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ACCA Paper P1
Professional Accountant
For exams in 2010

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ACCA P1 Professional Accountant

ExPedite Notes

Chapter 4

Professional Values and Ethics

START The Big Picture

Ethics will feature significantly in the exam, often as part of a case study, but possibly as a standalone question. It is unlikely that you would be asked your own ethical views on something. Indeed, it is likely that you may be asked to advocate the case for an argument that you personally do not believe in. More probably, you will be asked to define these terms and use them to categorise or explain the views of a person in a case study scenario.

KEY KNOWLEDGE Absolutism v Relativism

Absolutism (dogmatic ethics) is the view that there is an unchanging set of ethical principles that will apply in all situations at all times and in all societies. These include religion, law, natural law and deontological approaches.

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2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

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ExPedite Notes

Advantages: Set of rules that can be followed and knowing actions are right. The absolute rules make application of corporate governance more achievable.

Disadvantages/ limitations: Takes no account of evolving norms within society and development of advances in morality. Still subject to human interpretation = different views on the same issue. There will never be universal agreement. Two absolutist positions may be incompatible and therefore irreconcilable = can tell lie to save an innocent life?

Relativism (pragmatic ethics) is the view that a wide variety of acceptable ethical beliefs and practices exist. It recognises the differences that exist between the rules of behaviour prevailing in different cultures. Significant in the context of international business as ethical opinions may change over time.

KEY KNOWLEDGE Deontological Ethics v Teleological Ethics

The deontological (duty based) approach judges the action, while the teleological approach judges the outcomes. Deontology (the word is linked to the word duty) looks at all actions as being the result of a duty or categorical imperative. It is irrelevant what the consequences are of the action the ethical behaviour is judged by the action itself, not its consequences. This school of ethical thinking is associated most strongly with the work of Emmanuel Kant. For a deontological rule to exist, it must be capable of following a number of fundamental rules or maxims, including: It must be possible to apply the rule universally and consistently (the universality test) The rule should show respect for human dignity

Teleology makes moral judgements about the action by reference to their outcomes or consequences. The act itself is not relevant in assessing whether it is ethical or not, it is the consequences or potential consequences of an action that matters. Hence teleological

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2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

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ExPedite Notes

thinkers may support the idea that victimless crimes may exist, if nobody is hurt by an action. It may be sub-divided into two parts: Utilitarian ethics an action is morally right if it benefits the greatest number of people, even if it does harm to a minority. Egotistical the rightness or wrongness of an action is assessed only by references to the person making the ethical judgement, not society as a whole. Under teleological thinking, right or wrong becomes a question of benefit or harm.

KEY KNOWLEDGE Development of Ethical Thinking: Kohlberg

Kohlberg's six stages can be more generally grouped into three levels of two stages each: pre-conventional, conventional and post-conventional. The theories were developed from analysis of child psychology and how childrens views of ethics morph into time by experience. Progression through each level (or plane is sequential and no stage can be skipped, though not all people reach the final level.
Plane/ level 1: Pre-conventional ethical thinking 1. Obedience and punishment orientation (How can I avoid punishment?) 2. Self-interest orientation (What's in it for me?) Plane/ level 2 (Conventional) 3. Interpersonal accord and conformity (Social norms, desire to fit in with the crowd, the good boy/good girl attitude) 4. Authority and social-order maintaining orientation (law are obeyed as an expedient in order for society to function, but its core rightness or wrongness is not challenged. A level 4 thinker would be willing to obey laws that were imposed by a non-democratic government). Level 3 (Post-Conventional) 5. Social contract orientation (laws are obeyed only because the individual recognises that laws must exist, evolve and require a degree of personal compromise in order for society to function. A stage 5 thinker would be willing to accept laws implemented in a democratic society only).

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2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

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ExPedite Notes

6. Universal ethical principles (Principled conscience. Laws and the reasoning of others are not viewed as necessarily to be obeyed. Indeed, if a government passes a law that violates a natural justice, such as imprisonment without trial, individuals have a duty to disobey the law and overthrow the government).

KEY KNOWLEDGE Resolving Ethical Conflicts

There are two principal models in the exam for attempting to resolve ethical conflict: 1. Tuckers five questions 2. The American Accounting Association model. In past exams, the examiner has stipulated which model to use, so you need to know both in complete form. Tuckers five questions Ethical decisions, such as whether to proceed with an investment, should be evaluated by asking five core questions and obtaining evidence to reach an appropriate conclusion: profitable legal fair and equitable right, which is prone to subjective judgement sustainable or environmentally sound.

American Accounting Association American accounting association model ethical decisions as a series of answers to questions. Establish the facts of the case Identify the ethical issues at stake, eg stakeholder claim conflict Identify the norms, values and principles related (this could be particularly relevant if assessing the behaviour of a person in a different culture/ country) Come up with alternative course of action possible (brainstorm all possibilities) Identify the best courses of action in alignment with the norms, values and principles, ie produce a short list of viable choices Assess the consequences of each course of action Reach your decision.

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2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

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ExPedite Notes

Ethics and the accounting profession specifically There is a substantial overlap in the syllabus for paper P1 and the syllabus for F8 and P7 in this regard. IFAC (International Federation of Accountants) fundamental ethical principles Objectivity Members should not allow bias, conflicts of interest or undue influence of others to override professional or business judgements. Professional behaviour Members should comply with relevant laws and regulations and should avoid any action that discredits the profession. Professional competence and due care Members have a continuing duty to maintain professional knowledge and skill at a required level. Members must be seen as acting diligently and in accordance with applicable technical and professional standards Technical standards Members should ensure all undertaken work is performed to the highest standard. Integrity Members should be honest and straightforward in all business and professional relationships Confidentiality Members should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose it to third parties without authority to do so. Such information should not be used for the personal advantage or members or third parties

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2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

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ExPedite Notes

Categories of threat to accountants independence: Self-interest (eg financial involvement) Self-review (eg auditing financial statements that include figures based on the auditor having advised on implementation of an accounting standard) Advocacy (eg having a reason to believe a certain figure is right, when its actually wrong such as attempting to neutrally assess a tax provision after fighting the clients case for a reduction in taxes payable). Familiarity (excessive personal knowledge of the client, resulting in progressively hardened views of the clients ethics and competence, thus destroying scepticism) Intimidation (eg threat of humiliation, blackmail).

KEY KNOWLEDGE Defining Profession and Professionalism

A profession is distinguished by having a: specialised body of knowledge commitment to the social good ability to regulate itself high social status.

Accountants should seek to promote or preserve the public interest. If the idea of a profession is to have any significance, then it must make a bargain with society in which they promise conscientiously to serve the public interest. In return, society allocates certain privileges. These might include one or more of the following: the right to engage in self-regulation the exclusive right to perform particular functions, such as conduct audits or speak in court on behalf of somebody special status.

There is more to being an accountant than is captured by the definition of the professional. It can be argued that accountants should have the presentation of truth, in a fair and accurate manner, as a goal. This is because members of society at large are generally impacted by the actions of a profession, even if they have no direct involvement in that profession themselves.

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2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

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ExPedite Notes

Members of any profession therefore have an ongoing wider duty to society at large rather than solely to their own professional body.

KEY KNOWLEDGE Corporate Social Responsibility

The CSR Network (a not-for-profit NGO) defines corporate social responsibility (CSR) as being about how businesses align their values and behaviour with the expectations and needs of stakeholders - not just customers and investors, but also employees, suppliers, communities, regulators, special interest groups and society as a whole. In other words, it is the degree to which companies voluntarily engage with perceived duties beyond their minimum legal duties, if any legal duties even exist.

KEY KNOWLEDGE Gray, Owen & Adams Viewpoints on Corporate Social Responsibility
Gray, Owen & Adams identified seven possible viewpoints that stakeholders might take, ranging from the most limited view of social corporate responsibility (pristine capitalists) to the most extreme (deep ecologists). In the exam, you may be required to define each of these, or suggest which of these viewpoints a particular stakeholder appears to fit into and why. The ones that we feel are the most important for the exam are in red.

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2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

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ExPedite Notes

Pristine capitalists: Business has no moral responsibilities beyond their obligations to shareholders and creditors.

Expedients: Social responsibility may be appropriate if it is in the businesss economic interest.

Proponents of the social contract (social contractarians): There is effectively a contract or agreement between the organisation and those who are affected by their decisions.

Social ecologists: Believe that business activities result in resource exhaustion; waste and pollution must be modified. Organisations must be socially responsible.

Socialists: Seek to promote egalitarian equality.

Radical feminists: Aim to promote feminine values such as co-operation. Note that this is not associated with the womens rights movement.

Deep ecologists: Suggest that man has no greater rights to resources or life than other species.

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2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

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ExPedite Notes

KEY KNOWLEDGE Sustainability

Sustainability is the ability to continue to generate the same return without causing permanent damage to the environment. Weak sustainability: This believes that the focus should be on sustaining the human species and the natural environment can be regarded as a resource. The weak sustainability viewpoint tends to dominate discussion within the Western economic viewpoint. Strong sustainability: This stresses the need for harmony with the natural world; it is important to sustain all species, not just the human race. They see a requirement for fundamental change, including a change in how man perceives economic growth (and whether it is pursued at all).

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2010 This material is the copyright of the ExP Group. Individuals may reproduce this material if it is for their own private use. It is illegal for any individuals to reproduce this for commercial use or for companies to reproduce this material partially and/or in full by any means, be it printed, photocopied, on electronic devices or any other means of reproduction. All examples presented in these course materials are for information and educational purposes only and should not be applied to a specific real life situation without prior advice. Given the nature of information presented in these materials, and given that legislation may change at any time, The ExP Group will not be held liable for any information presented in these materials as to its application to any specific cases.

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