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Accounting Academy CA.

Ravi Taori
2520030 9322011915
CHAPTER 1 2)The Rights Approach (The 7. Total Quality Management
BUSINESS ETHICS Deontological Approach) (TQM)
1.Ethics: What is good or bad 3)The Fairness or Justice Approach 8. Social Well-being
2.Business Ethics: Set of 4)The Common Good Approach 9. Employee-friendly Policies
principles to govern the conduct of 5)The Virtue Approach 10.Compliance with Law
business. ETHICAL ISSUES :- Is an
3. REQUIREMENTS: identifiable problem, situation or CHAPTER 2
A)Ethics Follow opportunity that requires a person CORPORATE GOVERNANCE &
(i) Laws of the land to choose from among several CORPORATE SOCIAL
(ii)Customs & expectations of the actions that may be evaluated as RESPONSIBILITY
community, right or wrong, ethical or STAKEHOLDERS
(iii) Principles of morality unethical. Stakeholders include
(iv) Policies of the organization, ETHICAL DILEMMAS. Employees, Trade Unions,
(v) General concerns such as the A situation where the decision- Customers, Suppliers, Shareholders
needs of others and fairness. maker has to choose between right and Investors, Competitors,
B)How the actions of business affect and right. Government, Industry, Society
its stakeholders. Tackling Dilemmas :- CORPORATE GOVERNANCE
ETHICS & VEDANTA. 1. Identify problem Meaning: Formal System for
A) Viveka (understanding) should 2.Define problem corporate accountability, fairness,
precede Vairagya (dispassion) 3.Reason / Intension transparency, structures and
B)Practice of Shatsampat (six ethical 4.Intentions/objectives processes for decision-making,
virtues, tranquility, training, 5.Evaluate options / comparisons control and behaviour at the top
withdrawal, forbearance, faith and 6. Affect of time on your decision level of organisations.
focus. 7. Loyalty as person and member Pervasive:"Corporate Governance"
SOCIAL SIN 8. Will it injure others? arises in all categories of Indian
(i) Politics without Principles. 9. Discuss with superiors/family Companies
(ii) Wealth without work. 10. Exceptional conditions a)Public Sector Units (PSUs)
(iii)Commerce without Morality. 11.Chances of misunderstanding b)Multi-National Companies (MNCs)
(iv)Knowledge without character. THE HIPPOCRATIC OATH c)Domestic Business Groups
(v) Pleasure without Conscience. 1.Profoundity of the medical Legal Framework:
(vi)Science without humanity. agreement 1.Sec.292A of the Companies Act
(vii) Worship without sacrifice. 2.Patient dignity (relating to Audit Committee)
MORALS V/S ETHICS 3.Confidentiality of the transaction 2.Clause 49 of Listing Agreement
1)Root Word:- “mos”(customs) / 4. Guard against abuse or corruption with SEBI (in respect of Listed
”ethos”(character) 5.Honor the rules of their profession Companies).
2)Accepted from authority / 6.Expose those who do not follow KEY ISSUES/ MAJOR FACTORS IN
accepted personally the high standards of conduct. EVALUATING CORPORATE
3) Expressed as general rules / it NEED/IMPORTANCE OF ETHICS IN GOVERNANCE ( E-PAAS )
cannot BUSINESS (a)Appointing Non-Executive
4)Absorbed from childhood / by 1.Use of Resources Directors
taking decisions, practice 2.Fairness (b)Placing constraints on
5)small Scope / wider scope. 3.Implied Contract management power and ownership
IDENTIFYING ETHICAL 4.Corporate governance concentration
STANDARDS ADVANTAGES / BENEFITS OF (c)Ensuring proper disclosure of
There are two fundamental BUSINESS ETHICS (PM SET DT financial information and executive
problems in identifying the ethical SEC.) compensation
standards we are to follow: 1. Public Image (d)Audit Committee
1. The base of our ethical standards? 2. Maintaining Moral Course in (e)Stock Options
2. Application of those standards to times of change
specific situations we face? 3. Strengthening the Organisation FEATURES OF GOOD CORPORATE
STANDARDS 5.Teamwork and Productivity 1.Efficient and effective
1)The Utilitarian Approach 6. Diversity Management 2.Transparent
Accounting Academy CA. Ravi Taori
2520030 9322011915
3.Accountable KEY DEVELOPMENTS TO SHAPE 2. AA-1000 [1999]:
4.Consensus-oriented THE DIRECTION OF CSR (GI2VE (i)to complement the GRI Reporting
5.Equitable and inclusive. C2PT) (ii) improve accountability and
6.Responsive and adaptive 1.Increased Stakeholder Activism performance by learning through
2.Engaging Stakeholders stakeholder engagement.
SOCIAL ISSUES CONNECTED WITH 3.Codes, Standards and Indicators 3.Social Accountability 8000:
BUSINESS ENTERPRISES 4.Value Chain concept 1.The standard is maintained by
1.Social problems external to the 5.Transparency and Reporting Social Accountability International
enterprise, that were not caused by 6.CSR & Corporate Governance and covers standards and
any direct business action, e.g. 7.Investor Pressure and Market- monitoring programs for child
poverty, drug abuse, etc. Based Incentives labour, forced labour, disciplinary
2.External impact of regular 8.Growth of IT Sector practices, non-discrimination, wages
economic activities, e.g. pollution 9.Pressure to Quantify CSR "ROI" and benefits, working hours, health
caused by production, safety, STRATEGIES IN and safety, freedom of association
reliability of goods and services, IMPLEMENTATION OF CSR and collective bargaining, and
deception in marketing practices, (CRRAAP) management systems.
social impact of plant closures etc 1. Consumer protection. 4.United Nations Global Compact
3.Issues within the Firm that are 2.Respect for human rights, [2000]
tied up with regular economic 3.Reducing the negative impacts of 1.Companies can voluntarily
activities, e.g. equal employment business enterprises operating in ‘embrace and enact' in their
opportunity, occupational health and conflict zones individual corporate practices, and
safety, the quality of work life and 4.Avoiding bribery and corruption, to support complementary public
industrial democracy. and policy initiatives.
CORPORATE SOCIAL 5.Adherence to labour standards by 5.OECD Guidelines for MNC's
RESPONSIBILITY the Companies and their Business [1976/2000]
The term Corporate Citizenship Partners, Organisation for Economic Co-
denotes the extent to which business 6. Protection of local and global operation & Development
enterprises meet the (a) legal environment, Guidelines are recommendations
(b) Ethical (c) Economic and addressed by Governments to multi-
(d) Voluntary / Discretionary Some key strategies national enterprises.
responsibilities 1.Mission, Vision and Values 6.ICCR Guidelines for Measuring
Definition Statements Business Performance:
CSR is achieving commercial success 2.Plans v/s Performance 1. The Interfaith Centre on
in ways that honour ethical values 3.Management Structure Corporate Responsibility (ICCR) has
and respect people, communities, 4.Long-Term Strategic Planning published "Principles for Global
and the natural environment. 5.General Accountability Corporate Responsibility"
NEED FOR SOCIAL 6.Employee Recognition and 2.ICCR is comprised of more than
RESPONSIBILITY OF A BUSINESS Rewards 275 religious institutions that use
ENTERPRISES 7.Employee Education and Training their investments to promote social
1.Given an organisation Iron Law of 8.CSR Reporting change.
Responsibility 9.Leadership / Pioneering Role 7.Caux Round Table (CRT): CRT
2.Conversion of Resistances into VARIOUS EXTERNAL STANDARDS is comprised of senior business
Resources AND GUIDELINES FOR CSR leaders from Europe, Japan and
3.Avoid misuse of natural Resources REPORTING (G2RACIOUS) North America, and is based in Caux,
and economic Power 1.The Global Reporting Initiative Switzerland.
4.Fulfil Long-Term Self Interest (GRI) [1997] 8.Global Sullivan Principles
5.Avoiding Government Regulation A.Convened by CERES (Coalition for [1999]:
and Control Environmentally Responsible The objectives of Global Sullivan
6.Control Environmental Damage Economies) Principles are - (i) to support
7.Help to achieve goals and establish B.GRI's Sustainability Reporting economic, social and political justice
a better Society Guidelines is a reporting standard (ii) to support human rights and to
8.Wealth Creation (rather than a performance encourage equal opportunity (iii) to
9. Better Public Image standard) train and advance disadvantaged
Accounting Academy CA. Ravi Taori
2520030 9322011915
workers for technical, supervisory BEHAVIOUR AT THE WORKPLACE Misuse of Company funds, Tax
and management opportunities, and To deal the problems like evasion
(iv) to assist with greater tolerance (IT & HRD r problemS) CLASSIFICATION OF ETHICAL
and understanding Inability to Recruit and retain ISSUES FACED BY AN INDIVIDUAL
9.Asian-Pacific Economic Co- efficient people. IN THE WORKPLACE
operation (APEC) Business Code Tendency of employees to report A. Relationship with Business
of Conduct [1999]: 1. APEC is the violations to outside regulatory Associates
primary international organization authorities because they lack an B. Conflicts of Interest
for promoting open trade and adequate internal forum C. Fairness and Honesty
economic co-operation among 21 Higher exposure to legal battles in D. Communication
member economies around the courts of Law EMPLOYMENT DISCREMINATION
Pacific Rim. Risk of employees making 1.Treating one person better than
ROLE OF DIFFERENT unethical decisions another because of their age, gender,
COMMITTEES IN REGULATING Diminish Reputation and goodwill race, religion or other protected
CORPORATE GOVERNANCE in the industry and the community. class status, which is not relevant to
(CID is BAC Now) Significance legal exposure and the job that they perform
1.Corporate Mgmt. Committee loss of competitive advantage in 2.A form of injustice, which goes
2. Investor Services Committee the marketplace against the formal 'principle of
3. Divisional Mgmt. Committee FACTORS INFLUENCING ETHICAL equality.
4. Board of Directors BEHAVIOUR IN THE WORK PLACE Elements: (MAP)
5.Audit Committee (IM IN u r Out) Merit is Ignored , Adverse Effect
6.Compensation Committee 1.Individual Moral Standards Prejudice.
7. Nomination Committee 2.Influence of Managers and Co- EMPLOYMENT DISCREMINATION
RESPONSIBILITY (O RAPer BAI) 3.Opportunity to engage in Dashrath Crowned)
Improved Financial Performance misconduct 1.Recruitment Practices
1.Operating Cost Reduction ROLE OF INDIVIDUAL MORALS 2.Selection / Screening Practices
2.Reduced Regulatory Supervision: AND STANDARDS IN DEFINING 3.Promotion Practices
3.Ability to attract and retain WORKPLACE ETHICS (VENa) 4.Dismissal
employees Values 5.Conditions of Employment
4.Productivity and Quality: Negative Attitudes HARRASMENT
5.Brand Image and Reputation Ethical Behaviour "Sormenting by subjecting to
6.Access to Capital REASONS OF ETHICAL DILEMMAS constant interference or
7.Increased Sales & Customer IN WORKPLACE intimidation".
Loyalty 1.Differential Roles 1.Adverse / unreasonable terms
CHAPTER 3 2. Hierarchy and conditions
WORKPLACE ETHICS EXAMPLES OF ETHICAL ISSUES 2.Sexual harassment - coerced into
"Workplace Ethics" relates to how (S.E.C.R) giving into another employee's
one applies values to work in actual 1.Suppliers and Business sexual demands
decision making a set of right and Partners Nature/Effect: Harassment-
wrong actions that directly impact Bribery and immoral entertainment, 1.Degrading coercion
the workplace. Discrimination between suppliers, 2.Psychological harm
Need: Dishonesty in making and keeping 3.Violates right to freedom and
1.Public concerns contracts dignity.
2.Issues like - (i) financial scams 2.Customers 4.Is an unjust misuse of the
fraud and embezzlement Unfair Pricing, Cheating unequal power
(ii) Accepting or promoting bribes, Customers, Deceitful Advertising, Employers Responsibility:
or (iii) lying or deceptive Research Confidentiality 1.Expected to ensure a fair
advertising of products and 3.Employees working environment free of
services, unfair competitive Discrimination hiring treatment of harassment.
practices employees, Harassment in 2.Sexual harassment is prohibited
3. Sound values and ethics workplace GUIDELINES FOR MANAGING
Accounting Academy CA. Ravi Taori
2520030 9322011915
( C CAG fined IP2O in GOa) d. Global damage like global cancer, and (b) destruction of75% of
1. Code of Conduct & Ethics warming, ozone layer destruction, the world's major crops that are
2. Cross-Functional Teams and acid rains sensitive to UV light.
4. Group Decision-making IMPACT Acid Rain : Gases in the
5. Integrated Ethics Management a. Role of Greenhouse Gases: atmosphere. + water vapour in
6. Pro-active Role Greenhouse Gases – CO2, Nitrous clouds = Acids, thus raising the
7. Policies / Procedures Oxide, Methane, and CFC's (Chloro- acidity of the water sources.
8. Open Communication Fluoro-Carbons) keep the earth's Effects: Acid Rain.
9. Grievance Policy temperature at the right levels so (a) Soaks into soils and indirectly
10.Ombudsperson that life can evolve and flourish destroys the wildlife and species
CHAPTER 4 b. Global Warming: Because of that depend on forests for food and
ENVIRONMENT ETHICS substantially higher amounts of breeding.
SUSTAINABLE DEVELOPMENT greenhouse gases into the (b) Increases the acidity of the
Sustainable Development:- atmosphere, resulting in increasing water sources.
Sustainable Development is amounts of heat, and raising (c)Releases toxic metals from the
"Development that meets the needs temperatures around the globe. soil and carries these into
of the present without Adverse Effects: waterways
compromising the ability of future (EMI & Int. DEW) (d) Corrodes and damages
generations 2 meet their own needs” Expansion of the world's deserts. buildings, statues, and other
Following are 2 major hurdles in Melting of polar ice caps, causing sea objects of iron limestone & marble
sustainable development levels to rise. ECOLOGICAL ETHICS
1.Resource Depletion Increase in the frequency and Business is a part of the Ecological
a. It refers to the consumption of magnitude of droughts System. Elaborate. (E-RISE)
finite or scarce resources. Increase in the distribution and System: An Ecological System is
b. Pollution may also be seen as a severity of diseases. an inter-related and inter-
type of Resource Depletion since Disruption in farming and reduced dependent set of organisms and
contamination of air, water, or land agricultural yield levels. environments
diminishes their beneficial qualities. Extinction of several species of Inter-related: Various parts of an
Forms of pollution plants and animals. ecological system are inter-related,
2. Water Pollution Warming of water-bodies like lakes the activities of one of its parts (i.e.
Causes: (a) using water bodies as and oceans, thus shifting the sub-systems) will affect all the
dumping yards / disposal sites for geographical distribution of fish and other parts (sub-systems).
wastes (e.g. for intermediate and other marine species. Role of Business: Need to
low-level radioactive wastes), or OZONE DEPLETION recognize, maintain and preserve
(b) accidents and disasters (e.g. oil Ozone Layer: A layer of Ozone the ecological systems within
spills). protects all life on earth from which we live.
3. Land Pollution harmful ultraviolet (UV) radiation. Ecology Awareness: Business
A. Solid Wastes However, this Ozone Layer is Enterprises should - (a) recognize
B. E-waste destroyed by CFC gases, which are the inter-relationships and inter-
C. Hazardous or Toxic Substances used in Aerosol Cans, Refrigerators, dependencies of the ecological
4. Air Pollution: Air Conditioners, Industrial Solvents, systems within which they
Causes: (a) gases and particulates etc. operate, and (b) ensure that their
emitted by industrial processes and Depletion: When released into the activities will not seriously injure
vehicles, and air, CFC gases rise. In 7 to 10 years, the ecological system.
(b) industrial accidents and they reach the stratosphere, and Ecological Ethics: It is based on
disasters. (e.g. Bhopal Gas Leak destroy ozone molecules and remain the idea that the environment
Tragedy of 1984) for 75 to 130 years, continuing all should be protected not only for
Effect the while to break down additional the sake of human beings but also
a. Detoriating quality of the air ozone molecules. for its own sake. This resolve by
b. Affect vegetation & agricultural Effect: Shrinking of the Ozone Layer business enterprises is required in
yields and consequent increase of UV rays order to counter the problems of
c. Corrosion, discoloration, and rot will lead to - (a) new cases of skin pollution and resource depletion.
Accounting Academy CA. Ravi Taori
2520030 9322011915
IMPORTANCE OF CONSERVATION Air (Control and Prevention of extremely difficult.
OF NATURAL RESOURCES Pollution) Act 1981, The Factories 3.It is not possible for any
a. Conservation refers to the Act, 1948, The Motor Vehicles Act enterprise to construct a two-
saving or rationing of natural and Rules column (ethical v/s unethical) list
resources for later use. framed there under, The Industries of all possible practices.
b. Conservation, looks primarily (Development & Regulation) Act, REASONS FOR BEHAVING
to the future, i.e. the need to limit 1951, and Mines & Minerals ETHICALLY IN MARKETING ( P
consumption now to have (Regulation and Development) Act, MICR) / (IMP RC)
resources available for tomorrow. 1957. Image Boost to the Organisation
c. It also includes pollution control ENVIRONMENTAL FRIENDLY Matching Power & Responsibility
as Pollution "consumes" pure air BUSINESS PRACTICES (B QUE Positive Role of Marketing
and water, and Pollution Control VOW) Reduced Government Regulation
Steps for conservation Eco-friendly business practices Consumer Well-being
a. Change of approach from "using" should involve - (a) eco-friendly COMPETITION - Competition is a
the economic resources in the best production processes, strategies & situation in a market in which
possible manner to "conserve" the technologies, and (b) effective Sellers independently strive for the
ecological resources. management of wastes. Buyers’ patronage, in order to
b. awareness of social 1.Overall Strategy achieve a certain business
responsibility 2.Value Analysis objective(s), e.g. profit, sales,
c. need to adopt ethical values 3.Eco-friendly Attitude market share etc.
d. more statutory requirements Environment Impact Assessment Need: A pre-requisite for a good
towards pollution control, (EIA) and Environmental Audits competition is trade, i.e. the
environment-friendly practices, etc 4.Quality Standards unrestricted liberty of every man
are required 5.Waste Management to buy, sell and barter, when,
ENVIRONMENTAL ETHICS 6.Use of Natural Resources where and how, of whom and to
Environmental Ethics:- the value 7. Basic Aspects whom he pleases.
system which focuses on the need to Green Accounting Systems Effect: In conditions of effective
minimize pollution, and adoption of CHAPTER 5 competition, competitors will be
environment-friendly business ETHICS IN MARKETING AND having equal opportunities to
practices. (GDP fc ) CONSUMER PROTECTION compete for their own economic
Global Impact: Problems like Marketing :-To influence the interest. Hence, the quality of their
Global Warming, Ozone Depletion behaviour of customers outputs and resource deployment
and disposal of hazardous wastes, Ethical Dilemma: Marketing will be given top priority in order
affect the entire world. Pervasive: Executives face the challenge of to sustain and succeed in the
The issue of Environmental Ethics balancing their own best interests market by meeting consumers'
concerns ethical behaviour of all in the form of recognition, pay, and demand at the lowest possible
types of organizations promotion, with the best interests cost.
Facets: Environmental Ethics has of consumers, their organization, COMPETITON POLICY AND LAW
two facets - (a) the effect, i.e. and society into a workable guide The Competition Policy is regarded
problems relating to protection of for their daily activities. as genus, of which, the
environment or nature in terms of Guidelines: Codes of Ethics Competition Law is the specie.
pollution, resource utilization or These guidelines will - RELATIONSHIP BETWEEN
waste disposal, and (b) the basic 1.Reduce violation of Company COMPETITION AND CONSUMER
cause, i.e. issues of exploitive standards WELFARE
human nature and attitude that 2.Strengthen a Company's Competition: Competition refers
should be addressed in a rational position to rivalry in the marketplace.
way. 3.Assist young or inexperienced Benefits
Developments in India: The executives (a) Economic efficiency,
Chipko movement in India (1973) Limitation of Guidelines: (b) Consumer welfare, and
is a proof of people's concern about 1.Every decision cannot be taken (c) Avoiding concentration of
balance in eco-system. Also, many out of the hands of the Manager economic power.
statutes have been enacted to 2.Also, determining what is right Effect on Consumers: Consumers
prevent / reduce air pollution, like and what is wrong can be are the greatest beneficiaries of
Accounting Academy CA. Ravi Taori
2520030 9322011915
competition. Hirer/Approved beneficiary of Physical Safety, Redress, Economic
Pervasive Effect: services whether for personal or Interests, Education & Information,
a. Macro Level Effect commercial purpose whether Standards, Essential Goods &
b. Micro Level Effect consideration is paid or payable Services. Sustainable Consumption.
Competition Act 2002 Competition Act v/s Consumer Rights (BaSICs & CaR 4 HR)
Objectives: The Preamble to the Protection Act The definition of (a) Right to Basic Needs
Competition Act, 2002 lists the Consumer in Competition Act is (b) Right to Information
following objectives (P3E) substantially the same However, (c) Right to Safety
(a) Establishment of a Commission the following wordings are (d) Right to Consumer Education
[called Competition Commission of different. (e) Right to Choice
India (CCI)] Commercial v/s Personal Use: (f) Right to Representation
(b) To promote and sustain Under the Competition Act 2002, (g) Right to Redress
competition in markets, "Consumer" includes a person who (h) Right to Healthy Environment.
(c) To protect the interests of purchases goods for resale or for CONSUMER PROTECTION
consumers, any commercial purpose or for COUNCILS IN INDIA
(d) To ensure freedom of trade personal use. But the Consumer 1.The Central Consumer
carried on by other participants in Protection Act, 1986 does not Protection Council
markets, in India, consider "consumer for 2.The State Consumer Protection
(e) To provide for matters commercial purpose" under the Council
connected therewith and incidental meaning of the term "Consumer". 3.The District Consumer
thereto. Distinguish between Consumer Protection Council
Key areas Interest and Public Interest. Chapter 6
1. Prohibition of Anti- 1. Meaning ETHICS IN ACCOUNTING AND
Competitive Agreements [Sec. 3] 2. Interested Class FINANCE
Agreements like Tie In 3. Scope IMPORTANCE OF ETHICS FOR A
Arrangements, Exclusive Dealings, 4. Factors FINANCE AND ACCOUNTING
Refusal to Deal and Resale Price 5. Focus PROFESSIONALS
Maintenance, Cartels for Bid SCOPE OF CONFLICT BETWEEN Need:
Rigging, Collusive Bidding etc. shall CONSUMER INTERSET AND 1. They accept responsibility to act
be considered anti-competitive PUBLIC INTEREST in Public Interest.
and hence void, if they cause or are Conflict: All Governmental policies 2. Their responsibility is not
likely to cause an appreciable for "Public Interest" may not be in restricted to satisfy the needs of any
adverse effect on the competition the ultimate interest of the particular individual or organization.
within India. Consumers. 3. They should adhere to ethical
2.Prohibition of abuse of Example: For example, a farmer principles in order to achieve their
dominant position [Sec. 4] wants the price of goods he objective of "service in public
Imposing unfair or discriminatory consumes to be as cheap as interest".
conditions or limiting and possible, but wants the highest 4. Failures such as Accounting
restricting production of goods or price for his produce. If the Scandals, use of false and
services or indulging in practices Government wants self-sufficiency misappropriated accounting
resulting in denial of market access in food as a national security information, direct involvement in
or through any other mode is measure (public interest) it faces a fraudulent activities, refusing to
prohibited. conflict i.e. should it support high identify frauds and embezzlements
3.Regulation of Combinations prices to encourage production or reported by sub-ordinates /
[Sec. 5 & 6] Combinations which low prices to protect the employees in the Firm, etc. have
cause or are likely to cause an consumer? contributed to the failure of many
appreciable adverse affect on Conclusion: Consumers (Buyers) high-profile enterprises.
competition within the relevant want competition but Producers
market in India are void, unless it (Sellers) desire monopoly. PRINCIPLES TO BE ADHERED BY
As per Competition Act CONSUMERS WELFARE 1. Integrity & Independence
Buyer/Approved User of goods or (SEE PRESS). 2. Objectivity
Accounting Academy CA. Ravi Taori
2520030 9322011915
3. Confidentiality 4. Commercial pressure Working as Employees
4. Professional Competence & Due 5. Financial interests, loans and 1. Threat to dismiss or replace
Care guarantees 2. Dominating personality trying to
5.Professional Behaviour SELF REVIEW THREATS influence decision making process
CREATING AN ETHICAL Employee reviews decision or data THREATS
ACCOUNTING ENVIRONMENT IN A prepared by employee NEED :-
BUSINESS ENTERPRISES (FEAR) Working as Consultant/Auditor (a) Ensure an ethical environment,
The following aspects should be (R2E2D) REDER (b) Increase the likelihood of
considered for creating a sound and 1. Discovery of a significant error identifying or deterring unethical
ethical accounting environment in a during a re-evaluation of own behaviour, and
Business Enterprise - work (c) Eliminate or reduce the threats to
Employee Awareness 2. Reporting on the operation of an acceptable level.
Reporting of Frauds financial systems, designed or Types:- Safeguards may be created
Fair Treatment to Whistle implemented by him by the – (FouR LAP)
Blowers 3. Examining data prepared by him (A) Finance & Accounting
GENERAL REASONS FOR 4. Recently been, a Director or Profession , Legislation &
UNETHICAL BEHAVIOUR IN Officer of that client Regulation, or
CONTEXT OF ACCOUNTS AND 5. Employed by the Client (B) Business enterprise employing
FINANCE (SAMIE) / (IM SEA) / ME ADVOCACY THREATS the professional. Some examples are
IAS) Working Auditor or Consultant, given below
Money-Mindedness 1. Promoting Shares + doing AUDIT A. Safeguards by the Profession,
Accounting Complexities 2. Acting as an advocate + doing Legislation or Regulation [PCC
Short-Term Profitability AUDIT Exam Exempt]
Ignoring small unethical issues: Working as employee 1. Educational, training and
Economic Cycles 1.Making false and misleading experience
THREATS FACED BY A FINANCE statements on Company's position 2. Continuing Professional
PROFESSIONALS (S2AFI)/(SAIF’S) Working as Consultants or 3. Corporate Governance
Self-Interest Threats Auditors Regulations,
Self-Review Threats 1. Close or immediate family 4. Professional Standards,
Advocacy Threats relationship with a Director or monitoring and disciplinary
Familiarity Threats Officer procedures
Intimidation Threats 2. Close or immediate family 5. External Review by legally
SELF INTEREST THREATS relationship with an employee of empowered third party
Working as Consultants or the client B. Safeguards in the Work
Auditors (F2Ind PDC2) 3. A former Partner of the Firm being Environment:
1. Financial Interest/Joint financial a Director or Officer 1. Systems of corporate overview /
interest 4. Accepting gifts or preferential supervision / reporting
2. Dependence on total fees from a treatment 2. Ethics and conduct programs
client 5. Long association 3. High caliber competent staff
3. Close business relationship Working as Employees:- 4. Adequate system of Internal
4. Fear of possibility of losing a client 1. Immediate or close family Controls
5. Potential employment with a member 5. Disciplinary processes and
client 2. Long association procedures
6. Contingent fees 3. Acceptance of a gift or preferential 6. Leadership that stresses the
Working as Employees:- (IPCC treatment importance of ethical behaviour
FIrst) INTIMIDATION THREATS 7. Monitor the quality of employee
1. Incentive compensation Working as Consultants or performance
arrangements Auditors 8. Timely communication
2. Personal use of corporate assets 1. Threat to dismiss or replace 9. Encourage employees to
3. Concern over employments 2. Threatened with litigation communicate ethical issues that
security 3. Threat to reduce work & fees concern them
Accounting Academy CA. Ravi Taori
2520030 9322011915
remaining silent) others, particularly
“ETHICAL DILEMMA” IN CONTEXT to the Auditors of the Company, or
OF A FINANCE AND ACCOUTING Regulatory Authorities.
PROFESSIONALS (e) Issue, or otherwise be associated
Ethical Dilemma: with, a financial or non-financial
(a)Value-conflicts among differing report that materially misrepresents
interests the facts, including statements in
(b) Multiple alternatives which can connection with,
all be justified, and “ETHICAL CONFLICT
(c) Significant consequences to all RESOLUTION” IN THE CONTEXT
Example: In preparing a Profit Conflict: Ethical Conflict is a
Forecast (a) projecting unrealistic situation, where the professional is
high revenue and mislead the required to decide between
Lending Institution, in order to avail compliance with principles, and
the loan, or actions which are beneficial to the
(b) Projecting realistic but business enterprise.
insufficient revenue Factors to be considered: To
ETHICAL CONFLICTS FOR A resolve the conflict, the Finance and
FINANCE AND ACCOUNTING Accounting Professional should
PROFESSIONAL (ECC) consider the following aspects –
Conflict of Interest: A Finance (FEERA)
and Accounting Professional faces an (a) Relevant facts,
"Ethical Conflict" when the (b) Ethical issues involved,
circumstances are such that he is not (c) Fundamental Principles related
in a position to comply with the to the matter in question,
principles (integrity, objectivity, (d) Established internal procedures,
confidentiality, etc.) that govern and
ethical behaviour. (e) Alternative courses of action.
Consultants or Auditors: A Conflict Resolution Process:
threat to objectivity is created, when (a) Weigh the consequences / effects
a Professional Accountant in public of options
practice, competes directly with a (b) Consult
client or has a Joint Venture or (c) Course of action consistent with
similar arrangement with a major the fundamental principles
competitor of a client. Documentation
Employees: Pressure to act or Legal Advice
behave in ways that could directly or Withdrawal:- where possible,
indirectly threaten compliance the refuse to remain associated with
fundamental principles. Such the matter creating the conflict.
pressure may be - (i) explicit or
(ii) From a Manager, Director or
another individual within the
company. Such pressure may be to-
(a) Act contrary to Law or
(b) Act contrary to technical or
professional standards.
(c) Facilitate unethical or illegal
earnings-management strategies.
(d) Lie to, or otherwise intentionally
mislead (including misleading by