Professional Ethics
Content
1. START HERE
Start here
The objective of this unit is to help you understand why you are taking the Professional Ethics module and to help you navigate through it. The Professional Ethics module is an introduction to the topic of ethics. Because ethics is an important topic, it is also covered in paper P1 Professional Accountant and in 11 of the 16 papers, as well as in Practical Experience Requirement (PER). When you qualify as an accountant, you will need to declare every year that you are complying with ACCA’s Code of Ethics and Conduct. So this module is really just the beginning of the process of you becoming a professional accountant. About the module You must complete all nine units of this module in the order presented. You will work through several short tests, but they are only included to help you see if you have understood the material that you have covered. There is no passing or failing grade. The first six units introduce you to some theory about ethics and professionalism. The next two units give you the chance to put that theory into practice. In the last unit, you will be asked to write and submit a brief description of what you have learned. Because you may want time to think about the material, we recommend that you work on the module in several short sessions. The list of units will indicate which sections you have completed and which sections remain to be covered. ACCA reserves the right to monitor your activity in this module. How to navigate The Professional Ethics module consists of nine units. You are currently in the ‘Start here’ unit. Click the Next or Previous button to move to the next or previous screen within a unit. Click Save to leave the unit and return to the main page that lists the units. The time you spent within the unit will be recorded and displayed. If you leave a unit without finishing it, the status shows ‘incomplete’ and the amount of time you spent in it is recorded. Next time you work on the module, select the incomplete module and continue working through it. You can leave and return to a unit any number of times, but the status does not change to ‘completed’ until you have worked through the last screen. When you complete one unit, the next one automatically becomes available to you. The main page lists all nine units of the module. You must work through the units in the order in which they are presented and you cannot begin a unit until you have completed the previous one. Most content displays in one screen. In some instances, you may need to scroll down a few lines to see all the content, using the scroll bar on the right side of the screen. From the List of Units, click ‘Exit module’ to leave the module, then ‘Log out’ to return to the ACCA site. Your privacy ACCA reserves the right to monitor your activity in this module. Your activity will be reviewed by ACCA in respect of the time spent in the module and the content of the statement you submit in the last unit. Your scores for the self-tests within the module are for your own use, will not be reviewed on an individual basis, but may be included as part of group analysis for research purposes. In such an eventuality, individuals will remain anonymous. Only the fact that you have completed or not completed the Professional Ethics module will be held against your record.
Sound and animation The dialogue in the case study, the seventh unit, is spoken aloud. You can turn the sound on or off by clicking the Sound button. You may also want to adjust the sound level using the Volume feature on your computer. You can choose to view a high bandwidth version with sound and animation, or a low bandwidth version with no sound and no animation. If you need help Click Help to send us emails on specific topics. Further reading If working on this ethics module has made you want to learn more about the topic, we suggest the following book: Avinash D. Persuad and John Plender. Ethics and Finance - Finding a moral compass in business today. Longtail Publishing Ltd. ISBN 0-9552186-2-4 ISBN 978-0-9552186-2-0 The ACCA website has a section about ethics with content and links to organisations and articles: http://www.accaglobal.com/members/professionalstandards/ethics/ The International Accounting Education Standards Board’s Ethics Education Toolkit is now available freeof-charge in a new downloadable version. The toolkit is designed to support IFAC members, associates, and accounting educators in developing high quality ethics education training programs for professional accountants and accounting students worldwide. It features a range of case studies and supporting notes, presentations, video clips, and other teaching materials. And the P1 Reading List is included here for your convenience: ACCA’s approved publishers: BPP Professional Education Contact number: +44(0)20 8740 2222 begin_of_the_skype_highlighting +44(0)20 8740 2222 end_of_the_skype_highlighting Website: www.bpp.com Kaplan Publishing Foulks Lynch Contact number: +44(0)118 989 0629 begin_of_the_skype_highlighting +44(0)118 989 0629 end_of_the_skype_highlighting Website: www.kaplanfoulkslynch.com Accountancy Tuition Centre (ATC) International Contact number: +44(0)141 880 6469 begin_of_the_skype_highlighting +44(0)141 880 6469 end_of_the_skype_highlighting Website: www.atc-global.com Solomon, J (2006). Corporate governance and accountability. Second edition. Chichester: John Wiley and Sons. Monks, A. G. and Minow, N. (2004). Corporate governance. Third edition. Malden MA: Blackwell. Crane, A. & Matten, D. (2006). Business ethics, (Second edition), Oxford: Oxford University Press. Gray, R, Owen, D and Adams C (1995) Accounting and Accountability: changes and challenges in corporate social and environmental reporting. Prentice Hall, London. Mallin, C. (2007). Corporate governance, (Second edition), Oxford: Oxford University Press. Acknowledgements
The case study in unit 7 is loosely based on the Independence Education Toolkit from the American Accounting Association. Professor Georg Lind, University of Konstanz, Germany. IFAC Deloitte IASPlus Legal and copyright information Your access to and use of the Professional Ethics Module is subject to the terms of the End User Licence Agreement which you should read by clicking on the following link. By continuing to access and use the Professional Ethics Module you are deemed to have understood and agreed to the terms of the End User Licence Agreement.
2. THINKING ABOUT ETHICAL DECISIONS
Thinking about ethical decisions The objective of this unit is to encourage you to think about the kinds of arguments that might influence you when you make decisions. In the next unit you will be studying different branches of ethics, to help you better identify your personal values. Then in the units that follow, you will see why you must use the professional ethics of an accountant when making professional decisions. But for now, we start with a story of an accountant with a dilemma. Whatever she decides to do, it will conflict with some rules of conduct. So the reason for her decision becomes more important than the decision itself. First you will be asked to rate the rightness or wrongness of her decision. Then you will be asked to judge arguments for and against the decision. Accountant's Dilemma As a professional accountant, Jane faces a difficult situation. She has found out that her highly regarded manager, who had always supported her and has consistently acted with integrity, has been involved in suspicious activity. Jane discovered that he had created a series of small fictitious payables accounts within the purchase ledger, all of which remain wholly unsettled. She knows that she ought to report any irregularities. Yet, this could lead to the dismissal of her manager, ending a very promising accounting career. When checking the accounts again, she discovers that the ‘fictitious’ accounts have suddenly disappeared. After thinking it over, she decides to keep all this information to herself.
Would you agree with Jane’s decision?
I strongly disagree I strongly agree
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2. THINKING ABOUT ETHICAL DECISIONS
Accountant's Dilemma How acceptable do you find the following arguments in favour of Jane's decision? Suppose someone said she acted rightly . . . 1. because one cannot always enforce ethical principles without considering the particular situation.
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2. because there was no real evidence to prove wrongdoing.
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3. because her manager always supported her and now it is her turn to help him.
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4. because that saved her from being in an uncomfortable situation.
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5. because as part of the team she should demonstrate loyalty to a colleague.
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6. because she should have trust in her manager.
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5. ABOUT ACCA'S FUNDAMENTAL PRINCIPLES
About ACCA's fundamental principles The objective of this unit is to introduce you to ACCA’s fundamental principles:
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Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour
As a human being, you and your ethics are shaped by your upbringing and your experience. As a professional accountant or student accountant, you are bound by the laws of your country, and all regulations that flow out of them. As an ACCA member, student, or affiliate, you are also bound by the fundamental principles of ACCA.
Section 3.2 of the ACCA Rulebook contains the full text of these principles. These principles are based on standards from IFAC, the International Federation of Accountants which apply to accountants around the world. What follows is an explanation of these principles. Integrity What the rulebook says You 'should be straightforward and honest in all professional and business relationships.' In other words Do not lie and do not issue false or misleading information. Objectivity What the rulebook says You ‘should not allow bias, conflicts of interest or undue influence of others to override professional or business judgements.’ In other words Your professional and business judgement should be based on fact and on what is in the best interests of stakeholders or others. Judgement should not be based on what is in your own personal interest, or in the interests of those who have power or influence over you. Professional competence and due care What the rulebook says You ‘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.’ and ‘Members should act diligently and in accordance with applicable technical and professional standards when providing professional services.’ In other words Only perform work if you are competent to do so. Keep up to date with accounting matters. Do not forget that as an ACCA member, you will have continuing professional development (CPD) responsibilities – and you must ensure that you are keeping up to date confidentiality What the rulebook says You ‘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 or unless there is a legal or professional right or duty to disclose.’ and ‘Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of members or third parties.’ In other words Do not talk about your clients, or use information that you have learned about them for your personal gain or for the gain of others. Maintain your silence even after the professional relationship with the client ends. Professional behaviour What the rulebook says You ‘should comply with relevant laws and regulations and should avoid any action that discredits the
profession.’ In other words Be courteous and considerate to people, and always behave so that a ‘reasonable and informed third party’ who knows all the facts would also think you are acting professionally. Summary The fundamental principles of integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour are international standards that accountants who are members of IFAC professional bodies agree to follow through implementation of the IFAC Code of Ethics. Professing to higher standards of behaviour is something that professionals do. And these are the standards that ACCA accountants must follow. As a student, it is important for you to become familiar with them and to know that they also apply to you.
6. THE FRAMEWORK
The Framework The objective of this unit is to introduce you to the framework for using ACCA’s fundamental principles for solving ethical dilemmas. Because it would be difficult to create a rule for every possible situation that you might encounter, and even more difficult to remember the right rule at the right moment, ACCA uses a principles-based approach, and has developed a framework to help you address those principles. The ACCA framework is based on the model from the International Federation of Accountants (IFAC). It consists of a series of steps that you go through when confronted with an ethical dilemma. You should ask and answer these questions in this order: 1. 2. 3. 4. What is the real issue here? Are the fundamental principles threatened? Is the threat significant? Are there safeguards that can eliminate the threat, or reduce it to an acceptable level?
You will explore each of these steps in more detail. Step one: what is the real issue here? Sometimes the real issue is obvious. Sometimes, the issue is not obvious and you have to ask a lot of questions before you find out what the issue really is. As a start, you can ask yourself these questions:
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Is this my problem, or does it belong to someone else? Is it the real problem or part of a larger one? Is this a real problem or am I only avoiding a difficult task? Do I need more information?
For example You are the accountant at a pharmaceuticals company. Your finance director asks you to contact the marketing director about the implications of a significant and unexpected price increase of a generic drug you produce for thinning the blood in heart patients. The request follows a pricing agreement
drawn up between the three main companies supplying these drugs to the national health service of a country, and so the impact of the price increase on the volume of sales will be lessened, due to the other companies in the cartel also raising their prices. Is this your problem? You might think ‘no’, because you have not been involved in the company’s decision to fix the drug price, nor brokered the agreement with its main competitors. On the other hand it could be your problem, since doing this could be seen as condoning a potentially illegal arrangement. If not strictly illegal, the agreement could be considered to be unethical as it is detrimental to the tax payers of the country who finance the national health service through taxation. Is being asked to discuss the price increase with the marketing director the real problem? No. It is part of a larger problem – namely coming into possession of knowledge of a wider conspiracy of a serious nature, in other words, that a cartel is being operated and that price-fixing is taking place which you are being asked to help implement. The problem you face is that if you go along with it you are aiding and abetting an illegal process, or if you do not go along with it there may be career implications or other problems for you in the future. Is this a real problem or am I avoiding a difficult task? The problem certainly exists in this case, but rather than just helping to implement the price change and ignoring the wider issue, or refusing to do so, you should sit down to discuss the larger problem with the finance director. You should try and establish the reason for the price-fixing arrangement and question its legality as well as its ethics. If the situation gets difficult, there may be a need for you to find out more about your options. Where you feel pressured to act against your professional judgement or feel you should act on information that you have about illegal or unethical behaviour, you might need to discuss this with your solicitor or your professional accounting association. You may need to consider alerting appropriate authorities about this arrangement, in other words to consider the act of ‘whistleblowing’ and all its wider implications for you, your organisation, and its stakeholders. Step two: are the fundamental principles threatened? You already know the fundamental principles of:
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Integrity Objectivity Professional competence and due care Confidentiality, and Professional behaviour
Is one or more of these principles being compromised, and in what manner? Sources of threats The threats to these principles can come from a number of different directions. Self-interest threats These come about if you or a close family member stands to gain (or not lose) something from the incident. Usually your integrity or objectivity would be at risk. Self-review threats These may be significant when you are in a position of having to review your own work. This could put your objectivity at risk.
Advocacy threats These threats exist if you are promoting a position that compromises your integrity, or promoting a position or opinion to the point that subsequent objectivity may be compromised. Familiarity threats These can arise if you have a close personal relationship with someone and cannot be objective. Several of the fundamental principles may be threatened. Intimidation threats These can become significant if you put yourself in a position where you could be pressurised by physical or verbal threats, or if there is an implied threat to your career or prospects. For example, you may be bullied into doing work which you are not competent to perform. Any of the principles could suffer under this type of threat. Step 3: is the threat significant? Determining the significance of a threat depends on the individual situation. Only you or a ‘disinterested third party’ who knows all the facts can decide whether the threat is significant. You must always consider what others would make of the position and your actions. The ‘disinterested third party’ is a phrase that is often used in these situations. It is the theoretical voice of reason you would consult to help you gain perspective on an issue. Step four: are there safeguards that may be put in place? If a threat is significant, you will want to put safeguards in place or use the ones that already exist. For example, safeguards can range from government regulations and professional standards, to people or policies in your workplace. If you look around, you will see that many safeguards are already in place to help you. First, there are the safeguards created by laws and regulations in your country and by your own accounting profession. These are designed to ensure that all accountants work in line with the fundamental principles, that compliance with the fundamental principles is regulated, and that sanctions are imposed on those professional accountants who do not comply. The next safeguards are the education and training you undergo before entering the profession and the continuing professional development requirements you face after you qualify as an accountant. This training teaches you current practices and helps keep you up-to-date with accounting standards and regulations. These safeguards can be reinforced by controls established in the work environment. These can include the introduction of organisational ethics policies and procedures and the development of training for all employees to ensure their compliance; strong internal controls; appropriate disciplinary procedures; and a culture that encourages employees to communicate to senior levels about ethical issues without fear of retribution. Finally, there are safeguards you can create for yourself such as complying with continuing professional development requirements; keeping records of contentious issues and how the individual addressed them; using an independent mentor; and using the services of legal advisors and professional bodies. When you make a decision on a course of action you propose to take, you should be able to point to the principle or principles being threatened and the nature of the threat. You should also be able to point to the safeguards in place to reduce the threat to an acceptable level and allow the proposed course of action to go ahead. If you cannot recognise an existing safeguard, or implement an appropriate safeguard, you should refuse to carry out the activity in question. An example Let’s work through a simple example. Suppose your manager asks you to claim expenses under a code other than that relating to the expenses incurred, on the grounds that this budget code is under spent and the original code was overspent. Use the framework. Step one: What is the real issue? It is not that you are claiming expenses fraudulently, because these were legitimately incurred and so you are not benefiting financially. The issue is whether financial and
budget information and variance analysis are reliable when managers are manipulating the use of budget codes. The incorrect allocation of the expense could result in senior management being deliberately misled. Step two: Are any fundamental principles threatened? You remember the five principles of integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. The fundamental principles threatened here are integrity and objectivity – deliberately using a wrong code to protect your personal and business interests. Step three: How significant is the threat? Since you have not acted dishonestly for personal gain, you might decide that the threat is not very significant. However, you are thinking about the consequences and not the threat. You are also ignoring the possible consequence that senior management may be deliberately misled as a result of your actions. If the amount being allocated to the incorrect code is considered material, the risk of this happening is significant, unless appropriate safeguards are put in place. Step four: What safeguards would ensure that the threat to your integrity is sufficiently low and that budgetary codes are not dishonestly manipulated? One safeguard that might allow the proposed action to go ahead is to discuss the situation and seek assurances that the treatment of the expenses claim will be disclosed to the users of the information. You may decide to obey your manager’s request and use an incorrect budget code, whilst striving to protect the budget holder’s position. That is you may do so because you have received assurances that the proposed action will not result in the senior management being misled. On the other hand, you may feel that as a professional accountant, it is your duty to report expenses as they are, because you feel that the proposed course of action could only mislead senior management. What is your decision? Do you have sufficient assurance that the first course of action may be followed, or do you have to refuse the manager’s request? Professional ethics and your personal VALUES You have now examined your own personal values and learned about ACCA’s fundamental principles. At this point you may well be wondering how the two fit together. This section will attempt to explain. In any situation, you must begin with the laws of your country. The law generally deserves our respect, with very few exceptions. The situations in which it might be ethically permissible to break the law generally involve matters of life and death, and are not likely to occur in the professional work of accountants. Next you look to the specific rules that govern the situation. For example, if you are an auditor, you will be bound by the relevant auditing standards in your jurisdiction. Then as a professional, whether an auditor or not, you must consider the principles of your professional body which form the basis of your professional ethics. Remember that professional ethics is really about an obligation to the public. As a professional -whether a doctor, a lawyer, an engineer, or an accountant -- you will have been tested and accepted by your profession. The public will place their trust in you simply because you are a professional, a member of a trusted professional body. The public is not expected to know how to assess either the ability or the ethics of a doctor, a lawyer, or an accountant, for example. They trust that the professional bodies will have done this for them. This means that as a professional you owe the public a certain level of integrity and objectivity -- as well as professional competence and due care, confidentiality, and professional behaviour. In other words, you must uphold the ACCA fundamental principles simply because you are a professional and you have professional ethics. Throughout all of this, your own values, interests and experiences are the filter through which you unavoidably view any situation. It is important for you to be aware of those filters because they could influence your professional judgement. That is why this module has exposed you to different kinds of ethical thought, so that you may be better able to recognise your own personal ethical perspective when you exercise your professional ethics. For example, suppose you tend to make decisions based on the consequences to other people and would generally consider yourself a utilitarian. If you were asked to do something that was legal and did not violate the fundamental principles, but had unpleasant consequences for a large number of people, you might not want to do it. For example, you may not wish to advise a client that a loss-making division of
the business should be closed, making several workers redundant. It would violate your preferred ethical framework. But it would not violate your professional ethics. It is important to be able to know the difference between the two. As a professional accountant, you should strive to maintain objectivity by being mindful of the fact that your personal values are just that – personal and unique to you. Summary ACCA has a framework for ethical decision making. It consists of four steps. First you determine the real issue. Then you determine if any of the fundamental principles are threatened. Next you determine if the threats are significant. And finally you see if you can put safeguards in place. You should think of ACCA’s fundamental principles as your professional ethics. As an accountant you have an obligation to the public, as do other professionals, and the obligation consists of upholding those fundamental principles. It is important to know yourself and your ethics, so that you are better able to distinguish your personal ethics in a business situation. A framework for making decisions
Start here
The objective of this unit is to help you understand why you are taking the Professional Ethics module and to help you navigate through it. The Professional Ethics module is an introduction to the topic of ethics. Because ethics is an important topic, it is also covered in paper P1 Professional Accountant and in 11 of the 16 papers, as well as in Practical Experience Requirement (PER). When you qualify as an accountant, you will need to declare every year that you are complying with ACCA’s Code of Ethics and Conduct. So this module is really just the beginning of the process of you becoming a professional accountant. About the module You must complete all nine units of this module in the order presented. You will work through several short tests, but they are only included to help you see if you have understood the material that you have covered. There is no passing or failing grade. The first six units introduce you to some theory about ethics and professionalism. The next two units give you the chance to put that theory into practice. In the last unit, you will be asked to write and submit a brief description of what you have learned. Because you may want time to think about the material, we recommend that you work on the module in several short sessions. The list of units will indicate which sections you have completed and which sections remain to be covered. ACCA reserves the right to monitor your activity in this module. How to navigate The Professional Ethics module consists of nine units. You are currently in the ‘Start here’ unit. Click the Next or Previous button to move to the next or previous screen within a unit. Click Save to leave the unit and return to the main page that lists the units. The time you spent within the unit will be recorded and displayed. If you leave a unit without finishing it, the status shows ‘incomplete’ and the amount of time you spent in it is recorded. Next time you work on the module, select the incomplete module and continue working through it. You can leave and return to a unit any number of times, but the status does not change to ‘completed’ until you have worked through the last screen. When you complete one unit, the next one automatically becomes available to you. The main page lists all nine units of the module. You must work through the units in the order in which they are presented and you cannot begin a unit until you have completed the previous one. Most content displays in one screen. In some instances, you may need to scroll down a few lines to see all the content, using the scroll bar on the right side of the screen. From the List of Units, click ‘Exit module’ to leave the module, then ‘Log out’ to return to the ACCA site. Your privacy ACCA reserves the right to monitor your activity in this module. Your activity will be reviewed by ACCA in respect of the time spent in the module and the content of the statement you submit in the last unit. Your scores for the self-tests within the module are for your own use, will not be reviewed on an individual basis, but may be included as part of group analysis for research purposes. In such an eventuality, individuals will remain anonymous. Only the fact that you have completed or not completed the Professional Ethics module will be held against your record.
Sound and animation The dialogue in the case study, the seventh unit, is spoken aloud. You can turn the sound on or off by clicking the Sound button. You may also want to adjust the sound level using the Volume feature on your computer. You can choose to view a high bandwidth version with sound and animation, or a low bandwidth version with no sound and no animation. If you need help Click Help to send us emails on specific topics. Further reading If working on this ethics module has made you want to learn more about the topic, we suggest the following book: Avinash D. Persuad and John Plender. Ethics and Finance - Finding a moral compass in business today. Longtail Publishing Ltd. ISBN 0-9552186-2-4 ISBN 978-0-9552186-2-0 The ACCA website has a section about ethics with content and links to organisations and articles: http://www.accaglobal.com/members/professionalstandards/ethics/ The International Accounting Education Standards Board’s Ethics Education Toolkit is now available freeof-charge in a new downloadable version. The toolkit is designed to support IFAC members, associates, and accounting educators in developing high quality ethics education training programs for professional accountants and accounting students worldwide. It features a range of case studies and supporting notes, presentations, video clips, and other teaching materials. And the P1 Reading List is included here for your convenience: ACCA’s approved publishers: BPP Professional Education Contact number: +44(0)20 8740 2222 begin_of_the_skype_highlighting +44(0)20 8740 2222 end_of_the_skype_highlighting Website: www.bpp.com Kaplan Publishing Foulks Lynch Contact number: +44(0)118 989 0629 begin_of_the_skype_highlighting +44(0)118 989 0629 end_of_the_skype_highlighting Website: www.kaplanfoulkslynch.com Accountancy Tuition Centre (ATC) International Contact number: +44(0)141 880 6469 begin_of_the_skype_highlighting +44(0)141 880 6469 end_of_the_skype_highlighting Website: www.atc-global.com Solomon, J (2006). Corporate governance and accountability. Second edition. Chichester: John Wiley and Sons. Monks, A. G. and Minow, N. (2004). Corporate governance. Third edition. Malden MA: Blackwell. Crane, A. & Matten, D. (2006). Business ethics, (Second edition), Oxford: Oxford University Press. Gray, R, Owen, D and Adams C (1995) Accounting and Accountability: changes and challenges in corporate social and environmental reporting. Prentice Hall, London. Mallin, C. (2007). Corporate governance, (Second edition), Oxford: Oxford University Press. Acknowledgements
The case study in unit 7 is loosely based on the Independence Education Toolkit from the American Accounting Association. Professor Georg Lind, University of Konstanz, Germany. IFAC Deloitte IASPlus Legal and copyright information Your access to and use of the Professional Ethics Module is subject to the terms of the End User Licence Agreement which you should read by clicking on the following link. By continuing to access and use the Professional Ethics Module you are deemed to have understood and agreed to the terms of the End User Licence Agreement.
2. THINKING ABOUT ETHICAL DECISIONS
Thinking about ethical decisions The objective of this unit is to encourage you to think about the kinds of arguments that might influence you when you make decisions. In the next unit you will be studying different branches of ethics, to help you better identify your personal values. Then in the units that follow, you will see why you must use the professional ethics of an accountant when making professional decisions. But for now, we start with a story of an accountant with a dilemma. Whatever she decides to do, it will conflict with some rules of conduct. So the reason for her decision becomes more important than the decision itself. First you will be asked to rate the rightness or wrongness of her decision. Then you will be asked to judge arguments for and against the decision. Accountant's Dilemma As a professional accountant, Jane faces a difficult situation. She has found out that her highly regarded manager, who had always supported her and has consistently acted with integrity, has been involved in suspicious activity. Jane discovered that he had created a series of small fictitious payables accounts within the purchase ledger, all of which remain wholly unsettled. She knows that she ought to report any irregularities. Yet, this could lead to the dismissal of her manager, ending a very promising accounting career. When checking the accounts again, she discovers that the ‘fictitious’ accounts have suddenly disappeared. After thinking it over, she decides to keep all this information to herself.
Would you agree with Jane’s decision?
I strongly disagree I strongly agree
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2. THINKING ABOUT ETHICAL DECISIONS
Accountant's Dilemma How acceptable do you find the following arguments in favour of Jane's decision? Suppose someone said she acted rightly . . . 1. because one cannot always enforce ethical principles without considering the particular situation.
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2. because there was no real evidence to prove wrongdoing.
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3. because her manager always supported her and now it is her turn to help him.
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4. because that saved her from being in an uncomfortable situation.
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5. because as part of the team she should demonstrate loyalty to a colleague.
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6. because she should have trust in her manager.
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5. ABOUT ACCA'S FUNDAMENTAL PRINCIPLES
About ACCA's fundamental principles The objective of this unit is to introduce you to ACCA’s fundamental principles:
• • • • •
Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour
As a human being, you and your ethics are shaped by your upbringing and your experience. As a professional accountant or student accountant, you are bound by the laws of your country, and all regulations that flow out of them. As an ACCA member, student, or affiliate, you are also bound by the fundamental principles of ACCA.
Section 3.2 of the ACCA Rulebook contains the full text of these principles. These principles are based on standards from IFAC, the International Federation of Accountants which apply to accountants around the world. What follows is an explanation of these principles. Integrity What the rulebook says You 'should be straightforward and honest in all professional and business relationships.' In other words Do not lie and do not issue false or misleading information. Objectivity What the rulebook says You ‘should not allow bias, conflicts of interest or undue influence of others to override professional or business judgements.’ In other words Your professional and business judgement should be based on fact and on what is in the best interests of stakeholders or others. Judgement should not be based on what is in your own personal interest, or in the interests of those who have power or influence over you. Professional competence and due care What the rulebook says You ‘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.’ and ‘Members should act diligently and in accordance with applicable technical and professional standards when providing professional services.’ In other words Only perform work if you are competent to do so. Keep up to date with accounting matters. Do not forget that as an ACCA member, you will have continuing professional development (CPD) responsibilities – and you must ensure that you are keeping up to date confidentiality What the rulebook says You ‘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 or unless there is a legal or professional right or duty to disclose.’ and ‘Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of members or third parties.’ In other words Do not talk about your clients, or use information that you have learned about them for your personal gain or for the gain of others. Maintain your silence even after the professional relationship with the client ends. Professional behaviour What the rulebook says You ‘should comply with relevant laws and regulations and should avoid any action that discredits the
profession.’ In other words Be courteous and considerate to people, and always behave so that a ‘reasonable and informed third party’ who knows all the facts would also think you are acting professionally. Summary The fundamental principles of integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour are international standards that accountants who are members of IFAC professional bodies agree to follow through implementation of the IFAC Code of Ethics. Professing to higher standards of behaviour is something that professionals do. And these are the standards that ACCA accountants must follow. As a student, it is important for you to become familiar with them and to know that they also apply to you.
6. THE FRAMEWORK
The Framework The objective of this unit is to introduce you to the framework for using ACCA’s fundamental principles for solving ethical dilemmas. Because it would be difficult to create a rule for every possible situation that you might encounter, and even more difficult to remember the right rule at the right moment, ACCA uses a principles-based approach, and has developed a framework to help you address those principles. The ACCA framework is based on the model from the International Federation of Accountants (IFAC). It consists of a series of steps that you go through when confronted with an ethical dilemma. You should ask and answer these questions in this order: 1. 2. 3. 4. What is the real issue here? Are the fundamental principles threatened? Is the threat significant? Are there safeguards that can eliminate the threat, or reduce it to an acceptable level?
You will explore each of these steps in more detail. Step one: what is the real issue here? Sometimes the real issue is obvious. Sometimes, the issue is not obvious and you have to ask a lot of questions before you find out what the issue really is. As a start, you can ask yourself these questions:
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Is this my problem, or does it belong to someone else? Is it the real problem or part of a larger one? Is this a real problem or am I only avoiding a difficult task? Do I need more information?
For example You are the accountant at a pharmaceuticals company. Your finance director asks you to contact the marketing director about the implications of a significant and unexpected price increase of a generic drug you produce for thinning the blood in heart patients. The request follows a pricing agreement
drawn up between the three main companies supplying these drugs to the national health service of a country, and so the impact of the price increase on the volume of sales will be lessened, due to the other companies in the cartel also raising their prices. Is this your problem? You might think ‘no’, because you have not been involved in the company’s decision to fix the drug price, nor brokered the agreement with its main competitors. On the other hand it could be your problem, since doing this could be seen as condoning a potentially illegal arrangement. If not strictly illegal, the agreement could be considered to be unethical as it is detrimental to the tax payers of the country who finance the national health service through taxation. Is being asked to discuss the price increase with the marketing director the real problem? No. It is part of a larger problem – namely coming into possession of knowledge of a wider conspiracy of a serious nature, in other words, that a cartel is being operated and that price-fixing is taking place which you are being asked to help implement. The problem you face is that if you go along with it you are aiding and abetting an illegal process, or if you do not go along with it there may be career implications or other problems for you in the future. Is this a real problem or am I avoiding a difficult task? The problem certainly exists in this case, but rather than just helping to implement the price change and ignoring the wider issue, or refusing to do so, you should sit down to discuss the larger problem with the finance director. You should try and establish the reason for the price-fixing arrangement and question its legality as well as its ethics. If the situation gets difficult, there may be a need for you to find out more about your options. Where you feel pressured to act against your professional judgement or feel you should act on information that you have about illegal or unethical behaviour, you might need to discuss this with your solicitor or your professional accounting association. You may need to consider alerting appropriate authorities about this arrangement, in other words to consider the act of ‘whistleblowing’ and all its wider implications for you, your organisation, and its stakeholders. Step two: are the fundamental principles threatened? You already know the fundamental principles of:
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Integrity Objectivity Professional competence and due care Confidentiality, and Professional behaviour
Is one or more of these principles being compromised, and in what manner? Sources of threats The threats to these principles can come from a number of different directions. Self-interest threats These come about if you or a close family member stands to gain (or not lose) something from the incident. Usually your integrity or objectivity would be at risk. Self-review threats These may be significant when you are in a position of having to review your own work. This could put your objectivity at risk.
Advocacy threats These threats exist if you are promoting a position that compromises your integrity, or promoting a position or opinion to the point that subsequent objectivity may be compromised. Familiarity threats These can arise if you have a close personal relationship with someone and cannot be objective. Several of the fundamental principles may be threatened. Intimidation threats These can become significant if you put yourself in a position where you could be pressurised by physical or verbal threats, or if there is an implied threat to your career or prospects. For example, you may be bullied into doing work which you are not competent to perform. Any of the principles could suffer under this type of threat. Step 3: is the threat significant? Determining the significance of a threat depends on the individual situation. Only you or a ‘disinterested third party’ who knows all the facts can decide whether the threat is significant. You must always consider what others would make of the position and your actions. The ‘disinterested third party’ is a phrase that is often used in these situations. It is the theoretical voice of reason you would consult to help you gain perspective on an issue. Step four: are there safeguards that may be put in place? If a threat is significant, you will want to put safeguards in place or use the ones that already exist. For example, safeguards can range from government regulations and professional standards, to people or policies in your workplace. If you look around, you will see that many safeguards are already in place to help you. First, there are the safeguards created by laws and regulations in your country and by your own accounting profession. These are designed to ensure that all accountants work in line with the fundamental principles, that compliance with the fundamental principles is regulated, and that sanctions are imposed on those professional accountants who do not comply. The next safeguards are the education and training you undergo before entering the profession and the continuing professional development requirements you face after you qualify as an accountant. This training teaches you current practices and helps keep you up-to-date with accounting standards and regulations. These safeguards can be reinforced by controls established in the work environment. These can include the introduction of organisational ethics policies and procedures and the development of training for all employees to ensure their compliance; strong internal controls; appropriate disciplinary procedures; and a culture that encourages employees to communicate to senior levels about ethical issues without fear of retribution. Finally, there are safeguards you can create for yourself such as complying with continuing professional development requirements; keeping records of contentious issues and how the individual addressed them; using an independent mentor; and using the services of legal advisors and professional bodies. When you make a decision on a course of action you propose to take, you should be able to point to the principle or principles being threatened and the nature of the threat. You should also be able to point to the safeguards in place to reduce the threat to an acceptable level and allow the proposed course of action to go ahead. If you cannot recognise an existing safeguard, or implement an appropriate safeguard, you should refuse to carry out the activity in question. An example Let’s work through a simple example. Suppose your manager asks you to claim expenses under a code other than that relating to the expenses incurred, on the grounds that this budget code is under spent and the original code was overspent. Use the framework. Step one: What is the real issue? It is not that you are claiming expenses fraudulently, because these were legitimately incurred and so you are not benefiting financially. The issue is whether financial and
budget information and variance analysis are reliable when managers are manipulating the use of budget codes. The incorrect allocation of the expense could result in senior management being deliberately misled. Step two: Are any fundamental principles threatened? You remember the five principles of integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. The fundamental principles threatened here are integrity and objectivity – deliberately using a wrong code to protect your personal and business interests. Step three: How significant is the threat? Since you have not acted dishonestly for personal gain, you might decide that the threat is not very significant. However, you are thinking about the consequences and not the threat. You are also ignoring the possible consequence that senior management may be deliberately misled as a result of your actions. If the amount being allocated to the incorrect code is considered material, the risk of this happening is significant, unless appropriate safeguards are put in place. Step four: What safeguards would ensure that the threat to your integrity is sufficiently low and that budgetary codes are not dishonestly manipulated? One safeguard that might allow the proposed action to go ahead is to discuss the situation and seek assurances that the treatment of the expenses claim will be disclosed to the users of the information. You may decide to obey your manager’s request and use an incorrect budget code, whilst striving to protect the budget holder’s position. That is you may do so because you have received assurances that the proposed action will not result in the senior management being misled. On the other hand, you may feel that as a professional accountant, it is your duty to report expenses as they are, because you feel that the proposed course of action could only mislead senior management. What is your decision? Do you have sufficient assurance that the first course of action may be followed, or do you have to refuse the manager’s request? Professional ethics and your personal VALUES You have now examined your own personal values and learned about ACCA’s fundamental principles. At this point you may well be wondering how the two fit together. This section will attempt to explain. In any situation, you must begin with the laws of your country. The law generally deserves our respect, with very few exceptions. The situations in which it might be ethically permissible to break the law generally involve matters of life and death, and are not likely to occur in the professional work of accountants. Next you look to the specific rules that govern the situation. For example, if you are an auditor, you will be bound by the relevant auditing standards in your jurisdiction. Then as a professional, whether an auditor or not, you must consider the principles of your professional body which form the basis of your professional ethics. Remember that professional ethics is really about an obligation to the public. As a professional -whether a doctor, a lawyer, an engineer, or an accountant -- you will have been tested and accepted by your profession. The public will place their trust in you simply because you are a professional, a member of a trusted professional body. The public is not expected to know how to assess either the ability or the ethics of a doctor, a lawyer, or an accountant, for example. They trust that the professional bodies will have done this for them. This means that as a professional you owe the public a certain level of integrity and objectivity -- as well as professional competence and due care, confidentiality, and professional behaviour. In other words, you must uphold the ACCA fundamental principles simply because you are a professional and you have professional ethics. Throughout all of this, your own values, interests and experiences are the filter through which you unavoidably view any situation. It is important for you to be aware of those filters because they could influence your professional judgement. That is why this module has exposed you to different kinds of ethical thought, so that you may be better able to recognise your own personal ethical perspective when you exercise your professional ethics. For example, suppose you tend to make decisions based on the consequences to other people and would generally consider yourself a utilitarian. If you were asked to do something that was legal and did not violate the fundamental principles, but had unpleasant consequences for a large number of people, you might not want to do it. For example, you may not wish to advise a client that a loss-making division of
the business should be closed, making several workers redundant. It would violate your preferred ethical framework. But it would not violate your professional ethics. It is important to be able to know the difference between the two. As a professional accountant, you should strive to maintain objectivity by being mindful of the fact that your personal values are just that – personal and unique to you. Summary ACCA has a framework for ethical decision making. It consists of four steps. First you determine the real issue. Then you determine if any of the fundamental principles are threatened. Next you determine if the threats are significant. And finally you see if you can put safeguards in place. You should think of ACCA’s fundamental principles as your professional ethics. As an accountant you have an obligation to the public, as do other professionals, and the obligation consists of upholding those fundamental principles. It is important to know yourself and your ethics, so that you are better able to distinguish your personal ethics in a business situation. A framework for making decisions
