TOPIC 7

MANAGEMENT
CONTROL SYSTEMS
RELATED ETHICAL
ISSUES AND ANALYSIS

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 1. Importance of good
LEARNIN ethical behavior
G 2. Analyzing ethical
OBJECTI issues
3. Ethical code of
VES conduct and MCS
design

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 WHAT IS
ETHICS
• The basic concepts and fundamental
principles of decent human conduct. It
includes universal values such as the
essential equality of all men and
women, human or natural rights,
obedience to the law of land, concern
for health and safety and, increasingly,
also for the natural environment.

• The discipline dealing with what is good

and bad and with moral duty and
obligation
WHAT IS ETHICS – MALAY
DICTIONARY
Etika
1. ilmu berkenaan prinsip-prinsip akhlak atau moral;
2. prinsip moral (atau akhlak) atau nilai-nilai akhlak yang
menjadi pegangan seseorang individu atau sesuatu
kumpulan (persatuan, pekerjaan, dan lain-lain);
 ETHICS IN ISLAM
Etika Islam (bahasa Arab: ‫سالمية‬-‫خالقإ‬-‫أ‬, akhlāq
Islāmiyah) atau adab dan akhlak Islamiyah
adalah etika dan moral yang dianjurkan di dalam
ajaran Islam yang tercantum di dalam Al-Quran
dan Sunnah, dengan mengikuti contoh dari teladan
Nabi Muhammad‫ﷺ‬, yang di dalam akidah
Islamiyah dinyatakan sebagai manusia yang paling
sempurna akhlaknya.
- Adab komunikasi
- Adab berurusniaga
- Adab belajar
- Adab menziarah etc.
ORGANIZATIONAL ETHICS

 The moral values, beliefs, and rules that establish the

appropriate way for organizational stakeholders to deal
with one another and with the environment.

 Derived from the personality and beliefs of the founder

and top management

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FACTORS INFLUENCING THE DEVELOPMENT
OF ORGANIZATIONAL ETHICS

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PROFESSIONAL ETHICS

CIMA’s Code of Ethics

1) Integrity
2) Objectivity
3) Professional Competence and Due Care
4) Confidentiality
5) Professional Behavior
INTEGRITY
OBJECTIVITY
PROFESSIONAL COMPETENCE
AND DUE CARE
CONFIDENTIA
LITY
PROFESSIONAL BEHAVIOR
 WHY ORGANIZATIONS NEED ETHICS

A culture of trust must be

Ethics ensures the built on a corporate
Ethics is the sustainability of a framework of ethical
cornerstone of business by enhancing principles which are
corporate governance. its reputation and transparency/ openness,
retaining customers competence, integrity and
benevolence.

Play a major role to

prevention fraud. Fraud
Helps businesses in prevention becomes a Ethics helps businesses
retaining top talents. shared responsibility in limiting the risks.
among the members of
the organization.
ANALYZING ETHICAL ISSUES
Some Common Management Control-
Related Ethical Issues
• The issue of creating budgetary slack
• The issue of managing earnings
• The issue of responding to flawed control indicators
• The issue of using control indicators that are “too good”.

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 CODE OF ETHICS IN
ORGANIZATION
• Ethics as a part of organizational culture. Once an organisation has
decided on its ethics management strategy, it still has a long way
to go to entrench a culture of ethics.
• The challenge then, for the key role players involved in ethic
management to translate the ethics strategy into meaningful
corporate culture.
• Formal ethical culture will include the following:
• Communication;
• Recruitment and selection of employees;
• Performance management and reward;
• Trainings; and
• Disciplinary procedure.
ETHICAL CODE OF CONDUCT AND
MCS DESIGN:
MAJOR BEHAVIORAL
CONSIDERATIONS
• Embedding the organization’s ethical code of conduct into MCS
design
• Using a mix of short and long-term qualitative and quantitative
performance measures
• Empowering employees to be involved in decision making and
MCS design
• Developing an appropriate incentive system to reward
performance

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 ELEMENTS OF AN EFFECTIVE
ETHICAL CONTROL SYSTEM
1. A statement of the organization’s values and
code of ethics written in practical terms,
along with the examples.
2. A clear statement of the employee’s ethical
responsibilities for every job description and
a specific review of the employee’s ethical
performance as part of every performance
review.

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 THE ELEMENTS OF AN EFFECTIVE
ETHICAL CONTROL SYSTEM
3. Adequate training to help employees identify
ethical dilemmas.
4. Evidence that senior management expects
organization members to adhere to its code of
ethics.
5. Evidence of whistle blowing policy.
6. An continuous internal audit of the efficacy of the
organization’s ethical control system.

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END OF TOPIC 7