ETHICS

ETHICS
Unethical business practices harm organizations and economies. Large-scale

business failures such as Enronas well as the more recent failures related to the
global financial crisishighlight the consequences of unethical business practices
and amoral management. Professional accountants, as stewards of transparency
and trust, and subject to a professional code of ethics, have a key role to play not
only in upholding but in encouraging and influencing ethical behavior and decision
making within their organizations.
What Do We Mean by Ethics?
Ethics covers moral principles and norms by which human actions may be judged. Business ethicsis about
managing ethics in an organizational context and involves applying principles and standards that guide
behavior in business conduct.
Business ethics applies to all aspects of business practicesfrom how organizations develop, produce, and
deliver products and services, to interactions with customers, suppliers, employees, and society. It
encompasses human rights; labor and employment practices, such as training, diversity, gender equality,
and employee health and well-being; and bribery and corruption. Some organizations also use the term to
cover environmental sustainability issues, such as climate change and resource efficiency.
Practice ethics concerns the professional ethics that arise in the context of an accounting firm rendering
professional services, encompassing assurance through to advisory, and to clients.
Why Is Ethics Important?
Unethical business practices harm organizations and economies. The business failures of Enron, WorldCom,
Tyco International, Parmalat, and Arthur Andersen, as well as the more recent failures related to the global
financial crisis, highlight the consequences of unethical business practices and amoral management.
Business ethics is increasingly part of a wider trend that recognizes corporate social responsibility as a driver
of sustainable organizational success. A growing number of organizations go far beyond viewing ethical
practices as a means to avoid penalties or fines; they believe that corporate responsibility and ethical
practices lead to sustainable value creation. Many organizations view corporate responsibility as a core part
of corporate culture, which can bring an array of benefits to both the organization and society. These
organizations typically have leaders who are passionate about the positive role of organizations in facilitating
societal welfare and believe that corporate responsibility makes good business sense.
Business ethics can have a measurable impact on corporate and brand reputation and, ultimately, license to
operate. In addition, organizations can suffer damage from actions that are legal but perceived by
customers and society as unethical or not in the spirit of the law.
Practice ethics matters since it is crucial to the trust placed by the end user in the professional services
offered by accounting firms. In the absence of trust, such services will be perceived to have little or no
value. The independence of professional accountants in practice, both in fact and appearance, is the key to
securing trust. Hence, professional accountants in practice comply with independence requirements related
to everything from investments to business and employment relationships to services delivered to clients.
Global Perspectives on Ethics
Various international frameworks, standards, and principles include issues of corporate responsibility in
which ethics is a subset, including the UN Global Compact's Ten Principles, UN Guiding Principles on
Business and Human Rights, and Organisation for Economic Co-operation and Development (OECD)s
Guidelines on Multinational Enterprises.
The application of business ethics differs depending on the country, culture, and traditions, as well as the
level of maturity in terms of regulation and enforcement of organizations legal responsibility and the
expectations and duties of directors. However, the nature of ethical issues is generally similar across
organization types, sizes, and geographies. For finance and accounting activities, typical ethical issues
include conflicts of interest, providing truthful information and reports, and facilitating payments and bribes.
The main safeguards are also universal and include ethical leadership, effective governance, a values-based
code of conduct reinforced by a responsible business culture, and effective stakeholder engagement,
transparency, and accountability.
In some jurisdictions, particularly in Europe and the US, aspects of business ethics are typically reinforced
by regulation, laws, and stock exchange listing rules. Examples of regulatory and legislative approaches to
business ethics and conduct include the US Federal Sentencing Guidelines(1991), Section 406 of
the Sarbanes Oxley Act of 2002, UK Bribery Act (2010), and Clause 49 of the listing agreement of Indias
stock exchange.
Ethics and business conduct have not traditionally been considered the boards responsibility, as set out in
corporate governance standards and guidance or company law, but this is beginning to change. Some
jurisdictions are defining core principles encompassing sustainability and ethical conduct and ensuring that
company ethics are managed effectively and in the interests of a wider set of stakeholders, such as the King
III Corporate Governance Framework in South Africa.
Significant progress has been made toward the global convergence of ethical standards by professional
accountants. The International Ethics Standards Board for Accountants (IESBA) develops and issues, under
its own authority, the Code of Ethics for Professional Accountants (the Code). The IESBAs objective is to
serve the public interest by setting high-quality ethics standards for professional accountants. Its long-term
objective is convergence of the Code's ethical standards for professional accountants, including auditor
independence standards, with those issued by regulators and national standard setters.
The Role of Accountants and the Accountancy Profession
A distinguishing characteristic of the accountancy profession is the responsibility to act in the public interest.
In addition, for accountants, business ethics requires the application of professional ethics. IFACs member
organizations are required to apply ethical standards at least as stringent as the Code. Convergence to a
single set of standards can enhance the quality and consistency of services provided by professional
accountants throughout the world and can improve the efficiency of global capital markets. The Code
requires professional accountants to comply with five fundamental principles: integrity; objectivity;
professional competence and due care; confidentiality; and professional behavior.
The profession has developed a range of resourcesincluding reports, guidance, and support helplinesto
help accountants and their employers apply the Code (and local adaptations) and resolve ethical dilemmas.
The decisions and behaviors of accountants should reinforce good governance and ethical practices, develop
and promote an ethical culture, foster trust and transparency, bring credibility and value to decision making,
and present a faithful picture of organizational health to stakeholders.
Accountants appointed to senior management positions, both in business and practice, have a particular
responsibility to provide ethical and trusted leadership. They are not only expected to be technically
competent but to also use their position of influence to encourage ethical behavior and decision making
throughout their organization.

ETHICS

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ETHICS

Unethical business practices harm organizations and economies. Large-scale

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