Unit 5

Ethical Behaviour and Implications for Accountants

Q1) Explain in your own words the meaning of ethics. (7 marks) (2018)

A1) To maintain the probity of the report, accountants must insist on absolute independence of judgment and action. The need to maintain this independence position points to a specific code of conduct. If public confidence in the integrity of an accountant's report is shaken, its value is lost. (Arthur Andersen, 1932 Lecture on Business Ethics.)

John is an adolescent accountant at a local certified accountant office. He is working on the issue. He is trying to decide whether to cover up the mistake that a significant customer did not attach an irrevocable election to his recently filed tax return. If he does not report the mistake, he Can reduce a significant portion of the client's tax burden. John considers taxes to be unfair anyway and believes that it is his duty to look in the best interests of the client and avoid paying as much tax as possible. John also knows that retaining customers is important to the financial health of the company. Do you think most accountants hide such mistakes? Will they justify doing so?

Leo is an intimate company and he is a senior accountant responsible for auditing CHC. Leo found that CHC's income was virtually misstated. Managing, who is negotiating a consulting contract with CHC, his partner is pressured Leo to hand over the file as soon as possible. Audits take significantly longer than expected by the budget, and investigating misstatements takes a lot of time. Leo speaks to her Adele, audit manager. Adele finds no tax implications, no harm or foul, so she says she works and she doesn't mention adjustments in the paper. Should Leo follow Adele's "advice" or is he more responsible than working for the benefit of his clients?

Situations like these scenarios occur every day. They symbolize the ethical concerns faced by accountants, whether they are administrative accountants, tax accountants, auditors, valuation professionals, or other accountants doing accounting work.

Individuals and systems are very similar. Both succumb to temptation. Therefore, a full-fledged ethical treatise should focus on the pressure the system puts on individual accountants and their companies, and consider the rewards of the system to determine if they are in line with its purpose. These are the main issues addressed in this book on accounting ethics. Ethics is a comprehensive concern in all areas of life. It is involved in all human activities. Human activity is an activity that the individual is responsible for, an activity that is intentionally performed and controlled, an activity that helps or harms an individual or another person, an activity that is considered fair or unfair, right or wrong.

Define Ethics

Find out how current ethical theories can be applied to today's accounting, focusing on both the ethics of purpose and the ethics of relationships. Ethics is not just about pursuing good. It is also about loyalty to ethically acceptable relationships. An important relationship is an expert relationship with his or her clients. Accounting is a skill that requires expertise, and because accountants have clients who rely on that expertise, accounting can also be included in the profession. Being an expert means that an accountant is obliged to act in the best interests of all parties, from clients to the company to the general public. As an accountant, as an expert, he has developed various codes of ethics that require the rules that an accountant must follow in order to be accepted as an expert.

What is Ethics?

The words "ethics" and "morality" have many meanings. The Webster's Collegiate Dictionary shows four basic meanings of the word "ethics".

1. Discipline dealing with good and evil and moral obligations and obligations.
2. A set of moral principles or values.
3. The theory or system of moral value.
4. Principles of behavior that govern individuals or groups.

Ethics is, in every form, related to good and evil. It is a discipline that studies a set of principles held by an individual or group, or their ethical principles. The task of that discipline is the analysis and evaluation of human behavior and practice. For example, according to some people or groups, suicide assisted assistance is ethically acceptable. Ethical discipline considers what "suicide assisted assistance" means (analysis) and why it supports or opposes practice (evaluation).

Q2) Explain the link between corporate governance and ethical decision making. (5 marks)

A2) Corporate governance refers to a system in place to avoid or resolve potential conflicts of interest. The existence of a conflict of interest means that one or more parties may make decisions in their own Favor at the expense of the other. The possibility of unfair behavior does not necessarily mean that unethical behavior will occur. However, the purpose of the corporate governance system is to reduce or eliminate opportunities for unethical or selfish behavior in much the same way that there are internal controls that make fraud more difficult. They do not guarantee that fraud or unethical behavior will not occur, but they will protect honest people from temptation and make it more difficult for dishonest people to behave unethically in the areas covered by the system.

Therefore, corporate governance provides a mechanism to reduce opportunities for unethical behavior in the context of principals and agents. The status of a principal agent means that directors are appointed to protect the interests of shareholders and have the authority to act on behalf of shareholders in situations where they cannot observe their behavior (and therefore). Representing a shareholder). Therefore, there is a relationship of trust and the directors have a moral and legal obligation to act in the interests of shareholders. However, there is an ambiguity in that different shareholders may have different purposes, such as different timelines. Therefore, it may be difficult to prove fraud, so the existence of safeguards such as corporate governance mechanisms is encouraging.

Q3) Identify ethical issues which university students experience and where do they look for guidance. How useful is that guidance? (Whilst the examples do not have to be personal accounts, they do have to be real student issues.) (7 marks)

A3) Ethical issues which university students experience and where do they look for guidance are:

1. Occupational Survival

There is debate as to whether the attempt to teach ethics is worth it. However, this chapter is designed to raise awareness of how ethics are important to the survival of accounting professionals. Accounting is part of a system that creates confidence in the financial information provided. Without a considerable level of trust in the system, financial markets will not function efficiently and effectively. Such trust is a delicate matter, and if the accounting professional is no longer trusted, the accounting professional has no role to play in the system. In that case, the accounting expert disappears. You may think that you don't need to ponder, as the chances of losing trust are very low. But who would have imagined that Arthur Andersen, which we knew, would disappear from the scene so quickly? As soon as the public correctly or falsely decided that Arthur Andersen was no longer credible, the business collapsed.

2.  The future role of accountants in ethical assurance

Accountants in the enterprise may also be seeing a growing role in ethical oversight, as internal auditors are responsible for assessing manager performance in compliance with the organization's code of ethics. This has already happened partially, as conflicts of interest are often highlighted by comments on internal audit and business practices. This is, after all, the traditional role of an accountant, ensuring that it follows the various practices of the organization. The level of compliance with the Code of Ethics is just one more assessment that an accountant should do.

3.  Impact on Training

Additional training is required if the accountant is likely to act as an "ethical guardian" in the future. In the United States, an accountant who wants to become a Certified Public Accountant (CPA) must pass a formal examination of ethical practices and procedures before being granted the privilege of working in practice. Failure to fail these exams will prevent future accountants from practicing in a business environment.

For example, in the UK, ethics is central to ACCA certification, values, ethics, and governance are themes that organizations are currently incorporating into their business plans, and expertise in these areas is very high in today's job market. We sought. ACCA takes a holistic approach to student ethical development by using "real-life" case studies and embedding ethical questions within the exam syllabus. For example, ACCA's dissertation P1, Professional Accountants, applies in the context of accountant obligations and serves as a guide to appropriate professional behavior and behavior in personal and professional ethics, ethical frameworks, and professionals. Covers value.

4.  Various situations

In addition, as part of ethical development, the student must complete her 2-hour online training module developed by her ACCA. This gives students access to a variety of real-world ethical case studies and requires them to think about their own ethical behaviours and values. Students are expected to complete the Ethics Module before starting professional-level research. Similar efforts are being made at other specialized accounting institutions.

Q4) What does Ethical Behavior mean? (5 marks) (2017)

A4) Ethical behavior can be identified by both personal and professional relationships. This concept can also be applied to a company as an entity. It evaluates the moral implications of the actions taking place in each of the contexts mentioned above. Ethical behavior is essential for the proper functioning of society. Individuals who behave unethically usually lose the trust of others and their unethical behavior should also be punished by law.

On the other hand, ethical behavior can also be demonstrated in business relationships. Colleagues need to maintain ethical standards with each other to ensure a healthy working environment. This behavior is evidenced by certain values   and principles that are maintained in the relationship, such as integrity, transparency, integrity and impartiality. These are ethical standards that should be respected between the parties in order to maintain an ethical environment.

Finally, businesses and businesses also need to maintain ethical behavior towards their customers and stakeholders. Transparency with shareholders, punctuality of payments, and fair treatment of employees are desirable ethical behaviours for a company.

Q5) What are the guidelines of Ethical behaviour? (7 marks)

A5) Individual ethical guidelines or personal ethics are the result of various influences and pressures. As individuals, we "enjoy" a range of ethical pressures and implications:

1. Parents – According to the first and many authors, it has the most important impact on our ethical guidelines.
2. Family – Large families common in oriental society (aunts, uncles, grandparents, etc.) can have a significant impact on an individual's ethics. The more common nuclear families in Western societies (parents and siblings only) are equally important, but can focus on a narrower area.
3. Social Groups – Our “class” ethics (actual or ambitious) can have a significant impact
4. Peer Group – Our “equality” ethics (whether realistic or aspirational) can have another great influence.
5. Religion – Religious ethics are more important in some cultures. Islamic society has detailed ethics required of believers and key guidelines for business ethics. However, individuals are influenced by religious ethics, even if they appear to be secular culture.
6. Culture – This is also a very effective formulator of personal ethics.
7. Experts – When an individual becomes a member of an expert body, it is subject to the ethics of the expert body.

Given the variety of inputs, it is not surprising that there are different views on what is acceptable ethical behavior. For example, as an accounting student, how do you deal with ethical issues? Do you personally tolerate cheating? Refrain from reporting cheats on exams and assignments from friends? In an essay Do you feel resentful about the selfishness of other students, such as hiding books in a very useful library? You decide to cheat on someone else's exam because you are at a disadvantage because you do not cheat. Are you resentful? Is the resentment strong enough to report to the authorities that you have an affair, even if you haven't named the people involved?

Q6) State the Importance of Ethical Behavior. (5 marks)

A6) Morality and integrity are important traits to demonstrate, even for citizens and for those of us who are unwilling to pursue law enforcement careers. We instinctively know that it is good to act morally and honestly, but understanding the reasons for morality and integrity motivates us to defend such behavior. Reasons for being moral and essential, regardless of profession, include:

1. Make society better. When we contribute to making society better, we are rewarded for making ourselves, our family and friends' lives better.
2. Treat everyone equally. Equality is the basis of most Western democracy, where all individuals are given the same rights. This would not be possible without the majority of citizens acting morally.
3. Secure meaningful employment. Employers often consider a person's past behavior as a predictor of future behavior. People with a history of immoral behavior can be unreliable, making it difficult to hire for meaningful work.
4. Success in Business. If you have a profession that requires you to rely on others, your moral conduct will determine the degree of Favor you receive from others. Businesses with a checkered moral history are usually viewed carefully and are unlikely to thrive because word-of-mouth is unlikely to attract new customers. This is especially true if you want social media to have easy access to customer reviews.
5. Reduces stress. When we make immoral decisions, we tend to feel uncomfortable and worried about our decisions. Making the right moral decisions or taking a principled perspective on the problem can reduce stress.

Q7) The following is an extract from a European Accounting Review 27 article:

On the teaching front, there is a pressing need to challenge more robustly the tenets of modern-day business, and specifically accounting, education which have elevated the principles of property rights and narrow self-interest above broader values of community and ethics.

Discuss how such a challenge might impact on accounting education. (8 marks)

A7) A distinguishing feature of the accounting profession is that it accepts the responsibility to act for the public good ..."

1. Plans

Before accepting an appointment, the accountant should consider whether it is desirable to accept the client, especially if there are doubts about its legality, considering the relevant business activities. They also advised on the professional reasons that the current accountants of potential clients are not involved, and (b) whether they have the necessary competence in light of the industry and their own expertise. Also need to be considered. You should also not be involved if you have already provided other services that are contrary to your position as an auditor, or if the size of the fees threatens the independence of the auditor. (Although not mentioned in the code, it does mean that it is better to avoid situations that can lead to difficult ethical issues.)

b.  Second Opinion

If an accountant asks for a second opinion on accounting, that opinion can be used to undermine an accountant trying to do the right thing. Therefore, before issuing a second opinion, it is important to make sure that all relevant information is provided and refuse to work if in doubt.

c.  Reward

The reward must be sufficient to do the job in a professional way.

Commissions received from other parties must not be difficult to be objective in advising the client and must, in any case, be disclosed to the client at least. Although not discussed in the document, the involvement of accountants in personal financial planning raises ethical issues.

The investment vehicle rewards the accountant with a commission. Some accountants deal with this by passing a fee to the client and charging a flat rate to the consulting.

d.  Marketing

Marketing should be professional and should not exaggerate or make negative comments about the work of other professionals.

e.  Independence

Accountants and their close relatives must not receive any non-substantial gifts from clients. IFAC Para. 280.2 stipulates that:

1. The professional accountant in public practice who provides the guarantee service must be independent of the guarantee client. Independence of mind and appearance is necessary for a professional accountant to be able to draw conclusions in public.
2. Professional companies have their own standards of value regarding the value of gifts they can receive. For example, the following is an excerpt from his KPMG Code of Conduct.

Question: I run a playback center in his large KPMG office. We subcontract a significant amount of work to local businesses. The owner is very friendly and recently offered to make two free passes for the movie. Can I accept the pass?

Answer: Maybe. Here, the movie pass is considered a gift because the vendor does not participate in the movie with you. In situations where it is not created

If deemed inappropriate, reasonable from a third party such as our vendor, provided that the value of the gift does not exceed $ 100 and he does not receive a gift from the same vendor more than once in the same year. You can receive gifts.

Q8) It has been said that football clubs are seen by criminals as the perfect vehicles for money laundering. Discuss the reason for this view. (5 marks)

A8) There are various estimates of the size of money laundering, which amount to more than 2% of his gross domestic product in the world. Certain businesses are said to be more prone to money laundering. Import / export companies such as antiques, art dealers, auction houses, casinos, garages, and cash transactions. However, the methods are becoming more sophisticated and vary from country to country. While the use of small non-bank institutions is increasing in the UK, Spain includes cross-border cash transportation, currency exchange at currency exchange offices and real estate investment.

Money Laundering-Impact on Accountants

In 2006, the UK Audit Practice Board (APB) took into account the possibility of money laundering when conducting audits and required that any doubts be reported to the appropriate authorities. Practice Note 12 Money Laundering Issued Laundry.

In 1999, there was also guidance from a specialized accounting institution.

Money Laundering: A guide for certified accountants published by the Association of Certified Accountants that covers statutory, regulatory, and professional requirements related to money laundering avoidance, recognition, and reporting.

Money Laundering-Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) is an independent intergovernmental organization that develops and promotes policies to protect the global financial system from money laundering and terrorist financing. The recommendations issued by the FATF define criminal justice and regulatory measures to be implemented to address this issue. These recommendations also include international cooperation and precautionary measures.

It is adopted by financial institutions such as casinos, real estate dealers, lawyers, accountants and others. The recommendations are recognized as global anti-money laundering (AML) and anti-terrorism (CFT) standards.

FATF published Report 26 in 2009 entitled "Money Laundering by the Football Sector". This report identified sector vulnerabilities resulting from football club ownership, transfer market and player ownership, betting and image rights, and transactions related to sponsorship and advertising arrangements. This report is great introduction to the complex web that attracts money launderers.

Q9) Confidentiality means that an accountant in business has a loyalty to the business which employs him/her which is greater than any commitment to a professional code of ethics. Discuss. (8 marks)

A9) The basic Principles of IFAC are as follows:

i) "A distinguishing feature of the accounting profession is that it accepts the responsibility to act for the public good ..." (100.1)

Ii) "Professional Accountants must adhere to the following basic Principles:

a)  Honesty – Be open and honest in all professional and business relationships.

b) Objectivity – Do not invalidate professional or business judgments due to prejudice, conflicts of interest, or the excessive influence of others.

c)  Professional Competence and Appropriate Care – The customer or employer receive competent professional services based on the current developments in practice, law and technology and acts diligently according to appropriate technical and professionalism. Criteria for maintaining the level of expertise and skills required to ensure that.

d)  Confidentiality – Third parties without appropriate and specific authority, unless there is a legal or professional right or obligation to respect and disclose the confidentiality of information obtained as a result of professional and business relationships. Do not disclose such information to. Also, do not use the information for the personal benefit of a professional accountant or a third party.

e)  Professional Behavior – Comply with relevant laws and regulations and avoid acts that damage your professional credibility (100.5).

1. Act for the Public Good

The first basic statement that accountants should act for the public good is probably harder to achieve than you might think. To do this, accounting professionals need to be resolute in accounting standards that are not in the public interest, even if politicians and executives are pressing for their acceptance. When conducting an audit, the auditor mainly deals with the management, so it is easy to lose track of who the client is. For example, the expression "audit client" is commonly used in technical treatises and academic books when referring to the management of an audited company. It immediately suggests a management-biased relationship if the client is legally a group shareholder or a particular stakeholder. This is a small but subtle difference, but it can be misguided to view management as a client.

2.  Basic Principles

The five basic principles are probably an undisputed guide to professional behavior. The biggest challenge is applying these guides in specific situations. The IFAC Paper provides guidance on accountants covering appointments, conflicts of interest, second opinions, compensation, marketing, receipt of rewards, custody of customer assets, objectivity, and independence. When it comes to business accountants, they provide guidance in the areas of potential disputes, information preparation and reporting, well-informed behavior, financial gain, and incentives. This is not intended to provide all the guidance provided by the IFAC Code of Ethics. Students should refer to the original document if they want to know the details. This chapter provides an overview of public affairs accountants and the press related to them in business.

3.  Problems that actually occur to Accountants

1. Plans

Before accepting an appointment, the accountant should consider whether it is desirable to accept the client, especially if there are doubts about its legality, considering the relevant business activities. They also advised on the professional reasons that the current accountants of potential clients are not involved, and (b) whether they have the necessary competence in light of the industry and their own expertise. Also need to be considered. You should also not be involved if you have already provided other services that are contrary to your position as an auditor, or if the size of the fees threatens the independence of the auditor. (Although not mentioned in the code, it does mean that it is better to avoid situations that can lead to difficult ethical issues.)

b.  Second Opinion

If an accountant asks for a second opinion on accounting, that opinion can be used to undermine an accountant trying to do the right thing. Therefore, before issuing a second opinion, it is important to make sure that all relevant information is provided and refuse to work if in doubt.

c.  Reward

The reward must be sufficient to do the job in a professional way.

Commissions received from other parties must not be difficult to be objective in advising the client and must, in any case, be disclosed to the client at least. Although not discussed in the document, the involvement of accountants in personal financial planning raises ethical issues.

The investment vehicle rewards the accountant with a commission. Some accountants deal with this by passing a fee to the client and charging a flat rate to the consulting.

d.  Marketing

Marketing should be professional and should not exaggerate or make negative comments about the work of other professionals.

e.  Independence

Accountants and their close relatives must not receive any non-substantial gifts from clients. IFAC Para. 280.2 stipulates that:

3.   The professional accountant in public practice who provides the guarantee service must be independent of the guarantee client. Independence of mind and appearance is necessary for a professional accountant to be able to draw conclusions in public.

4.   Professional companies have their own standards of value regarding the value of gifts they can receive. For example, the following is an excerpt from his KPMG Code of Conduct.

Question: I run a playback center in his large KPMG office. We subcontract a significant amount of work to local businesses. The owner is very friendly and recently offered to make two free passes for the movie. Can I accept the pass?

Answer: Maybe. Here, the movie pass is considered a gift because the vendor does not participate in the movie with you. In situations where it is not created

If deemed inappropriate, reasonable from a third party such as our vendor, provided that the value of the gift does not exceed $ 100 and he does not receive a gift from the same vendor more than once in the same year. You can receive gifts.

4.  Problems with Accountants in Business

In relation to business accountants, the main issues identified by the code are significant financial gains in the form of stocks, options, pension plans, and reliance on employment income to support oneself and its dependents. Seems to be the financial pressure that arises from. If these rely on reporting good performance, it is difficult to withstand the pressure.

All companies, of course, want to present results in the most favourable way possible, and investors expect this, and doing so is part of the accountant's expertise. However, ethical standards require compliance with laws and accounting standards and are subject to the highest priority requirements for financial statements to provide a fair view. Misinformation and omission of additional material that may change the company's financial position assessment are unacceptable.

Accountants must use all means within the company to report pressure to behave unethically and are willing to resign if no results are obtained.

5.  Threats to Adherence to Basic Principles

The IFAC document identifies five types of threats to adherence to the basic principles and outlines them below. Purpose to outline these possibilities

A threat is to sensitize you to the type of situation in which your ethical judgment becomes ambiguous and you need to take additional steps to act ethically. The statements are deliberately extensively written to help handle situations not specifically covered by the guidelines. IFAC Para. 100.12 stipulates the following:

Threats fall into following distinctions:

(A) Self-Interest Threat – A threat that monetary or other interests improperly affect an accountant's judgment or behavior.

(B) Self-Assessment Threat – The threat that an expert does not adequately assess the outcome of a professional accountant, or another individual within a professional accountant's company or employment organization, or the results of previous judgments or services undertaken by the accountant. It depends on making decisions as part of the current service offering.

(C) Advocacy Threat – A threat that an expert promotes the position of a client or employer and impairs the objectivity of an expert accountant.

(d) Threat of Familiarity – The threat of professional accountants being too sympathetic to their interests or accepting their work too much because of long-term or close relationships with their clients or employers. And

(e) Threat of Intimidation – Intimidation that a professional accountant is prevented from acting objectively due to actual or perceived pressure, including attempts to exert excessive influence on the professional accountant.

Q10) Write short note on Code of Corporate Ethics. (7 marks)

A10) Most companies now have a code of ethics. They may have alternative titles such as our values, code of conduct, code of ethics, etc. For example, BP has a range of codes of conduct listed below, which are expected of companies involved in the industry and their activities covering a large number of countries. Its Code of Conduct includes the following major categories:

1. Our commitment to integrity.
2. Health, safety, security, environment.
3. Employee.
4. Business partner.
5. Government and community.
6. The soundness of the company's assets and finances.

Please note that at the time of writing (June 2010), BP's Code of Conduct is under close scrutiny due to an oil drilling disaster in the Gulf of Mexico.

However, the challenge is to make the code an integral part of the day-to-day behavior of the company and make it so perceived by outsiders. Obviously top management must act in such a way as to enhance the value of the code and eliminate existing activities that are incompatible with the new value.

BP has been criticized for actions that contradict its values, but such actions may be related to actions taken prior to the adoption of the code17.

Therefore, it is important to ensure that corporate behavior is consistent with the Code of Conduct, employees are rewarded for ethical behavior and penalties are imposed for non-compliance. Violations, whether past or not, are difficult to erase from social memory.

Stohl et al. Suggest that he can divide the content of the Code of Conduct into three levels.

1. Level 1 – In the various countries in which the company operates, there are attempts to ensure that it complies with all laws that affect the company.

b.  Level 2 – Focus on ensuring fair and impartial relationships with all parties with which the company is directly involved. This category would include the well-known notoriety Nike received when subcontractors were allegedly exploiting child labor in countries where such treatment was legal. Disadvantages. Advertising and boycotts mean that many companies have reviewed their businesses and expanded their norms to cover such situations, thus moving to a second level of ethical awareness.

c.   Level 3 – A place where businesses have a global perspective and recognize their responsibility to contribute to the potential for peace and favourable global environmental conditions. For most companies, Level 1 concerns are more predominant than Level 3 and Level 2. European companies are likely to have a Level 3 direction than the United States.