Chapter 5

Ethical Behaviour and

Implications for Accountants
Introduction
• The Word ‘ethics’ is derived from the Greek word ‘ethos’ meaning
Character. “ Ethics means principles which govern a person’s
behaviour or the conducting of an activity. Ethics indicate beliefs
about rights and wrong. Ethics signify how people act in order to make
the ‘right’ choice and practise ‘good behaviour’.

• Ethics is concerned with right and wrong and how behaviour should
be judged to be good or bad.
Features
1. Conduct
2. Social Values
3. Universal
4. Dilemmas
5. Equality and Justice
6. Legally

Ethics V/s Moral

. Character V/s Customs
1

2. Good/Evil V/s Right/ Wrong

3. Personal V/s Social
4. Inner Concise V/s External Authority
5. Scope
Personal Ethics
Meaning of Ethical Behaviour

Ethical Behaviour is defined as individual or collective that is in accordance with accepted written
and/ or unwritten codes of principles and values that govern decisions, actions and conduct within a
business in the context of a particular situation and is consistent with accepted behaviour.

Standards:
Opinion about right and wrong vary widely. Different ideas apply in different cultures. There is no
universal standard of right or wrong.

1. Should you consider the consequences of your actions when making ethical decisions?
One view is that society is best served by everyone following certain ethical rules and obeying them
no matter what the results are. The argument is that people will undermine society if they disobey the
ethical rules, even if they do so with the intension of avoiding adverse consequences. This View
point is known as deontological ethics, was developed by Kant.
The opposing viewpoint is that you cannot divorce an action from its consequences, and when
taking ethical decisions you must take account of what the consequences will be. This viewpoint is
known as a teleological ethics.
2. Do ethics change over time and Place

One view point is that ethics do vary between time and place. Slavery for example is now regarded
as wrong, where as in Roman time it is acceptable. The view that ethics vary between different
ages and different communities is known as ethical relativism.

The opposing view is that ethics are unchanging over time and place: some courses of action are
always right, others are always wrong. A simple example would be saying that it is always wrong
to steal. The view that there ae certain unchanging ethical rules is known as ethical absolutism.
Factors
Professional Ethics

Ethical Behaviour – Professional Accountants

Professional: The word ‘professional’ is associated with a highly qualified group of individuals
who carry out a particular type of Highly skilled work.
Examples. Doctors, Lawyers, Dentist etc

Professional Behaviour: Professions are expected to act in a professional way. Professional

behaviour is commonly associated with
• Acting with integrity, and being honest.
• Providing objective opinion and advice, free from bias
• Respecting the confidentiality of information provided by clients.

Professional and Clients:

1. There is a relation of trust
2. The Professional puts the client before himself
The IFAC code of Ethics
1. Code of Ethics: Every Professional accountancy body has issued a code of conduct and code
of ethics for its members and student members. It applies to accountant working in public practice
and accountant in business.
2. IFAC/ ICAI Code: All professional accountancy body has its own code of ethics, all codes are
similar, because they are based on the IFAC Code. IFAC Code is issued by the Ethics committee
of International Federation of Accountants (IFAC). Whose members are include professional
accountancy bodies of most countries.
3. Mandatory:
4. Public Interest:
5. Parts: This code conducts Three Parts
Fundamental Principles:
1. Integrity
2. Objectivity
3. Professional Competence and Due Care
4. Confidentiality
5. Professional Behaviour

Need and importance of Code:

6. Public Interest
7. Avoid Misconduct Liabilities
8. Public Confidence
9. Guide to Ethical conduct
10. Values of profession
11. Public conscience
Business Ethics

National Guidelines on responsible Business Conduct

Ministry of Corporate affairs has revised in March 2019, the national voluntary guidelines on social,
environmental and economic responsibilities of business 2011 and formulated the National Guidelines on
Responsible Business Conduct (NGRBC). These guidelines urge businesses to actualise the following
principles in letter and spirit.
1. Business should provide goods and services in a manner that is sustainable and safe.
2. Business should respect the interest of and be responsible to all their stakeholders.
3. Business should promote inclusive growth and equitable development.
4. Business should respect and promote human rights.

Companies Act, 2013

SEBI
The Securities and Exchange Board of India (SEBI) through its ‘listing regulations’ in 2012 mandated the top
100 listed entities by market capitalisation to file Business Responsibility Reports (BRRs) from environmental ,
social and governance perspective.
Work Place Ethics
Importance
professional accountants learn to act ethically in two ways the educational process and the influence of work
experience and role models who show what it means to be ethical. accountant learn principles of good conduct
in their education and then receive advice and observe how significant others behave in the workplace.

Factors
1. Individual moral standards
2. The influence of manager and co- workers
3. The opportunity to engage in misconduct.
Corporate Ethics
Meaning

1. Law : Laws are rules that companies and individual must follow.
2. Ethics: Ethics are values and principles that society expects companies and individuals to follow
3. Corporate Governance: Corporate governance is concerned with how a company is governed. This is not the
same as the way in which the company is managed. Management is concerned with the effectiveness and
efficiency of operations. Governance is concerned with setting objectives for the organization and ensuring that
those objectives are achieved governance is about leadership at the top.

Corporate Social Responsibilities (CSR) and Law

4. Applicability
5. CSR committee
6. CSR Activities
7. CSR Expenditure
8. CSR Disclosure in Board Report
Corporate Code of Ethics

Meaning: An ethical code typically contains a series of statement setting out the organizations
value and explaining how it sees its responsibility towards stakeholders. The OECD Trade
committee define code of Corporate conduct as "commitment voluntarily made by companies,
association or other entities, which puts forth standards and principles for the conduct of
business activities in the marketplace“.

Key Principles:
1. Value Based
2. Organizational Variations
3. Commitment from board of directors
4. Multi-disciplinary, Cross – functional International Group
5. Global Application
6. Continuous awareness and promotion

Features:
7. The focus on regulating individual employee behavior.
8. They are formal documents.
3. Employees may be asked to sign that they will comply.
4. They can be used to shift responsibility (from senior managers to operational staff)
Purpose of Code of Ethics

1. Establishment of organizational value

2. Corporate governance
3. Promotion of stakeholders responsibility
4. Control of individuals behavior
5. Promotion of business objectives
The Increasing Role of Whistle- Blowing
Meaning: The term whistleblower is derived from the practice of English policemen, who would blow the whistle
notice the commission of a crime. The whistle wood alert both law enforcement officers and the general public of
danger. Whistleblowing means reporting suspicion of illegal or improper behavior to a person in authority.

Types of Whistle blowers

1. Internal
2. External
3. Alumni

Whistle Blowing under Whistle blowers protection Act, 2011

4. Law
5. Protection
6. Disclosure
7. Identity
Vigil Mechanism under the Companies Act, 2013

1. Formulation of vigil Mechanism

2. Objective of formulation of vigil mechanism
3. Process

Corporate whistle Blowing

4. Why?
The whistleblowing policy should include a statement to explain a rationale for having it.
Possible reasons include a. Legal requirement b. Compliance with internal code of conduct or
ethics policy c. Part of risk management to protect the organisations long-term well being and
reputation.

2. Who?
There are different types of persons who can be whistleblowers therefore covered by the policy.
This persons can be broadly classified as Internal (employees, workers, vendors etc) external
( customer, member of the public etc) .should clarify if it is strictly meant as a internal policy or
whether the policy also covers outsiders or third parties.
Ethics in Education:
Why should student learn Ethics?

Purpose of Ethics Education

1. Public Interest
2. Individual Ethical Choices
3. Develop Ethical Choices
4. Need Adequate Ethics Training

Goals of Ethics Education

5. Knowledge
6. Sensitivity
7. Judgement
8. Ethical Behaviour