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Professionalism, Ethical
Codes and Public Interest
Chapter Three
PROFESSIONALISM, EHTICAL CODE
AND
PUBLIC INTEREST

CHAPTER THREE
Profession versus Professionalism
 Profession: a body of theory and knowledge which is used to
support the public interest

 Professionalism: taking action to support the public interest

What is “the Public Interest”?

 The term “the public interest” refers to what is beneficial to society

as a whole

 "The collective well-being of the community of people and

institutions the professional accountant serves." (IFAC)
Profession
 is distinguished by certain essential and defining characteristics
 Body of the theory and skills
 Adherence to common code of values and conduct
 Acceptance of Duty to society
PUBLIC INTEREST…
 A distinguishing characteristic of a profession is acceptance of its responsibility to the
public.
 The accountancy profession's "public" consists of:
clients;
governments;
employers and employees;
investors and lenders;
the business and financial community; and
others who rely on professional accountants to maintain the orderly functioning of
commerce.
Social Responsibility

 individuals and businesses have a duty to act in the best interests

of the environments in which they operate and society as a whole.
Accountants
 Clearly a professional accountant's responsibility is not exclusively to satisfy the
needs of an individual client or employer.

 The standards of the professional accountant are heavily determined by public

interest, for example:

independent auditors help to maintain the integrity of the financial

statements relied upon by potential providers of finance;
Accountants….

 financial executives serve in various financial management capacities in

organisations and contribute to the efficient and effective use of economic
resources; and
 internal auditors provide assurance about a sound internal control system which
enhances the reliability of the external financial information of the employer.

NB: The attitude and behaviour of professional accountants in providing their

services affect the economic well-being of their community and country.
Corporate Social Responsibility (CSR)

 The advantages of corporate social responsibility include:

aligning the organisation's culture with that of "ethical" investors,
consumers and suppliers;
enhancement of business reputation; and
mitigating the risk of conflict with local communities or regulators
(e.g. investing in social projects as compensation for causing
pollution).
The concept of responsible leadership

 More specifically, responsible leadership is about taking sustainable business

decisions which:

Take into consideration the interests of all stakeholders including shareholders,

employees, suppliers, customers, the community, the environment and future
generations.

Contribute to the triple bottom lines of economic, social and environmental

performance .
Common themes and aspects of responsible
leadership

 Ethical judgment
 A force for good
 Long-term and forward-looking
 Effective communication
 Collective action and shared responsibility
Public Value

 public value describes the value that an organisation

contributes to society
The Creation of Public Value

Adapted from Moore, Moore, M. (1995) Creating Public Value: Strategic Management in
Government. Harvard University Press, Massachusetts.
Reporting on public value

 Developments in Financial Reporting

 Traditional financial accounting only reports the direct financial impact of an
entity's performance and, with the rise of CSR, organisations have been under
pressure to report the non-financial impact of their activities.
Reporting on public value…

 Models for enhancing traditional corporate reporting include:

 the "triple bottom line" (3BL) approach, which reports financial, social and
environmental impacts;

 the "PPP" model, which reports impacts on people, the planet and profits;

 Integrated Reporting <IR>, which analyses impacts not only on the providers
of financial capital, but also on human, natural and other capitals.
Professional Codes

 Code of Ethics – a set of standards, rules, guidelines and values that

govern and guide ethical conduct in a company, profession or
organisation of its employees.
Fundamental Principles of Professionalism

 The objectives of the accountancy profession and of the

professionals working within it, include:
to work to the highest standards of professionalism;

to attain the highest levels of performance; and

generally to meet the public interest requirement

Fundamental principles
 Integrity – being straightforward and honest in all professional and business
relationships.
 Objectivity – not to compromise professional or business judgments because
of bias, conflict of interest or undue influence of others.
 Professional competence and due care – to maintain the professional
knowledge and skill required to provide employers and clients with competent
professional service, and to act diligently and in accordance with technical and
professional standards.
Fundamental principles…
 Confidentiality – respect for the confidentiality of information
acquired as a result of professional and business relationships

 Professional behaviour – compliance with relevant laws and

regulations and avoidance of any action that may discredit the
profession
Principles-Based Approach
 The Code requires that professional accountants
identify,
evaluate and
address threats to meeting the fundamental principles, rather
than comply with a different set of detailed rules for each specific
scenario
Principles-Based Approach…
Corporate codes of conduct

 In addition to the IESBA Code, many organisations have their own codes of
conduct which reflect their values and area of operation, such as
environmental goals and the treatment of workers in the supply chain
 Ikea Supplier Code of Conduct (IWAY)

 Microsoft Standards of Business Conduct

Conflicts of Interest
 Accounting professionals maintain their objectivity through a combination of impartiality,
intellectual honesty and a freedom from conflicts of interest.
 Conflict of interest has been defined as:
A situation in which a person has a private or personal interest sufficient to appear to influence the
objective exercise of his official duties (e.g. as a public official, employee or professional).

A situation which has the potential to undermine a person's impartiality because of the possibility of
divergence between that person's self-interest and a professional or public interest.

A person's or organisation's obligation to act in the interests of another is interfered with by a

competing interest which may obstruct the fulfilment of that obligation (Crane and Matten).
Ethical Threats

 An ethical threat arises when an individual or organisation faces a situation in

which an ethical code or standards cannot be followed. 
 Causes of ethical threats and failures include:
Cultural differences, resulting in different expectations and practices.
Opportunities where ethical problems are not reported or discovered.
Lack of opportunities for rectification due to lack of resources.
Failure to recognise the ethical dimensions of situations, lack of ethical sensitivity.
Ethical Threats..

 Lack of understanding of the issues and consequences.

 Rationalisation of unethical behaviour as part of the embedded culture.
 Inability to withstand pressures from management, peers or outside interests.
 Absence of leadership in organisations.
 Lack of ethical education and knowledge.
 Lack of effective corporate governance.
Ethical Conflict Resolution

ACCA conflict resolution

 The ACCA Code of Ethics and Conduct suggests that the matters to consider when
dealing with an ethical conflict should include:
relevant facts;
ethical issues;
fundamental principles;
established internal procedures;
alternative courses of action and their consequences; and
 internal and external sources of consultation available.
ACCA conflict resolution
The American Accounting Association (AAA) model
 The AAA model is a seven-step process for decision making, which takes
ethical issues into account.
Step 1: Establish the facts of the case
Step 2: Identify the ethical issues in the case
Step 3: Identify the norms, values and principles related to the case to
set the decision in context. The norms include professional codes of
conduct.
AAA model…
Step 4: Identify possible courses of action
Step 5: Evaluate each of the options identified in Step 4 against the norms,
values and principles identified in Step 3.
Step 6: Consider the consequences of the outcomes of the decision.
Step 7: Decide on a course of action.
Tucker’s 5-question model

 In this model, to determine the most ethical decision the decision maker
should ask the following questions:
Is it profitable?
Is it legal?
Is it fair?
Is it right?
Is it sustainable or environmentally sound?
Ethical Threat Categories

 Self-interest (e.g. as a result of the financial or other interests of members or

of immediate or close family members).
 Self-review (e.g. when a previous judgement needs to be re-evaluated by
individuals responsible for that judgement).
 Advocacy (i.e. promoting a position or opinion to the point that subsequent
objectivity may be compromised).
Ethical Threat Categories…

 Familiarity (i.e. where, because of a close relationship, there is too much

sympathy for the interests of others).

 Intimidation (i.e. where actual or perceived, direct or indirect threats are a

deterrent to objective action).
Safeguards

 If an identified threat is not at an “acceptable level”, the professional

accountant must address it in one of three ways:
Eliminate the circumstances, including interests or relationships, that are creating
the threats;
Apply safeguards, where available and capable of being applied, to reduce the
threats to an acceptable level; or
Decline or end the specific professional activity. This may be the only course of
action (i.e. when a threat cannot be eliminated or reduced to an acceptable level
through safeguards).
Safeguards…

 Safeguards – actions, individually or in combination, taken by the professional

accountant that effectively eliminate threats to compliance with the
fundamental principles or reduce them to an acceptable level.
Acceptable level 

 Acceptable level – a level at which a reasonable and informed

third party would likely conclude that the professional accountant
complies with the fundamental principles.
Fraud   anintentional act by one or more individuals
involving the use of deception to obtain an
unjust or illegal advantage.
  The offering, giving, receiving or soliciting of any
item of value to influence the actions of an
official or other person in charge of a public or
legal duty.
 The key elements of bribery are:

Bribery  a financial or other advantage; and

 intention to induce improper performance of a
function or to influence the recipient in their
official capacity.
Corruption  the abuse of entrusted power for
private gain
“According to rule” Corruption

 "According to rule" – facilitation payments (bribes) are paid to

receive (preferential) treatment for something that the recipient is
required to do by law (e.g. bribing a customs official to quickly
process the import/export of goods).
“Against the rule” Corruption

 "Against the rule" – the bribe is paid to obtain services the

recipient is prohibited from providing (e.g. bribing a customs official
to clear the import/export of prohibited goods).
Impact
 There are many and varied impacts of fraud, bribery and corruption. For
example, they:
distort and reduce competition;
deter investment, especially foreign inward investment;
inflate prices;
decrease economic performance;
reduce government revenue;
reduce motivation in affected organisations etc
  For an organisation to demonstrate that it
has appropriate procedures in place to
Best Practices combat fraud, bribery and corruption, it
must apply the following principles:
to combat Proportionality
fraud, bribery Top-level commitment

and corruption Risk assessment

Due diligence
Communication
Monitoring and review.
Proportionality

 preventive procedures should be  These procedures must be

based on the clear,
 risks faced and the nature, scale  practical,
and complexity of activities accessible,
effectively implemented and
enforced