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Some feedback

How did that feel?

Did some of the arguments make more of an impression on you than
Were all different, and people can behave well for a number of different reasons. For
many people, it makes a big difference whether they behave well because they feel in
the mood to do so, or expect to get a reward, or are compelled to do so by outer forces,
or because they want to comply with their moral conscience.
The questionnaire that you have just completed was developed especially for this
Professional Ethics module by Professor Lind and his team from the University of
Konstanz in Germany. Professor Lind is known for developing a standard test called the
Moral Judgment Test (MJT) which is a rigorous and scientifically validated psychological
test that has been taken by thousands of people around the world.

Some theory about moral reasoning

The MJT is based on the works of the psychologists Jean Piaget and Lawrence Kohlberg. In the
1930s, Piaget studied moral development by observing children playing games. He argued that
morality is not only about good moral intentions but involves the development of fundamental
cognitive capacities, or schemata of action, by individuals as they grow.
Inspired by the work of Piaget, Lawrence Kohlberg elaborated the notion of moral judgment
competence beginning in the 1950s. Kohlberg argued that moral reasoning developed through
stages of different moral orientations. You will read about these stages in the next unit.
Building on Piagets work and the earlier theoretical developments proposed by Kohlberg,
Professor Lind developed a Dual Aspect Theory of moral reasoning which you will also learn
about in the next section.

Academic References
Kohlberg, L. (1981). Essays in moral development: The philosophy of moral development (Vol.
1). San Francisco: Harper & Row.

Kohlberg, L., & Candee, D. (1984). On the relationship of moral judgment to moral action. In W.
M. Kurtines & J. L. Gewirtz (Eds.), Morality, moral behavior, and moral development (pp. 5273).
New York: Wiley.
Lind, G., in press. The meaning and measurement of moral judgment competence revisited - A
dual-aspect model. In: D. Fasko & W. Willis, Eds., Contemporary Philosophical and
Psychological Perspectives on Moral Development and Education. Cresskill. NJ: Hampton
Piaget, J. (1965). The moral judgment of the child. New York: The Free Press. (Original work
published 1932)

What is ethics?
Ethics is a branch of philosophy that studies the difference between right and wrong. As
professional accountants, you will have many opportunities to choose between right and
wrong. As you have seen in the business press, making the wrong choice can lead to
serious consequences including corporate failure, loss of reputation, fines, and even jail
The objective of this unit is to introduce you to different branches of ethics, in order to
help you understand that people approach the topic with different points of view. You will
learn about different ways of thinking through an ethical question. This will help you
identify the way that you make decisions so that you can recognise your own personal
ethics, in any professional ethical problem that you may be faced with. In this way, you
can mitigate any detrimental impact of your own personal ethics, with a view to a more
objective approach.
Ethics has been applied to different fields , for example biology, , resulting in new fields
of study like bioethics and environmental ethics.to social sciences, resulting in new
fields of study such as feminism, war, pacifism, criminology,criminal justice, and to
business and the field of business ethics. What you will be studying in this module
generally falls into the area of professional ethics.

Perspectives on ethics

In very broad terms, there are three ways of looking at ethics that have developed over

rules conformance
good intentions

One way of thinking about ethics is in terms of conformity to rules. From this
perspective, ethics is understood as a list of things to do and to not do. Sometimes the
list gets very long and complicated and needs to be interpreted by a whole institution of
people. The ethical person, from this perspective, is the one who conforms to the rules.

Good intentions
A second way of thinking about ethics is in terms of good intentions. From this
perspective, a behaviour is considered ethical if it is based on good intentions. Good
behaviour, then, follows from good thinking.

The third perspective thinks of ethics in terms of competence. From this perspective, the
ethical person is one who can make decisions based on principles and then act upon
them. Thus we talk of competency because ethics is thought of in terms of ability rather
than attitude.

Branches of ethics
Over centuries of philosophical debate, ethics has developed several schools of
thought. In other words, philosophers and others have developed different ethical
theories, different ways of thinking about doing the right thing. These theories reflect
scholarly differences between professional philosophers, but they also reflect
differences in style of moral reasoning that can be observed in everyday moral
reflection. As a professional accountant working with people, it will be important for you
to become aware of your own ethical way of thinking and to understand that other
people may think about doing the right thing in a different way from you.
The accounting examples included here are only used to illustrate new concepts in
terms that you will already be familiar with. When making any decision as a professional

accountant, you must be sure that you are following the laws of your country, the
particular rules that govern you, and the ACCA fundamental principles.
Some of the better known ways of thinking about ethics follow:

Our duty to others

One way to think about ethics is to acknowledge that there are things that someone just
does not do as part of a duty to others. A limitation of this principle is that you have to
decide what those things are One philosopher, Immanuel Kant, defined those duties by
saying act according to principles that everyone could follow. To offer an example, if
you disobey traffic lights, you should consider what would happen if everyone did so. In
other words, we should recognise everyone as equals, and not assume that the rules
are any different for ourselves than they are for other people.
As an accounting example, a professional accountant would not deliberately issue false
or inaccurate financial statements. If everyone did so, no statements could be trusted
and as a consequence not only would the profession be brought into disrepute, but all
financial statements would have no value to their users. Ultimately the need for
accountants and for financial reports would be called into question.

Another way of thinking about ethics is through the consequences to different people.
Briefly, consequentialism encourages you to make decisions based on the
consequences both positive and negative for those involved. This category of
thinking is the branch of ethics known as utilitarianism. This states that an action is right
if it leads to the most good outcomes and the least bad outcomes, for the greatest
number of people.
One limitation of thinking about ethics in terms of consequences is that you have to
agree on what sorts of consequences matter: for example, should you be trying to
promote pleasure and avoid causing pain, or should you instead focus on promoting
peoples actual well-being, regardless of whether doing so makes them happy? A

modern application of this point of view is the cost-benefit analysis, which involves
assigning monetary values to the costs and benefits of an action and seeing how they
add up. This practice is often used in evaluating new projects.
As an accounting example, an accountant thinking in terms of consequences would
prepare true and fair financial statements because doing so would bring the most
benefit to the greatest number of people. In other words, stakeholders inside and
outside the organisation would be able to make more informed decisions as a result.

Virtue theory
In virtue theory, the emphasis is on deciding what sort of person one should try to be,
and to define the virtues such a person would embody i.e. you decide what makes a
good person, instead of what makes a good action, and act accordingly. One limitation
of this way of thinking is that what constitutes a virtue must be agreed upon, and it can
vary according to culture and over time. For example, the qualities of good financial
reports were once considered to be completeness, historical accuracy, reliability and
strict adherence to the legal form in disclosing business transactions. More recently, the
qualities of good financial reports have come to be relevance for decision-making,
reference to a wider conceptual framework, and presenting the economic substance of
business transactions.
As an accounting example of the use of virtue theory, in deciding whether to agree to a
clients request to use a questionable method for valuing inventory, an accountant would
ask, What would a conscientious accountant do in such a situation? What would one of
my respected mentors do?

Social contract theory

The social contract theory of ethics advises you to think about ethics as embodying a
set of rules agreed upon by reasonable people to bring order to social living. So when
making an ethical decision you ask yourself, 'What rule would reasonable, unbiased
people agree to?' You then follow such rules, regardless of whether they benefit you in
particular situations.

One criticism of this theory points out that the agreement referred to by social contract
theory is entirely imaginary. Why consider yourself bound by an agreement that never
An accounting example of social contract thinking might be seen in a situation where an
accountant has to decide between loyalty to a client and candid assessment of financial
statements. Both of those options involve important social values. Thinking in social
contract terms, the accountant might ask, 'What sort of rule for balancing these values
would unbiased people agree to?'

Confucian ethics
Confucian ethics seeks to provide harmonious relationships within society, the family,
and the individual. Looking within yourself and learning from experienced people are
seen as the main roads to wisdom and self-harmony. The emphasis on experience
leads to respect and reverence for the past, the aged, and for ones ancestors. One of
the criticisms of this model is that in a society where relationships are considered more
important than the laws themselves, corruption and nepotism may be tolerated.
As an accounting example, in deciding whether to agree to a clients request to use a
questionable method for valuing inventory, an accountant thinking in Confucian terms
might consider agreeing to it because doing so would cause harmony with the client.

Rules of thumb
In addition to scholarly branches of philosophy, some other ways of looking at right and
wrong have developed.

The golden rule

The classic golden rule is to 'do unto others as you would have them do unto you.' In
other words, 'I will not cheat that person because I do not want them to cheat me.'The
golden rule is a simple and useful tool, but it does have some limitations.. Also, the

whole rule is based on your own feelings of how you yourself would want to be treated.
But your own needs and preferences might not be typical. For example, the fact that you
personally do not value privacy does not mean that you dont owe others an obligation to
respect their privacy.
As an accounting example, this rule of thumb could be applied to mean that you
disclose all information that may be relevant in financial reports because, if you were the
reader of those financial statements, you would expect to receive all the information, and
disregard any that is not relevant to you.

Mirror test
Another rule of thumb is the mirror test. This is a quick way to evaluate a decision that
you are about to make, and reinforces the notion that you are responsible for your own
actions. Imagine youre looking in a mirror and ask yourself:
Is it legal?
If it is not legal, don't do it.
What will others think?
Others, meaning a friend, a parent, a spouse, a child, a manager, the media,
or someone else whose opinion is particularly important to you.
As an accounting example, in deciding whether to agree to a clients request to use a
questionable method for valuing inventory, an accountant thinking in terms of this rule of
thumb would consider how a story about this action would look on the front page of the
local newspaper.

Ethics and morality

In addition to scholarly branches of philosophy, some other ways of looking at right and
wrong have developed.
It is worth noting that the words ethics and morality tend to arise when ethical issues
are discussed. Morality, like ethics, is about the principles we use to judge the right and

wrong of our actions. The technical difference is that while morality consists of the
various principles that guide our decisions, ethics is the careful, methodical, and
scholarly study of which principles should guide our actions. For most purposes, the
words can be used interchangeably so we can speak of having either ethical
obligations or moral obligations.

Ethics and religion

For some people, religion plays an important role in their moral beliefs and moral
reasoning.If you belong to a faith-based community, you may have learned ethical
behaviour from the religious leader in your church, temple, mosque, synagogue, or other
place of worship. That experience provides you with another point of view to approach
decision-making at work. Even if you do not belong to a faith-based community, you
should be aware that some people do, and may bring their religious beliefs to a
business discussion of ethics.
It is important to remember that secular ethical perspectives such as those discussed in
this unit need not always conflict with religious beliefs. Most, if not all, religions contain
some direction about treating other people fairly, and that is also the premise of most
ethical models. It is also seen as good business practice.

Ethics and gender

Some researchers have questioned whether men and women approach ethics in a
different way. There is considerable debate over such an idea. See what you think by
taking this quiz.

Which is worse?
hurting someone's feelings by telling the truth
telling a lie and protecting their feelings

Which is the worse mistake?

to make exceptions too freely
to apply rules too rigidly

Which is it worse to be?


Which is worse?
stealing something valuable from someone for no good reason
breaking a promise to a friend for no good reason

Which is it better to be?

just and fair
sympathetic and feeling

Which is worse?
not helping someone in trouble
being unfair to someone by playing favourites

In making a decision you rely more on

hard facts
personal feelings and intuition

Your boss orders you to do something that will hurt someone. If you carry out
the order, have you actually done anything wrong?

Which is more important in determining whether an action is right or wrong?

whether anyone actually gets hurt
whether a rule, law, commandment, or moral principle is broken

You scored 6 for Justice

You scored 3 for Care
What this quiz actually does is help you identify whether you lean towards a justice and
rule-based approach or whether you lean towards a care-based approach.
The justice and rules-based approach says that the rules should be applied equally to
everyone and that justice and fairness are most important. Some researchers have
suggested that this is a more masculine approach to the world.
The care-based approach says that care, rather than justice, is most important and that
we should act responsibly to people in need. Some researchers have suggested that
this is a more feminine approach to the world.
You can see why this research is controversial, and why you may disagree with the
results. However it is interesting to consider whether gender could influence ethical
It may also help you when discussing issues with colleagues from other countries.
Generally, in North American and European groups, men have been found to have, on
average, higher justice scores and women have been found to have, on average,
higher care scores. The significance of these statistical findings is a topic of ongoing
debate among scholars.
It is important to know how you approach an ethical question, and to recognise that
other people may approach it a different way, irrespective of gender.

Ethics and maturity

There is a theory of moral development which says that people move through six stages. This
theory was popularised by Lawrence Kohlberg based on his research studies conducted at
Harvards Center for Moral Education. His theory of moral development was dependent on the
thinking of the Swiss psychologist Jean Piaget and the American philosopher John Dewey.

These men said that human beings develop philosophically and psychologically in a progressive
fashion as they grow up.
Stage one - people are concerned with obedience and punishment and the immediate results
to themselves. The question they ask themselves is, Will I be punished if I do this?
Stage two - people are still concerned about the consequences, but have moved on to
thinking about what else is in it for them. They think, You do a favour for me and Ill do a favour
for you.
Stage three - people begin thinking about their social relationships. They want to be a good
person so that they can seek approval from others.
Stage four - a functioning society is paramount, and people seek to obey laws and social
conventions. If one person violates a law, perhaps everyone would, so there is an obligation to
uphold the law.
Stage five - people think in terms of inalienable rights and liberties. Laws are seen as
embodying social contracts, and such contracts are open to criticism. People at this level are
interested not just in what societys rules are, but in what makes a good society.
This theory says that people rarely reach stage six. If they did, they would show respect for
universal principles and the demands of individual conscience, acting because it is right, not
because it was legal or expected of them.

Although this theory of moral development has been criticised for being overly
concerned with abstract principles such as justice, and not enough with care, it is still a
useful framework for investigating your personal ethics.

Ethics and the professions

Historically, most professions for example, medicine and law had codes of ethics and
members were required to swear an oath to uphold those codes, thereby professing to
a higher standard of responsibility.

In modern times, membership of a profession is usually restricted and regulated by one

or more professional associations, and rigorous training and additional schooling is
required. Professionals typically proclaim an obligation to society beyond their client
relationship, and point to a code of ethics that they follow.
Therefore as a professional accountant with a code of ethics, you will form part of a long
tradition of people who profess to a higher standard of accountability. You will also
enjoy a position of trust and responsibility. This is perhaps most obvious in the role
accountants play in auditing publicly traded companies. Although the client company
pays the bills, your highest obligation is to the public good, and in particular to the
investing public that will be relying on the accuracy and integrity of your work.

Morality is a set of rules concerning right and wrong behaviour. Ethics is the branch of
philosophy that attempts to provide clear arguments about which moral rules are best,
and how those rules ought to be interpreted.
There are several different ethical theories or frameworks for ethical decision-making,
each of which has been advocated by prominent moral philosophers. Some
philosophers, for example, advocate thinking about ethics entirely in terms of
consequences: what action will produce the best outcomes overall? Others have argued
in favour of thinking solely in terms of duties, and absolute principles of behaviour
such as Always tell the truth that could be adhered to by all. Others have advocated
thinking about ethics in terms of hypothetical contracts, asking us to imagine what rules
of behaviour reasonable, unbiased people would agree society should live by. And
finally, some have argued that we ought not to think about ethics in terms of rules, but
rather to think about what kinds of virtues good people embody, and what kinds of
people we think it best to emulate.
Many different factors affect ethical reasoning, including age, sex, religion, and
professional affiliations.
It is preferable that your ethical decisions be based on good reasoning and careful
consideration of the relevant laws and principles, but it is also necessary to be aware of

the various personal factors affecting your own decision-making, and those of other

Rules vs Principles
The objective of this unit is to introduce you to the two major approaches to solving
ethical dilemmas, they are:

ACCA follows a principles-based approach, and that is the approach we recommend
that you take as a professional accountant.

An Example
The following simple example is used only to illustrate the use of a rule and the use of a

Rules based approach

If you were following a rules-based approach and you were asked to act for two clients who are
in competition with each other, you would check the rulebook to see if what you were planning to
do was prohibited. If there was no specific rule against it, you could go ahead and act for both of

Principles based approach

On the other hand, if you were following a principles-based approach and you were asked to act
for two clients who are in competition with each other, you would first think of the governing
principles. You would determine if any of them would be threatened if you did what you were
asked to do. If no principle would be threatened, you could go ahead and act for both of them.

Alternatively, if threats were identified, you would have to assess the significance of those
threats, and then consider whether any measures could be put in place to address them.

Some differences between the two

One of the differences between the two approaches is that in a rules-based approach, you look
for a rule that prohibits you from doing whatever it is you are considering. In a principles-based
approach, you have to think more widely and consider whether or not a principle is being
violated or even threatened.
In many ways the principles-based approach is more reliable . If an action is planned, its
appropriateness is assessed. If it goes against the principles of professional behaviour and
values, then the action should be avoided, even if no rules exist concerning this specific action.
Another difference is the onus of responsibility. In a rules-based approach, someone in authority
has to create a list of prohibited activities for you to obey. In a principles-based approach, the
responsibility is on you, as a professional, to decide if, in each specific case, a principle is being
It is difficult to have a written rule that covers every possible situation. Furthermore, in a rulesbased approach, people sometimes start looking for loopholes. They look for situations that are
not prohibited and use them to their advantage. This is what happens in taxation where tax rules
are established and some accountants look for loopholes in order to avoid tax.
A principles-based framework is a more flexible approach, and can cover new situations that
might not have been thought of. It can sometimes seem more difficult, however, because you
need to carefully think through every situation.

As a professional accountant, you will be called upon to make many decisions.Remember that
ACCA follows a principles-based approach. It is important to put principles into context. You
must always obey the laws of your country. Then you must consider the more detailed rules laid
down by your governing body (ACCA) regarding a specific situation, such as promoting your
practice, charging fees, accepting new clients, or handling clients monies. Finally, if a particular

ethical dilemma is not covered by ACCAs rules, you must consider the fundamental principles,
and whether they might be breached or threatened by the proposed course of action.

About ACCAs fundamental principles

The objective of this unit is to introduce you to ACCAs five fundamental principles:
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 ACCAs five fundamental principles.
Part A of the ACCA Rulebook contains the full text of these principles. These
principles are those of theInternational Ethics Standards Board for
Accountants (IESBA), which apply to accountants around the world.
ACCAs five fundamental principles:

Professional competence and due care
Professional behaviour

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.

What the rulebook says

You should not allow bias, conflict 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 the level required to
ensure that a client or employer receives competent professional services based on current
developments in practice, legislation and techniques;
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.

What the rulebook says
You should respect the confidentiality of information acquired as a result of professional and
business relationships and, therefore, not disclose any such information to third parties without
proper and specific authority, unless there is a legal or professional right or duty to disclose;

confidential information acquired as a result of professional and business relationships should

not be used for the personal advantage of the professional accountant 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 avoid any action that discredits the
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.

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.

The framework
The objective of this unit is to introduce you to the framework for using ACCAs
fundamental principles for solving ethical dilemmas.

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. Therefore the
Code 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 Ethics Standards
Board for Accountants (IESBA). 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

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:

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 companys decision to fix the
drug price, nor brokered the agreement with its main competitors. Another view is 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 pricefixing 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

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 your finance director. You should try and establish the reason for the pricefixing 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:

Professional competence and due care
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 three: Is the threat significant?

Determining the significance of a threat depends on the individual situation. Only you or a
reasonable and informed third party can decide whether the threat is significant. You must
always consider what others would make of the position and your actions. The reasonable and
informed 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


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
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
Lets work through an 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 managers request and use an incorrect budget code, whilst
striving to protect the budget holders 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 managers request?

Professional ethics and your personal values

You have now examined your own personal values and learned about ACCAs 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.

ACCA has a framework for ethical decision making. It consists of four steps:

determine the real issue

determine if any of the fundamental principles are threatened
determine if the threats are significant
you see if you can put safeguards in place.
You should think of the 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.


Your choice
You agree to make the adjustments and to try to justify them without proper evidence.

The key problem with this choice is that it violates ACCAs fundamental principles. By making
these unsubstantiated adjustments, you would not be living up to the standard of integrity,
objectivity, and professional competence expected of a professional accountant. You have
violated your professional ethics.

Reasons behind your decision

Your decision to make the adjustments may be rooted in a simple desire to avoid conflict and
protect your own interests. Such desires are quite natural, but a conscientious professional
needs to guard against letting such desires override his or her judgement. In the present case
your own interests conflict with the ethical obligation to uphold the technical and ethical
standards of the accounting profession. You should recognize that making these adjustments
without proper evidence is not good accounting practice, and likely falls below the standard of
honesty expected of you.
Your choice to make the adjustments might have been rooted in ethical principles. In particular,
you may have chosen to make the adjustments because of a well-intentioned desire to reduce

conflict and to show your loyalty to the company. Loyalty is indeed a virtue, as is being a team
But its important to remember the limits of those virtues. Being loyal is important, but managers
like Margaret should know that accountants are professionals, with special obligations that go
beyond loyalty to the company. Thus, loyalty to the company must be balanced against loyalty to
the profession and the need to uphold ACCAs fundamental principles.
Also, it is important for you in this situation to consider what the consequences of making these
adjustments would have in the long run. Making the adjustments may not seem like a big deal in
the present case, but going along with the request now may open the door for being pressured
to engage in further violations of ACCA principles in the future.

The bigger picture

Of course, in real life Iain would have more choices available to him than to simply make the
adjustments or refuse to make them. It may have been useful for him to explain to his manager
in greater detail why making the adjustments would be problematic, and the implications that
doing so could have for him in terms of professional censure.
He might also have considered speaking to a more senior accountant either within the company
or, with due caution and attention to confidentiality, outside the company. The kind of pressure
Iain is facing is not uncommon, and the advice of a more experienced accountant might help
him find a creative alternative.
It is also worth considering whether past behaviour on Iain's part led Margaret to think he would
be willing to go along with her plan in the present situation.


Your choice
You refuse to make the adjustments and argue a case for valuing the various assets on the
basis of your professional judgement. You uphold your professional ethics.

You are upholding the fundamental principles of integrity and objectivity. You are not allowing
your judgement to be clouded by peer pressure, by your own personal interests, or by the short
term interests of your company.

Reasons behind your decision

Hopefully, you decided to do this because you know it is the right thing to do as a professional.
Or perhaps there has been pressure from your manager on other occasions to make decisions
that make you uncomfortable. This time you have decided that you will not go along with her
In this case, your choice to make the adjustments could have been rooted in ethical principles.
For example, you may have made your decision thinking of your duty to others. If everyone
adjusted and re-adjusted financial statements without regard to valid evidence, then the whole
idea of financial statements would be invalidated.
However it is interesting to note that if you relied on other ethical viewpoints, you might not have
made this decision. For instance, some would argue that it fails from the utilitarian perspective,
because your decision might seem not to have produced the most pleasure for the greatest
number of people. In fact, it seems likely to make most stakeholders unhappy.

The bigger picture

Your decision does not make people happy, and it would have personal, professional, and
career consequences for Iain. His career prospects at Bexalls may be damaged, he may have a
difficult performance appraisal from his manager, and he may even need to look for a job
elsewhere. The only parties happy with his decision, aside from himself, would be the bank who
would otherwise be misled, and the potential shareholders.
Outside of the black-and-white choice presented in this learning exercise, Iain might have been
able to consider even more options and might have dealt with the situation differently.
For instance, he could have decided to be even more courageous and persuasive with his boss
and articulated more forcefully the dangers to her and to the directors of trying to mislead the
auditors. He could have argued that as a professional, he has an overriding obligation to act in
accordance with accounting standards and the fundamental professional principles and
therefore could not possibly agree to these adjustments.
He could also speak confidentially to his professional associations advisory help line for advice.
The help line would confirm that he should not go against fundamental accounting principles
and would remind him of his professional obligations.


Your choice
Although you are not completely satisfied with the compromise, you decide to sign the

You have not upheld your professional ethics. You have violated the fundamental principles of
integrity and objectivity. You acted objectively throughout the audit process until the point when
you agreed to the compromise.

Reasons behind your decision

You may have made this decision in an attempt to keep people happy. And this is a decision that
keeps most parties happy, except yourself. The client, the audit firm, and most of the
stakeholders will be satisfied, at least in the short term. Even you may benefit personally and
professionally. Your reputation as being tough but not troublesome may have impressed your
superiors. Your position in the firm is likely to remain secure, and may even be enhanced.
Your choice to make the adjustments might have been rooted in ethical principles. Perhaps you
were thinking that that this decision produces the greatest good for the greatest number of
people. Jobs and employment prospects are being protected, at least in the short term.
It is interesting to note that if you had chosen other ethical viewpoints, you might not have made
this decision. For example, your decision fails the duty to others test. Suppose everyone
adjusted and re-adjusted financial statements without regard to valid evidence? Likewise,
following the rules of the accounting profession is something society can reasonably expect of
you as part of a mutually-beneficial social contract. And the decision is flawed if you consider
virtue theory, since you are not acting as a virtuous accountant.
But such a focus on short-term consequences is problematic. The actual consequences, even
for those directly involved, are hard to predict. And the long-term consequences of inaccurate
accounting are likely to be negative. The safer route is to insist upon following proper accounting

The bigger picture

In the real world, Gail might have had more options available to her and she might have been
able to take different approaches. First and foremost, she could have argued her case in the
name of her profession, rather than simply as an employee of the audit firm. She could have
demonstrated more courage in defending her and her teams position in refusing to accept these
adjustments as they stood without the proper evidence. She could therefore argue from an
ethical and principled perspective that the firm have no choice but to qualify the accounts.

She could also have spoken to other partners in her audit firm and got their advice and widened
and opened up the debate to others, which can often reduce pressures to act inappropriately. If
for any reason she was unsure about her position, she could have spoken confidentially to her
professional associations help line and got their advice.
She can be satisfied that at least her professional competence is intact since she identified and
understood technical issues regarding the financial accounts and communicated her views
effectively to her managers and the client. She complied with most relevant laws and regulations
because the eventual reversal of the depreciation adjustment on the property lease and derecognition of the customer list means that the accounts no longer violate these specific
accounting standards. However, there remains a question mark about truth and fairness
regarding the provision accounts and how they are measured and valued, which brings into
doubt her integrity given that she agreed to the compromise.
A further problem regarding the decision remains unresolved. This is the potential conflict of
interest that she is aware of regarding the possible consultancy contract between her employer
and Bexall. Although not directly related to the audit, it could bring into disrepute her
professional judgement and competence in that she has not considered adequately how this
conflict could be handled and overcome, and how knowledge of the existence of this conflict of
interest could affect perceptions that stakeholders might have of the reliability of the audit report,
or the integrity of her audit firm. She should have argued with the audit partner that fundamental
audit principles would prohibit the audit firm from entering into a consultancy contract because
entering into such a contract would compromise the audit firms independence. The gaining or
losing of this contract should not be a consideration in the matter.


Your choice
You refuse to sign the paperwork. This means that you do not agree to the compromise that was
reached between Preston Mondal and Eric Manning.

You have upheld the fundamental principles of integrity, objectivity, and professional
competence and due care. You acted objectively all the way through the audit process, up to
and including your refusal to agree to the compromise. You acted with integrity in accordance
with your professional values and did not let your judgement be clouded by peer pressure or by
your own personal interests. In addition, your professional competence is seen to be intact. You

identified and understood technical issues regarding the financial accounts and communicated
your views effectively to your managers and to the client.

Reasons behind your decision

Presumably you have chosen this course of action because you knew it was the professional
thing to do. Or perhaps you decided to take a stand against a course of action that you knew
could have unpleasant consequences for you as you continued your career in other
organisations. Whatever the reason, you showed courage in standing up to your manager.
If your choice was rooted in ethical principles, you may have reached this decision by thinking of
the social contract viewpoint - following the accounting rules means holding up your end of the
bargain, meeting societys reasonable expectations of accounting professionals.

The bigger picture

In the real world, this would have been a difficult decision, and could have led to an unpleasant
scene. Gails job may have been jeopardised, or she may have been made to feel very
uncomfortable in her role. She may even have been asked to look for work elsewhere.
However, in the real world, Gail might also have had additional options, such as speaking to the
other partners in the audit firm and enlisting their support. There is probably a mechanism to
resolve such disputes within the firm. Even if such a mechanism does not exist, she should have
been capable of discussing the situation with the other partners, and if necessary, consulting the
technical advisory service offered by her professional body. This would have provided her with
some support when discussing her decision with the audit partner.