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A QUESTION OF ETHICS
RELATED LINKS

IFACCodeofEthics
ACCARulebook
ACCACodeofEthics
StudentAccountanthubpage

InDecember2011ACCAintroducesthefirstexampapersforthenewFoundationsinAccountancySuite
ofqualifications.Thereafter,ACCAwilloffertheAccountantinBusinessexamasthePaperF1andFAB
componentsoftheACCAFundamentalsKnowledgemoduleandtheDiplomainBusinessrespectively.
ThelatterreplacesCATPaper5,ManagingSystemsandPeople,thelastsittingofwhichtookplacein
June2011.

ThemajorityofsubjectsthathavetobestudiedforthesequalificationsfromDecember2011arecarried
overfromthepreviousCATPaper5syllabusandfromthepreviousPaperF1.However,thereare
severalchanges,includingtheadditionofawholenewsectiononethics.Thisarticlegivesanoverviewof
ethicsandprovidesaplatformforfurtherstudyonthisvitallyimportantaspectoftheworkofthe
professionalaccountant.

ThenewPaperF1/FABSyllabusstatesthat,oncompletionthestudentshouldrecognisethatallaspects
ofbusinessandfinanceshouldbeconductedinamannerwhichcomplieswithandisinthespiritof
acceptedprofessionalethicsandprofessionalvalues.TheStudyGuidesetsoutfoursetsoflearning
outcomes(SectionsF14):
fundamentalprinciplesofethicalbehaviour
theroleofregulatoryandprofessionalbodiesinpromotingethicalandprofessionalstandardsintheaccountancy
profession
corporatecodesofethics
ethicalconflictsanddilemmas.

Theseareconsideredinturninthisarticle.Itmustbestressedthatthisisintendedtobeanintroduction,
andfurtherdetailedstudywillbenecessarytoacquiretherequiredlevelofknowledgeandunderstanding.

FUNDAMENTALPRINCIPLESOFETHICALBEHAVIOUR
Whatisethics?
Ethicsisconcernedwithwhatsocietyconsiderstoberightorwrong.Itthereforerelatestostandardsof
behaviour.Atfirstthismayappeartooverlapwithonepurposeoflaw,inthatlawseekstoaddress
behaviourofwhichsocietydisapproves.However,ethicalprinciplesmaybeadoptedthatdiscourage
behaviourthatisundesirablebutlegal.Forexample,duringtheexpensesscandalthataroseintheUKin
2009regardingclaimsforreimbursementbypoliticians,onepoliticianrespondedtocriticismbystating
thatshehaddonenothingillegal.Thisrathermissedthepoint,asthegeneralpublicmaystillregard
legitimateexpensesclaimsasinappropriate,andthereforeunethical.

Ethicslacksthecertaintyusuallyprovidedbythelaw,asindividualsmayconsidersomethingsthatare
legaltobeunethical.Inturn,viewsonmoralitydiffer,soevenwhenethicalprinciplesarecodifiedby
professionalbodiesorcommercialorganisations,theymayberegardeddifferentlyaccordingtothemoral
principlesofeachindividual.

Allprofessionsrelyontheirpractitionersadoptingnotonlylegalbutethicalstandards.Ifaccountants
behaveunethically,theirclientswillloseconfidenceintheirservices,andsocietyingeneralwillnolonger
trustthemorfeelthattheyactinthepublicinterest.Thepotentialeffectsofthiswouldbedevastating,not
onlytoaccountantsthemselves,buttheprofessionanditsstakeholders,includingindividuals,
organisationsandothersaffecteddirectlyorindirectlybytheirwork.

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Approachestoethics
Ethicalbehaviourmaybedefinedintermsofduties.Manyphilosophershavearguedthatcertaincore
dutiesareimperatives,andassuchwillalwaysapply,regardlessofcircumstances.Absolutists(or
dogmatists)admitnoexceptions,asthesedutiesarebelievedtobesacrosanct.Theyoftenhavetheir
foundationsinreligionordeeplyembeddedvalues,universallyacceptedbysociety.Themostcommon
examplesarethedutiesnottokillandtoalwaystellthetruth.Thisapproachtoethicsissometimescalled
thedeontologicalapproach(fromtheGreekworddeon,meaningduty).

Relativists(orpragmatists)acceptthatdutiesareimportantbutarepreparedtoadmitexceptions.For
example,theymayarguethatitisrighttokillifthecauseisjust,ortotellalieifthepurposeisnoble.Soif
afrailandterminallyilllovedoneasksAmIdying?,itmaysometimesberighttolie.

Codesofconductissuedbyprofessionalbodies,andcorporatecodesissuedbybusinessorganisations,
defineresponsibilitiesintermsofduties,andmayprovideguidanceonthemorecommonexceptionsthat
apply.Asitisimpossibletodefinetheappropriateresponsetoeverysinglehumaninteraction,these
codescanonlyserveassetsofminimumstandardsandhavetorelyontheinherentwillingnessof
practitionerstodeducewhatisrightorwrong.

Ethicalbehaviourmayalsobedefinedintermsofconsequences.Thisissometimesreferredtoasthe
teleologicalapproach(fromtheGreekwordtelos,meaningtheend).Here,therightcourseofactionis
thatwhichwillresultinthemostacceptableoutcome.Mostacceptabletowhom?Thisisdependenton
theethicalstanceofthosewhodeterminewhatisanacceptableoutcome.

Utilitariansregardtherightcourseofactionasthatwhichwillbenefitthemajority,orservethegreater
good.Indoingso,theethicaldecisionmaydisregardanyimpactontheminority,believingthatthey
shoulddefertothegreaterneedsandinfluenceofthemajority.Ontheotherhand,pluralistspursue
consensusinordertoaccommodatetheneedsofboththemajorityandtheminority.Finally,egoists
favourcoursesofactionthatarerightforthem.Thislast,seeminglyselfishapproachtorightandwrong
wassupportedbyAdamSmith,the18thcenturyUKeconomist,whosuggestedthatpursuitofself
interestisoftenacatalystforthecreationofprosperitythroughentrepreneurialinnovationandrisktaking.

Apracticalapplicationoftheseconceptsmaybeconsideredinrelationtotheconflictingviewsontheuse
ofmobiletelephonesoncommutertrains.Shouldrailwayusersbedeniedtherighttousetheirmobile
telephoneswhiletravellingontrains?Ifoneassumesthatthemajoritywilltolerateconstantlyringing
telephonesandloudconversationsduringarailwayjourney:
theutilitarianwillproposethatmobiletelephonesareacceptabletomostcommuters,sotheminoritywillhavetoput
upwiththem
thepluralistaccommodatesbothgroupsbysettingasidealimitednumberofquietcarriagesinwhichmobile
telephonescannotbeused
theegoistdecidesonthecourseofactionthatismostdesirableforhim,whichmayinturnbebasedonprofitmotiveor
personalbelief.

Usingthedutybasedandconsequentialistbasedapproachestoethicaldecisionsmayresultindifferent
potentialoutcomes.Considerthecaseofahighlysuccessfulanddynamicchiefexecutiveofficerwhohas
beencaughtupinascandalrelatingtohispersonallife,reportedwidelyinthenationalnewspapersand
ontelevision,withresultantembarrassmenttohisorganisation.Shouldheresign?Thedutybased
approachmaysuggestthat,asaseniorexecutive,heshouldadopthighmoralstandardsinandoutof
work,andbecausehehasfailedtomeetthosestandards,heshouldresign.Theconsequentialistmay
agree,statingthatbynotresigningitwillresultindamagetothereputationoftheorganisationaslongas
heremainsinoffice.However,theconsequentialistmayalsodisagree,arguingthatbyresigningthechief
executiveofficerdeprivestheorganisationofhisknowledge,skillandexperience,whichwillresultina
lackofleadershipanddirection,atleastintheshortterm.Thisargumentmaybereinforcedbytheview
that,infuture,otherorganisationsmaychoosetoacceptresignationsonthesamebasis,eventhoughthe
individualspersonallifeshouldhavenothingtodowithhiswork.

Ethicalprinciples
LedbyinternationalbodiessuchastheInternationalFederationofAccountants(IFAC)anditsmany
memberassociationsandinstitutes,severalprincipleshavebeenidentifiedasbeingofcrucialimportance
totheprofession:
integrity
objectivity
professionalcompetenceandduecare
confidentiality
professionalbehaviour.

Thesearediscussedinmoredetaillaterinthearticle,astheyformthefundamentalprinciplesofthe
ACCACodeonEthicsandConduct.

Itisnotadequatetosimplyidentifyandarticulatetheaboveprinciples.Inordertoputthemintopractice,
organisationsmustadoptvaluesthatwillpromoteadherencetotheprinciples,therebymaintainingthe
confidenceofstakeholders.Accountantshavetorecognisethattheirdutiesarenotlimitedtowhatclients
expectofthem,andmustacceptthattheyhaveafiduciaryduty,ordutyofabsolutetrust,toawiderange
ofstakeholders.Table1setsoutadditionalvaluesthatshouldbeadopted.

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TABLE1:ORGANISATIONALVALUES

Value Meaning

Openness Beingfullandcompleteintheprovisionand
disclosureofinformationandreasoning
behinddecisions

Trust Relyingonthejudgmentsandinformation
providedbyotherprofessionals,and
embracingvaluesthatencourageothersto
relyonourjudgments

Honesty Notonlytellingthetruth,butbeingprepared
togivecompleteinformationonwhichothers
canfullydepend

Respect Treatingotherswithdignityandadoptinga
professionalmanner

Empowerment Ensuringthatthosewhoareentrustedwith
responsibilitieshavetheauthoritytocarryout
thetasksnecessarytofulfiltheirduties

Accountability Takingfullresponsibilityfortheoutcomesof
ourwork,includingworkcarriedoutonour
behalfbyothers

CORPORATECODESOFETHICS
Corporatecodesofethicsarepublishedbyprivatesectororganisationsinordertocommunicatetheir
valuesandbeliefstostakeholders.Theseinclude:
customers,whosebuyingdecisionsmaybeinfluencedbyethicalconsiderations
shareholders,whoseinvestmentdecisionsmaybeinfluencedbyethicalfactors
employees,whohavetoknowthestandardsexpectedofthem
suppliers,whoneedtounderstandtheexpectationsoftheircustomersandalsothattheywillbetreatedethically
duringthecourseofthecommercialrelationship
lobbygroups,whomayhavespecificinterestsincertainpracticesoftheorganisation
thecommunityinwhichtheorganisationissituated,whichmayseekreassurancethattheorganisationwillactinits
interestasanemployerandasagoodcorporatecitizen.

ThecontentsofatypicalcodeofethicsaresetoutinTable2.

TABLE2:CONTENTSOFACODEOFETHICS

Commitment Content

Coreprinciples Theseshouldrefernotonlytoitscommercial
objectivesbutthemannerinwhichtheywill
bepursued.Forexample,theymaystate
socialandenvironmentalcommitmentsas
wellasbestpracticesthatwillbeadopted

Financing Howshareandloancapitalwillberaised.
Thismustalsoalludetohowtheorganisation
willdealwithprovidersofshareandloan
capital,confirmingthatitspublished
statementswillbehonest

Customers Customersmayrefertothestatementin
ordertoconfirmtheminimumstandardsthat
canbeexpectedfromtheirpurchases,
especiallyintermsofbenefitstobederived
fromtheproductsandservices.Theymay
alsobeinterestedinmatterssuchas
customerserviceanddistributionchannels,
supplychainpolicies(suchasFairtrade
commitments,organicingredients,andsoon)
andanimaltesting

Suppliers Thecodemayrefertohowsupplierswillbe
chosenandthestandardstowhichtheymust
adhere.Itmayalsosetdownthetermsof
businessonwhichsuppliersareengaged

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Employees Thecodeshouldconfirmemployment
practicesinrelationtoengagementof
workers,includingequalopportunitiesand
diversity,workingconditionsandhow
employeeswillbedeveloped

Community Organisationsbringvaluetothecommunity
byprovidingemploymentandgenerating
income,butmayalsohaveadverseeffects
throughtrafficcongestion,emissionsand
evenunemploymentifthecompanydecides
todownsizeorrelocate.Thecodemay
provideassurancesinrespectofsuchfactors

Lobbygroups Lobbygroupsexpressspecificconcerns
relatingtofactorssuchasrawmaterials,
workingconditionsandenvironmentalimpact.
Thecodemayaddresssuchissuesby
statingbroadpolicies

THEROLEOFREGULATORYANDPROFESSIONALBODIES
Ethicalbehaviourcanbepromoted,orevenenforced,inseveralways.

Ifspecificunethicalpracticesareconsideredtobewidespreadanddetrimentaltothepublicatlarge,a
nationalgovernmentorsupranationalauthoritymaytakeactiontocurtailsuchpracticesbymakingthem
illegal.Themostobviousexamplesarediscriminationintheworkplaceandsellinghighinterestconsumer
loanstovulnerablepeople.Manygovernmentshaveoutlawedvariousformsofdiscriminationbypassing
nationallegislationandhaveintroduceddisclosurerequirementsatpreapplicationstagewhenpersonal
borrowersareconsideringtakingoutloansthatmanynotbeintheirbestinterests.

Itisnotpossibletolegislateoneverymatterofconcern,however,soprofessionalbodieshaveavitalrole
toplayincontrollingunethicalbehaviour.Professionsarecharacterisedbyofferingspecialistservicesthat
areunderpinnedbycertainminimumeducationalstandards.Unfortunately,althoughitispossibletoteach
ethics,thisdoesnotensurethatthosewholearnaboutitwillnecessarilybecomeethicalasaresult.For
thisreason,mostprofessionalbodiessetethicalstandardstowhichalltheirmembersareexpectedto
adhere.Failuretodosomayresultincensureorevenremovalfrommembership.

Theaccountancyprofessionhastoconsiderethicalissuesnotonlynationallybutalsoinaglobalcontext.
ItisinthisregardthatIFAChasaroletoplay.IFACisaglobalrepresentativebodyforaccountants,with
164membersandassociatesfrom125countries.Itdevelopsinternationalstandardsonethics,auditing
andassurance,educationandpublicsectoraccountingstandards.UndertheauspicesofIFAC,the
InternationalEthicsStandardsBoardforAccountants(IESBA)developsethicalstandardsandguidelines.
Inturn,theworkofIESBAisoverseenbythePublicInterestOversightBoard.

TheIFACCodeofEthicsisavailablefreeofchargefromtheIFACwebsite(see'Relatedlinks').Itsetsout
internationallyagreedstandards,startingwithadefinitionoffundamentalprinciplesandgoingonto
elaborateonspecificmattersrelevanttoaccountantsinpublicpracticeandaccountantsinbusiness.
WhenpreparingforPaperFAB,itisusefultorefertothisCode.ItisalsorelevanttoPapersF8,P1,P3
andP7.

Incommonwithothermajoraccountancybodies,ACCApublishesaCodeofEthicsandConduct,aswell
asanonexamined,onlineProfessionalEthicsmodule.Bothareavailableonitswebsite(see'Related
links').AllACCAmembersareboundbytheprovisionsofthiscode,soitisnotonlydesirablebut
essentialreading.TheACCACodealsodefinesfundamentalprinciples.Itelaboratesontheprinciples
discussedearlierinthearticleasfollows:
IntegrityMembersshouldbestraightforwardandhonestinallprofessionalandbusinessrelationships.TheACCA
Rulebook(andtheIFACCodeofEthics)goesontostatethatintegrityimpliesnotmerelyhonesty,butfairdealingand
truthfulness.
ObjectivityMembersshouldnotallowbias,conflictsofinterestorundueinfluenceofotherstooverrideprofessional
orbusinessjudgments.
ProfessionalcompetenceandduecareMembershaveacontinuingdutytomaintainprofessionalknowledgeand
skillatalevelrequiredtoensurethataclientoremployerreceivescompetentprofessionalservicebasedoncurrent
developmentsinpractice,legislationandtechniques.Membersshouldactdiligentlyandinaccordancewith
applicabletechnicalandprofessionalstandardswhenprovidingprofessionalservices.
ConfidentialityMembersshouldrespecttheconfidentialityofinformationacquiredasaresultofprofessionaland
businessrelationshipsandshouldnotdiscloseanysuchinformationtothirdpartieswithoutproperandspecific
authority,orunlessthereisalegalorprofessionalrightordutytodisclose.Confidentialinformationacquiredasa
resultofprofessionalandbusinessrelationshipsshouldnotbeusedforthepersonaladvantageofmembersorthird
parties.
ProfessionalbehaviourMembersshouldcomplywithrelevantlawsandregulationsandshouldavoidanyaction
thatdiscreditstheprofession.TheACCARulebookgoesfurther,andstatesthatmembersshouldbehavewith
courtesyandconsiderationtowardsallwithwhomtheycomeintocontactinaprofessionalcapacity.

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TheCodethengoesontoelaborateonspecificresponsibilitiesinrelationtomanyaspectsofpractice,
includingmoneylaundering,whistleblowingresponsibilities,advertisingandpublicity,thedescriptionsof
membersandfirms,changesinprofessionalappointments,legalownershipandaccesstobooksand
otherdocuments,professionalliabilitiesandclientsmonies.

ETHICALCONFLICTSANDDILEMMAS
Asthenumberofhumaninteractionsinbusinessisinfinite,itfollowsthatprofessionalaccountantswillbe
facedwithconflictsofinterestandethicaldilemmasthattheyhavetoaddress.

Conflictsofinterestarisefromvarioussources.Theaccountantmaybeaskedto:
takeadecisiononamatterinwhichtheindividualhasapersonalinvolvement,suchaswheretheaccountanthasa
familyorpersonalrelationshipwiththeclient
adviseacompanythatisindirectcompetitionwithanexistingclient
supporttwoclientswhoareincompetitionwithoneanother.

TheACCACodeprovidesclearguidanceonconflictsofinterest.Itstatesthatmembersshouldnotaccept
engagementsinwhichsuchconflictsarise,orevenwherethereisapossibilityofsuchconflictsarising.
Membersshouldevaluatethethreatsarisingfromconflictsandapplyrelevantsafeguardsagainstthe
threatsmaterialising.Ifindoubt,theaccountantshoulddisclosetheconflicttorelevantparties.

Ethicaldilemmasarisewhentheaccountanthastoconsidertwoormoreseeminglyincompatibleethical
obligations.Forexample:
hemaybeaskedbyamanagertoremainsilentaboutcertainmattersthatwouldhaveanadverseimpactonthe
financialaccountsofanorganisation,therebytestingtheaccountantsloyaltytohismanagerontheonehand,andhis
responsibilitiesasaprofessionalaccountantontheother
hemayconsiderthatthepoliciesofhisemployerareunethicalandmayfinditdifficulttoreconcilepersonalvalues
withthoseoftheorganisation
hemaybeadvisingalongstandingclientwhoisalsoapersonalfriend,onlytodiscoverthatoneoftheclientsfamilyis
behavingdishonestly,therebyplayingthebondoffriendshipagainsttheprofessionaldutytogiveobjective,truthful
advice.

TheIFACCodeoffersaframeworkthroughwhichethicaldilemmasmaybeaddressed.Whenfacedwith
ethicalconflicts,thedecisiontakershouldconsider:
thefactsofthesituation
theethicalprinciplesinvolved
relatedfundamentalprinciples
relevantinternalprocedures
thealternativecoursesofaction
consequencesofeachalternativecourseofaction.

CONCLUSIONS
Ethicsisnotaneasysubjectbutonethathasbecomecriticallyimportantinabusinessenvironmentin
whichfailuretoadheretoproperstandardscanhaveadevastatingeffectonorganisations,investors,
suppliers,employeesand,ofcourse,customers.Lookingbackoverthepast25years,therehavebeen
severalhighprofilecorporatescandalsthathaveallinvolvedthehumanethicalfailingstosomedegree.
TheyincludeEnronandWorldComintheUS,ParmalatinItalyandMaxwellCommunications,PollyPeck
andBaringsBankintheUK.

Arguably,therevolutionininformationcommunicationstechnologyhasmeantthatmorepeopleknow
abouttheseissues,andmorequicklythaneverbefore,andthatsucheventsarenothingnew.Perhaps
thisisoneoftheveryreasonswhyprofessionsmustconstantlyreaffirmtheircommitmenttoethical
valuesandhighstandardsofmoralbehaviour.

WrittenbyamemberofthePaperF1examiningteam

Lastupdated:20Apr2015

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