Professional Ethics

Learning Objectives
At the end of this lesson a student should be able to: -
• Define ethics and Business Ethics.
• Explain the role of organizational ethics in
performance.
• Discuss role of codes of ethics in private and public
companies or state-owned companies.
• Define ethical dilemma. Exlpain the strategies that can
be employed in solving ethical dilemma.
Preamble
• Professional accountants, whether practicing in public
or private practice have an important leadership role
in society. Society expects professional accountants to
behave and act in the public interest.
• Proper ethical behaviour is therefore as important as
technical competence and together forms the basis to
the definition of professional behaviour.
Ethics Defined
• Ethics can be difficult to define but it is principally
concerned with human character and conduct.
• Ethical behaviour is more than obeying laws, rules and
regulations.
• Professional behaviour is one of the fundamental
principles in the accountants’ Code of Ethics and is
defined as ‘a professional accountant should comply with
relevant laws and regulations and should avoid any action
that discredits the profession’.
Ethics Defined
• The term ‘ethics’ defines the standards that bear on
right and wrong issues of society.
• Ethics is derived from Greek Word “Ethos” which
means culture – the prevalent behaviour in the
society. Thus, it is a code of conduct which has social
acceptance.
Ethics Defined
• Ethics is a “consideration and application of frameworks, values
and principles for developing moral awareness and guiding
behaviour and action”.
• Commonly, ethics is also referred to as “moral, good, right, just
and honest.
• Ethical standards are referred to as the principles or ideals of
human conduct.” Thus, ethics implies good character and
morality and refers to generally accepted human character and
behaviour considered as a desirable by contemporary society.
Ethics Defined
• The word ‘ethics’ refers to principles of behaviour that
distinguish between good and bad; right and wrong. It
is a person’s own attitude and beliefs concerning good
behaviour.
• Ethics reside within individuals and as such are
defined sep­arately by each individual in his/her own
way. What may be ethical behaviour to ‘X’ may be
unethical to ‘Y’.
Ethics Defined
• Ethics is the science of good/bad, just/unjust,
moral/immoral behaviour. As the good and right are
equated with moral, ethics is considered to be the
science of studying morality, where morality is estimated
from three key aspects in terms of the common good,
personal interests and the interest of the others.
• Common good means that the behavior of an individual
is in the public interest or in the interest of the most
people. If the personal interest is excluded from the
interaction, than an individual becomes altruistic,
because he/she takes into account only the interests of
others and his/her neglect.
Ethics Defined
• Ethics has often been misunderstood to be conforming
to law. On the contrary, ethics is about voluntarily
conforming to what is good/acceptable/desirable
behaviour without the force of any legal/social
obligation.
• It is about choosing to do something that is not
mandated by the law or not doing some thing that is
permitted by the law but may cause harm to some one.
Business Ethics Defined
• What is ethical and unethical in general society may
not be the same in business as the latter operates in
different environments.
• Business ethics is “concerned primarily with the
relationship of business goals and techniques to
specific human needs. It studies the impact of acts on
the good of the individual, the firm, the business
community and the society as a whole.
Business Ethics Defined
• Business ethics means the behaviour of a
businessman while conducting a business, by
observing morality in his business activities.
• Business ethics is thus a set of professional standards,
which emphasize principles of honesty and duty to
the business and the general public.
Business Ethics
• Business Ethics is nothing but the application of Ethics
in business. Business Ethics proves that businesses
can be, and have been, ethical and still make profits.
• Business Ethics was thought of as being a
contradiction of terms. Today, more and more interest
is being given to the application of ethical practices in
business dealings and the ethical implications of
business.
Business Ethics
• What is true for human beings is also true for
business, because business are carried on by human
beings only, and business organisations are nothing
but formal structures for human beings to carry on
their businesses.
• Moreover, businesses are thought of as being living,
growing entities. Thus, businesses also have choices-a
choice to maximise their profits and a choice to do
good for the society in which they live and operate.
Business Ethics
• However, at most times, profit maximisation and discharging
of social responsibilities at the maximum limit, cannot be
carried on simultaneously.
• A conflict arises in trying to achieve both simultaneously.
Hence, many managerial choices represent Managerial
Dilemmas, between the profit consideration (commercial
concern) and the social consideration (welfare concern) of
the organisation.
• Many managerial decisions have ethical implications and
these decisions give rise to Managerial Dilemmas.
Business Ethics
• A business or company is considered to be ethical only if it
tries to reach a trade-off between perusing its economic
objectives and its social obligations, i.e., between its
obligations to the society where it exists and operates; its
obligations to its people due to whom it can even think of
pursuing economic goals; to its environment, from whom it
takes so much without it demanding anything back in return;
and the like.
• While discharging its obligations to the society, the company
not only fulfils its own duties, but also paves the way for a
stronger and more ethical foundation.
Advantages of Managing Ethics in
Workplaces
• By applying business ethics, many social evils can be
eliminated like child labour, harassment to employees
etc.
• Cultivate strong team work and productivity- Business
ethics helps in building openness, integrity and a
sense of oneness amongst all employees. Employees
become motivated as they feel strong alignment
between their values and those of organisation.
Advantages of Managing Ethics in
Workplaces
• Support employee growth- It supports the employees
in facing the entire situation whether good or bad.
• It ensures the employees that all the policies are legal
and all the employees are treated equally in the
organisation.
• Ethical problems if detected at earlier stage helps in
avoiding penal action and lower fines for the
organisation.
The Role of Organizational Ethics in
Performance
Ethics Contributes to Employee
commitment
• Employee commitment comes from workers who believe
their future is tied to that of the organization and from a
willingness to make personal sacrifices for the organization.
Issues that foster the development of an ethical culture for
employees include the absence of abusive behavior, a safe
work environment, competitive salaries, and the fulfillment
of all contractual obligations toward employees.
• An ethics and compliance program can support values and
appropriate conduct. Social programs improving the ethical
culture range from work–family programs to stock ownership
plans to community service.
Ethics Contributes to Investor Loyalty
• Ethical conduct results in shareholder loyalty and contributes
to success that supports even broader social causes and
concerns.
• Investors today are increasingly concerned about the ethics
and social responsibility that creates the reputation of
companies in which they invest, and various socially
responsible mutual funds and asset management firms help
investors purchase stock in ethical companies.
Ethics Contributes to Investor Loyalty
• Investors also recognize that an ethical culture provides
a foundation for efficiency, productivity, and profits.
Investors know, too, that negative publicity, lawsuits,
and fines can lower stock prices, diminish customer
loyalty, and threaten a company’s long-term viability.
• Many companies accused of misconduct experienced
dramatic declines in the value of their stock when
concerned investors divested.
Ethics Contributes to Customer
Satisfaction
• On the other hand, companies viewed as socially responsible
increase customer trust and satisfaction.
• When an organization has a strong ethical environment, it
usually focuses on the core value of placing customers’
interests first. However, putting customers first does not
mean the interests of employees, investors, and local
communities should be ignored.
Ethics Contributes to Customer
Satisfaction
• An ethical culture that focuses on customers incorporates
the interests of all employees, suppliers, an other interested
parties in decisions and actions. Employees working in an
ethical environment support and contribute to the process of
understanding customers’ demands and concerns.
Codes of conduct
• Organizations are constantly striving for a better ethical
atmosphere within the business climate and culture.
Businesses must create an ethical business climate in order
to develop an ethical organization.
• A Formal Code of Conduct is one the elements considering
on helping businesses must to creating an ethical business
climate. Other elements include Ethics Committee, Ethical
Communication System, An Ethics Office with Ethical
Officers, A Disciplinary System and ethical training
programme.
Codes of conduct
• Professional institutions (such as NBAA) have an
overriding duty to protect the public interest. To
ensure members act in a manner which achieves this,
most have developed codes of conduct to guide
behaviour.
• To help professionals judge whether or not they are
acting ethically in particular circumstances, guidance
is often given by a governing body that clarifies the
matter. Such guidance is usually known as a 'Code of
ethics' or 'Code of conduct'.
Codes of ethics
• Code of ethics is defined as a set of standards governing the
conduct of members of a certain profession, by specifying
expected standards for competence, professional behaviour
and integrity.
• It is statements of organizational values which help the
employees know – with both ease and clarity – what is
expected of them on the job.
• The code should reflect the managements desire to
incorporate the values and policies of the organization.
Why you should develop a Code of
Ethics
• Code of ethics helps to demonstrate to employees it is a
responsible company.
• It shows customers how the business value the integrity.
• Provides a clear point of reference when enforcing corrective
action.
• Code of ethics assists the employees to observe labor law
and safety regulations.
NBAA Code of Ethics
• The Auditors and Accountants (Registration) Act No.
33 of 1972 permits the NBAA to set ethical
requirements for all professional accountants.
• The NBAA has adopted the IESBA Code of Ethics
without modifications and any revisions to the Code
are automatically adopted. Accordingly, the NBAA
indicates that the 2018 International Code of Ethics is
applicable.
NBAA Code of Ethics
• The International Code of Ethics for Professional
Accountants sets out fundamental principles of ethics for
professional accountants, reflecting the profession’s
recognition of its public interest responsibility.
• The Code applies to all professional accountants, whether in
public practice, business, education or the public sector.
• The Code is the basis for ethics codes developed at the
national level by International Federation of Accountants
(IFAC) country member bodies.
NBAA Code of Ethics
Library Task
Discuss role of codes of ethics in private and public
companies or state-owned companies
Fundamental Principles - Integrity
A professional accountant is required to comply with
the following fundamental principles:
Integrity – A professional accountant should be
straightforward and honest in all professional and
business relationships.
Fundamental Principles - Objectivity
• Objectivity – A professional accountant should not
allow bias, conflict of interest or undue influence of
others to override professional or business
judgements.
Fundamental Principles - Professional
competence and due care
Professional competence and due care – A professional
accountant has a continuing duty to maintain professional
knowledge and skill at the level required to ensure that a
client or employer receives competent professional service
based on current developments in practice, legislation and
techniques.
A professional accountant should act diligently and in
accordance with applicable technical and professional
standards when providing professional services.
Fundamental Principles - Confidentiality
Confidentiality – A professional accountant should
respect the confidentiality of information acquired as
a result of professional and business relationships and
should not disclose any such information to third
parties without proper and specific authority unless
there is a legal or professional right or duty to
disclose.
Confidential information acquired as a result of
professional and business relationships should not be
used for the personal advantage of the professional
accountant or third parties.
Fundamental Principles - Professional
behaviour
• Professional behaviour - A professional accountant
should comply with relevant laws and regulations and
should avoid any action that discredits the profession.
Ethical threats and Independence?
Class Task
What does it mean when we say a professional
accountant needs to be independent?
Explain the major threats to independence.
Causes and Issues of Unethical
Behavior
• Unethical behavior refers to the behavior of people that do
not confirm with the acceptable standards of social and
professional behavior. Such behavior may include making
long-distance calls from the office, duplicating the
enterprise’s system software to use at home, projecting a
false report on the number of worked hours, or falsifying
business records.
• There can be numerous factors that cause unethical behavior
in the employees of an enterprise.
Causes and Issues of Unethical
Behavior
Class Task
Identify and explain the factors which cause employees
not to confirm with the acceptable standards of social
and professional behavior.
What are the possible consequences of unethical
behaviour to the economy?
Ethical Decision Making
• Decision making in business ethics usually requires
companies to identify specific ethical standards, which often
means different things to different people.
• As organizations continue to grow and expand, new
individuals are hired who may not have the same ethical
standards as individuals already working in the company.
• A difference in ethics often changes how individuals
approach the decision-making process. Companies often use
the organization’s mission statement to build a framework
for helping individuals make ethical business decisions.
Ethical Decision Making
For a decision to be ethical, it should possess the
following characteristics. It should be –
• Right – that which is morally correct and due;
• Equitable – that which is equivalent;
• Good – that which brings in the highest good for all
concerned;
• Proper – that which is appropriate and acceptable;
• Fair – that which is honest and due;
• Just – that justice is not only done, but is also seen to
have been done.
Steps of the Ethical Decision Making Process
1. Gather the facts
2. Define the ethical issues
3. Identify the affected parties (stakeholders)
4. Identify the consequences
5. Identify the obligations (principles, rights, justice)
6. Consider your character and integrity
7. Think creatively about potential actions
8. Check your gut
9. Decide on the proper ethical action and be
prepared to deal with opposing arguments.
Ethical Dilemma
• An ethical dilemma (ethical paradox or moral
dilemma) is a problem in the decision-making process
between two possible options, neither of which is
absolutely acceptable from an ethical perspective.
• On the other hand, ethical dilemmas are extremely
complicated challenges that cannot be easily solved.
Therefore, the ability to find the optimal solution in
such situations is critical to everyone.
Ethical Dilemma
• An ethical dilemma is a situation in which the agent
has to choose the best ethical alternative for the
principal.
• The same person can be in the role of an agent and in
the role of a principal. In this case a conflict between
personal and business ethics can arise.
Ethical Dilemma
• If an agent gives priority to his own interest, he/she
will choose an egoistical alternative;
• if he gives priority to the interests of others, he will
choose an altruistic alternative;
• if he gives priority to the interests of the majority,
with respect to his own interests, he will choose an
ethical alternative.
Ethical Dilemma
• Some examples of ethical dilemma examples include:
Offering a client a worse product for your own profit,
Utilizing inside knowledge for your own profit.
Ethical Dilemma Cases
• As a manager, you have confidential knowledge that
your company will close a department. A good friend
at the company asks if the company is planning to
close any departments. If you tell him the truth, he
may have a chance to get new job ahead of other
employees. You have loyalty to both the company and
the friend. Do you tell the truth?
Ethical Dilemma Cases
• A hospital has an organ for transplant. There are three
possible recipients :a) a housewife with two young
children; b) a surgeon; and c) a wealthy donor to the
hospital. If the surgeon lives, she can help many
people. If the wealthy donor lives, he will support the
hospital, which will help many people. But the
housewife is a member of the community and has the
same rights as the others. How do you choose?
Ethical Dilemma Cases
• A company is not doing as well as planned. Immediate
shut down of several research projects will improve
the company’s profit and stock market price. On the
other hand, the research is needed for future
products and profits.
Strategies for Resolving Ethical
Dilemmas
• In the literature and the practice several strategies for
resolving the ED are known.
• Common for all strategies is that they represent a
process, consisting of a smaller/larger number of
stages or including lower/higher number of
dimensions of the ED.
Strategy 5P
• Strategy 5P gain this name since it includes five
dimensions of the ED, starting with the letter P.
• The 5Ps are Problems, Possibilities, People, Principles
and Priorities
Strategy 5P
• Firstly, the problems related to the ED are defined.
• The possibilities for its resolution are analyzed
through the determination of a certain number of the
alternatives.
• Thirdly, how these alternatives which reflect on the
people and the relevant stakeholders are analyzed. In
accordance with that, obligation to some stakeholders
are determined.
Strategy 5P
• They must be in accordance with the law, current
industry standards, professional codex, ethical
principles and organizational culture, or in accordance
with the certain principles.
• As a result emerge a list of possible alternatives for
resolving the ED, and priority is given to the most
favorable one (one that meets the interests of the
enterprises and the society).
Other Strategies
• Other strategies which are used to resolve the ethical
dilemma include the Three-stage strategy, Methods-
based strategies, RIMS (Rational Interaction for Moral
Sensitivity) strategy and complementary strategies.
Library Task
Explain how the above strategies used in resolving the
ethical dilemma in an organization.
The End