Business Ethics &

Corporate Governance
Chapter 4: Code of Ethics for the
Accountancy Profession

Dr TAN Shen Kian

Accountancy Profession

Malaysia's accounting profession plays a vital role in the

country's economy and business sector. Professional
accountants serve various functions, including auditing,
financial reporting, taxation, and advisory services.

Ethics form the foundation of the accounting profession,

ensuring the integrity and credibility of financial information.
In Malaysia, ethical conduct is particularly crucial due to the
following factors
Role of Professional Accountants

Provide Ensures Assisting In Assist Directors Governance Implement and

Financial Alignment of Decision- in Fulfilling and Integrity Monitor MCCG
Information Financial making Obligations Practices
and Ensuring Reporting Processes Related to
Accuracy and Practices with Financial
Transparency MASB Management
Concept of Blind Loyalty

Blind loyalty can be a challenging ethical issue faced by

professional accountants in Malaysia. It refers to a situation
where an accountant unconditionally supports and remains loyal
to their employer or client, without considering the ethical
implications or potential conflicts of interest that may arise.

Blind loyalty can create ethical dilemmas for professional

accountants. They may find themselves torn between their
loyalty to their employer or client and their professional duty to
act in the public interest, uphold ethical standards, and maintain
their independence and integrity.
Concept of Blind Loyalty: Acts

Malaysian
Whistle-blower
The Companies Institute of
Protection Act
Act 2016: Accountants
2010
(MIA) By-laws
Fraud & White-collar Crime

Fraud refers to deliberate deception or manipulation of financial

information with the intent to gain an unfair advantage, cause harm, or
mislead stakeholders.

White-collar crime refers to non-violent offenses committed by

individuals or organizations in business or professional settings, typically
involving financial or economic motives.
Fraud & White-collar Crime: Impact

Financial
Reputational
Market Losses
Integrity
Damage
Fraud & White-collar Crime: Role in Combat Fraud

Identify
Red
Flags:

Eff Impl
d uct ecti em
n c
Co rensi ons v e
Co e Int nt
Fo tigati ntr ern
ols a l
nv es
I
Accountancy Profession: Acts & Policies

Malaysian Anti-
Securities
The Companies Corruption
Commission Act
Act 2016 Commission Act
1993
2009:
Dealing with Conflict of Interest

Auditor Insider Employment & Business

Independence Trading Relationship
Dealing with Conflict of Interest: Measurement

Professional Governance
Disclosure &
Codes & & Regulatory
Transparency
Guidelines Frameworks
Dealing with Conflict of Interest: Acts

Capital Markets and Services • Section 176: empowers the SC to establish rules
Act 2007 (CMSA): and guidelines for market intermediaries.

Malaysian Code on • Section 2.1: Duty of Directors (Page 8): highlights

Corporate Governance the duty of directors to act in the best interests of
(MCCG), 3rd Ed: the company and avoid conflicts of interest.

Malaysian Anti-Corruption • Section 17: Offense of Giving or Accepting

Commission Act 2009 Gratification.
(MACCA): • Section 23: Offenses Relating to Public Bodies.

• Do not have specific sections and pages, address

Malaysian Institute of
conflicts of interest within the overall framework
Accountants (MIA) By-laws:
of professional ethics, conduct, and practice.
Public Expectations of Professional Accountants

Professional
Integrity and
Competence and
Ethical Conduct
Due Care

Confidentiality
Independence
and Data
and Objectivity
Protection

Ethical Decision-
Compliance with
Making and
Laws and
Professional
Regulations
Judgment
Sources of Ethical Guidance for Professional Accountants
IFAC Code of Ethics for Professional Accountants
Effective Implementation of the Code of Conduct

Leadership and Tone at the Top

Clear Policies and Procedures

Training and Education

Monitoring and Enforcement

Reporting Mechanisms
Effective Implementation of the Code of Conduct: Benefits of
Effective Implementation

Cultivate a culture of integrity and ethical

behaviour
Enhance employee morale, trust, and
loyalty
Minimise the risk of fraud, misconduct, and
unethical behaviour
Safeguards organisation's reputation and
maintain stakeholder trust.
Effective Implementation of the Code of Conduct: Examples of
Best Practices

Regular communication and reinforcement

of ethical standards through newsletters,
workshops, or town hall meetings

Incorporating ethical considerations into

performance evaluations and recognizing
ethical behaviour

Establishing ethical committee or appointing

ethical officers to oversee compliance and
provide guidance

Conduct periodic assessments and reviews of

the code’s effectiveness to identify areas for
improvement
Case Study Scenario

XYZ Sdn Bhd is a well-established manufacturing company that has been experiencing declining profits and cash
flow problems. As their external accountant, you have been working closely with the company's management
team to address these issues. However, you have recently discovered some alarming information:
You notice that the company's CEO, who is also a major shareholder, is pressuring you to manipulate the
financial statements to present a more favorable picture of the company's financial health. The CEO insists that
this is necessary to secure additional funding from investors. However, you are concerned about the ethical
implications of misrepresenting the company's financial position.
During your analysis, you uncover evidence suggesting fraudulent activities within the company. Specifically,
you suspect that the CEO and other senior executives may be involved in embezzlement, inflating revenues, and
understating expenses. These activities are aimed at artificially boosting the company's financial performance and
deceiving stakeholders.
You realize that your firm also provides consultancy services to the same manufacturing industry and has
several other clients who may be potential competitors or business partners of XYZ Sdn Bhd. This creates a
conflict of interest as your firm may have access to sensitive information that could compromise the
confidentiality and integrity of the client's data.
As a professional accountant, you are aware of the public's expectations regarding your ethical conduct,
integrity, and responsibility to uphold the profession's standards. The public places trust in your expertise and
expects you to act in the best interest of your clients, shareholders, and society at large.
Case Study Scenario: Questions

1. How would you apply the concept of blind loyalty while considering your professional
obligations and ethical responsibilities?
2. What steps would you take to address the suspected fraudulent activities within XYZ
Sdn Bhd? How would you balance your duty to report these activities and maintain
client confidentiality?
3. How would you manage the conflict of interest arising from your firm's involvement
with other clients in the same industry? What actions would you take to ensure the
integrity and independence of your work with XYZ Sdn Bhd?
4. Considering the public expectations of professional accountants, how would you
ensure transparency, integrity, and accountability in your handling of this ethical
dilemma? How would you communicate and engage stakeholders to maintain their
trust and confidence?
End