CHAPTER 28

ETHICS AND THE ACCOUNTANT

 LEARNING INTENTIONS

 The need for ethical behaviour and guidelines

 Integrity
 Objectivity
 Professional competence and due care
 Confidentiality
 Professional behaviour
 Promoting ethical behaviour
 Social aspect of decision making
THE NEED FOR ETHICAL BEHAVIOUR AND GUIDELINES

 Ethics : The moral principles or standards that govern the

conduct of a person or organisation that knows the
difference between right and wrong behaviour.
 People place trust in accountants including:
 Clients
 banks and other investors
 Suppliers
 Reasons why people may not do the
right thing
1. Being put under personal pressure: He may have a lot to lose, for example,
his job by refusing the request.
2. Conflicts of interest: where a person is faced with demands from two or more
people or organisation that are incompatible
What is regarded as morally acceptable and what is not can vary at a number of
levels including:
 National level
 Corporation level
 Department level
 Personal level
 National level : In India, a public servant convicted of bribery can
receive a prison sentence of three to seven years plus a fine, while in
South Africa, the High Court can impose up to a life sentence. In other
regions, offering a bribe in order to be awarded a contract may almost
be compulsory.
 Corporation level : Some business are happy to use suppliers even if
they know that the working conditions in their factories or the way that
they source raw materials is bad for the environment, while others may
refuse to trade with those suppliers, even though they may charge lower
prices.
 Department level : Some sales managers might insist that in order to
obtain a sale, it is acceptable to exaggerate or lie to customers or try to
sell goods or services that they do not really need, while other managers
might insist on a policy of total honesty and may even take disciplinary
action against staff who do show dishonest behaviour.
 PROFESSIONAL BODIES OR INDUSTRY LEAD BODIES
 Organisations that have members operating in a particular industry.
Example :
 Institute of Chartered Accountants of England and Wales (ICAEW)
 Association of Accounting Technicians (AAT)

 Industry lead bodies : Organisations that control the way in which industries
are run and the way in which people working in those industries operate.

 Their role :
 Protecting the members themselves
 Protecting the organisation and its stakeholders
 Protecting the reputation of the professional body itself
 INTEGRITY
 Meaning : Being straightforward and honest in all of your dealings.
 Examples of an accountant displaying integrity might include:
 Communicating all information factually whether good or bad : An accounting
example of this would be when filling out a bank loan application for a client,
leaving out negative information that might result in the bank rejecting that
client's application.
 Avoiding compromising situations : a client offers you a season ticket in the
executive box of your favourite sports team to thank you for the work that
you have done. Declaring that the offer has been made to the management
would display integrity.
 Avoiding conflicts of interest : stating in a job interview situation that there is
a personal connection with one of the candidates and offering to step aside.

 TRY ACTIVITY 29.1 (PAGE 458)

 OBJECTIVITY
 MEANING : Being impartial and unbiased – making a decision based on the
facts or evidence or taking an action because it is the right thing to do.
 There are a number of reasons why someone’s may become partial and bias :
 Self-interest : There may be an advantage to be gained in not being objective, e.g.
gaining a promotion or keeping a job.
 Self-review : In any event, a review by someone not involved in the original work
often increases the chances of an error being detected.
 Advocacy : This is where someone’s opinions, preferences and beliefs are allowed
to affect their judgements.
 Familiarity or trust: This is where someone may be influenced because of a
connection with family or friends. Ask them to do something or make a decision in
their favour.

 TRY ACTIVITY 29.2 (PAGE 459)

 PROFESSIONAL COMPETENCE AND DUE CARE
 Meaning : Having the skills, knowledge and understanding
to be able to perform a task to the appropriate
professional standard.

 Elements of this principle will involve :

 Initially obtaining the skills and knowledge : This may involve
being a learner attending day-release or evening courses at a
college or other training provider.
 Undertaking Continuing Professional Development (CPD) : which is
training or other activities designed to help someone keep up-to-
date with changes in laws, regulations and techniques.
 CONFIDENTIALITY
 Meaning : Not disclosing (keeping secret) sensitive information
that would not be available to the public.
 There are certain principles common to all :
 Information gained during the course of one’s duties should
not be disclosed to anyone who does not have a right to it.
 Information cannot be used for one’s own personal benefit
or the benefit of third parties. For example, in Singapore,
insider trading carries a penalty of up to seven years in
prison plus a maximum fine of $250 000.
 Confidentiality applies even after a business relationship has
ended.
 However, there are circumstances under which
disclosures can be made.
 With the person’s permission
 Evidences of wrongdoing : An employee may uncover
evidence that their company is committing something
wrong. For example whistleblowing - in some countries
this is referred to as a public disclosure (or similar)
where someone, often an employee, reports
wrongdoing to the authorities. Also in some countries
employees are protected from dismissal or prejudice.
 Legal requirements
 Demands by professional bodies
 PROFESSIONAL BEHAVIOUR
 Meaning : Professional behavior in the workplace is a combination of
attitude, appearance and manners. Whether it is fair or not, their
initial level of confidence will often be based on early impressions
based on your appearance and general attitude.
 Image and credibility : This can involve dressing and talking
appropriately
 Courtesy and communication skills : Simple things like using
someone’s title rather than their first name.
 Appearing ethical : It is vital that a client feels they trust the
accountant to ‘do the right thing’.
 Quality and range of services : Services need to be offered to the
highest possible standard.
 PROMOTING ETHICAL BEHAVIOUR
 Employers uses a variety of measures in order to ensure that their
staff are aware of what is expected and are looking to apply ethical
principles as often as possible. These measures could include :
 Clear written guidelines : Example staff handbook.
 Regular reviews
 Induction training : This training will provide the newcomer with
information about the business, systems and policies, their job role and
the rules governing conduct at work
 Refresher training
 Disciplinary process
 Reporting process : Many organisations have reporting mechanisms that
will enable employees to report poor behavior including bullying
 Setting an example
 SOCIAL ASPECTS OF DECISION MAKING
 In recent years, there has been a greater emphasis on environmental
and social (welfare) issues. For example sustainability - ‘meeting the
needs of the present without compromising the ability of future
generations to meet their own needs’.
 These usually includes three key components :
 economic growth
 environmental protection
 social equality
 In recent years, many businesses have recognised that they have a
responsibility to demonstrate corporate social responsibility (CSR) – a
philosophy where a business organisation takes the view that they
have a moral responsibility to behave ethically by assessing whether
the impact they have on people, society and the environment could
be more positive, and then taking the appropriate action.