
 Every professional shall remain open to challenges of a more dynamic
interconnected world. He or she shall rise up to global standards and maintain
levels of professional practices fully aligned with global best practices.
7. Equality of All Professions
 All professionals shall treat their colleagues with respect and shall strive to be fair in
their dealings with one another. No one group of professionals is superior or above
others. All professionals perform an equally important, yet distinct, service to
society. In the eyes of the PRC, all professions are equal and, therefore, every one
shall treat one other professionals with respect and fairness.
Examples of Code of Conduct and Ethics for Professionals are shown in:
 Appendix A - For Professional Teachers
 Appendix B - For Internal Auditors
 Appendix C - For Management Accountants
Examples of Code of Business Conduct and Ethics for Private Enterprises are presented
in:
 Appendix D - Telecommunications Company
 Appendix E - Manufacturing Company
 Appendix F - Commercial Bank

CHAPTER 6: BUSINESS ETHICS

BASIC CONCEPT OF BUSINESS ETHICS
Business ethics
 Refers to standards of moral conduct, behavior and judgment in business. It involves
making the moral and right decisions while engaging in such business activities as
manufacturing and selling a product and providing a service to customers. Business ethics
is an area of corporate responsibility where businesses are legally bound and socially
obligated to conduct business in an ethical manner.
 Is based on the personal values and standards of each person engaged in business.

PURPOSES OF BUSINESS ETHICS

Main Purpose
 The main purpose of business ethics is to help business and would-be business to
determine what business practices are right and what are wrong. Hopefully, they are
going to use this knowledge to guide them in making the right business decisions.

Special Purpose
 There are other purposes which are corollary to the main purpose. These purposes include
the following:
a. To make businessmen realize that they cannot employ double standards to the
actions of other people and to their own actions.
b. To show businessmen that common practices which they have thought to be right
because they see other businessmen doing it, are really wrong.
c. To serve as a standard or ideal upon which business conduct should be based.
 Except for some country's organizations, professionals which have formulated and
implemented their Code of Ethics, the business world today does not have one universal
standard code of ethics. Each man has to evaluate a situation according to his own belief.
Often, because there is no code of ethics to guide them, businessmen take actions that
may be wrong. Therefore, one of the specific purposes of business ethics is to assist the
business world in formulating codes of conduct personal, company and professional -
which can be used as a guide in formulating business plans and strategies and in making
business decisions.

SCOPE AND IMPACT OF BUSINESS ETHICS

 Business ethics covers all conduct, behavior and judgment in business. This includes the
slightest deviation from what is right to illegal and dishonest acts that are punishable by
law. It involves making the right choices while engaging in such business activities as
manufacturing and selling a product or selling and rendering a service.
 Generally, actions that are not forbidden by law are ethical. In some cases, however, what
is legal (not forbidden by law) may be unethical. Business ethics therefore covers even
acts that may be legal but which are wrong because they violate ethical principles.
  Business ethics is based on the personal values and standards of each person engaged in
business. Since individual values differ, what is ethical or unethical in making profit also
varies from person to person. And here lies the problem. There is still no uniform
standards of right and wrong from which all business may base their actions.
 The businessman who provides fair business competition is the most likely to observe the
business ethical rules of conduct, behavior and judgment. Fair business competition
means achieving success solely by offering better products, services and terms than the
competitor. It is a form of business competition where success is gained by the merits of
one's goods or services.
Economic Impact
 A business has an economic impact on society through the wages it pays to its employees,
the materials that it buys from their suppliers and the prices it charges its customers. It
would have a positive social impact on its employees if they are paid fair living wages and
benefits. It will have a positive effect on its suppliers that they paid fairly and on time for
their supplies. The effect on its customers is positive if the business gives them good
value for the price they pay for the products and services.
Social Impact
 The social impact of corporate governance contributes to the ethical climate of society. If
businesses offer bribes to secure work or other benefits, engage in accounting fraud or
breach regulatory and legal limitations on their operations, the ethics of society suffer. In
addition to a deteriorating ethical environment, such as corruption may unfairly raise the
price of goods for consumers or the quality of the product or service compromised.
Environmental Impact
 Environmental protection is a key area of business influence on society. Businesses that
implement good environmental policies to use energy more efficiently, reduce waste and
in general lighten their environmental footprint can reduce their internal costs and
promote a positive image of their company. The environmental initiatives of a business
leader often force competitors to take similar action for an increased beneficial effect on
the environment.
Impact on Business Managers
 The concepts and principles for the ethical conduct in business are relegated to the
managers of the business enterprise. Thus, although the manager is expected to act in
the best interest of the business, he cannot be expected to act in a manner that is
contrary to the law or to his conscience.
In particular, a manager should:
 Acknowledge that his role is to serve the business enterprise and the community;
 Avoid all abuse of executive power for personal gain, advantage or prestige;
 Reveal the fact to his superior whenever his personal business of financial interests
conflict with those of the company;
 Be actively concerned with the difficulties and problems of subordinates, treat them fairly
and by example, lead them effectively, assuring to all the right of reasonable access and
appeal to superiors;
 Recognize that his subordinates have a right to information on matter affecting them, and
make provision for its prompt communication unless such communication is likely to
undermine the security and efficiency of the business;
 Fully evaluate the likely effects on employees and the community of the business plans for
the future before taking a final decision and
 Cooperate with his colleagues and not attempt to secure personal advantage at their
expense.

ETHICAL CHALLENGES IN TODAY'S WORLD

 In an article, "Ethical Challenges in Today's World" written by Ms. Mercedes B. Suleik
published in the Business Mirror on February 13, 2018 the author expressed her insights
 on "Business Ethics" where an inherent conflict between ethics and the pursuit of profit is
more pronounced.

Cited in this article is the message of Pope Francis in his Ecumenical, Evangeli Gaudium

"Humanity is experiencing a turning point in its history as can be seen from the advances
occurring in the sciences and technology. We are in age of knowledge and information and that
this has led to new and often anonymous kinds of power. We have today an economy of
exclusion and inequality".

"In a system that idolizes increased profit, everything that stands in its way is pushed aside.
Behind this attitude lurks a rejection of ethics. Ethics has come to be viewed with derision as
being counterproductive. Ethics is felt to be a threat because it condemns the manipulation and
debasement of the person and that ethics leads to a call for a committed response, which is
outside of the categories of the marketplace."

She also quoted Pope Benedict XVI's Encyclical Caritas in Veritate

"Humanity has a mission and the means to transform the world in justice and love in human
relations, even in the social and economic field. Market economics must be underpinned by
commitments to particular moral goods and a certain version of the human person if it is to
serve rather than undermine humanity's common good. The economy needs ethics in order to
function correctly - not an ethics which is people- oriented."

CHAPTER 7: COMMON UNETHICAL PRACTICES OF BUSINESS ESTABLISHMENTS

COMMON UNETHICAL PRACTICES OF BUSINESS ESTABLISHMENTS
 Unethical problems in business ethics occur in many forms and types. The most common
of these unethical practices of business establishments are misrepresentation and over-
persuasion.

Misrepresentation
 May be classified into two types:
a) direct misrepresentation
b) indirect misrepresentation.
1. Direct Misrepresentation is characterized by actively misrepresenting about the product
or customers.
This includes:
 Deceptive Packaging.
 Deceptive packaging takes many forms and is of many types. One type is the
practice of placing the product in containers of exaggerated sizes and
misleading shapes to give a false impression of its actual contents. An
example of this type of deceptive packaging is slack-fill packaging where
containers like cartons, tin cans and certain plastics are filled only up to
eighty-five to ninety-five percent of their capacity.
 Misbranding or Mislabeling.
 Misbranding is the practice of making false statements on the label of a
product or making its container similar to a well-known product for the
purpose of deceiving the customer as to the quality and/or quantity of a
product being sold.
 False or Misleading Advertising.
 Advertising serves a useful purpose if it conveys the right information. It is
the principal means by which people are informed about the availability,
 nature and uses of old and new products. However, advertising does not
always tell the "whole truth and nothing but the truth" if it greatly
exaggerates the virtues of a product and tells only half of the truth or else
sings praises to its non- existent virtues. If advertising does not provide a
useful service anymore to the customers, it can become the agent of
misrepresentation.
Examples are:
a) Advertisements with pictures or statements that convey exaggerated
impression of the product's reliability or quality.
b) Advertisement that claims that the product is the "fastest selling
brand" or the "product of the year".
c) Advertisements using fictitious or obsolete testimonials.
 Adulteration.
 Adulteration is the unethical practice of debasing a pure or genuine
commodity by imitating or counterfeiting it, by adding something to increase
its bulk or volume, or by substituting an inferior product for a superior one
for the purpose of profit or gain. It is unethical because an inferior product is
passed off as a superior one. This does not meet the standard for fair
service, that is achieving success by offering better service (in the form of a
superior product and terms of payment) than the competitor.

 Weight understatement or Short weighting.

 In short weighing, the mechanism of the weighing scale is tampered with or
something is unobtrusively attached to it so that the scale registers more
than the actual weight. An example is a foot pedal with a concealed string
tied to the weighing scale. The modus operandi of sellers is to use two sets of
scales one which gives the correct weight and has been sealed by the
authorities and another which looks identical but registers more weight than
the product. Short weighing is practiced in selling products where prices
depend on the weight such as sugar, meat, fish, vegetables, fruits, nails, etc.

 Measurement understatement or Short measurement.

 In short measurement, the measuring stick or standard is shorter than the
real length or smaller in volume than the standard. This unethical practice is
found in selling situations where the price of the product depends on its
length such as selling cloth or textiles, electric cords or wires or on its volume
such as selling rice by the sack.

 Quantity understatement or Short numbering.

 In this unethical practice, the seller gives the customer less than the number
asked for or paid for. Short numbering is often practiced in selling situations
where the product being sold is in such a shape or is packed in a manner that
would make counting the product difficult or inconvenient. For example, a
customer who is not vigilant may receive less quantity than what he is
entitled to when buying toilet paper, bond paper, carbon paper, paper clips,
thumb tacks, matches and toothpicks which are sold by the box or package.
2. Indirect Misrepresentation
 Is characterized by omitting adverse or unfavorable information about the product
or service. Among the most common practices involving indirect misrepresentations
are caveat emptor, deliberate withholding of information and business ignorance.
 Caveat emptor
 Is a practice very common among salesmen. Translated, caveat
emptor means "let the buyer beware". Under this concept, the seller is
 not obligated to reveal any defect in the product or service he is
selling. It is responsibility of the customer to determine for himself the
defects of the product.
 Indirect misrepresentation and unethical because a seller is a witness
for the goods he is selling. He testifies to its nature, features, uses and
qualities. As a witness, it is his obligation to "tell the truth and nothing
but the truth" about his product. What makes caveat emptor unethical
is the willingness of the seller to generate profit by taking advantage
of the buyer's lack of information. This is passive deception which is
also lying.
 Deliberate Withholding of Information.
 Following the argument that caveat emptor is unethical, the deliberate
withholding of significant information in a business transaction, is also
unethical. No business transaction is fair where one of the parties does
not exactly know what he is giving away or receiving in return."
 Passive deception.
 Direct misrepresentation gives business a bad name while indirect
misrepresentation or passive deception is not as obvious, it
nonetheless contributes to the impression that businessmen are liars
and are out to make a fast buck. Business ignorance is passive
deception because the businessman is unable to provide the customer
with the complete information that the latter needs to make a fair
decision.
Over-Persuasion
 Persuasion is the process of appealing to the emotions of a prospective customer and
urging him to buy an item of merchandise he needs. Persuasion is legitimate and
necessary in the selling of goods if it is done in the interest of a buyer such as persuading
him to get a hospitalization insurance policy. However, persuasion used for the sole
benefit of selling a product without considering the interest of the buyer is not ethical.
The common instances of over-persuasion include the following examples:
1. Urging a customer to satisfy a low priority need for merchandise..
2. Playing upon intense emotional agitation to convince a person to buy.
3. Convincing a person to buy what he does not need just because he has the capacity or
money to do so.

CORPORATE ETHICS
Unethical Practices of Corporate Management
 Practices of corporate management that involve ethical considerations may be classified
into two:
1) Practices of the Board of Directors
2) Practices of executive officers.
 In many cases, the practices may apply to both categories of corporate management and
the only dividing line is in the financial magnitude and implications of a particular
corporate management practice.
Some Unethical Practices of the Board of Directors
1. Plain Graft
 Some of the Board of Directors help themselves to the earnings that otherwise
would go other stockholders. This is done by voting for themselves and the
executive officers huge per diems, large salaries, big bonuses that do not
commensurate to the value of their services. They can also reduce the earnings
going to the other shareholders by authorizing purchases of goods and services
for the company's use at a price higher than normal, in consideration of a
certain percentage of the purchase value or commission accruing to them.
 2. Interlocking Directorship
 Interlocking directorship is often practiced by a person who holds directorial
positions in two or more corporation that do business with each other. This
practice may involve conflict of interest and can result to disloyal selling.
Disloyal selling happens when this person is compelled to decide which of the
two corporation's interest should be protected or upheld. Thus, whatever
decisions the person makes, he betrays the trust reposed on him by the
shareholders of either of the two companies.
3. Insider Trading
 Insider trading occurs when a broker or another person with access to
confidential information uses that information to trade in shares and securities of
a corporation, thus giving him an unfair advantage over the other purchasers of
these securities.
4. Negligence of Duty
 A more common failure of the members of the Board of Directors than breach of
trust is neglect of duties when they fail to attend board meetings regularly. It is
only in regular attendance that they can protect the rights and interests of the
shareholders and their non-attendance of board meetings could result to
betrayal of trust of the parties who elected them to their positions.

Some Unethical Practices of Executive Officers and Lower Level Managers

 To a lesser extent, executive officers may also guilty of unethical practices. All the
unethical practices of the members of the Board of Directors discussed are activities they
are also capable of engaging in though perhaps to a lesser degree because of certain
limits to their authority. Unethical practices that are more common to executive officers
and lower level managers are:
1. Claiming a vacation trip to be a business trip.
 The President or a Vice President reports his personal vacation in Europe or in
the United States as a business trip so he can get reimbursement for his
expenses including those of his family's.
2. Having employees do work unrelated to the business.
 Executive officers and lower managers ask company employees to do personal
things for them on company time such as having the company janitors water
and mow their lawns, having the maintenance men do house or appliance
repairs for them, and having subordinate employees secure a license or type
letters pertaining to their other businesses.
3. Loose or ineffective controls.
 Managers do not provide adequate controls to remove temptation and to
prevent or discourage employees from engaging in unethical practices. A
manager has the moral obligation to provide the proper control atmosphere so
that his subordinates will not be tempted to commit dishonest acts. A manager
indirectly betrays the trust placed on him by higher executive officers if the
administrative and accounting controls in his office are so weak or effective that
employees are given the opportunity to misappropriate funds or engage in petty
thievery.
4. Unfair labor practices.
 The labor code lists the following as unfair labor practices committed by an
employer on employees or a group of employees who have organized
themselves into a union.
a. To interfere with, restrain or coerce employees in the exercise of their right
to self-organization:
b. To require as a condition of employment that a person or an employee shall
not join a labor organization or shall withdraw from one to Which he belongs;
 c. To contract out services or functions being performed by union members
when such will interfere with, restrain or coerce employees in the exercise of
their rights to self organization:
d. To initiate, dominate, assist or otherwise in with the formation or
administration of any labor organization, including the giving of financial or
other support to it:
e. To discriminate with regard to wages, hours of work, and other terms or
conditions of employment in order to encourage or discourage membership in
any labor organization.
f. To dismiss, discharge, or otherwise prejudice or discriminate, against an
employee for having given or being about to give testimony under the Labor
Code:
g. To violate the duty to bargain collectively a prescribed by the Labor Code:
h. To pay negotiation or attorneys fees to the union or its officers or agents as
part of the settlement of any issue in collective bargaining or any other
dispute:
i. To violate or refuse to comply with voluntary arbitration awards or decisions
relating to the implementation or interpretation of a collective bar gaining
agreement;
j. To violate a collective bargaining agreement.
5. Making false claims about losses to free themselves from paying the
compensation and benefits provided by law.
 There are employers who claim non-existent losses so they can be exempted
from paying the minimum wage and emergency-cost-of-living allowances
required by law.
6. Making employees sign documents showing that they are receiving fully what
they are entitled to under the law when in fact they are only receiving a
fraction of what they are supposed to get..
7. Sexual Harassment.
 Work, education or training-related sexual harassment is committed by an
employer, employee, manager, supervisor, agent of the employer, teacher,
instructor, professor, coach, trainer or any other person who, having authority,
influence or moral ascendency over another in a work or training or education
environment, demands, requests or otherwise requires sexual favor from the
other, regardless of whether the demand, request or requirement for submission
is accepted or not by the object.

Some Unethical Practices of Employees

 There are some employees who are not mindful of their moral obligations to their
employers. They take advantage of their position and the trust of their employees by
committing unethical practices harmful to their employers' interest these unethical
practices may be classified into conflict of interest and dishonesty.
1. Conflicts of Interest
 A conflict of interest arises when an employee who is duty bound to protect and
promote the interests of his employer violates this obligation by getting himself
into a situation where his decision or actuation is influenced by what he can
gain personally from it rather than what his employer can gain from it.
Some common examples of conflicts of interest are:
a. An employee who holds a significant interest or shares of stock of a
competitor, supplier, customer or dealer favors this party to the prejudice of
his employer.
b. The employee accepts cash, a gift or a lavish entertainment or a loan from a
supplier, customer, competitor or contractor. In this situation, the decision
 or action of the employee is influenced by his being indebted for a favor or
loan from a party with whom the company is doing business. He, therefore,
cannot act impartially.
c. The employee uses or discloses confidential company information for his or
someone else's personal gain. An example is revealing his employer's
formula or menu for a well-liked food to a competitor.
d. The employee engages in the same type of business as his employer. He
may attend to his business only after office hours because he has somebody
to mind it for him but it is still unethical. An example is an auditor employed
full-time in a public accounting firm but maintains his own auditing office
where he works after office hours.
e. The employee uses for his own benefit a business opportunity in which his
employer has or might be expected to have an interest.
2. Dishonesty
 Business ethics is not just limited to business transactions with outside parties.
It also covers employee-employer relationship, especially with respect to an
employee's honesty as he carries out his assigned duties in the office.

Examples of dishonest acts of employees are:

a. Taking office supplies home for personal use.
b. Padding an expense account through the use of fake receipts when claiming
reimbursements.
c. Taking credit for another employee's idea

CHAPTER 8: ETHICAL DILEMMA

Ethical dilemma
 A situation a person faces in which a decision must be made about the appropriate
behavior. A simple example of an ethical dilemma is finding a diamond ring, which
necessitates deciding whether to attempt to find the owner or to keep it.

RESOLVING ETHICAL DILEMMAS

 In recent years, formal frameworks have been developed to help people resolve ethical
dilemmas. The purpose of such a framework is in identifying the ethical issues and
deciding on an appropriate course of action using the person's own values.
The six-step approach that follows is intended to be a relatively simple approach to
resolving ethical dilemmas:
1. Obtain the relevant facts.
2. Identify the ethical issues from the facts.
3. Determine who is affected by the outcome of the dilemma and how each person or
group is affected.
4. Identify the alternatives available to the person who must resolve the dilemma.
5. Identify the likely consequences of each alternative.
6. Decide the appropriate action.

Illustrative Case: Resolving an Ethical Dilemma

Bert Cruz has been working for 6 months as a staff assistant for a law firm. Alvendia and Castro.
Currently he is assigned to the case of Ryan Manufacturing Company under the supervision of
Carlos Reyes, an experienced senior lawyer. There are three junior legal of assistants assigned
to the case, including Bert, Carlos and more experienced assistant, Martha Sy.

During lunch on the first day, Carlos says, "It will be necessary for us to work a few extra hours
on our own time to make sure we come in on budget. This case isn't very profitable anyway, and
we don't want to hurt our firm by going over budget.

We can accomplish this easily by coming in a half hour early, taking a short lunch break, and
working an hour or so after normal quitting time. We just won't write that time down on our
time report."

Bert recalls reading in the firm's policy manual that working hours and not charging for them on
the time report is a violation of Alvendia and Castro employment policy. He also knows that
seniors are paid bonuses, instead of overtime, whereas staffs are paid for overtime but get no
bonuses.

Later, when discussing the issue with Martha, she says, "Carlos does this on all of his job. He is
likely to be our firm's next manager. The partners think he is great because his job always come
in under budget. He rewards us by giving us good engagement evaluations, especially under the
cooperative attitude category. Several of the other seniors staff follow the same practice."

Ethical Issue
 The ethical issue in this situation is not difficult to identify.
 Is it ethical for Bert to work hours and not them as hours worked in this
situation?

Who is Affected and How is each Affected?

There are typically more people affected in situations in which ethical dilemmas occur than
would normally be expected. The following are the key persons involved in this situation:
Who How Affected
Bert  Being asked to violate firm
policy. Hours of work will
be affected. Pay will be
affected. Performance
evaluations may be
affected. Attitude about
firm may be affected.
Martha  Same as Bert.
Carlo  Success on engagement
and in firm may be
affected.
 Hours of work will be
affected.

Alvendia and Castro  Stated firm policy is being

violated.
 May result in under billing
clients in the current and
future engagements.
 May affect the firm's ability
to realistically budget
engagements and bill
clients.
 May affect the firm's ability
to motivate and retain
employees.
Staff assigned to Rayon Manufacturing in the  May result in unrealistic
future time budgets.
  May result in unfavorable
time performance
evaluations.
 May result in pressures to
continue practice of not
charging for hours worked.
Other staff in firm  Following the practice of
this engagement may
motivate others to follow
the same practice on other
engagements.

Bert's Available Alternatives

 Refuse to work the additional hours.
 Perform in the manner requested.
 Inform Carlos that he will not work the additional hours or will charge the additional hours
to the engagement.
 Talk to manager or partner about Carlos request.
 Refuse to work on the engagement.
 Quit working for the firm.

 Each of these options includes a potential consequence, the worst likely one being
termination by the firm.

Consequences of Each Alternative

 In deciding the consequences of each alternative, it is essential to evaluate both the
short- and long-term effects. There is a natural tendency to emphasize the short term
because those consequences will occur quickly, even when the long- term consequences
may be more important. For example, consider the potential consequences if Bert decides
to work the additional hours and not report them. In the short term, he will likely get
good evaluations for cooperation and perhaps a salary increase. In the longer term, what
will be the effect of not reporting the hours this time when other ethical conflicts arise?
Consider the following similar ethical dilemmas Bert might face in his career as he
advances:
 A supervisor asks Bert to work 3 unreported hours daily and 15 unreported hours
each weekend.
 A supervisor asks Bert to initial certain procedures as having been performed when
they were not.
 Bert concludes that he cannot be promoted to manager unless he persuades
assistants to work hours that they do not record.
 Management informs Bert, who is now a partner, that either the company gets a
P400,000 legal fee or the company will change lawyers.
 Management informs Bert that the legal fee will be increased P50,000 if Bert can
find a plausible way to increase probability or wining the case.

Appropriate Action
 Only Bert can decide the appropriate option to select in the circumstances after
considering his ethical values and the likely consequences of each option. At one extreme,
Bert could decide that the only relevant consequence is the potential impact on his career.
Most of us would conclude that Bert is an unethical person if he follows that course. At the
other extreme, Bert can decide to refuse to work for a firm that permits even one
supervisor to violate firm policies. Many people would consider such an extreme reaction
naïve.
Questions:
How do we know whether we are acting ethically?
 Determining whether we're acting ethically involves considering the consequences of our
actions, respecting the rights and well-being of others, and adhering to moral principles or
ethical frameworks. It's often a blend of introspection, empathy, and reasoning.

Who decide what standards of conduct are appropriate?

 Standards of conduct can be determined by various sources such as cultural norms, laws
and regulations, religious beliefs, philosophical principles, professional codes of ethics, and
societal consensus. Ultimately, it's a combination of societal, institutional, and personal
influences that shape what is considered appropriate behavior in different contexts.

Is any type of behavior "ethical" as long as it does not violate a law or a rule of one's profession?
 Not necessarily, While laws and professional rules can provide guidance, they may not
cover every ethical consideration. Ethical behavior often goes beyond mere legality and
professional standards, taking into account moral principles, empathy, fairness, and the
potential impact on others. Just because something is legal or allowed by professional
rules doesn't automatically make it ethical.

Chapter 5:
Define "Ethics".
 Ethics, as defined in the book, refers to a set of moral principles or values that govern the
actions and decisions of an individual or a group. Its primary objective is to guide and
encourage the members of a company or simply an individual to act in accordance with
the rules of the company to promote uniformity and efficient output. Each person may
follow different ethics but in a society as a whole, there is a certain principle that is
followed by everyone which validates whether a certain action is ethical or not. Ethics
could also be associated with moral philosophy as it could determine whether an actions is
morally bad or good, and morally right and wrong.
 a set of moral principles or values that govern the actions and decisions of an individual or
group.

What is the basic purpose of a code of ethics for a profession?

 Code of ethics for a profession is ideally to secure that the behavior of the employees are
directed in a manner that is socially acceptable and respectful of one another. It is also
established to protect the rights and reputation of the professionals. It establishes es a
guideline which directs professionals to act with discipline and in a professional manner.
Moreover, it provides the employees a good conduct in decisional making and promotes
integrity, honesty and an ideal professional in the workplace. Usually, people who violates
the code of ethics incur disciplinary actions which urge them to obey and enhance their
stature of discipline

Name and explain the characteristics and values associated with ethical behavior.
 Integrity - This encourages the company members to be courageous, upright and
honorable. It discourages the characteristics of being two faced and unscrupulous or adopt
an end-justice-the means philosophy that ignores principles
 Honesty - This aims to govern the employees to disclose only the truth and aims to
eliminate cheating, lying, stealing and deceiving.
 Trustworthiness and promise Keeping - This cherishes the essence of trust and full
commitments among the company members. It promotes just and reasonable
interpretations of agreements in order to rationalize noncompliance or excuses in breaking
commitments.
  Loyalty and Confidentiality - This refer to being loyal to employers, client and the
country. It tells us not to disclose information learned in confidence and safeguard the
influences and conflicts of interests.
 Fairness and Openness - Being fair and open-minded in dealing with different
situations. A person who is willing to commit mistakes, flexible enough to change his
perceptions and beliefs, and equally treats other individuals. He does not take advantage
of other's weaknesses and has a high tolerance of accepting diversity within the
organization.
 Caring for Others - Being caring, kind and compassionate towards other people; willing
to share and provide service to others without asking something in return and willing to
help those in need.
 Respect for Others - Values respect for dignity and privacy. A person who provides
others the information they need to make reasonable decisions and do not embarrass nor
demean others.
 Responsible Citizenship - It promotes a citizen who obeys laws and exercises all
democratic rights by participating to government activities and public service. Those who
belong in high position of leadership should honour democratic processes of decision
making that prioritizes the welfare of the people. It does not tolerate unnecessary
concealment of information and assure that all decisions are derived from intelligent
choices.
 Pursuit of Excellence - It exemplify a person who meets personal and professional
responsibilities with excellence and to the best of his stability. He should maintain a high
degree of competence and does not easily content with mediocrity.
 Accountability - Accepts responsibility for decisions for the foreseeable consequences of
actions and inactions. Those who are in higher positions such as parents, public officials,
teacher and employers should exercise leadership to safeguard the integrity of their
families, the government and professions.

Explain why ethical behavior is necessary.

 Ethical behavior is a very important element in holding the society together. It maintains
the proper order among the people and guides them towards attaining peace and unity.
Without ethical behavior, people might exercise stealing, cheating, lying and other actions
that could lead into a chaos that may danger the people and the bond of the society as a
whole. It also provides a long-term benefit to the society as people are motivated to be
incorporated with good characteristics and eliminate bad habits that harm other people.
 Ethical behavior is necessary for a society to function in an orderly manner. Ethics also is
like a glue that holds a society together. Without this behavior it will make an
environment hostile for everyone.

What are some of the reasons why people act unethically?

 Some people tends to act unethical when they believe in a different principle when dealing
in a certain situation. We are the ones who decides what's ethical and unethical and some
may see an action unethical which varies on the principle that they believe in. Generally,
there are two major reasons why people act unethically. (1) It is when the person's ethical
standards are different from those of society as a whole similar to what is previously
mentioned; (2) and the other is when a person chooses to act selfishly. The best example
for the first reason are those drug dealers and bank robbers. While the other reason is
exemplifies through cheating on tax returns, the pork barrel scam and other political
scandals which were results of an individuals' financial greed and incompetence. B this,
we can also say that people are more likely to act unethical when they don't realize that
they are making actions that are harmless to others even if it is really not.
A. the person's ethical standards are different from those of society as a whole.
B. the person chooses to act selfishly.
Describe some the principles and or values that are related to
a) Personal ethics
 This encompasses the individual's belief about morality actions that are right and
wrong. This branch of ethics are commonly outside an organizations as it involve an
interpersonal relationship.
 Basic justice, fairness
 Respect for the right of other
 Concern for the right of others
 Concern for the well-being on welfare of others
 Benevolence, trustworthiness, honesty
 Compliance with the law
b) Professional ethics
 This branch of ethics are integrated with corporate standards of behaviour expected
from professionals. It aims to achieve the highest standards of honesty and
integrity among professional that enhances their performances. inside the
workplace.
 Integrity, impartiality, objectivity
 Professional competence
 Confidentiality
 Professional behaviour
 Avoidance of potential or apparent conflict of interest
c) Business ethics
 This is a study of appropriate business policies and practices which includes
potentially controversial subjects such as corporate governance, bribery,
discrimination, corporate social responsibility and fiduciary responsibilities.
 Fair competition
 Global as well as domestic justice
 Social responsibility
 Concern for environment

Explain why ethical behavior is necessary in the practice of one's profession.

 Ethical behaviour is a moral code that governs the behaviour or individuals.
Generally, this leads the employees to an efficient performance in the workplace. It
motivates them to act in a proper manner, develop interactions with the co-
employees and stimulate positivity that leads to organizational growth. It helps
eliminate actions that can harm other people in the organization or hindrance the
work job to be accomplished by an employee. It discourages, as well, the unethical
behaviors that people might be doing if there is nothing that directs them to do the
right actions.

Chapter 6:
What does business ethics mean?
 Business ethics refers to the set of principles and rules which provide standard to the
behaviour of individuals directly related to business affairs such as selling of products,
manufacturing and providing services to customer. It is an area of corporate responsibility
where businesses are bound legally and socially by the standard to operate in an ethical
manner. It enhances the law by outlining acceptable behaviours beyond government
control. Corporations establish business ethics to promote integrity among their
employees and gain trust from key stakeholders, such as investors and consumers.
 the standards of moral conduct, behavior, and judgement in business. It is based on the
personal values and standards of each person. engaged in business.
What is the main objective of observing ethical behavior in business?
 Code of ethics for a profession is ideally to secure that the behaviour of the employees are
directed in a manner that is socially acceptable and respectful of one another. It
establishes a rule that provides standard for discipline and guide one's actions in dealing
with different circumstances and act in accordance with the ethical rules by which
everyone is required to comply with.

Name the other purpose of business ethics.

 Aside from the main purpose of business ethics, other purposes of it includes the
following:
 To make business realize that they cannot employ double standards to the actions
of other people and to their own actions.
 To show businessmen that common practices which they have thought to be right
because they see other businessmen doing it, are really wrong.
 To serve as a standard or ideal upon which business conduct should be based.

What is the scope of business ethics?

 Ethical behaviour is a very important element in holding the society together. It maintains
the proper order among the people and guides them towards attaining peace and unity.
Without ethical behaviour, people might exercise stealing, cheating, lying and other
actions that could lead into a chaos that may danger the people and the bond of the
society as a whole. Generally business ethics cover the following areas.
 Ethics in Compliance
 Compliance is about obeying and adhering to rules and authority. The
motivation for being compliant could be to do the right thing out of the fear
of being caught rather than a desire to be abiding by the law. An ethical
climate in an organization ensures that compliance with law is fueled by a
desire to abide by the laws. Organizations that value high ethics comply with
the laws not only in letter but go beyond what is stipulated or expected of
them.
 Ethics in Finance
 The potential for financial managers to line their own pockets or ruin a client
or company through bad judgment is immense. The role of ethics in financial
management is to balance, protect and preserve stakeholders' interests.
Financial managers must have the skills to handle large sums of other
peoples' money, but skill alone isn't enough. It's essential to have a code of
ethics in finance and to live up to those principles every day.
 Ethics in Human Resources
 Human resource management (HRM) plays a decisive role in introducing and
implementing ethics. Ethics should be a pivotal issue for HR specialists. The
ethics of human resource management (HRM) covers those ethical issues
arising around the employer-employee relationship, such as the rights and
duties owed between employer and employee.
 Ethics in Marketing
 Marketing ethics is the area of applied ethics which deals with the moral
principles behind the operation and regulation of marketing. The ethical
issues confronted in this area include:
 Ethics of Production
 This area of business ethics deals with the duties of a company to ensure
that products and production processes do not cause harm. Some of the
more acute dilemmas in this area arise out of the fact that there is usually a
degree of danger in any product or production process and it is difficult to
define a degree of permissibility, or the degree of permissibility may depend
 on the changing state of preventative technologies or changing social
perceptions of acceptable risk.

Explain the economic impact of observing business ethics.

 A business has an economic impact on society through the wages it pays to its employees,
the materials that it buys from their suppliers and the prices it charges its customers. It
would have a positive social impact on its employees if they are paid fair living wages and
benefits. It will have a positive effect on its suppliers that they paid fairly and on time for
their suppliers. The effect on its customers is positive if the business gives them good
value for the price they pay for the products and services.

What is the impact of business ethics to society in general?

 Business ethics maintains to keep the business under the expectations and welfare of
society because society provides the place for business so business should be made bound
not to violate the basic of society. The purpose of a business should be contribution in
bringing prosperity and harmony in society. Business ethics take into consideration
responsibilities not just inside the workplace, but also within the environmental, cultural,
and social structures of communities. The social impact of corporate governance
contributes to the ethical climate of society. If business offers bribes to secure work or
other benefits, engage in accounting fraud or breach regulatory and legal limitations on
their operations, the ethics of society suffer. In addition to a deteriorating ethical
environment, such as corruption may unfairly raise the price of goods for consumers or
the quality of the product or service compromised.

Explain how business managers could act ethically.

 A business manager acts ethically if he follows the following actions:
 Acknowledge that his role is to serve the business enterprise and the community;
 Avoid all abuse of executive power for personal gain, advantage or prestige;
 Reveal the fact to his superior whenever his personal business of financial interests
conflict with those of the company;
 Be actively concerned with the difficulties and problems of subordinates, treat them
fairly and by example, lead them effectively, assuring o all the right of reasonable
access and appeal to superiors,
 Recognize that his subordinates have a right to information on matter affecting
them, and make provision for its prompt communication unless such
communication is likely to undermine the security and efficiency of the business;
 Fully evaluate the likely effects on employees and the community of the business
plans for the future before taking a final decisions; and
 Cooperate with his colleagues and not attempt to secure personal advantages at
their expenses.
Describe the inherent conflict between ethics and pursuit of profit.
 The pursuit of profit must not conflict with the concept of what is right or ethical in the
conduct of business. One of the most salient considerations for pursuing business is profit.
But that doesn't mean that anyone who is into business has the right to employ whatever
means they want to obtain profits. There is no absolute freedom for anyone to implement
whatever means to gain profits, mostly if those means are unethical, abusive, or harmful
to the society or environment. In addition, people often joke that "business ethics" is a
contradiction in terms. What they are referring to is the apparently inherent between
ethics and pursuit of profit. The implication is that if a company has to choose between
profits and doing the right thing, profits will always win.
Chapter 7:
What are the two most common types of unethical practices of business establishments as far as
the products or customers are concerned?
 Misrepresentation
 Over- persuasion

Give and explain briefly at least three ways of directly misrepresenting. products.
 Deceptive Packaging means attracting purchaser by making packaging that mislead or
deceived them for example placing the product in larger containers to exaggerate sizes
and misleading shapes to give false impressions of its actual contents.
 Misbranding or Mislabeling is a practice of making false statements on the label of the
product or making its container similar to a well known product to a purpose of deceiving
the customer as to the quality and the quantity of a product being sold for example selling
underarm skin whitening product and it was labeled 48-hour anti- perspirant but the
actual is good for 24-hours only.
 False or Misleading Advertising is exaggerating the virtues of a product and tells only
half of the truth for example advertising using fictitious or obsolete testimonials.
 Weight understatement or short weighing weighing scale is tampered.
 Measurement understatement or short measurement the measuring stick or
standard is short than the real length,
 Quantity understatement or short numbering the seller gives the customer less than
the number asked for or paid for.

How is indirect misrepresentation of a product undertaken?

 This was done through omitting adverse or unfavorable information about the product or
services. When the seller do not inform the buyers with the defects of damages of the
products and services he is aware of, deliberate withholding of the information, not
providing information that the latter needs to make fair decisions and making persuasion
for the sole benefit of selling the product without considering the interest of the buyer are
all means undertaken for indirect misrepresentations.

What does "caveat emptor" mean?

 A common practice among salesman. Caveat emptor when translated is "Let the buyer
beware" which means the seller has no responsibility to inform the buyer that the product
has defects or damages because for them it was buyer's responsibility to figure out theses
defects before buying the certain product. This is considered as indirect misrepresentation
and unethical on the part of the seller because he is aware of the defects of the products
he is selling.
 Caveat emptor "let the buyer beware". The seller is not obliged to reveal any defect in the
product

When does over-persuasion become unethical?

 When done only for the benefit of selling the product without considering the interest of
the buyer.

What is "interlocking directorship" and why could it lead to unethical actions of a member of the
board of directors?
 Interlocking directorship is practiced by a person who holds directorial positions in two or
more corporation that do business with each other. This might lead to unethical actions
among the members of the boards due to conflict of interest and can result to disloyal
selling which means choosing between two corporations which of the two to protect and
upheld, hence whatever decisions made by that person it betrays the trust of either the
two of the companies.
  Interlocking Directorship a person who holds directorial positions in two or more
corporation that do business with each other. This practice may involve conflict of interest
and can result to disloyal selling.

Insider trading is considered an unethical practice. Why?

 It was considered unethical practice because the information they were trading are
supposed to be confidential and must not be disclosed with anybody else except to those
who got authorization and rights over it. When this insider trading happens it leads to
making other party enjoy unfair advantage over others. This is an illegal act of buying and
selling of information.
 Insider Trading is considered an unethical practice because an employee or any person
uses its advantages of knowing confidential Information's in trading shares and securities.

What are some of the unethical practices that executive officers may be guilty of?
 Claiming a vacation trip to be a business trip
 Having employees do work unrelated to the business
 Loose or ineffective controls
 Unfair labor practices
 Making false claims about losses to free themselves from paying the compensation and
benefits provided by law
 Making employees sign documents showing that they are receiving fully what they are
entitled to under the law when in fact they are only receiving a fraction of what they are
supposed to get.
 Sexual harassment

Cite some unethical practices of employees to their employers.

 Conflicts of interests
 It is arise when the employee violates his obligation to protect and promote the
interest of his employers by putting himself into situation where his decision or
actuation is influenced by what he can gain personally from it rather than what his
employer can gain from it and the examples are: (1) employee uses his own
benefit a business opportunity in which his employer might be expected to have
interest; (2) An auditor full-time employed in public accounting firm but maintain
his own auditing office where he works after office hours; (3) Revealing his
employers formula or menu for a well-liked food competitor; (4) Having loan from
a party with the company whom the company is doing a business which cannot
made him act impartially and; (5) An employee who holds significant interest of a
competitor favor this party to the prejudice of his employer.
 when an employee who is duty bound to protect and promote the Interests of his
employer violates this obligation.
 Dishonesty
 It is when the employee do not carries out his assigned duties in the office with
honesty and the examples are: (1) taking office supplies home for personal use; (2)
padding an expense account through the use of fake receipts when claiming
reimbursements and ; (3) taking credit for another employee's idea.
 taking office supplies home for personal use, padding expense account through the
use of fake receipts when claiming reimbursements, and taking credit for another
employee's idea.

Distinguish between direct misrepresentation indirect misrepresentation.

  Direct misrepresentation you are directly misrepresenting something by making
advertisement with pictures or statement that convey exaggerated impression of the
product's reliability or quality, advertisement that misbranding or mislabeling the products
or services, and making fictitious or obsolete testimonials or in short you are doing direct
actions that mislead or deceive the buyer which are all forms of misrepresentation.
Whereas, in Indirect misrepresentations you are just trying to conceal all the
unfavorable informations especially defects or damages about the product and the
services which you are actually aware of but then you intend not to inform the buyer and
just wait for the buyer to figure it out themselves, in this scenario you have the
responsibility to inform them and not doing it made your actions unethical because it is an
indirect way of lying.
 Direct Misrepresentation: characterized by actively misrepresenting about the product
or customers
 Indirect Misrepresentation: Misrepresentation omitting adverse o unfavorable
information about the product or service. These are caveat emptor, deliberate withholding
of information and business ignorance

MULTIPLE CHOICE QUESTIONS

1. Examples of direct misrepresentation about the product include the following except
a. False advertising
b. Deceptive packaging
c. Mislabeling
d. Caveat Emptor

2. Examples of indirect misrepresentation about the product include the following except
a. Caveat Emptor
b. Deliberate withholding adverse information
c. Business Ignorance
d. False advertising

3. Examples of direct about the product include the following except

a. adulteration
b. short merging
c. short measurement
d. over persuasion

4. Interlocking directorship by be committed

a. rank and file employees.
b. members of the board of directors
c. top executive officers
d. middle-level managers.

5. The following constitute unfair labor practices of an employer except

a. to restrain employees to form a union
b. to violate a collective bargain or agreement.
c. to discriminate with regard to wages, hours of work
d. to terminate employment of employees found to have violated company policy or employment
contract

6. The following are examples of unethical practices of employers except

a. acceptance of gifts from a customer in exchange for a favor that is detrimental to its interest
of his employer
b. engagement in the same type of business as his employer
c. disclosure of confidential company information to to someone else for person gain.
d. Application for a loan from his employer to settle personal liabilities.

7. The following are examples of dishonest acts of an employee toward his employer except
a. Working overtime upon instructions of his supervisor
b. Bringing home office supplies for personal use
c. Overstating business trip expenses by submitting false receipts
d. Doing personal errands during office hours

Chapter 8:
Describe an ethical dilemma. How does a person resolve an ethical dilemma?
 An ethical dilemma is a situation a person faces in which a decision must be made about
the appropriate behavior.
A person can resolve a dilemma by following a six-step approach
1. Obtain the relevant facts.
2. Identify the ethical issues from the facts.
3. Determine who is affected by the outcome of the dilemma and how each person or
group is affected.
4. Identify the alternatives available to the person who must resolve the dilemma.
5. Identify the likely consequences of each alternative.
6. Decide the appropriate action.
 An ethical dilemma is a disagreement between options in which every ethical theory is
jeopardized, no matter what someone does. Ethical choices include the review of multiple
alternatives, the elimination of the immoral ones and the selection of the best ethical
substitute. The following methods have been followed to solve an ethical problem. The
case must be studied with caution if the paradox (dilemma) is refuted. Often it can be
objectively denied that there is a dilemma.

Why is there a special need for ethical behavior by professionals?

 Because all professionals need to maintain public confidence in their profession and in the
service provided by members of that profession. All professionals are expected to be
competent, perform services with due professional are and recognize their responsibility
to clients.
 There is a particular need for professional ethical conduct in order to preserve public
confidence in the profession and in the resources that practitioners offer. Both
practitioners should be knowledgeable, offer services with proper professional
consideration and understand their obligations to consumers.

After accepting an engagement, a consultant discovers that the client's industry is more
technical than he realized and that he is not competent in certain areas of the operation. What
are the consultant's options?
The consultant's options are:
1) Withdraw from the engagement.
2) Obtain the expertise through continuing education and self-studies.
3) Hire someone who has the expertise.
4) Work on a consulting basis with another firm.
Assuming independence and requisite technical abilities, the pre- acceptance evaluation of a
prospective audit engagement normally focuses on three factors:
1) personal integrity of the prospective client's management and principal
 2) presence of circumstances pointing towards unusual risks in the engagement or requiring
special attention, and
3) other practice management considerations.
 The determination of personal honesty is mostly focused on impressions made by
corporate staff and on assessments of third-party facts. Partners and managers in the
business have also made impressions of potential customer managers and directors before
and these impressions can be acquired in a range of ways within an organization.
Moreover, where there is a predecessor inspector, the successor can ask the predecessor
if all the charges charged to the prospective customer have been paid. Although
maximum paying payments can represent the honesty of future customer management or
officers, the firm's appraisal of the desirability of the future commitment will be affected
by the fact that these fees. have not been paid.

Exercises: ANSWER
Exercise 1:
Identify and discuss the ethical implications of David's act.
 If David don't spend at least a little time to the small loan company then it might get close
in the near future. Business executives and small companies might not get a loan from
that company because no one is present at that company, even David has no time for that
 David needs a sufficient dedication and time to run and supervise his loan business and to
pursue his trade in order for him to have a small loan company and a law firm. He reveals
he doesn't do what a leader is supposed to do. It is very difficult to run two companies,
but it should be balanced to track. A chief want to devote time doing everything fairly. He
already has staff in his law practice, so we believe it is right that he doesn't know too
much if he allows his small loan firm some time in particular. Investment does not only
need money; it needs effort to achieve its maximum value. Make sure you are committed
to studying and developing in order to achieve the goal of the organization and keep that
vision. The business is useless because of David's actions, he spent his resources in
creating the credit company without committing himself, he hopes that his lending will
make a big profit.

Exercise 2:
Required:
Use the six-step approach to resolve the ethical dilemma.
i. Relevant Facts
Frank Doran, a senior audit manager for Cruz and Santos, CPAs, has recently been
informed that the firm plans to promote him as one of the partners if he continues to
perform the same high-quality level like he was doing in the past. He is exceptionally good
at dealing effectively with all people, including client personnel, professional staff,
partners, and potential clients. He has recently built a bigger home for entertaining and
has joined the city's most prestigious golf and tennis club. He is excited about his future
with the firm.

Machine International, a large wholesale company ships goods throughout the world, one
of the most prestigious clients of Bright and Lorren, was recently assigned to Frank Doran
for him to audit the company. Throughout the audit, Franck determines that Machine
International uses a method of revenue recognition called "bill and hold" that has recently
been questioned by the SEC. After thoughtful analysis, Frank decides that the method of
revenue recognition is not appropriate for Machine International.

In reviewing the subject with the engagement partner, she concludes that the accounting
method has been used for more than 10 years by the Machine International and is
 appropriate, especially considering that the client does not file with the SEC. the partner is
definite that the firm would lose the client if the revenue recognition method is found
inappropriate. However, Frank argues the revenue recognition was appropriate in prior
years, but the new SEC ruling makes it inappropriate in the present year.

Frank recognizes the partner's responsibility to make the final decision, but he feels
strongly enough to state that he plans to follow the requirements and include a statement
in the working papers that he disagrees with the partner's decision. The partner informs
Frank that she is unwilling to permit such a statement because of the potential legal
implications. However, she is willing to write a letter to Frank stating that she takes full
responsibility for making the final decision if a legal dispute ever arises.

ii. Ethical Issues

Is it ethical for Frank Doran to disagree with the partner's decision about the audit report
that they will issue regarding Machine International or for him to not disclose his findings
of the violated rulings of the SEC by Machine International?

iii. Who is affected and how is each affected?

1. Frank Doran
 He can't state that he disagrees with the decision of the partner
 They may lose the client if he continues to go with his opinion
 His future position in the firm might be affected
 It may have a negative result and a bad impression of the partners of the
firm
 Attitude about the partner may be affected
 The impression of the other staff to him may be affected and they may see
him. as someone who doesn't recognize other's opinion
2. Engagement Partner
 Her opinion may create audit risk
 If she will not push through with her opinion then they may lose the client
 A misstatement is possible because of her opinion
 May no include the right assessment of the client's financial report
 May create a misunderstanding of how they conclude their report because of
her attitude towards the other auditors
3. Cruz and Santos, CPAS
 They may lose a big client
 A misstatement about the audit report may be created by the engagement
partner
 Partners may have barriers with each other and will create
misunderstandings because of different opinions
 Because of the attitude that an engagement partner will always or often say
that he/she will be responsible for their audit reports, some staff may not
drive their fear out and will be afraid or will not mind to open up their
suggestions and opinions
4. SEC
 A violation of one of the rulings may happen
 May not check the FS of the company and if they comply with their rulings
since it does not file to them
5. Machine International
 They may violate one of the rulings of SEC
 They may not correct their error of revenue recognition.
 The financial information like AR and Sales may result in overstatement due
to their bill and hold revenue recognition
 6. Users of Machine International FS
 Investors of the company may think that Machine International has always
have a big amount of sales not knowing about its revenue recognition, which
is the bill and hold
 The overstatements of the sales may become a major factor in the decision
making of the managers for the company and they may not make an
appropriate decision for their future plans with these unrealistic sales

iv. Frank Doran's Alternative Solution

 It's his duty to review the reports so he should always make sure that his opinions
were right base on factual sufficient appropriate evidence before making a
conclusion, as a senior audit manager.
 Notify the Machine International that their bill and hold revenue recognition is not
appropriate according to the new ruling of the SEC.
 Advice the Machine International to follow the ruling of SEC, and change its revenue
recognition before it may review by others that their sales are not their official
currently sales as of the moment.
 If it is proven, that according to the sufficient appropriate evidence that the
revenue recognition of the Machine International was inappropriate, he should
disagree with the opinion of the engagement partner that the financial statements
of the company do not comply with the framework.
 If the engagement partner insists on her opinion and conclusion, given that the
Machine International's financial statement was inappropriate wrong, he should
refuse to continue with the engagement.
 If, however, there is not much sufficient appropriate evidence that the financial
statements of the Machine International were inappropriately done, Frank Doran
should always look towards all possibilities and listen to the point of the
engagement partner.

v. Consequences of each Alternatives

 If he works according to the code of ethics of an auditor, it is highly likely for him to
make a conclusion that was based on facts and as a result, the audit report that will
be attached to the financial statement will have a high assurance.
 If Machine International will have knowledge that its revenue recognition was made
inappropriately, they may either choose between to right their sales or to continue
with their bill and hold, however, the company's response to the auditor's advice is
unknown and as a big client, there will be a big risk that Cruz and Santos, CPAs will
lose their big client if the Machine International doesn't like the intention of the
auditors to correct their wrongdoings.
 The engagement partner may ask him to just agree that the revenue recognition of
the Machine International as appropriate, however, he may also be responsible
when a legal dispute arises.
 Frank Doran may not be able to perform the audit and he will not be able to correct
the misstatement of the client's financial statement and financial information.
 He may not be able to become a partner in a year or two if he continues to disagree
with the engagement partner.

vi. Appropriate Action

Frank Doran needs to choose whether which action for him is ethical and which
appropriate decision he will make that fall everything into its rightful places. An ethical
action for Frank may be an unethical for the other. I think it is always right to know the
code of ethics that must be followed not only by professional accountants but even the
 external and other auditors. I think it is only right for Frank to write a report stating his
findings and conclusion about the financial report of Machine International. Because it is
not just for his own sake when there will be a legal dispute that will arise- but rather for
all the stockholders, stakeholders, and other interested parties that will use the financial
statements of the company to know about the doings of Machine International, as it is
crucial in their decision making. Furthermore, in making his decision, he should also
consider all the factors that may affect their firm because he carries it with him as a
senior audit manager, together with his staffs in the team, they all should check every
little detail to come up with an appropriate conclusion that is rightly based on sufficient
appropriate evidence.

CHAPTER 5: INTRODUCTION TO ETHICS

Ethics
 a set of moral principles or values that govern the actions and decisions of an individual or
group.

CHARACTERISTICS AND BALUES ASSOCIATED WITH ETHICAL BEHAVIOR

a. Integrity
 Principled, honorable, upright, courageous and act on convictions.
b. Honesty
 truthfulness, sincere, forthright, straightforward, frank, candid.
c. Trustworthiness and Promise Keeping
 worthy of trust, keep promises, full commitments, abide by the spirit as we as the
latter of an agreement.
d. Loyalty (Fidelity) and Confidentiality
 faithful and loyal to family, friends, employers, client, and country.
e. Fairness and Openness
 willing to admit error and, where appropriate, change positions. and beliefs,
demonstrate a commitment to Justice.
f. Caring for Others
 Kind, and compassionate: sharing, giving, service to others; help those in need and
avoid harming others.
g. Respect for Others
 be courteous, prompt, and decent.
h. Responsible Citizenship
 Obey just laws.
i. Pursuit of Excellence
 be diligent, reliable, industrious, and committed.
j. Accountability
 accept responsibility for decisions, for the foreseeable consequences of actions and
inactions.

WHY IS ETHICAL BEHAVIOR NECESSARY?

 It is necessary for a society to function in an orderly manner. Ethics also is like a glue that
holds a society together.

UNETHICAL BEHAVIOR
1) The person's ethical standards are different from those of society as a whole.
2) The person chooses to act selfishly.

CATEGORIES OF ETHICAL PRINCIPLES

 A. Principles of Personal Ethics include among others
 Basic Justice, fairness.
 Respect for the right of others.
 Concern for the right of others
 Concern for the well-being on welfare of others
 Benevolence, trustworthiness, honesty
 Compliance with the law
B. Professional Ethics include among others
 Integrity, impartiality, objectivity
 Professional competence.
 Confidentiality
 Professional behavior
 Avoidance of potential or apparent conflict of interest
C. Business Ethics include among others
 Fair competition
 Global as well as domestic justice
 Social responsibility
 Concern for environment

CHAPTER 6: BUSINESS ETHICS

Business Ethics
 The standards of moral conduct, behavior, and judgement in business. It is based on the
personal values and standards of each person engaged in business.

MAIN PURPOSE
 To help business and would-be business to determine what business practices are right
and what are wrong

SPECIAL PURPOSE
1) To make businessmen realize that they cannot employ double standards to the actions of
other people and to their own actions.
2) To show businessmen that common practices which they have thought to be right because
they see other businessmen doing it, are really wrong
3) To serve as a standard or ideal upon which business conduct should be based

SCOPE AND IMPACT OF BUSINESS ETHICS

 Economic Impact
 Social Impact
 Environmental Impact
 Impact on Business Managers

CHAPTER 7: COMMON UNETHICAL PRACTICES OF BUSINESS ESTABLISHMENTS

Misrepresentation: may be classified into two types
1. Direct misrepresentation characterized by actively misrepresenting about the product or
customers.
 Deceptive Packaging the practice of placing the product in containers of exaggerated
sized and misleading shapes to give a false impression of its actual contents.
 Misbranding or mislabeling the practice of making false statements on the label of a
product, deceiving the customer as to the quality and/or quantity of a product.
 False or Misleading Advertising pictures or statements that convey exaggerated
impression of the product's reliability or quality di Adulteration unethical practice of
debasing a pure or genuine community by imitating for the purpose of profit or gain.
 Weight short understatement of weighing weighing scale is tampered.
  Measurement understatement or short measurement the measuring stick or
standard is short than the real length.
 Quantity understatement or short numbering the seller gives the customer less than
the number asked for or paid for.
2.Indirect Misrepresentation: omitting adverse o unfavorable information about the product
or service. These are caveat emptor, deliberate withholding of information and business
ignorance.
 Caveat emptor let the buyer beware". The seller is not obliged to reveal any defect in
the product.
 Deliberate Withholding of Information where one of the parties does not exactly
know what he is giving away or receiving in return.
 Passive Deception contributed to the Impression that businessmen are liars and are out
to make a fast buck

Over-Persuasion
 the process of appealing to the emotions of a prospective customer and urging him to buy
an item of merchandise he needs

Example:
1. Urging a customer to satisfy low priority need for merchandise.
2. Playing upon intense emotional agitation to convince a person to buy
3. Convincing a person to buy what he does not need just because he has the capacity money to
do so,

CORPORATE ETHICS
 Unethical Practices of Corporate Management: Practices of the Board of Directors and
Practices of Executive Officers

PRACTICES OF BOARD OF DIRECTORS

 Plain Graft-voting for themselves
 Interlocking Directorship a person who holds directorial positions in two or more
corporation that do business with each other. This practice may involve conflict of interest
and can result to disloyal selling.
 Insider Trading when a broker or another person with access to confidential information
uses that information to trade in shares and securities.
 Negligence of Duty when they fail to attend board meetings regularly.

PRACTICES OF EXECUTIVE OFFICERS AND LOWER-LEVEL MANAGERS

 Claiming a vacation trip be business trip.
 Having employees do work unrelated to the business
 Loose or ineffective controls
 Unfair labor practices
 Making false claims about losses to free themselves from paying the compensation and
benefits provided by law.
 Making employees sign documents showing that they are receiving fully what they are
entities to under the law when in fact they are only receiving a fraction of what they are
supposed to get.
 Sexual Harassment.

UNETHICAL PRACTICES OF EMPLOYEES

1. Conflict of Interest when an employee who is duty bound to protect and promote the
interests of his employer violates this obligation
2. Dishonesty taking office supplies home for personal use, padding an expense account
through the use of fake receipts when claiming reimbursements, and taking credit for another
employee's idea.

CHAPTER 8: ETHICAL DILEMMA

Ethical Dilemma
 a situation a person faces in which a decision must be made about the appropriate
behavior.

RESOLVING ETHICAL DILEMMAS

 Obtain the relevant facts,
 Identify the ethical issues from the facts
 Determine who is affected by the outcome of the dilemma and how each person or group
is affected.
 Identify the alternatives available to the person who must resolve the dilemma.
 Identify the likely consequences of each. alternative.
 Decide the appropriate action.