Professional Ethics:

Content:

 A Corporate Code of Ethics

 Principle of Code of Ethics
 Benefits of Codes of Ethics
 Approaches to Manage Ethics
 Whistleblowing
 Businesses And Ethics
 Corporate Responsibility Policies and Reports
 Ethical Dilemmas and Conflicts of Interest
 Raising And Dealing with Ethical Dilemmas
A CORPORATE CODE OF ETHICS
Corporate codes of ethics are published by organizations in order to communicate values to stakeholders.
As well as stating the core principles governing how their commercial objectives are to be pursued, such
codes might include statements specifically in relation to:
• Customers, whose purchases may be influenced by ethical considerations
• Shareholders, whose investment decisions may be influenced by ethical factors
• Employees, who need to know what is expected of them
• Suppliers, who need to understand the expectations of their customers, and who also should be
treated ethically
• Lobby groups, who may have an interest in organizational practices
• Local communities, which may need reassurance that the organization will act as a ‘good citizen’

PRINCIPLES OF CODE OF ETHICS

Codes of ethics for organizations typically include a set of principles that guide the behavior and decision-
making of individuals within the organization. While specific principles may vary based on the nature of
the organization and its industry, some common principles include:
Integrity:
Uphold the highest standards of honesty, truthfulness, and transparency in all dealings and
communications. Avoid conflicts of interest that could compromise integrity.
Respect for Others:
Treat all individuals with dignity and respect, fostering a work environment free from discrimination,
harassment, and bullying. Appreciate diversity and promote inclusivity.
Fairness and Equity:
Ensure fair and equitable treatment of all stakeholders, including employees, customers, suppliers, and
competitors. Avoid discrimination and bias in decision-making processes.
Compliance with Laws and Regulations:
Adhere to all applicable laws, regulations, and industry standards. Promote a culture of legal compliance
and take steps to prevent illegal activities within the organization.
Confidentiality:
Safeguard confidential information and respect the privacy of individuals. Avoid unauthorized disclosure
of sensitive data and maintain the trust of stakeholders.
Accountability and Responsibility:
Take responsibility for individual and collective actions. Acknowledge mistakes, learn from them, and take
corrective action. Hold individuals accountable for their conduct.
Professionalism:
Conduct oneself in a professional manner, demonstrating competence, diligence, and a commitment to
ongoing professional development. Uphold the reputation of the organization and the industry.
Social Responsibility:
Contribute positively to the community and society at large. Consider the environmental, social, and
economic impacts of organizational decisions and actions.
Conflict of Interest:
Disclose and manage conflicts of interest to prevent any compromise of objectivity or impartiality. Make
decisions in the best interest of the organization rather than personal gain.
Safety and Well-being:
Prioritize the safety and well-being of employees, customers, and other stakeholders. Establish and
maintain a safe work environment and promote health and wellness.
Whistleblower Protection:
Encourage the reporting of unethical behavior or violations of the code of ethics without fear of retaliation.
Establish mechanisms to protect whistleblowers.
Continuous Improvement:
Commit to ongoing evaluation and improvement of ethical practices. Seek feedback, learn from
experiences, and adapt the code of ethics to evolving organizational needs and industry standards.

These principles collectively form the foundation of a comprehensive code of ethics, guiding individuals
within the organization to make ethical decisions and contribute to a positive organizational culture. It's
important for organizations to communicate these principles effectively and integrate them into their day-
to-day operations.

BENEFITS OF CODES OF ETHICS

Promotes a Positive Reputation:

Adhering to a strong code of ethics helps build and maintain a positive reputation for the organization.
This can enhance relationships with customers, partners, and the community.
Legal Compliance:
A Comprehensive code of ethics ensures that the organization and its employees are aware of and comply
with relevant laws and regulations. This can help prevent legal issues and mitigate risks.
Enhances Trust and Credibility:
A consistent commitment to ethical behavior fosters trust among stakeholders, including customers,
investors, and employees. Trust is a critical element in the success and sustainability of any organization.
Employee Morale and Engagement:
Employees who work in an ethical environment are likely to experience higher job satisfaction, leading to
increased morale and engagement. This, in turn, can positively impact productivity and retention.
Risk Management:
Codes of ethics help identify and mitigate potential risks associated with unethical behavior, such as fraud,
corruption, and conflicts of interest. This proactive approach can protect the organization from financial
and reputational harm.
Encourages Responsible Decision-Making:
A code of ethics serves as a reference point for employees when faced with ethical dilemmas. It provides
a framework for making responsible decisions aligned with the organization's values.

APPROACHES TO MANAGE ETHICS

Professional Accountants must also follow these principles. Where they appear to be in a situation which
conflicts with their legal, regulatory or other ethical frameworks they must ensure their concerns are
heard.
There are two suggested approaches to the management of ethics in organizations.
 Compliance based Integrity based
 Integrity-based Programs
Compliance-based approach
A compliance-based approach is primarily designed to ensure that the company acts within the letter of
the law, and that violations are prevented, detected and punished. Some organizations, faced with the
legal consequences of unethical behavior, take legal precautions such as those below.
• Compliance procedures to detect misconduct
• Audits of contracts
• Systems for employees to report criminal misconduct without fear of retribution
• Disciplinary procedures to deal with transgressions

Integrity-based programs
An integrity-based approach combines a concern for the law with an emphasis on managerial
responsibility for ethical behavior. Integrity strategies strive to define companies' guiding values,
aspirations and patterns of thought and conduct. When integrated into the day-to-day operations of an
organization, such strategies can help prevent damaging ethical lapses, while tapping into powerful human
impulses for moral thought and action.

Whistleblowing is the disclosure by an employee of illegal, immoral or illegitimate practices on the part
of the organization. This may appear to be in the public interest, but confidentiality is very important in
the accountants' code of ethics. Whistleblowing frequently involves financial loss for the whistleblower.
(a) Whistleblowers may lose their jobs.
(b) A whistleblower who is a member of a professional body cannot, sadly, rely on that body to take a
significant interest, or even offer a sympathetic ear. Some professional bodies have narrow interpretations
of what is meant by ethical conduct. For many, the duties of commercial confidentiality are felt to be more
important.

Key reasons for accountants to behave ethically

(a) Ethical issues may be a matter of law and regulation and accountants are expected to apply them.
(b) The profession requires members to conduct themselves and provide services to the public according
to certain standards. By upholding these standards, the profession's reputation and standing is
protected.
(c) An accountant's ethical behavior serves to protect the public interest.

BUSINESSES AND ETHICS

Businesses also have ethical values, based on the norms and standards of behavior that their leaders
believe will best help them express their identity and achieve their objectives. Some of these ethical values
may be explicit; for example, expressed in a mission statement or in employee training programs. Others
may be unwritten rules and customs that form part of the organization’s culture: 'the way we do things
around here'.
Business life is a fruitful source of ethical dilemmas because its whole purpose is material gain, the making
of profit. Success in business requires a constant, avid search for potential advantage over others and
business people are under pressure to do whatever yields such advantage.
The table below summarizes three elements to ethics.
I Ethics concern an individual's professional responsibility to act.
DO Ethics concern the 'real world' practical actions an individual can take. It is important to
consider how an individual acts and not always what they do.
BEST Ethics concern choices between different courses of action. These may involve taking a course
of action which is less unpalatable than another.

An issue of trust Whatever the situation, there is a public expectation (especially regarding professionals)
that organizations will act ethically. This is known as the 'Trust me' model and was the case for many years
when most businesses were owned by families. Times have now changed and most companies are now
run by directors and mangers rather than fathers and sons and the model changed to 'Involve me' as more
evidence was needed of their ethical credentials.

In recent times, trust in business has fallen and increasingly more evidence is required to demonstrate it.
The 'Show me' stage required some demonstration of trust, 'Prove to me' required independent
verification and assurance and the final stage of 'Obey me' would exist when the law creates legislation to
cure instances of unethical behavior. We are some way off this point currently.

What caused this trust to disintegrate? Since the 1980s, the UK has seen a procession of corporate
disasters including the names of Barings Bank, Polly Peck and Maxwell. The US has seen scandals
concerning WorldCom, Enron and Tyco. Europe did not escape and has seen its share of problems with
Parmalat while, in Asia, Mitsubishi Motors and Daewoo have had issues too. All these scandals have
severely knocked public confidence and trust in major corporations.

In an attempt to counter this lack of trust, many corporations have developed ethical strategies and
policies to provide guidance and training for their employees. The strategy is set by the leadership and this
will feed into all areas of the business and become part of the cultural DNA of the organization.

CORPORATE RESPONSIBILITY POLICIES AND REPORTS

An ethical strategy is not always visible to outsiders, and many companies now produce Corporate
Responsibility Policies (CRPs) and Corporate Responsibility Reports (CRRs) for their stakeholders to
demonstrate their commitment and to manage their relationships in the wider community. They reflect
the view that an organization has responsibilities beyond that of its shareholders.

(a) Corporate (Social) Responsibility policies

Corporate Responsibility policies are also known as Corporate Social Responsibility policies. These are
policies in which the organization decides how to help the local community that it is part of and which
charities to support. However, they also deal with the wider community, and policies often focus on
reducing the environmental impact the organization has and where to recruit new employs from. These
policies must be consistent with the overall aims of the organization to ensure support continues even
when the organization faces its own problems, such as a downturn in profit.
(b) Corporate Responsibility Reports
Many new technological advances allow for the reporting of statistics as carbon footprints and a
company's impact on the environment. These can be added to more conventional assessments such as
staff turnover to provide quite a detailed report on the organization.

Such corporate values also guide staff as to the expectations that employers have regarding their behavior.
The aim is to end up with consistent behavior across the workforce in terms of personal conduct and
professionalism. These policies are enforced on a voluntary basis and results are monitored through
audits, surveys and interviews.

ETHICAL DILEMMAS AND CONFLICTS OF INTEREST

Ethical dilemmas are situations where two ethical values or requirements seem to be incompatible. They
can also arise where two conflicting demands or obligations are placed on an individual.

A conflict of interest arises where an individual has a duty to two or more parties. While working,
information or other matters may arise that mean they cannot continue work for one party without
harming another. Conflicts of interest are not wrong in themselves but they will become a problem if a
professional continues with a course of action while being aware of, and not declaring, them.

Situations where ethical dilemmas and conflicts of interest occur:

Ethical dilemmas occur as a result of tensions between four sets of values.
• Societal values – the law
• Personal values – values and principles held by the individual
• Corporate values – the values and principles of the organization where the individual works, often
laid down in ethical codes
• Professional values – the values and principles of the professional body that the individual is a
member of, often laid down in ethical codes

Where society believes that businesses are not conducting themselves correctly, laws may be introduced
to ensure a minimum level of behavior is followed. Examples of this include laws created to deal with
environmental issues, cartels and unfair competition, as well as fraud, insider dealing, bribery and
corruption.

Ethical dilemmas involve unclear choices of what is right and wrong. In fact the choice could be what is
the least wrong course of action to take. In such circumstances there is little an individual can do but to
seek advice and trust their own instincts to make the correct choice.

Remember that laws do not necessarily help an individual to resolve an ethical issue – indeed many
members of society feel torn when their personal ethics lead them to feel that following a particular law
is immoral. That said, where a professional duty conflicts with statute, ACCA's advice is clear – the law
overrides it every time.
Ethics and contractual obligations
Contractual obligations differ from statute in the sense that an individual enters into a contract voluntarily;
there is no voluntary element to statutory obligations.

This means an individual may break contractual obligations without breaking the law. For this reason,
professional ethics should be followed even if this is at the expense of a contractual obligation. Logically
this means that, given the choice of breaking professional ethics or a term in your contract of employment,
you must give the profession priority. The law and employment tribunals will support an employee whose
employer required them to break their professional ethics – the problem is that many employees would
not want to go to court over such matters.

Examples of ethical tensions:

The following are examples of how tensions between sets of values can be created.
(a) Societal values and corporate values
An individual may be asked by their employer to act in an illegal way, for example to discriminate
against a disabled or ethnic employee.
(b) Personal values and corporate values
An individual may not agree with certain activities of their organization, such as the use of child labor
in foreign factories. While not necessarily illegal, it goes against their own moral beliefs.
(c) Professional values and corporate values
An individual is put into a position by their employer where they are required to amend a set of
accounts to improve the profit figure. Such amendments go against the code of conduct of their
accountancy body.

Ethical conflicts may arise from:

• Pressure from an overbearing colleague or from family or friends
• Members asked to act contrary to technical and/or professional standards
• Divided loyalties between colleagues and professional standards
• Publication of misleading information
• Members having to do work beyond their degree of expertise or experience they possess
• Personal relationships with other employees or clients
• Gifts and hospitality being offered

RAISING AND DEALING WITH ETHICAL DILEMMAS

The International Federation of Accountants (IFAC) provides global leadership in developing international
standards for the accounting profession. IFAC's Code of Ethics for Professional Accountants outlines
principles and guidance related to integrity, objectivity, professional competence and due care,
confidentiality, and professional behavior. While the IFAC Code of Ethics doesn't specifically dictate the
procedures for raising ethical issues, it emphasizes the importance of maintaining and enhancing the
reputation of the profession.

However, within the context of ethical considerations and the IFAC Code of Ethics, the mentioned options
align with general principles of transparency, accountability, and professional conduct. Let's break down
how these options might be perceived in the context of IFAC standards:
A number of options are available for accountants wishing to raise ethical issues, for example:
• Directly with their accountancy body
• Within their organization via a help or whistleblower line
• To external organizations such as customers, suppliers or agents
• Anonymously

Directly with their accountancy body:

IFAC recognizes the role of professional accountancy bodies in promoting and enforcing ethical standards
within the profession. Accountants can refer to their accountancy body for guidance on ethical issues or
to report concerns. The body may provide assistance, resources, or a formal process for addressing ethical
matters.

Within their organization via a help or whistleblower line:

The IFAC Code of Ethics emphasizes the importance of maintaining confidentiality and professional
behavior. Reporting ethical concerns internally aligns with the principle of addressing issues within the
organization first. Many organizations have whistleblower mechanisms in place, and using these channels
supports the idea of resolving ethical matters within the professional environment.

To external organizations such as customers, suppliers, or agents:

While the IFAC Code of Ethics may not explicitly address reporting ethical concerns to external
organizations, it underscores the importance of maintaining the integrity and reputation of the accounting
profession. Accountants should carefully consider the potential consequences of involving external parties
and ensure that such actions align with the principles of professional behavior.

Anonymously:
Anonymously reporting ethical concerns, while not explicitly addressed by the IFAC Code of Ethics, can be
seen as a practical consideration to protect the whistleblower from potential retaliation. This aligns with
the overarching principles of confidentiality and integrity.

It's important to note that the specific procedures for raising ethical issues may vary depending on the
jurisdiction, the accountancy body, and the organization's internal policies. Accountants are encouraged
to familiarize themselves with the relevant guidelines and procedures provided by their professional
accountancy body, which may incorporate or reference the IFAC Code of Ethics.