Professional Documents
Culture Documents
Academic References
Kohlberg, L. (1981). Essays in moral development: The philosophy of moral development (Vol.
1). San Francisco: Harper & Row.
Kohlberg, L., & Candee, D. (1984). On the relationship of moral judgment to moral action. In W.
M. Kurtines & J. L. Gewirtz (Eds.), Morality, moral behavior, and moral development (pp. 5273).
New York: Wiley.
Lind, G., in press. The meaning and measurement of moral judgment competence revisited - A
dual-aspect model. In: D. Fasko & W. Willis, Eds., Contemporary Philosophical and
Psychological Perspectives on Moral Development and Education. Cresskill. NJ: Hampton
Press.
Piaget, J. (1965). The moral judgment of the child. New York: The Free Press. (Original work
published 1932)
What is ethics?
Ethics is a branch of philosophy that studies the difference between right and wrong. As
professional accountants, you will have many opportunities to choose between right and
wrong. As you have seen in the business press, making the wrong choice can lead to
serious consequences including corporate failure, loss of reputation, fines, and even jail
sentences.
The objective of this unit is to introduce you to different branches of ethics, in order to
help you understand that people approach the topic with different points of view. You will
learn about different ways of thinking through an ethical question. This will help you
identify the way that you make decisions so that you can recognise your own personal
ethics, in any professional ethical problem that you may be faced with. In this way, you
can mitigate any detrimental impact of your own personal ethics, with a view to a more
objective approach.
Ethics has been applied to different fields , for example biology, , resulting in new fields
of study like bioethics and environmental ethics.to social sciences, resulting in new
fields of study such as feminism, war, pacifism, criminology,criminal justice, and to
business and the field of business ethics. What you will be studying in this module
generally falls into the area of professional ethics.
Perspectives on ethics
In very broad terms, there are three ways of looking at ethics that have developed over
time:
rules conformance
good intentions
competence
Rules
One way of thinking about ethics is in terms of conformity to rules. From this
perspective, ethics is understood as a list of things to do and to not do. Sometimes the
list gets very long and complicated and needs to be interpreted by a whole institution of
people. The ethical person, from this perspective, is the one who conforms to the rules.
Good intentions
A second way of thinking about ethics is in terms of good intentions. From this
perspective, a behaviour is considered ethical if it is based on good intentions. Good
behaviour, then, follows from good thinking.
Competence
The third perspective thinks of ethics in terms of competence. From this perspective, the
ethical person is one who can make decisions based on principles and then act upon
them. Thus we talk of competency because ethics is thought of in terms of ability rather
than attitude.
Branches of ethics
Over centuries of philosophical debate, ethics has developed several schools of
thought. In other words, philosophers and others have developed different ethical
theories, different ways of thinking about doing the right thing. These theories reflect
scholarly differences between professional philosophers, but they also reflect
differences in style of moral reasoning that can be observed in everyday moral
reflection. As a professional accountant working with people, it will be important for you
to become aware of your own ethical way of thinking and to understand that other
people may think about doing the right thing in a different way from you.
The accounting examples included here are only used to illustrate new concepts in
terms that you will already be familiar with. When making any decision as a professional
accountant, you must be sure that you are following the laws of your country, the
particular rules that govern you, and the ACCA fundamental principles.
Some of the better known ways of thinking about ethics follow:
Consequences
Another way of thinking about ethics is through the consequences to different people.
Briefly, consequentialism encourages you to make decisions based on the
consequences both positive and negative for those involved. This category of
thinking is the branch of ethics known as utilitarianism. This states that an action is right
if it leads to the most good outcomes and the least bad outcomes, for the greatest
number of people.
One limitation of thinking about ethics in terms of consequences is that you have to
agree on what sorts of consequences matter: for example, should you be trying to
promote pleasure and avoid causing pain, or should you instead focus on promoting
peoples actual well-being, regardless of whether doing so makes them happy? A
modern application of this point of view is the cost-benefit analysis, which involves
assigning monetary values to the costs and benefits of an action and seeing how they
add up. This practice is often used in evaluating new projects.
As an accounting example, an accountant thinking in terms of consequences would
prepare true and fair financial statements because doing so would bring the most
benefit to the greatest number of people. In other words, stakeholders inside and
outside the organisation would be able to make more informed decisions as a result.
Virtue theory
In virtue theory, the emphasis is on deciding what sort of person one should try to be,
and to define the virtues such a person would embody i.e. you decide what makes a
good person, instead of what makes a good action, and act accordingly. One limitation
of this way of thinking is that what constitutes a virtue must be agreed upon, and it can
vary according to culture and over time. For example, the qualities of good financial
reports were once considered to be completeness, historical accuracy, reliability and
strict adherence to the legal form in disclosing business transactions. More recently, the
qualities of good financial reports have come to be relevance for decision-making,
reference to a wider conceptual framework, and presenting the economic substance of
business transactions.
As an accounting example of the use of virtue theory, in deciding whether to agree to a
clients request to use a questionable method for valuing inventory, an accountant would
ask, What would a conscientious accountant do in such a situation? What would one of
my respected mentors do?
One criticism of this theory points out that the agreement referred to by social contract
theory is entirely imaginary. Why consider yourself bound by an agreement that never
happened?
An accounting example of social contract thinking might be seen in a situation where an
accountant has to decide between loyalty to a client and candid assessment of financial
statements. Both of those options involve important social values. Thinking in social
contract terms, the accountant might ask, 'What sort of rule for balancing these values
would unbiased people agree to?'
Confucian ethics
Confucian ethics seeks to provide harmonious relationships within society, the family,
and the individual. Looking within yourself and learning from experienced people are
seen as the main roads to wisdom and self-harmony. The emphasis on experience
leads to respect and reverence for the past, the aged, and for ones ancestors. One of
the criticisms of this model is that in a society where relationships are considered more
important than the laws themselves, corruption and nepotism may be tolerated.
As an accounting example, in deciding whether to agree to a clients request to use a
questionable method for valuing inventory, an accountant thinking in Confucian terms
might consider agreeing to it because doing so would cause harmony with the client.
Rules of thumb
In addition to scholarly branches of philosophy, some other ways of looking at right and
wrong have developed.
whole rule is based on your own feelings of how you yourself would want to be treated.
But your own needs and preferences might not be typical. For example, the fact that you
personally do not value privacy does not mean that you dont owe others an obligation to
respect their privacy.
As an accounting example, this rule of thumb could be applied to mean that you
disclose all information that may be relevant in financial reports because, if you were the
reader of those financial statements, you would expect to receive all the information, and
disregard any that is not relevant to you.
Mirror test
Another rule of thumb is the mirror test. This is a quick way to evaluate a decision that
you are about to make, and reinforces the notion that you are responsible for your own
actions. Imagine youre looking in a mirror and ask yourself:
Is it legal?
If it is not legal, don't do it.
What will others think?
Others, meaning a friend, a parent, a spouse, a child, a manager, the media,
or someone else whose opinion is particularly important to you.
As an accounting example, in deciding whether to agree to a clients request to use a
questionable method for valuing inventory, an accountant thinking in terms of this rule of
thumb would consider how a story about this action would look on the front page of the
local newspaper.
wrong of our actions. The technical difference is that while morality consists of the
various principles that guide our decisions, ethics is the careful, methodical, and
scholarly study of which principles should guide our actions. For most purposes, the
words can be used interchangeably so we can speak of having either ethical
obligations or moral obligations.
Which is worse?
hurting someone's feelings by telling the truth
telling a lie and protecting their feelings
Which is worse?
stealing something valuable from someone for no good reason
breaking a promise to a friend for no good reason
Which is worse?
not helping someone in trouble
being unfair to someone by playing favourites
Your boss orders you to do something that will hurt someone. If you carry out
the order, have you actually done anything wrong?
yes
no
These men said that human beings develop philosophically and psychologically in a progressive
fashion as they grow up.
Stage one - people are concerned with obedience and punishment and the immediate results
to themselves. The question they ask themselves is, Will I be punished if I do this?
Stage two - people are still concerned about the consequences, but have moved on to
thinking about what else is in it for them. They think, You do a favour for me and Ill do a favour
for you.
Stage three - people begin thinking about their social relationships. They want to be a good
person so that they can seek approval from others.
Stage four - a functioning society is paramount, and people seek to obey laws and social
conventions. If one person violates a law, perhaps everyone would, so there is an obligation to
uphold the law.
Stage five - people think in terms of inalienable rights and liberties. Laws are seen as
embodying social contracts, and such contracts are open to criticism. People at this level are
interested not just in what societys rules are, but in what makes a good society.
This theory says that people rarely reach stage six. If they did, they would show respect for
universal principles and the demands of individual conscience, acting because it is right, not
because it was legal or expected of them.
Although this theory of moral development has been criticised for being overly
concerned with abstract principles such as justice, and not enough with care, it is still a
useful framework for investigating your personal ethics.
Summary
Morality is a set of rules concerning right and wrong behaviour. Ethics is the branch of
philosophy that attempts to provide clear arguments about which moral rules are best,
and how those rules ought to be interpreted.
There are several different ethical theories or frameworks for ethical decision-making,
each of which has been advocated by prominent moral philosophers. Some
philosophers, for example, advocate thinking about ethics entirely in terms of
consequences: what action will produce the best outcomes overall? Others have argued
in favour of thinking solely in terms of duties, and absolute principles of behaviour
such as Always tell the truth that could be adhered to by all. Others have advocated
thinking about ethics in terms of hypothetical contracts, asking us to imagine what rules
of behaviour reasonable, unbiased people would agree society should live by. And
finally, some have argued that we ought not to think about ethics in terms of rules, but
rather to think about what kinds of virtues good people embody, and what kinds of
people we think it best to emulate.
Many different factors affect ethical reasoning, including age, sex, religion, and
professional affiliations.
It is preferable that your ethical decisions be based on good reasoning and careful
consideration of the relevant laws and principles, but it is also necessary to be aware of
the various personal factors affecting your own decision-making, and those of other
people.
Rules vs Principles
The objective of this unit is to introduce you to the two major approaches to solving
ethical dilemmas, they are:
Rules
and
Principles
ACCA follows a principles-based approach, and that is the approach we recommend
that you take as a professional accountant.
An Example
The following simple example is used only to illustrate the use of a rule and the use of a
principle.
Alternatively, if threats were identified, you would have to assess the significance of those
threats, and then consider whether any measures could be put in place to address them.
Summary
As a professional accountant, you will be called upon to make many decisions.Remember that
ACCA follows a principles-based approach. It is important to put principles into context. You
must always obey the laws of your country. Then you must consider the more detailed rules laid
down by your governing body (ACCA) regarding a specific situation, such as promoting your
practice, charging fees, accepting new clients, or handling clients monies. Finally, if a particular
ethical dilemma is not covered by ACCAs rules, you must consider the fundamental principles,
and whether they might be breached or threatened by the proposed course of action.
Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour
Integrity
What the rulebook says
You should be straightforward and honest in all professional and business relationships.
In other words
Do not lie and do not issue false or misleading information.
Objectivity
What the rulebook says
You should not allow bias, conflict of interest or undue influence of others to override
professional or business judgements.
In other words
Your professional and business judgement should be based on fact and on what is in the best
interests of stakeholders or others. Judgement should not be based on what is in your own
personal interest, or in the interests of those who have power or influence over you.
Confidentiality
What the rulebook says
You should respect the confidentiality of information acquired as a result of professional and
business relationships and, therefore, not disclose any such information to third parties without
proper and specific authority, unless there is a legal or professional right or duty to disclose;
and
Professional behaviour
What the rulebook says
You should comply with relevant laws and regulations and avoid any action that discredits the
profession.
In other words
Be courteous and considerate to people, and always behave so that a reasonable and informed
third party who knows all the facts would also think you are acting professionally.
Summary
The fundamental principles of integrity, objectivity, professional competence and due care,
confidentiality, and professional behaviour are international standards that accountants who are
members of IFAC professional bodies agree to follow through implementation of the IFAC Code
of Ethics.
Professing to higher standards of behaviour is something that professionals do. And these are
the standards that ACCA accountants must follow. As a student, it is important for you to
become familiar with them and to know that they also apply to you.
The framework
The objective of this unit is to introduce you to the framework for using ACCAs
fundamental principles for solving ethical dilemmas.
It would be difficult to create a rule for every possible situation that you might encounter,
and even more difficult to remember the right rule at the right moment. Therefore the
Code uses a principles-based approach, and has developed a framework to help you
address those principles.
The ACCA framework is based on the model from the International Ethics Standards
Board for Accountants (IESBA). It consists of a series of steps that you go through when
confronted with an ethical dilemma. You should ask and answer these questions in this
order:
1.
2.
3.
4.
For Example
You are the accountant at a pharmaceuticals company. Your finance director asks you to contact
the marketing director about the implications of a significant and unexpected price increase of a
generic drug you produce for thinning the blood in heart patients. The request follows a pricing
agreement drawn up between the three main companies supplying these drugs to the national
health service of a country, and so, the impact of the price increase on the volume of sales will
be lessened, due to the other companies in the cartel also raising their prices.
Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour
Sources of threats
The threats to these principles can come from a number of different directions.
Self-interest threats
These come about if you or a close family member stands to gain (or not lose) something from
the incident. Usually your integrity or objectivity would be at risk.
Self-review threats
These may be significant when you are in a position of having to review your own work. This
could put your objectivity at risk.
Advocacy threats
These threats exist if you are promoting a position that compromises your integrity, or promoting
a position or opinion to the point that subsequent objectivity may be compromised.
Familiarity threats
These can arise if you have a close personal relationship with someone and cannot be
objective. Several of the fundamental principles may be threatened.
Intimidation threats
These can become significant if you put yourself in a position where you could be pressurised
by physical or verbal threats, or if there is an implied threat to your career or prospects. For
example, you may be bullied into doing work which you are not competent to perform. Any of the
principles could suffer under this type of threat.
If a threat is significant, you will want to put safeguards in place or use the ones that
already exist. For example, safeguards can range from government regulations and
professional standards, to people or policies in your workplace. If you look around, you
will see that many safeguards are already in place to help you.
First, there are the safeguards created by laws and regulations in your country and by
your own accounting profession. These are designed to ensure that all accountants
work in line with the fundamental principles, that compliance with the fundamental
principles is regulated, and that sanctions are imposed on those professional
accountants who do not comply.
The next safeguards are the education and training you undergo before entering the
profession and the continuing professional development requirements you face after you
qualify as an accountant. This training teaches you current practices and helps keep you
up-to-date with accounting standards and regulations. These safeguards can be
reinforced by controls established in the work environment. These can include the
introduction of organisational ethics policies and procedures and the development of
training for all employees to ensure their compliance,strong internal controls,appropriate
disciplinary procedures,and a culture that encourages employees to communicate to
senior levels about ethical issues without fear of retribution.
Finally, there are safeguards you can create for yourself such as:
An example
Lets work through an example. Suppose your manager asks you to claim expenses under a
code other than that relating to the expenses incurred, on the grounds that this budget code is
under spent and the original code was overspent. Use the framework.
Step one: What is the real issue? It is not that you are claiming expenses fraudulently,
because these were legitimately incurred and so you are not benefiting financially. The issue is
whether financial and budget information and variance analysis are reliable when managers are
manipulating the use of budget codes. The incorrect allocation of the expense could result in
senior management being deliberately misled.
Step two: Are any fundamental principles threatened? You remember the five principles of
integrity, objectivity, professional competence and due care, confidentiality, and professional
behaviour. The fundamental principles threatened here are integrity and objectivity deliberately
using a wrong code to protect your personal and business interests.
Step three: How significant is the threat? Since you have not acted dishonestly for personal
gain, you might decide that the threat is not very significant. However, you are thinking about the
consequences and not the threat. You are also ignoring the possible consequence that senior
management may be deliberately misled as a result of your actions. If the amount being
allocated to the incorrect code is considered material, the risk of this happening is significant,
unless appropriate safeguards are put in place.
Step four: What safeguards would ensure that the threat to your integrity is sufficiently low
and that budgetary codes are not dishonestly manipulated? One safeguard that might allow the
proposed action to go ahead is to discuss the situation and seek assurances that the treatment
of the expenses claim will be disclosed to the users of the information.
You may decide to obey your managers request and use an incorrect budget code, whilst
striving to protect the budget holders position. That is you may do so because you have
received assurances that the proposed action will not result in the senior management being
misled. On the other hand, you may feel that as a professional accountant, it is your duty to
report expenses as they are, because you feel that the proposed course of action could only
mislead senior management.What is your decision? Do you have sufficient assurance that the
first course of action may be followed, or do you have to refuse the managers request?
In any situation, you must begin with the laws of your country. The law generally deserves our
respect, with very few exceptions. The situations in which it might be ethically permissible to
break the law generally involve matters of life and death, and are not likely to occur in the
professional work of accountants.
Next you look to the specific rules that govern the situation. For example, if you are an auditor,
you will be bound by the relevant auditing standards in your jurisdiction.
Then as a professional, whether an auditor or not, you must consider the principles of your
professional body which form the basis of your professional ethics.
Remember that professional ethics is really about an obligation to the public. As a professional
-- whether a doctor, a lawyer, an engineer, or an accountant -- you will have been tested and
accepted by your profession. The public will place their trust in you simply because you are a
professional, a member of a trusted professional body. The public is not expected to know how
to assess either the ability or the ethics of a doctor, a lawyer, or an accountant, for example.
They trust that the professional bodies will have done this for them. This means that as a
professional you owe the public a certain level of integrity and objectivity,as well as professional
competence and due care, confidentiality, and professional behaviour. In other words, you must
uphold the ACCA fundamental principles simply because you are a professional and you have
professional ethics.
Throughout all of this, your own values, interests and experiences are the filter through which
you unavoidably view any situation. It is important for you to be aware of those filters because
they could influence your professional judgement. That is why this module has exposed you to
different kinds of ethical thought, so that you may be better able to recognise your own personal
ethical perspective when you exercise your professional ethics.
For example, suppose you tend to make decisions based on the consequences to other people
and would generally consider yourself a utilitarian. If you were asked to do something that was
legal and did not violate the fundamental principles, but had unpleasant consequences for a
large number of people, you might not want to do it. For example, you may not wish to advise a
client that a loss-making division of the business should be closed, making several workers
redundant. It would violate your preferred ethical framework. But it would not violate your
professional ethics.
It is important to be able to know the difference between the two. As a professional accountant,
you should strive to maintain objectivity by being mindful of the fact that your personal values
are just that personal and unique to you.
Summary
ACCA has a framework for ethical decision making. It consists of four steps:
1.
2.
3.
4.
Feedback
The key problem with this choice is that it violates ACCAs fundamental principles. By making
these unsubstantiated adjustments, you would not be living up to the standard of integrity,
objectivity, and professional competence expected of a professional accountant. You have
violated your professional ethics.
conflict and to show your loyalty to the company. Loyalty is indeed a virtue, as is being a team
player.
But its important to remember the limits of those virtues. Being loyal is important, but managers
like Margaret should know that accountants are professionals, with special obligations that go
beyond loyalty to the company. Thus, loyalty to the company must be balanced against loyalty to
the profession and the need to uphold ACCAs fundamental principles.
Also, it is important for you in this situation to consider what the consequences of making these
adjustments would have in the long run. Making the adjustments may not seem like a big deal in
the present case, but going along with the request now may open the door for being pressured
to engage in further violations of ACCA principles in the future.
Feedback
You are upholding the fundamental principles of integrity and objectivity. You are not allowing
your judgement to be clouded by peer pressure, by your own personal interests, or by the short
term interests of your company.
Your choice
Although you are not completely satisfied with the compromise, you decide to sign the
paperwork.
Feedback
You have not upheld your professional ethics. You have violated the fundamental principles of
integrity and objectivity. You acted objectively throughout the audit process until the point when
you agreed to the compromise.
She could also have spoken to other partners in her audit firm and got their advice and widened
and opened up the debate to others, which can often reduce pressures to act inappropriately. If
for any reason she was unsure about her position, she could have spoken confidentially to her
professional associations help line and got their advice.
She can be satisfied that at least her professional competence is intact since she identified and
understood technical issues regarding the financial accounts and communicated her views
effectively to her managers and the client. She complied with most relevant laws and regulations
because the eventual reversal of the depreciation adjustment on the property lease and derecognition of the customer list means that the accounts no longer violate these specific
accounting standards. However, there remains a question mark about truth and fairness
regarding the provision accounts and how they are measured and valued, which brings into
doubt her integrity given that she agreed to the compromise.
A further problem regarding the decision remains unresolved. This is the potential conflict of
interest that she is aware of regarding the possible consultancy contract between her employer
and Bexall. Although not directly related to the audit, it could bring into disrepute her
professional judgement and competence in that she has not considered adequately how this
conflict could be handled and overcome, and how knowledge of the existence of this conflict of
interest could affect perceptions that stakeholders might have of the reliability of the audit report,
or the integrity of her audit firm. She should have argued with the audit partner that fundamental
audit principles would prohibit the audit firm from entering into a consultancy contract because
entering into such a contract would compromise the audit firms independence. The gaining or
losing of this contract should not be a consideration in the matter.
Feedback
You have upheld the fundamental principles of integrity, objectivity, and professional
competence and due care. You acted objectively all the way through the audit process, up to
and including your refusal to agree to the compromise. You acted with integrity in accordance
with your professional values and did not let your judgement be clouded by peer pressure or by
your own personal interests. In addition, your professional competence is seen to be intact. You
identified and understood technical issues regarding the financial accounts and communicated
your views effectively to your managers and to the client.