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1 INTRODUCTION
Having been introduced in the previous section to professional ethics and the fundamental
principles of ethical behaviour, you will now be familiar with the principles of professional
competence and due care. The professional accountant should endeavour to carry out their
professional duties effectively, to meet deadlines, and to meet minimum expectations.
The professional accountant in the corporate sector will be required to meet the expectations set
by their employer. These expectations will undoubtedly be higher than will be achieved by
simply complying with the fundamental principles.
Therefore, it can be seen that the professional accountant is usually expected to have regard to
levels of behaviour and performance that extend beyond basic professional competence and due
care. This may be described as best practice. The professional accountant must comply with the
fundamental principles of ethical behaviour, but should also aspire to best practice.
An employee (either in practice or in business) should understand and comply with the
procedures established by their employer. In addition, they have a personal responsibility with
regard to their effectiveness within the organisation. These responsibilities include managing
themselves and their own workload effectively, communicating and reporting appropriately and
in some cases handling potential areas of conflict. The remainder of this section considers these
various factors in order to maximise personal effectiveness.
Timeliness
Flexibility
Cooperativeness
5.2.1 TIMELINESS
Accounting and bookkeeping work is usually dependent on tight deadlines, particularly when
there are requirements to file accounts by set dates to comply with law (see Section 3.6).
In an organisation, bookkeeping must be kept up-to-date in order to provide meaningful data, and
management accounts need to be available in time to provide information for decision-making.
In order to consistently meet deadlines, a professional needs to have effective time management
skills.
This will involve:
Objectives of time management
The overarching objective of time management may be said to be the reduction (or elimination)
of wasted time, by reducing errors and inefficiencies. This will involve:
Reviewing your work, or asking someone else to review it, when no other checks are
available (in other words avoiding unnecessary duplication of effort)
Ensuring that all work is undertaken by the appropriate person, and delegated as
appropriate
Plan the use of your time over a given period (a day, week or month)
Ensure the necessary resources will be available to you over that period
Understand the links and dependencies between tasks (can some things be done at the
same time as each other, or is one dependent on the other?)
5.2.1 TIMELINESS
Planning over a given period
Planning the effective use of your time may involve the use of any of the following:
Calendars and diaries (to log meetings, other activities and deadlines)
Task lists (to identify tasks outstanding and the order in which they are to be completed)
Activity logs (to record what has been completed and how long it has taken learning
from experience)
Resources
The tasks you set yourself to complete on a given day or in a given week will usually require
resources. For example, these may take the form of:
Supporting staff
Access to IT facilities
It will often be advisable to discuss your planning with a manager, and those with whom you will
need to interact during the course of each assignment.
Understanding activity links and dependencies
This forms part of the detailed planning of an assignment, and specifically requires the
following:
Identifying those tasks that must be completed sequentially (and the preferred order in
which they should be performed)
Identifying those tasks in respect of which timing is unimportant, and scheduling them in
accordance with resources available
Drawing up a schedule (or project plan) for the completion of all the tasks
Identifying the critical path
5.2.1 TIMELINESS
Example:
The accounts team in a small wholesale company has to produce quarterly draft financial
accounts within one week of the period end. The period end is 30 June; the planning is
taking place in the middle of June; and the final accounts must be available for a Board
meeting on 8 July. The following tasks are to be carried out (listed in a random order):
Table A
Activity
Count and value closing inventories
Estimated time
6.0 hours(supervising
4 warehouse staff)
2.5 hours
0.7 hours
3.0 hours
1.5 hours
2.5 hours
3.5 hours
Reconcile the bank statement with the cash book and the
general ledger
2.0 hours
1.5 hours
2.5 hours
By preparing the above table the following steps have been completed, in other words:
1. Identifying which tasks that must be completed
2. Identifying how long each task is estimated to take
The next step is to identify which tasks must be done in sequential order, and which
may be performed alongside each other.
5.2.1 TIMELINESS
In order to be able to prepare draft accounts, all the accounting entries must have been processed,
need to have been completed before extracting the trial balance and producing the first draft:
Table B
Activity
Duration
0.7 hours
3.5 hours
Reconcile the bank statement with cash book and the general
ledger
2.0 hours
2.5 hours
These tasks may be performed in any order or at the same time although it would be
advisable to carry out the bank reconciliation first, to gain confidence in postings made to
the nominal ledger. The trial balance may then be extracted, and the draft financial accounts
prepared.
Before the final accounts can be produced, the draft accounts need to be reviewed with the
responsible officer such as the finance director, and final adjustments agreed. The sequence
of events at this stage is critical, and so the table below sets out the final sequence of
activities in order:
Table C
Activity
Duration
1.5 hours
1.5 hours
2.5 hours
3.0 hours
2.5 hours
Note, however, that before any of the tasks in Tables A and B are addressed, the counting
and valuing of inventories must take place. Clearly, this must occur on 30 June, and this
task itself will require careful planning.
The previous lists of tasks can be shown as a network diagram. In the diagram that follows,
the critical path is identified by the shaded boxes. This indicates the minimum amount of
time in which the whole series of tasks may be completed. Each box represens an activity,
and D represents the duration of the activity.
Network diagram for the preparation of final accounts
Emails
Reports
Memos
Spreadsheets
Databases
%
The competent accountant will understand which of the above media to use in different
situations and for different purposes.
addressee(s)
writer(s)
subject matter
An executive summary
interaction is required and where a face-to-face meeting is not possible for any reason.
Other
occasions
when
telephone
conversations
are
preferable
to
written
or might occur
When politically sensitive or subtle messages need to be conveyed with tact
Whenever it is desirable to establish a dialogue (or an informal atmosphere)
Spreadsheets Spreadsheets are versatile and powerful software tools. They can allow
easy and accurate storage and processing of detailed numerical information, including a
wide range of formulae, financial functions and chart functions which are most useful to
financial and cost accountants. The applications for which spreadsheets are useful for
accountants include the following examples:
Budgets and cash flow forecasts; using =SUM and cell references, in other words =A1
$1,000
A file is a collection of records (in other words - customer names). Records contain
single pieces of data known as fields.
Such a file structure is shown below.
File: Customers owing >= $1,000
Record: Customer name
Field A: Address
Field B: Telephone number
Field C: Amount owing
In this database the accountant can retrieve from the relevant customer file, a particular
customer record and update fields A, B or C at any time, or these fields can be updated
automatically from another linked programme this is known as an integrated
database.
Rules can be set within the database to move records from one file to another. For
example, if the customer balance field C were to fall below $1,000, the record could be
5.2.3 FLEXIBILITY
A professional accountant should be able to work flexibly. This is important because
many tasks are interdependent, or demanding deadlines have to be met, and may arise
at short notice.
Accountants must be flexible either to meet their employers needs, or to satisfy clients.
They must be responsive to the demands of others, and could be required to carry out a
wide range of tasks. Time management skills and clear communication are essential.
This is in order to fully convey and understand the objectives and scope of each task,
and to satisfy the client/employer. When accepting a task or project, you must be able to
deliver the results on time (managing the other demands on your time also), and
remember to make it clear if you need more time or additional resources.
Plan each task or assignment undertaken. As a task progresses, you should be
prepared to flex the plan according to new information that is discovered. There will be
occasions when, due to circumstances beyond the accountants control, a deadline
cannot reasonably be met. This will not only mean a change to the assignment plan, but
also the change will need to be communicated (and the reasons for it) to the client (or
your line manager). There will also be occasions when the accountant will be required
to work additional hours to ensure that deadlines are met or meetings take place when
convenient for the majority.
Flexibility also means being able to work with a variety of people, in different situations,
and accepting that things cannot always be easy. Flexibility is not simply having the ability
to perform many different tasks, but also having the attitude that enables you to adapt to
different situations.
5.2.4 CO-OPERATIVENESS
5.2.4 CO-OPERATIVENESS
Accountants like other professionals should always be aware of their reporting
responsibilities within an organisation. This means knowing the following:
Who you immediately report to (your line manager) and your reporting
responsibilities
Who reports to you (if applicable) and their reporting responsibilities
arise
Who to refer situations of conflict or disagreement to, in the event of a conflict
arising and remaining unresolved through the usual channels
5.2.4 CO-OPERATIVENESS
Economic conflict involves competing for scarce resources such as can happen when
budgets are being negotiated and set.
Value conflict involves disagreements caused by differing personal values,
perceptions, attitudes and beliefs. This will be covered in more detail in Section 6.
Power conflict occurs when each party wishes to increase or maximize the amount of
influence that they can exert in a relationship. In business conflicts this can arise
between people of different levels within a management structure or between those of
equivalent official status, but usually occurs because one party wishes to impose their
will over colleagues, to gain or increase control.
Most conflicts involve a mixture of sources. For example, budgetary negotiations
typically involve economic competition, but may also take the form of a power struggle
between managers or subordinates.
Ineffective communication can create unnecessary conflict. Lack of skills in communicating
in a clear, respectful and sensitive fashion often results in confusion, hurt and anger, all of
which can create or escalate conflict. Sometimes conflict or resentment can arise due to a
lack of, or perceived lack of, communication. In addition, parties may have different
perceptions about the facts of a situation. It is only when they properly share information
and clarify their perceptions that the conflict can begin to be resolved.
5.2.4 CO-OPERATIVENESS
Types of conflict
Interpersonal
Role
Intergroup
Interpersonal conflict occurs when two individuals have incompatible needs, goals, or
approaches in their relationship. Communication breakdown is often an important
source of interpersonal conflict and learning effective communication skills is invaluable
in preventing and resolving such difficulties. Personality or value based conflicts are
caused by differences in approach or style in working with people that are not
resolvable. For example, if both parties in a relationship have a high need for power and
both want to be dominant in the relationship, a power struggle can occur.
Role conflict involves differences or amibiguities in role definitions, expectations or
responsibilities between individuals who are interdependent in an organisation. If there
is lack of clarity in job roles in an organisation or unclear boundaries of responsibilities,
then conflict can occur, which can bring about negativity or unwillingness to co-operate.
This type of conflict can often be confused with interpersonal conflict, and resolution is
therefore more complicated. This type of conflict is avoided if specific roles and
responsibilities are very clearly laid out and understood by all.
Intergroup conflict occurs between departments or teams in the same organisation and
between management groups. This type of conflict is often the result of departments
becoming isolated from each other or competing with each other. Competition for scarce
resources or comparisons between working conditions and perceived inequalities are
often common sources of intergroup conflict. The costs of intergroup conflict can be high in
both economic and social terms for individuals, and destructive for the organisation as a
whole.
Methods of Conflict Resolution
Regardless of the source of conflict, it can result in alternative outcomes depending on
the approach taken. If conflict can be managed creatively, solutions can be found that
are mutually satisfactory to both parties. Sometimes this will involve a re-distribution of
6.1 INTRODUCTION
When facing a difficult dilemma at work is it enough for a professional accountant to
obey the law and adhere to fundamental principles of professional ethics?
Having a good knowledge of the law and applying fundamental principles of professional
ethics may not in every instance provide sufficient guidance on what exactly to do.
Personal values and personal integrity play a part in the process.
applicable or clear. It may be necessary to rely on a set of general principles for guidance in
addition to the rules which are prescribed.
There are laws and professional codes of conduct that must be complied with, but a
professionals behaviour and actions should also be determined by the broader consequences and
what is morally right, derived from accepted principles.
Failures in accounting and financial reporting in the cases of Enron, Worldcom, Parmalat and
the global banking crisis were not necessarily due to accountants breaking rules and regulations,
but to a lack of consideration of the broader consequences.
Practices such as creative accounting are based on a belief that as long as the letter of the law
and accounting regulations are complied with, then all is well. This demonstrates a
fundamentally immature attitude to ethics and business. This attitude perceives rules as barriers
or obstacles to be overcome and fails to recognise that wider principles are usually involved.
This is not a view which is morally or ethically acceptable.
could be used to achieve this end or may look further for supporting evidence to justify
that NRV is higher than it really is. From a legal and professional perspective some
people may be of the view that taking this approach would be acceptable.
A principles based accountant is more likely to adopt a different perspective. They would
demonstrate integrity, objectivity and professional competence in assessing the economic
substance of the situation rather than merely the legal form. They would apply the
accounting concept of prudence which would guide them not to explore ways to overstate
NRV or understate costs and they would write off the loss, unless it was economically
justified to do otherwise. Such an accountant would therefore adopt a principle to guide
them to the right decision rather than use or hide behind any complexity or exploit
loopholes within particular rules to justify a decision that in principle might otherwise be
wrong.
If I take this course of action what will happen? In other words what implications will my
decision have on people who are affected by my decisions such as clients, customers and
investors?
What will others think if I take this course of action others including friends, family,
my manager, my professional association or the media, etc?
The mirror test reinforces the idea that you are responsible for your own behaviour and you must
therefore consider both the consequences of your actions and their moral acceptability before
you act.
6.4
DECISION-MAKING AT WORK
Any of the above approaches can help us determine which standards of behaviour can
be considered ethical.
Firstly, we may not agree on the interpretation of these approaches in every situation.
For example, we may not agree which option benefits the most or harms the fewest, or
which method is the most generally accepted as being right and best upholds our duty
to others.
Secondly the two main approaches (consequentialism and duty to others) may not both
answer the question 'What is ethical?' in the same way. Nonetheless, each approach
gives a framework with which to determine what is ethical in a particular circumstance
and more often than not, rather than conflicting, the two different approaches often lead
to similar answers and decisions.
Example: A production manager is responsible for a production budget and can
potentially earn an additional bonus for minimising production costs and coming in
below budget. Recently he was told informally by a supplier at a social event that the
price for the most heavily used material at the factory will definitely be reduced by 10%
during the next year, as the result of a recent official regulatory decision, to be
announced shortly in the media.
The production manager has been asked to prepare next years budget urgently for the
Production Director, so that the overall budgetary targets for the company may be
finalised.
As he has not heard officially about the price reduction at the time of submitting the
budget, the production manager includes the current years material cost price as the
budgeted cost and bases his total costs on this, knowing that this will build some slack
into his budget when the price reduction eventually comes through.
Discuss the reasons for and against, from one of the two main ethical perspectives
above?
Perspective:ConsequentialismDuty to Others
Reasons:
Introduction
First of all, from a legal or even professional conduct perspective it could be argued that
the production manager is within his rights to submit the budget incorporating the
current prices rather than the expected lower prices. He has not been told in any official
capacity that these prices will be reduced. The decision has not yet been formally
announced and in theory there is an argument for not revising the budget until more is
known or until anything is finally confirmed. This might be described as a rules based
approach.
But what if this decision were analysed from either of the two main personal ethics
perspectives discussed above?
1.
Consequentialism:
namely the production manager, who is more likely to receive a profit-related bonus by
coming in under budget when the prices are reduced. However, the budget for
production costs will be less accurate than it would be if it were to include the
anticipated, lower material costs. If the original figures are submitted, other stakeholders
including more senior managers and directors, will have inaccurate information on
which to base resource allocation and pricing decisions. Shareholders would also prefer
the budgets to be more accurate, so that the company can be run more effectively.
Inaccurate information in the budget about material costs may also lead to higher costs
to customers, who will presumably have to pay higher prices for longer, than might have
been the case if the correct, lower, materials costs had been included in the original
budget.
2.
Duty to others:
Someone thinking of their duty to others, including their profession, would consider how
the manager should act, without focusing on the effects. If the manager has been issued
with rules to follow when preparing the budget, then these should be followed. In the
absence of such rules, it could be argued that most people would consider that the
manager has a duty to those relying on information in the budget, and therefore, the
budget should be as accurate as possible. Therefore, the right thing to do would be to
include the most likely (lower) cost of materials in the budget, adding a note to explain any
doubts the manager has about this. Knowingly concealing relevant information about
future material prices when preparing a production cost budget would be perceived by
others, including the accounting profession, as being morally wrong.
The following framework for ethical decisions is a useful method for exploring ethical dilemmas
and identifying ethical courses of action.
This framework will now be used to analyse a case study introduced in Section 7. The case study
will require you to put yourself in the role of an accountant working in a small organisation who
faces some difficult choices and has to decide what to do next. The accountant will have to take into
account legal, professional and personal factors when coming to their decisions and will have to
reflect on their actions once they have finished.