BT - Professional ethics in

accounting and business

Contents
Fundamental principles of ethical behaviour ........................................................................ 2
WHAT IS ETHICS? ................................................................................................................ 2
ETHICAL PRINCIPLES: .......................................................................................................... 2
ORGANISATIONAL VALUES: ................................................................................................ 3
FIDUCIARY DUTY: ................................................................................................................ 4
Role of Regulatory and Professional Bodies .......................................................................... 5
Corporate Codes of Ethics ...................................................................................................... 7
Ethical Conflict and Dilemmas................................................................................................ 8
ETHICAL CONFLICT: ............................................................................................................. 8
ETHICAL DILEMMAS:........................................................................................................... 9

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Fundamental principles of ethical behaviour
WHAT IS ETHICS?

Ethics are standards of our behaviour and our society influences these. As our society
changes along with its values so do ethical standards. The law is clear on what is legal and
illegal. However, ethics is based on an individual’s morality.

Ethical behaviour covers actions that are undesirable, but perhaps not illegal. Remember
just because an action is legal, it does not mean it is ethical.

When faced with an ethical decision ask yourself: if your actions were published on the front
of the newspaper, how would you feel? Would you be proud? Could you sleep at night?

Moral codes are individual and not consistent and there are many definitions of ethical
behaviour. Professions have codes of ethics that their members must follow.

If an accountant acts unethically it will affect the trust in the profession. An individual should
act ethically, as should an organisation, which is a group of individuals. Unethical behaviour
has far reaching consequences. Members who are found to be acting unethically and in
breach of the ACCAs ethical code will face censure and even withdrawal of membership.

ETHICAL PRINCIPLES:

The International Federation of Accountants (IFAC) has identified the following principals as
being crucial to the Accountancy profession. They are:

1) Integrity - ‘Members should be straightforward and honest in all professional and

business relationships.’

The ACCA Rulebook (and the IFAC Code of Ethics) goes on to state that integrity implies not
merely honesty, but fair dealing and truthfulness. This means truthfulness in all professional
relationships even when clients or colleagues don’t like the truth.

2) Objectivity - ‘Members should not allow bias, conflicts of interest or undue influence of
others to override professional or business judgments.’ For example, an accountant can’t
allow personal relationships or opinions with a client to influence their work. If they think it
will they should take measures to eliminate the conflict.

3) Professional competence and due care - ‘Members have a continuing duty to maintain
professional knowledge and skill at a level required to ensure that a client or employer
receives competent professional service based on current developments in practice,
legislation, and techniques. Members should act diligently and in accordance with applicable
technical and professional standards when providing

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professional services.’ This means doing a good job, treating the work with due care and
respect it also means keeping yourself informed on updates in the profession. For example,
financial standards are updated periodically and to ensure that the financial standards are in
keeping with the current legislation.

4) Confidentiality - ‘Members should respect the confidentiality of information acquired

because of professional and business relationships and should not disclose any such
information to third parties without proper and specific authority, or unless there is a legal
or professional right or duty to disclose. Confidential information acquired because of
professional and business relationships should not be used for the personal advantage of
members or third parties.’ Nothing about a client should be discussed with people outside
the engagement unless you are obliged by law. Confidentially agreements should be signed
by all staff dealing with sensitive information.

5) Professional behaviour - ‘Members should comply with relevant laws and regulations
and should avoid any action that discredits the profession.’ The ACCA Rulebook goes further
and states that members should behave with courtesy and consideration towards all with
whom they come into contact in a professional capacity. A certain standard of behaviour is
expected of accountants, unprofessional behaviour reflects badly not just on you and your
organisation, but can reflect on the entire profession.

Note: These are also the fundamental principles of the ACCA Code on Ethics and Conduct.

ORGANISATIONAL VALUES:

Ethics is not a ‘tick the box’ exercise, and these principles should not just be learnt off but
integrated practically into every organisation. These organisational values should be
adopted by organisations and individuals to ensure these principles are followed in all
aspects of the business:

Openness - being full and complete in the provision and disclosure of information and
reasoning behind decisions.

Trust - relying on the judgments and information provided by other professionals, and
embracing values that encourage others to rely on our judgments.

Honesty - being prepared to give complete information on which others can fully depend.

Respect - treating others with dignity and adopting a professional manner.

Empowerment - ensuring that those who are entrusted with responsibilities have the
authority to carry out the tasks necessary to fulfil their duties.

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Accountability - taking full responsibility for the outcomes of our work, including work
carried out on our behalf by others.

FIDUCIARY DUTY:

An accountant has a fiduciary duty to act in their client’s best interests. However, this duty
extends to the stakeholders who rely on the accountant’s work.

If, for example, an audit report is signed off by an accountant and deemed as being true and
fair, many stakeholders will rely on the financial information and use the report in making
decisions. Such as an investor making the decision to invest. Although these stakeholders
are not clients of the accountant, they still have a fiduciary duty or an implied duty of care to
them.

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Role of Regulatory and Professional Bodies
The IFAC Code of ethics - baseline for the ethical behaviour of accountants in various
accountancy bodies (including ACCA).

IFAC (International federation of accountants) - international body representing the

accountancy profession and all major accountancy bodies internationally.

Key focus: maintenance of high standards of the profession, including business ethics.

Code of ethics is administered by IESBA (International ethics standards board for

accountants).

IESBA - independent board set up to ensure the IFAC Code of ethics operates.

Promotion of ethical awareness:

1) All members in the profession must ordinarily sign up to a Code of ethics and
Codes of conduct linked to Code Ethics specific to jurisdictions;

2) Continuing professional development - Ethics module;

3) Ethical case studies - professional and regulatory journals.

Prevent and punish:

Examples of breach Consequences

1) Previous significant breaches or criminal activity Not allowed into the professional body;
Not licensed by regulator;
Professional sanctions;
Warning / Fire / Suspension / Removed
2) Existing found to be in breach
from acting;
3) Legal sanctions (significant deterrent) Being prosecuted

Factors distinguishing a profession:

1) Extensive deep training;

2) Code of ethics;

3) On-going improvement in educational standards;

4) Regulations on the profession;

5) Obligation to act in the best interests of society.

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Professional behaviour:

 Reliability;
 Courtesy;
 Social behaviour;
 Respect for others;
 Acting responsibly;
 No disparagement;
 Act independently.

Promoting ethical behaviour:

 Holding strong ethical values;

 Behaving in an ethical way;
 Reminding others of his or her Code;
 Executing any assignment;
 Encouraging others to act ethically.

Reporting illegal or unethical Conduct:

1) Immediately report internally to the compliance officer;

2) Should never be disclosed externally without permission;
3) There can be obligations to disclose externally:
 Legal: money laundering, legal proceedings;
 Professional: professional quality review, respond to investigation on enquiry by
the profession;
4) Voluntary external disclosure - acting in the public interest: no action was taken
internally to a matter of high importance to society (it is not required by law and
breaches the Code of ethics confidentiality principle).
When acting in the public interest the following must be considered before
disclosure:
 Real scale;
 Which of the public will suffer;
 Seriousness;
 Repetition;
 Organisation’s resistance;
 Substance and evidence;
 Professional and business ethics implications.

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Corporate Codes of Ethics
Corporate code of ethics - set of policies, procedures, rules and guidelines that set out the
organisation’s ethical position, how it intends to manage that position and expectations of
employees and how they should act.

Corporate code of ethics format:

1) Ordinarily can be found in corporate mission statement;

2) May not necessarily always be written in full;

3) Unwritten rules;

4) Cultural acceptance.

Contents of corporate code of ethics:

 Limitless possibilities to content;

 Different view on code of ethics;
 Typical examples:
 Sources of profit;
 Relationship with wider community;
 Environmental impact;
 Recruitment;
 Employee conduct;
 Training policy;
 Gift and hospitality;
 Supported charities.

Benefits of corporate code of ethics:

To organisation: To the individual:

- Expresses the position of organisation; - Clear guidance on what is expected and how
- Communicates principles; they should work;
- Engages stakeholders for the long term; - Resolves ethical dilemmas;
- Engages employees; - Basis for protection;
- Engages customers; - Minimises possible conflicts
- Picture to its function and employees; with potential employees.
- Basis for taking action;
- Facilitates decision making;

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Ethical Conflict and Dilemmas
ETHICAL CONFLICT:

There may be instances when duties and obligations to other parties may result in actions
which could be in conflict with IFAC & ACCA Code of ethics. For example:

 A line manager may ask a professional accountant to produce window-dressed accounts

in the interest of getting bank finance. The code of ethics doesn’t allow this as this would be a
breach of the fundamental principle of Integrity. The company could threat the accountant with
disciplinary procedures if he or she fails to act on the instruction of the line manager;
 An accountant firm may be asked to do a specific type of tax work for a firm that he or
she has no experience in and, therefore, doesn’t feel personally competent to carry out. To do
so would be a breach of fundamental principle of Professional Competence and Due Care.
There may be a contractual pressure from the firm to proceed.

Main threats to the fundamental principles:

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 Threat Definition Example
Having potential conflict of
1) Self interest threat - Financial interest;
interest which
may influence the professional
- Incentivised compensation;
judgement
or behaviour. - Concern over employment
- External commercial pressure
Threat arises when you are required - Audit firm provides audit
1) Self review threat
to opinion
evaluate the result of a previous on accounts prepared by
judgement or themselves;
service you have provided, or carried
out.
Promoting a position or opinion on - Advocating a position to the
3) Advocacy threat
behalf of a bank
client to the point that an
without proper basis;
individual is acting as
the advocate and objectivity is
accounts prepared by themselves;
compromised.
4) Familiarity threat
Becoming too sympathetic to the - Close family relationship;
interests of others as a result of
close relationships which leads to - Long associations;
judgement being compromised. - Accepting gifts / benefits;
Deterred from acting objectively by
5) Intimidation threat - Threatening dismissal;
actual or

perceived pressure - Dominant individual;

ETHICAL DILEMMAS:

Ethical dilemmas - conflict between two ethical positions in business / professional / personal
areas. Example:

You are in the finance team of an organisation which is involved in a possible takeover of a
competitor. Your uncle is the CFO of the competitor company. When your company takes over
the competitor, you know that your uncle will lose his job.

There is a professional vs personal dilemma involving your uncle. You may, in accordance with
your own morals and personal ethics, believe it is right to tell him what is happening, but your
professional ethics prohibits it on the basis of confidentiality.

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Key safeguards:

 Education / training and experience;

 Corporate governance regulations;

- Education / training and experience;

- Corporate governance regulations;
1) General provisions created by profession / Professional standards, professional or regulatory
legislation monitoring
and disciplinary procedures;
- External review;
- Formal complaints system;
Duty to report breaches;
- Corporate oversight
- Code of ethics and Code of conduct;
2) General provisions existing in workplace - Recruitment;

- Internal controls;

Disciplinary processes;
- Leadership;
- Policies and procedures;
- Training and education systems;
Self interest threat:
- Disposing of shares;
- Being removed;
3) Specific provisions - guard against - Engaging a third party;
specific threat types - Audit firm - limit fees - 15%;
- Avoiding overdue fees;
Familiarity threat:
- Team members rotated ( public companies - every 5
years);
Self-review threat:
- Auditors should not perform accountancy work,
material valuations;
- Advised not to take material gifts or hospitality.

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