Business Law for Accountants

Lecture 4 2021/2
Recap of Lecture 3
• Rights and duties of agents
• Negligence/Duty of care
• Breach of duty of care
Ethics
• A set of principles that guide behaviour
• Not the same thing as law or regulations
• Ethical behaviour is seen as the highest level of behaviour that
society expects – goes beyond the law
• Morals (personal beliefs)differ from ethics (views of an
organisation that you belong to)
• Honesty, integrity and openness (Aristotle)

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Examples
• Are the following people behaving ethically?
– 1. Mr A claims unemployment benefit but also works part time
– 2. An airline pilot risks an emergency landing in severe bad
weather for a passenger who is gravely ill and will die if not treated
very soon
– 3. Mrs B wins the lottery and decides to keep all of the winnings
for herself and not share them with her family

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Ethics in business
• The application of ethical values to business behaviour
• Based on norms and standards of behaviour
• Implied and explicit
• Many “dilemmas” due to profit motive

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An issue of trust
• Can we trust companies?
• Especially since the 1980’s trust has been disintegrating –
(Barings Bank, Polly Peck, Maxwell, Worldcom, Enron etc)
• Development of ethical strategies and policies
• Professional employees have a responsibility to consider the
public interest. Personal self interest must not prevail over
these duties.

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Accountants and Ethics
• The accountancy profession has developed a code of ethics
that all accountants are bound by.
• Ethical matters may be a matter of law or regulation
• Upholding standards protects the reputation of the profession
• An accountant’s ethical behaviour serves to protect public
interest (the collective wellbeing of the community)
• Need to keep up to date!

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IFAC fundamental principles
• Integrity
• Objectivity
• Professional competence and due care
• Confidentiality
• Professional behaviour

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Independence
• Independence of mind
• Independence in appearance
• Threats
• Safegaurds

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Codes of conduct
• Compliance based
• Ethics based

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Compliance based approach
Advantages
• Rules are specific to each
circumstance
• Encourages a consistent
application of the rules
• Rule breaches are clearly
identifiable
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Disadvantages
• Lengthy rule books
• Members cannot learn every
rule
• Members act like robots just
following a set of rules
Ethics based approach
Advantages
• Encourages members to be
proactive
• Treats members as
professionals
• Suitable for all complex
situations – rules may not
cover all cases
• Harder for members to find a
way round the rules
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Disadvantages
• Can be a matter of
interpretation leading to
lengthy, complex hearings
• Potential for inconsistency
• Ambiguity can lead to
confusion
• General guidelines may
become detailed rules over
time
Differences in approach
CHARACTERISTIC COMPLIANCE-BASED ETHICS-BASED
Enforceability Mandatory Discretionary
Choices Obey/Disobey Judgement
Standards Explicit Implicit
Motivation Fear Driven Values driven
Approach Law based Principles based
Objective Detection Prevention
Measure Rules Principles (values)

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Developing an ethical code
• Communication
• Consistency
• Risk reduction
• Compliance with corporate governance rules

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Key terms
• Integrity
• Objectivity
• Professional competence and due care
• Confidentiality
• Professional behaviour

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Qualities of an accountant
Personal Professional
• Reliability • Independence
• Responsibility • Professional scepticism
• Timeliness • Accountability
• Courtesy • Social responsibility
• Respect

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Consequences of unethical behaviour
• Job
• Profession
• Society

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Ethical dilemmas
• Where two ethical values seem to be incompatible
• Not same as a conflict of interest
• Statutory obligations
• Contractual obligations

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Resolving ethical conflict
• Transparency
• Effect
• Fairness

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