Ch4

Ethical considerations

Study guide

Define business ethics

Importance of ethics to the organisation and
to the individual
Influences that determine whether behaviour
are ethical or unethical
Factors distinguishing a profession
Role of accountants in promoting ethical
behaviour
Purposes of IFAC and ACCAs codes of
ethics(conduct)

1 Framework of rules

Rules needed when individuals worked

together

Idea of what is right and wrong

Further rules
Laws

Business law needed by Industrialisation

Sources of rules

Rules that regulate behaviour of individuals

and businesses

Laws: minimum level of behaviour required

Non-legal regulations: higher level of
behaviour
Ethical behaviour: highest level of behaviour
that society expects.
The relations of the three levels: p141

2 Management accountability

All managers have a duty of faithful service

to the external purpose of the organisation
(fiduciary responsibility), especially
managers at the strategic apex.
There is a scalar chain of authority and
accountability that runs hierachically up and
down the organisation.

Junior managers are accountable to senior

managers
Strategic apex is accountable to some external
entity on behalf of which it manages the
org(p142 question).

Objectives of commercial organisation

General objective of a commercial

organisation is to make a profit.
Its the duty of managers of a commercial
org. to seek to attain the organisations goal.
Managers need not be actually corrupt in
order to fail in their fiduciary duty.

Business Objectives

Stakeholder view of company objectives:

The interests of people other than owners

should be served
Compromise or balance of various
stakeholders interests is required

Consensus theory of company objectives:

Consensus of the differing views of

shareholders, managers, employees, suppliers,
customers and society at large
Not all selected or controlled by management.

3 Ethical environment

Ethics is a set of moral principles to guide

behaviour.
Ethical environment consists of a set of wellestablished rules of personal and
organisational behaviour.
The certainty of legal rules does not exist in
ethical theory.

Ethical principles

Ethics based on consequences/Utilitarianism (Jeremy

Bentham)

Ethics based on duty/deontology (Kant)

Judges actions by reference to their outcomes

Choose the action that is likely to result in the greatest
good for the greatest number of people.
Behaviour should be governed by absolute moral rules
that apply in all circumstances.

Ethics based on rights and virtues

If people cultivate virtue, their behaviour is likely to be

inherently ethical
Managers should attempt to incorporate such virtues as
firmness, fairness, objectivity, forethought, loyalty and so
on in daily decision-making.

*Kaplan: +motivation+ guiding principles

(Kaplan) how can ethics of a business

decision
be judged?
If an action
is illegal, it is almost certainly

unethical
Criteria to be used:

Is it legal?
Is it contrary to companys code of ethics?
Is it contrary to any other published official
code of ethics?
Would you mind other people knowing?
Who is affected by the decision? Would they
regard it fair?

3.5-3.7:
Influences
determining the ethical environment
Social attitude

Preserving and improving quality of life; reversing the

spread of pollution; protecting social minorities;
respect for environment

Business ethics

Products and production

payment by companies to government or officials

Extortion; bribery; grease money; gifts

Social responsibilities

Likely to have an adverse effect on shareholders

interests by additional cost, reduced revenues,
diversion of effort and diversion of funds
But in shareholders interests in long-term

(Kaplan) why business ethics is important?

Important to the org.

Good ethics should be seen as a driver of

profitability rather than a burden on business
An ethical framework is part of good corporate
governance
Investors are reassured about the companys
approach to risk management
Employees will be motivated in an good ethical
environment

Important to individual

Consumers and employees

3.8

Environmental responsibilities

Environmental auditing
Economic action
Accounting action
Ecological approach
Production
quality

Social and ethical objectives

Employees

Customers

Safe product of good quality, reasonable price

Suppliers

Minimum wage, job security, good working condition,

job satisfaction, equal opportunities

Regular orders, timely payment

Society at large

Control of pollution, charities and community activities

* (Kaplan) ethical issues can be found throughout al

aspects of business operations, such as accounting,
production, sales and marketing, HRM issues

R-36: #6

Which of the following would raise ethical

issues for a manufacturer of fast-moving
consumer goods?

A. the materials used in manufacture of the

goods
B. the quality of the goods
C. how the goods are advertised
D. how much its raw materials suppliers pay
their staff
E. how the goods are packaged

4 Ethics in organisation

Ethics in organisations relates to social

responsibility and business practice
Ethical systems

Personal ethics
Professional ethics
Organisation cultures
Organisation systems

Senior managers have a role in setting the

ethical standard; they decide priorities; they
set an example.

Approaches to managing ethics

(Lynne
Paine)
Compliance-based/rule-based

Company acts within the letter of the law

Violation are prevented, detected and punished
Suggesting that bureaucratic control is
necessary

Integrity-based/principle-based

Emphasis on managerial responsibility for

ethical behaviour
Moral thoughts and actions integrated into the
day-to-day operations
Relying on cultural control

5 Accountants and ethics

Reasons for accountants to behave ethically:

Ethical issues may be a matter of law and regulation

Ethical issues may be requirement of profession
Ethical behaviour serves to protect the public interest

Approaches to accountancy ethics

Code of ethics/codes of conduct: guidance clarifying what

behaviour is ethical and what is not.

*(Kaplan) At many boards of directors, it is only the

professional accountant who belongs to a profession
and therefore has a special role in promoting ethical
behaviour throughout the business.

(Kaplan) How is a Profession

distinguished from other occupation?

Mastering of specialised skills

Governance by professional association
Compliance with an ethical code
Process of certification before going into
practise

6 Code of ethics for accountants

IFAC

its mission is to develop the high standards of

professional accountants and enhance the quality of
services they provide
Its ethics committee established a code of ethics

ACCA released its own code of ethics, designed to

align to the IFAC code
* (Kaplan) All registered students, affiliates and
members of the ACCA are required to comply with
the Code. An ACCA member breaching of any of
the ethical principles may be admonished, fined,
suspended or excluded from membership.

Five fundamental principles of the ACCA

Code
of Ethics
and
Integrity:
honesty,
fairConduct
dealing and truthfulness

Objectivity: free from bias

Professional competence and due care:

having accepted an assignment, you have an obligation

to carry it out to the best of your ability, in the clients
best interests and within reasonable timescales, with
proper regard for the standards expected of you as a
professional.

Confidentiality: not using or disclosing information

given to you by clients in the course of your work
Professional behaviour: upholding the reputation of
your profession

R-37:#9

While out to lunch, you run into a client at

the sandwich bar. In conversation, she tells
you that she expects to inherit from a
recently deceased uncle, and asks you how
she will be affected by inheritance tax,
capital gains tax and other matters- which
you have not dealt with, in detail, for some
years.
Which of the principles of the ACCA Code
of Ethics is raised by this scenario?

Personal qualities expected

Reliability
Responsibility
Timeliness
Courtesy
Respect

Professional qualities expected

Independence: both

Independent in mind
Independent in appearance: be seen to be
independent, demonstrate your independence

Scepticism
Accountability
Social responsibility

R-37:11

You have been asked to work on a major

investment decision that your company will be
making, and discover that your brother-in-law is
the managing director of a firm that may benefit
from the outcome of the decision. You have no
intention of allowing this to influence the advice
you give your firm, and you know that your
brother-in-law will not try to influence you in any
way.
What professional quality would make you
consider handing this task to a colleague, or
otherwise raising questions with your superiors?