WEEK 1 – CRG650

Dr Yvonne Joseph Ason

Faculty of Accountancy
UiTM Sabah
Chapter 1 - Ethics and its significance in
the business discipline
 Ethics, Its Importance and Its
Application to Business and
Governance

Organizational and Global Ethical

Culture

Coverage The Framework for Studying

Business and Professional Ethics for
Accountants

Moral Reasoning and Ethical

Decision-Making Process
 The Encyclopedia of Philosophy defines ethics as

What is • A general pattern or ‘way of life’

• A set of rules of conduct or ‘moral code’

Ethics? • Beliefs about the nature of man, what is ideals, what ought
to be done, and motives that incline us to choose the right
or the wrong course.
• Inquiry about ways of life and rules of conduct
Ethics: Its Importance and Its Application to
Business
• Why individuals should be ethical?
• Religion
• Our relationships with other people
• Perception about ourselves
• Business ethics?
• Being economically viable – provides goods and services required by the
society in effective and efficient manner.
• Obeying the law
• Hypernorms (basic values) underlying stakeholder interests – honesty,
compassion, predictability, fairness, integrity, responsibility
• Corporate reputation – credibility, reliability, trustworthiness and
responsibility
Ethics and governance
• Issue?  prior to 1970, corporate world being speculative, secretive
and rife with conflicts of interest due to stock market crashed.
• 1970 – 1990: the rise of activism raised awareness of the power of
activists who became known as corporate stakeholders.
• Gives rise to Stakeholder Theory: understanding the stakeholder support to
enhance firm reputation in achieving corporate strategic objectives.
• This has proven to be instrumental in framing how directors, shareholders,
and managers now think about the role of corporations and how they earn
their profits.
• Example: Environmentalists – demand for the company to stop harm the
environment for the sack of profit
Factors affecting public expectations for
business behaviour
• Unbridled greed - CEO overcompensation
• Physical – quality of air and water, safety
• Moral – desire for fairness and equity
• Bad judgements – cover-up of failed environmental engineering
• Activist stakeholders – ethical investor, environmentalists, consumer
• Environmental reality – the need for sustainability
• Economic – pressure to survive
• Competition – global pressure
• Financial malfeasance – financial scandals
• Governance failures
• Accountability – transparency, CSR
• Synergy – publicity, successful changes
• Institutional reinforcement – new regulations, whistleblowing
Organizational and Global Ethical Culture
5 essential elements in developing organizational and global ethical
culture:
1. Clear communication – management and employees
2. Personal commitment by senior management
3. Integration – ethical values, norms & standards become routines of
the firm
4. Ethics must be reinforced – ethical behaviour becomes the norm
5. Education – continuous learning programs for employees to make
ethical decisions
 The Framework for Studying
Business and Professional Ethics
for Accountants
Historic shortfalls in meeting professional
expectations
• Corporate scandals have triggered the introduction of new laws and
regulation as well as the need for new governance regulations both
for corporations and professional accountants around the world.
• The future success of both the business and professional accountants
depends on meeting new governance rules, more transparent
reporting standards and ethical expectations of stakeholders.
A guide to a clear understanding of a role as
professional accountants about ethical trade-offs
• Who really is my client?
• In the event I have to make a decision with ethical ramifications, do I owe
primary loyalty to my employer, my client, my boss, my profession, the
public or myself?
• Am I, as a professional accountant, bound by professional standards even
when acting as a employee?
• Is professional accounting a profession or a business? Can it be both?
• When should I not offer a service?
• Can I serve two clients with competing interests at the same time?
• Is there any occasion when breaking the profession’s guideline against
revealing confidences is warranted?
The fiduciary role and the ethics environment
for professional accountants
• The primary fiduciary responsibility of professional accountants
should be to the public or to the public interest.
• Classic case of Arthur Andersen firm: failure to understand the
primary fiduciary responsibility and the underpinning values of
independence, integrity and objective judgement had caused the firm
to collapse.
Fundamental principles in codes of conduct
for professional accountants
Member should
• Act in the public interest
• At all times maintain the good reputation of the profession and its ability to
serve the public interest
• Perform with
• Integrity
• Objectivity and independence
• Professional competence, due care, and professional skepticism
• Confidentiality
• Not be associated with any misleading information or misrepresentation
• Continually assess the risk of failing to observe these principles
Moral Reasoning and Ethical Decision-Making
Process
• Ethical Dilemma
• Ethical Issues
• Key players
• Stakeholders
• Whistle blower
• Moral Reasoning
• Consequences of decisions made
• Ethical decision-making process
Trailer of some financial crisis movies
• https://youtu.be/IjZ-ke1kJrA
• https://youtu.be/-w6duQhWuVk
• https://youtu.be/HcMFA2SHES4