Ethics

Understanding ethics

What are ethics

• Ethics are a set of moral principles that guide behaviour

• Ethical values are assumptions and beliefs – that constitutes right and wrong behaviour

• Individuals have ethical values that relate to family, culture and environment which they develop their ideas and beliefs from

• Organisations have ethical values that are based on standards of behaviour and norms and help to express the business’s identity

Ethics

• Business ethics concept – Suggests business is morally responsible for their

actions– Should be held accountable for the effects of their

actions on people and society– Businesses should behave ethically towards• Customers • Employees • Suppliers • Communities/ society

Ethics continued

• Some ethical values are set up in the organisation’s mission statement

• Set out as ethical codes and guidelines which are taught to employees

• Others are set up as organisation culture- unwritten rules, the way we do things and customs of behaviour

• Code of Ethics focuses on social issues

Behave ethically, why?

• AAT Code of Professional Ethics states – ‘The decisions you make in the everyday course of your professional

lives can have real ethical implications’• Reasons could be

– Issues may relate to law and regulations – Reputation and standings of the professional bodies– Protect the public interest

• Avoid the appearance of conflict of interest • Be objective and act in the public interest • Keep sensitive information confidential • Be straightforward and honest in professional and business relationship • Maintain professional knowledge, behaviour and skills at the level required by

client or employer• Act within the spirit and letter of the law so as not to bring the profession

into disrepute

Ethical principles - explanations

• 5 fundamental principles as stated by AAT– Integrity

• Should be straightforward and honest in all professional and business relationships

– Objectivity • Shall not allow bias, conflict of interest or undue

influence on others

– Professional competence and due care • Continuing duty to maintain professional knowledge and

skills at the level required to ensure competent professional services

– Confidentiality • In accordance with the law a member shall respect the

confidentiality of information acquired• A member shall not disclose any information to a third

party without proper authority (unless there is a legal or duty to disclose)• Confidential information shall not be used to benefit or

advantage the member or third parties

– Professional behaviour • Member shall comply with the laws and regulations so

as not to bring the profession into disrepute

Ethical principles - Review

• Integrity – being open about the limitations of knowledge and

competence– Being honest in your relationship – Carrying out work accurately, conscientiously and

efficiently• Objectivity– Basis of an independent and honest appraisal of

information – Must be impartial free from factors (financial gain, conflict

of interest between two parties)

• Professional competence and due care– Must not carry out a task/ assignment if you do not have

the competence to carry out to a satisfactory standard – You can receive support and advice to complete the task – You should not undertake or continue to undertake a task

unless you can receive said support – You need to maintain and develop the professional and

technical competence • Regularly review working practices against standards, codes,

legislations and regulations – both national & international • Continually upgrading knowledge and skills

– Due Care is a legal concept meaning, if you agree to complete a task/ assignment you have the obligation to complete • to the best of your ability• Client’s /employer’s best interest • Within a timescale• To the professional and technical standards

Confidentiality

• Is a fundamental principle of the profession• There are circumstances where the law allows or

requires that confidentiality be breached. • Summaries are shown on next slide (from AAT code of section

140.7)

• You as a professional will not use or disclose confidential information to others unless: – Have specific and proper authorisation to do so by client or employer – Are legally or professionally entitled or obliged

• Note: any personal information relayed at work should be regarded confidential unless otherwise stated

Disclosure allowed- table Circumstances Examples

Disclosure is permitted by law and is authorised by the client or employer

Providing working papers to a new firm how is taking on the client

Disclosure by law Providing documentation/ evidence for legal proceedingDisclosure to HMRCDisclosure of actual/suspected money laundering Monies used to finance terrorist acts Money Laundering Reporting Officer (MLRO)Serious Organised Crime Agency (SOCA in the UK)

There is a professional right or duty to disclose which is in the public interest and is not prohibited by law

Complying with the quantity review of an IFAC member body or professional bodyResponding to an inquiry or investigation by the AAT or other regulatory or professional bodyDisclosure to protect the member’s professional interest in legal proceedingDisclosure made to comply with technical standards and ethics requirements

Professional behaviour • Another fundamental principle• Members must be truthful & honest when

advertising their services • Can bring the profession into disrepute by– Making exaggerated claims – Making disparaging references about other

professionals– Or unsubstantiated comparisons

• Being professional also means being courteous

Conflict of Interest • There many possible situations which conflict with the

ethical principles• From the AAT code are guides and problem solving

procedures • They form conceptual framework which are: – Identify where there may be a threat to a fundamental principle– Evaluate the threat is it significant?– If significant, apply safeguards that will eliminate or reduce the

threat– If safeguards cannot be applied decline or discontinue the task/

service, and/or resign

Threats and safeguards

• Threats: Refer to the table on pg 186-7 for explanation – Self-interest – Self-review – Advocacy – Familiarity – Intimidation

Safeguards – AAT code • Definition as ‘action or other measures that may

eliminate threats or reduce them to an acceptable level’• Code identifies 2 broad categories

– Safeguards created by the professional and/or legislation and regulation• Education, training and experience as entry requirement • CPD• Corporate governance regulations• Professional standards • Professional or regulatory monitoring and disciplinary procedures • External review of final reports, returns, communications or

information produced by members

• Safeguards in work environment – Quality controls, internal audits of quality control – Mechanism to empower and protect staff who

raise ethical concerns (whistleblowers)– Involvement of, or consultation with independent

third parties – Rotation of personnel to avoid familiarity and

opportunities for collusion in fraud – Opportunities to discuss ethical dilemmas • with ethics officer, committee, forum

Compliance with the law

• Law falls into 2 categories – Criminal Law– Civil Law

• Criminal is offences relating to persons and property • Will result in fines or imprisonment • Cases prosecuted in a criminal court

– Examples – money laundering, theft, terrorist financing, bribery and fraud

• Civil is conflicts between individuals within the community • No punishment will take place • Cases heard in a civil court

– Examples breach of contract, negligence and trust

• Other laws that effect accounting professionals are: – Health & safety legislation – Employment protection – Equality laws

Business ethics and professional values • In ‘Setting the tone: ethical business leadership’ by

Phillippa Foster Back (2005) lists key business values as:

• Truth, transparency, fairness, responsibility and trust• These business values should underpin the

company’s policies and behaviour• Aim of a business is to make a profit. – Modern ethical standards require the protection of the

rights of groups within and outside of the organisation who have a legitimate interest or stake in the organisation’s activities . The outside group are commonly known as the stakeholders

• Business ethics also relate to competitive behaviour • Competing unethically could be:

– stealing competitors designs– Using buyer power to prevent suppliers from dealing with competitors – Spreading false negative information about competitors

• For a business to act ethically they may have to change its culture

• The Institute of Business Ethics (IBE) was set up in 1986 to encourage a high standard of business behaviour based on ethical values

• IBE set up a simple ethical test for business decisions as: – Transparency – Do I mind others knowing what I have decided?– Effect – Who does this decision affect or hurt ?– Fairness – would my decision be considered fair by those affected?

Sustainability

The understanding and effect of sustainability within a business

Sustainability

• Accountants are expected to act in the public interest and the business world, sustainability is increasingly important in this regard

• There are 3 aspects to sustainability – Economic sustainability

• Fair distribution and efficient allocation of global resources • Developed countries consume more per capita than

developing countries • Economic growth must be balanced with the need of the

developing world

– Social sustainability • Involves the responsibility to work towards eradication of

inequality, poverty and social injustice

– Environmental sustainability • Needs organisations to consider the impact their activities have

on the environment • Take steps to minimise the impact and conserve energy

– Sustainable development• Core part of an organisations corporate social responsibility • Create policies to reduce waste, use less energy, recycle,

encourage flexible working, cycle to work, reducing business travel through use of technology

• Sourcing materials from green suppliers

Duties and responsibilities

• As a finance professional you have a duty to consider the economic, social and environment aspects of their work in order to support sustainability

• All three aspects are linked like a triangle (diagram on pg 191)

• Economic aspects – – supporting their organisation/client to be profitable– supporting local businesses when deciding on suppliers – Paying them on time – Looking at ways to improve the efficiency of the organisations

finance operations

• Social aspects – Supporting policies on corporate governance – Consulting local community when making

decisions (investing in or relocation operations) • Environment aspects – Focuses on using less energy– Creating less pollution – Think long term

6 main responsibilities

• Creating and promoting a sustainable culture • Championing the aims of sustainability • Evaluating and quantifying reputational and

other ethical risks • Taking social, environmental and ethical

factors into account when making decisions • Promoting sustainable practices • Raising awareness of social resposibility

Impact and benefit of sustainability • Environmental perspectives

– Actions in respect of • Environmental care • Recycling • Energy and resources consumption • Travel efficiencies

• Organisational perspectives – In respect of

• Its shareholders • The acquisition and retention of customers • The acquisition and retention of suppliers • Delivery of high quality goods and services • Development of employees

• There can be costs as well as benefits in pursuing a sustainable solution