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Professional Ethics

Course Code: ACCT450
Office: LG505
Office hours: 10:05-10:55(Mon,Tue,Thu,Fri) ; 11:55-12:45 (Wed)
Dr. LIU, Yang
Hong Kong Shue Yan University

LIU, Yang 劉洋
Ph.D in Accountancy , CUHK (港中文), 2011-2015
MPhil in Accounting, Tsinghua University (清華) 2009- 2011
Bachelor in Financial Engineering, Southwestern University of Finance
and Economics (西南財大) , 2005-2009
Research interest : stock, P2P

Self Introduction

• Guide: HKICPA “Code of Ethics for Professional
• Case: Brooks, L., Dunn, P. (2014) Business &
Professional Ethics for Directors, Executives &
Accountants. 7th Edition. Thompson South-West.
• Reference reading (option):

Materials of this course

Form groups before next class, and write the groups down.

Cases for your presentation

• Learning purposes:
• handle ethical dilemmas( 道德困境 )

Course aims

• Assessment
• Individual assignment 20%
• Select business-related ethical dilemma, submit printed report no more than
5 pages, deadline will be announced later.
• Group Project 20% (2-3 members in one group, 11 groups, starting from the
third week, before each presentation, submit printed report no more than 10
• Class Participation 10%
• Attendance (5%)
• In class exercise & discussion (5%)
• Open Book Examination 50%
Any questions about syllabus?


Active participation, raise questions anytime you
No more than 3 times of absent(6 hours). Otherwise, not permitted
to take final exam

• Provide documents from doctors if you ask for sick leave
• please don’t sign for your classmate, you cannot help
your friend all his or her life.

Classroom Conduct

• What is Professional Ethics?
• Professionals, and those working in acknowledged professions,
exercise specialist knowledge and skill. How the use of this
knowledge should be governed when providing a service to the
public can be considered a moral issue and is termed professional
• Professionally accepted standards of personal and business
behavior, values and guiding principles. Codes of professional
ethics are often established by professional organizations to help
guide members in performing their job functions according to
sound and consistent ethical principles.(Business


• Geek Philosopher Aristotle: Happiness is goal of life and
can be achieved by leading a virtuous life in accordance
with reason.
• German Philosopher Kant: people are ethical when they
do not use others opportunistically
• English Philosopher J.S Mill: Maximize happiness,
increase welfare of society.
• American Philosopher J. Rawls: fair distribution of rights
and benefits.

What is ethics

Part A: Fundamental Principles
Part B: Professional Accountants in Public Practice
Part C: Professional Accountants in Business
Part D: Additional Ethical Requirements

Structure of the Content

• A professional accountant shall comply with the
following five fundamental principles:
• Integrity
• Objectivity
• Professional Competence and Due Care
• Confidentiality
• Professional Behavior

Part A

• The principle of integrity imposes an obligation on all
professional accountants to be straightforward and honest
in all professional and business relationships. Integrity
also implies fair dealing and truthfulness.


• A professional accountant shall not knowingly be associated with
reports, returns, communications or other information where the
professional accountant believes that the information:
• (a) Contains a materially false or misleading statement;
• (b) Contains statements or information furnished recklessly; or
• (c) Omits or obscures information required to be included where
such omission or obscurity would be misleading.
• When a professional accountant becomes aware that the
accountant has been associated with such information, the
accountant shall take steps to be disassociated from that

• The principle of objectivity imposes an obligation on all
professional accountants not to compromise( 妥協 ) their
professional or business judgment because of bias,
conflict of interest or the undue influence of others.


• The principle of professional competence and due care
imposes the following obligations on all professional
• (a) To maintain professional knowledge and skill at the
level required to ensure that clients or employers receive
competent professional service; and
• (b) To act diligently in accordance with applicable
technical and professional standards when performing
professional activities or providing professional services.

Professional Competence
and Due Care

Competent professional service
(a) Attainment of professional competence; and
(b) Maintenance of professional competence.
Diligence encompasses the responsibility to act in
accordance with the requirements of an assignment,
carefully, thoroughly and on a timely basis.

Professional Competence
and Due Care

• The principle of confidentiality imposes an obligation on
all professional accountants to refrain( 避免 ) from:
• (a) Disclosing outside the firm or employing organization
confidential information acquired as a result of
professional and business relationships without proper
and specific authority or unless there is a legal or
professional right or duty to disclose; and
• (b) Using confidential information acquired as a result of
professional and business relationships to their personal
advantage or the advantage of third parties.


• The principle of professional behavior imposes an
obligation on all professional accountants to comply with
relevant laws and regulations and avoid any action that
the professional accountant knows or should know may
discredit the profession.

Professional Behavior

• In marketing and promoting themselves and their work,
professional accountants shall not bring the profession
into disrepute. Professional accountants shall be honest
and truthful and not:
• (a) Make exaggerated claims for the services they are able
to offer, the qualifications they possess, or experience
they have gained; or
• (b) Make disparaging( 詆毀 ) references or
unsubstantiated (未經證實) comparisons to the work
of others.

Professional Behavior

• Resign or serve?
• Vote

To resign or serve

Who are stakeholders?
Current shareholders
Future shareholders
Lenders to the bank
Accounting profession

To resign or serve

• Renegotiation of overdue loans to call them current
• For this to be substantive rather than just form, the
collectability of the loans has to be improved and
assured. Repeated renegotiations would imply noncollectability, and should be evident during the course of
an audit. The case is silent on the audit work undertaken,
but the resignation implies that the auditors had decided
the collectability was in serious question.

To resign or serve

• Use of insurance against non-collectability
• This approach is not new, but the familiarity of the
insurer to the nature of risk involved, and the capacity of
the insurer to pay off in the event of large losses would
have to be scrutinized carefully. Given the extent of
losses being experienced by banks in regard to real estate
loans, it is unlikely that any insurer, other than a
government could sustain the pay-out required. Once
again this may be why the auditors decided to resign.

To resign or serve

• Persuasion vs. qualification vs. Resignation
• Customarily, as in the case, an auditor who believes
statements should be changed or unfair presentation will
result calls for a meeting with the management and/or the
Audit Committee of the Board and asks for proper
disclosure to be made. If adequate changes are not made,
the auditors can qualify their auditor's report and disclose
the reason for doing so. They need not resign.

To resign or serve

• If, however, an auditor loses confidence in the integrity of the
management of a client, then resignation at the earliest
possible moment is the best way to avoid legal liability which
will probably ensue. However, the auditor must also consider
his/her responsibility to the shareholders. If his/her
resignation is without notifying the shareholder of the reason,
then the auditor's fiduciary duty to the shareholder has not
been properly discharged because the shareholder may never
know of the auditor's concern until it is too late. Resignation
from an audit without rendering a report or advising the Audit
Committee of the reason is most unusual.

To resign or serve

• Courtesy to among auditors/Protection of shareholders
and auditors interests
• Codes of conduct for auditors usually provide that
incoming auditors contact out-going auditors to advise
them of their appointment and to ask whether they had
any problems with the client to advise the incoming
group about. This would be the opportunity to protect the
interests of the shareholders by passing along concerns,
and for the incoming auditor to assess whether he/she
should take on the job.

To resign or serve

• If this opportunity does not present itself, and in this case
it apparently has not, the outgoing auditor, James, should
assess whether he should advise Jack of his concerns. I
believe he should do so, and follow up in writing or his
duty would not be discharged to the shareholders. If this
is not done, I believe James would be acting unethically
and probably would be open to legal liability as well.

To resign or serve