RIGHT ACCOUNTANCY

IPCC / NOV. 2015 / ETHICS NOTES / 08.06.2015 / QUES. & ANS.

1. Define the term ‘social responsibility’ (or)

Explain the concept of social responsibility. (or)
What is meant by social responsibility.
Ans:Social responsibility of business means the obligations of
business to act in a manner which will serve the best interests of the
society. A business enterprise should not indulge in unfair trade
practices but rather supply good quality products at reasonable
prices, help generate employment and assure the welfare of its
employees. Businessmen should ensure that they do not impinge
upon the legitimate rights of others while acting in their own
interests. Business is a vital organ of the society and it draws
support from the society. Business has responsibilities towards
society that goes beyond the production of goods and services at a
profit. Business firms are more than simply economic institutions.
They have a responsibility to help the society in solving its problems
which are partly caused by business activities. Business enterprises
should serve the interests of all stakeholders (consumers,
employees, government, community and public in general) rather
than simply those of shareholders.

2. Why should business assume social responsibility?

Ans:Business should assume social responsibility due to the

following reasons:
(i) It is in the long term interest of business,
(ii) It will help to improve the public image of business,
(iii) It will avoid government regulation of business activities,
(iv) It is important to fulfill social obligations on moral grounds,
(v) Consumers are now more conscious of their rights and demand
such obligations from business enterprises.

3. Explain the concept of social responsibility of business. Give

arguments to justify why business should assume social
responsibilities.

Ans:Social obligations refer to the obligations or responsibilities of

business to act in a manner which will serve the best interests of the
society. Social obligations are different from legal obligations. Legal
obligations are compulsory and can be fulfilled merely by complying
with the law. Social obligations, on the other hand, relate to the
voluntary efforts on the part of businessmen to solve social
problems. The concept of social obligation is based on the
assumption that what is good for society is also good for business.
Business should assume social obligations due to the following
reasons:

(i) Long term Interest of Business: Business gets its resources

from the society. It is the duty of business to satisfy the needs of
society. If business spends a part of its profits for improving social
conditions, it will create an environment more favourable to the long
term prosperity of business. Education, pollution control, upliftment
of the poor and such other measures can be adopted for the
improvement of society. In the long run, a successful business can
be built on the foundations of a happy community. Thus,
assumption of social obligations is in the long-term interest of
business itself.

(ii) Public Image: A business firm can improve its public image
by fulfilling its social obligations. Such a business will enjoy the
support of its customers and other interest groups. They will
patronize it and as a result, it will earn more profits.

(iii) Avoidance of Government Control: If businessmen

voluntarily discharge their social obligations, need for government
control is avoided. Government control is costly to business as it
reduces the flexibility of decision making. For example, if a factory is
causing pollution of air or water, the owner should take steps to
prevent it. If this is not done, government may ask the firm to shift
to another area or to close down. By assuming social obligations,
businessmen can maintain freedom of enterprise.

(iv) Moral Justification: Every business enterprise makes use of

physical, financial and human resources of the society. It also
depends on the society for sale of goods and common services.
Moreover, business firms make use of roads, power, water supply
and other common facilities provided by the society. Therefore, it is
the moral responsibility of business to use all resources for the well-
being of society. Businessmen also have the knowledge, experience
and the finance to cooperate with the government and help the
society in solving its problem. Business can justify its existence and
growth by securing the society.

(v) Social Awareness: In recent years, consumers have become

increasingly aware of their rights. Consumer groups and consumer
courts are compelling businessmen to redress the grievances of
consumers. Workers have got united in the form of trade unions to
 protect their interests. These developments make it necessary for
businessmen to serve the interests of consumers, employees and
other interest groups. People who fell that they do not get their due
from business may resort to anti-social activities which are harmful
to business.

(vi) Social Power: Business enjoys considerable social power

because its decisions effect all sections of society. Social
responsibility is necessary to balance power and responsibility. If
business does not assume obligations to society, the welfare of
society will be affected. Other social groups may take away the
social power of business.

(vii) Resources and skills: Business has considerable resources

and skills some of which can be useful in solving society’s problems.
Business is also known for its innovative skills and efficiency in the
use of physical and financial resources. Therefore, business should
help the society.

(viii) Creator of Social Problems: Business causes pollution and

makes work places unsafe. Therefore, it is the responsibility of
business to help society in dealing with the negative impact of
business activities. Business can convert problems into
opportunities.

4. Give any three arguments against social responsibility of business.

Ans:Three arguments against social responsibility of business are as

follows:
(i) Involvement of business in social activities will dilute its goals.
(ii) The concept of social responsibility is likely to reduce the global
competitiveness of The Indian Industry.
(iii) Businessmen lack social skills and may not feel at home in
social matters.

5. Explain the case against social responsibility of business.

Ans:Some people criticize the concept of social responsibility. They

put forward the following arguments to oppose the assumption of
social responsibilities by businessmen.

(i) Dilution of Business Goals: If a business firm involves itself

in social activities, its economic goals might get diluted. Its position
in the market place might be weakened. As a result it may
accomplish poorly in both its economic and social goals. Society will
 lose when productivity of business declines. The economic role of
business in society would also become confused.

(ii) Lack of Social Skill: Generally businessmen lack perception

and skills required for effective handling of social problems. Their
outlook is primarily economic and they do not feel comfortable with
social matters. Their mental make up is suited for handling business
matters only.

(iii) Rise in prices: Social involvement of business requires

financial expenditure. Unless the government or social institutions
bear the costs, business is likely to pass this cost on to consumers
by increasing the prices of goods and services.

(iv) Lack of Accountability: A business enterprise is responsible

mainly to its owners. Involvement of business in social matters will
give businessmen more power. As public has little control over them
it will be difficult to check misuse of this power. It different sections
of society are represented in the management of business to ensure
accountability decision making process would become political and
freedom to enterprise would be undermined.

(v) Reduction in Competitiveness: If business firms are asked

to spend considerable money on social activities, their competitive
position in international markets may go down.

(vi) Lack of Measurement: There is no clear cut criteria to judge

the social performance of a business enterprise. Economic values
are the only precise criteria to measure the performance of
business. Moreover, business corporations are not moral agents.

The arguments given above suffer from two limitations. First, they
require business firms to ignore social demands on them. Business
enterprises cannot afford to do so. Business concerns are no longer
mere economic institutions. They are also social institutions.
Businessmen are trustees of various social groups. Secondly, these
arguments overstress the power and influence which business may
exercise by assuming social responsibilities.

6. What are the responsibilities of business towards its

owners/investors?

Ans:The responsibilities of business towards its shareholders are as

follows:
 (i) To ensure safety of investment.
(ii) To provide a fair and regular dividend.
(iii) To provide regular, accurate and up-to-date information about
the company.
(iv) To utilize the capital productively.
(v) To ensure growth of business
(vi) To offer reasonable opportunities for participation of
shareholders in policy decisions.

7. What are the responsibilities of business towards its employees?

Ans:The responsibilities of a business towards its employees are as

under:

(i) To give them fair wages and full employment

(ii) To provide good working conditions
(iii) To offer security of service and job satisfaction
(iv) To provide suitable opportunities for promotion and career
advancement
(v) To develop a sense of belonging and dignity of labour
(vi) To offer reasonable opportunity for participation in the
management of business.

Employees are the greatest assets of a business. The improvement

of their value is both a matter of material advantage and moral
obligation. They should be fully informed, fairly rewarded, properly
assigned, trained and developed and treated as honourable
individuals both on and off the job.

8. What are the responsibilities of business towards the consumers?

Ans:A business owes its existence to its consumers. The

responsibilities of business towards the consumers are given below:

(i) To produce the goods and services needed and desired by

consumers.
(ii) To provide goods and services of good quality at reasonable
prices.
(iii) To provide current information about goods and services
(iv) To avoid malpractices such as adulteration, black marketing,
misleading advertising etc.
(v) To redress the grievance of consumers effectively and promptly
(vi) To comply with the laws aimed at protection of consumers.
(vii) To provide prompt and effective after-sale service.
9. What are the responsibilities of business towards the government?

Ans:A business owes the following responsibilities to the

government.

(i) To comply voluntarily with the laws passed by the government.

(ii) To pay taxes and duties honestly and in time
(iii) To make constructive suggestions regarding formulation of
polices which have a bearing on business.
(iv) To cooperate with the executive organs of the government
regarding proper implementation of laws and policies.
(v) To support the efforts of the government for improving the
quality of life of people and in solving the pressing national
problems in the country.
(vi) To plan and establish new ventures in the rural backward areas
in the interest of balanced regional development of the country.
(vii) To contribute towards rescue and relief work in times of
national calamity or disaster such as droughts, floods,
earthquake, etc.

10. What are the responsibilities of business towards the community

and public?

Ans:Business is expected to work for the economic and social well-

being of the Community. The responsibilities of business towards
the society as a corporate citizen are as follows:
(i) To make optimum utilization of national resources.
(ii) To generate maximum opportunities for gainful employment.
(iii) To protect the natural environment from all types of pollution.
(iv) To promote communal harmony and peace in society.
(v) To uplift the weaker sections of society such as handicapped,
orphans, widows, schedule castes, etc.
(vi) To provide assistance to educational institutions, hospitals,
sports bodies, religious organizations, etc.
(vii) To promote national integration and democratic institutions.
(viii) To preserve and promote social and cultural values.
(ix) To undertake research and development so as to improve
quality and reduce costs.

11. Explain the social responsibilities of business towards different

interest groups.

Ans:Business interacts with several interest groups of society.

These interest groups are as follows:
 INTEREST GROUPS

Owner Employ Consum Suppli Governm Commu

s and ees ers ers ent nity and
inve general
stors
public

The responsibilities of business towards these interest groups are

summarized below:

(i) Responsibilities Towards Owners and Investors: (a) To

provide a fair return on their investment (b) To furnish regular,
accurate and complete information about the working of the
company (c) To maximize the shareholders wealth by means of
increase in the value of shares (d) To allow the shareholders
representation and participation in the management of business.

(ii) Responsibilities Towards Employees: (a) To pay fair wages

for the contribution of employees (b) To provide security of job and
promotion opportunities (c) To offer welfare facilities like safe
working conditions, housing, medical and leave, retirement benefits
etc. (d) To treat employees as partners in the management and
progress of business (e) To allocate work according to their
knowledge and aptitude so as to ensure job satisfaction.

(iii) Responsibilities Towards Consumers: (a) To provide goods

and services of the right quality and at reasonable prices (b) To
avoid unfair trade practices such as adulteration, black marketing,
misleading advertising, etc. (c) To handle consumer grievances
quickly and courteously, (d) To provide effective and prompt after
sale service.

(iv) Responsibilities Towards Suppliers: Every business firm

should develop and maintain healthy relations with suppliers and
competitors. It must pay the right price and make regular payments
to its suppliers. In regular dealings with competitors, a business
enterprise must not adopt unfair trade practices such as price
cutting to gain unfair advantage.

(v) Responsibilities Towards the Government: (a) To comply

with the laws passed by the government (b) To pay all taxes
honesty and in time (c) To assist the government in the formulation
and implementation of proper business policies (d) To support the
government efforts in improving the quality of life of people.
 (vi) Responsibilities Towards the Community and General
Public: (a) To reduce pollution (b) To make adequate safety
measures against production of hazardous or unsafe products (c) To
contribute to social welfare by helping educational institutions,
hospitals, weaker sections of society, etc. (d) To provide relief in
times of natural calamities such as drought, flood, earthquake, etc.
(e) To promote sports, art and culture (f) To prevent discrimination
on the basis of sex, caste, race, religion, etc. in providing
employment.

12. What is the environmental pollution?

Ans:Pollution means the injection of harmful substances into the

environment. Since independence, growing population and rapid
growth of industries in India have created serious environmental
problems. For example, Delhi alone has more than 12,355
industries. The smoke and smell emanating from these industries
are polluted the air. Such pollution affects the health of people. It
has been estimated that more than 5000 people die every year in
India due to air pollution. Most of the industries dump their liquid
waste into rivers, canals and underground water which leads to
pollution of drinking water. Industries also cause noise pollution. The
amount of environmental pollution depends upon the type of
pollutant, the amount of pollution disposed of into the environment
and the distance of a place from the source of pollution.

13. What are the causes of environment pollution in India?

Ans:The causes of various types of pollution are given below:

(i) Air Pollution: Smoke and other chemicals from industries and
carbon monoxide from vehicles cause pollution of air. Emission of
smoke, gases, fumes, dust and ash leads to air pollution. These
harmful substances reduce the quality of air.

(ii) Water Pollution: Business firms and people dump industrial

effluents, waste and chemicals into rivers, streams and lakes. As a
result water gets polluted.

(iii) Land Pollution: Dumping of toxic waste and garbage

causes pollution of land. Excessive use of fertilizers, chemical and
pesticides and pollutes the soil. As a result land becomes infertile
and no grass or plants can grow. It is necessary to restore the
quality of land that has already been damaged. It is also essential to
 prevent future pollution of land by adopting new methods of
disposal of solid waste.

(iv) Noise Pollution: Traffic and industries create noise in cities.

14. Explain the need for pollution control.

Ans:Environmental pollution poses a serious threat of human health

and quality of life. Pollution makes air harmful to breathe, water
unsafe to drink and land unfit to live on. Control over environmental
pollution is necessary due to the following reasons:

(i) To Reduce Health Hazards: Environmental pollution is a

major cause of cancer, lung and heart diseases. These diseases
have become leading causes of death in modern society. Most of the
health problems which women and infants face arise from the
environment in which they work and live.

(ii) To Reduce Safety Hazards: Air pollution caused by oil

refineries and other industries leads to poor visibility. As a result
automobiles of highways and aircrafts trying to land or take off from
airports face hazards. Poor visibility has been the cause of serious
accidents.

(iii) To Reduce Economic Loss: Pollution spoils clothes,

vegetation, livestock, and build Pollution control is necessary to
reduce the damage. It will reduce washing expenses, cost of repair
and maintenance of buildings.

(iv) To Reduce Inconvenience: Pollution of rivers and lakes

makes them unfit for swimming and fishing. Air pollution causes eye
irritation and respiratory problems. Air pollution obstructs normal
conversation. Control over pollution can avoid such nuisance or
discomfort.

(v) To Improve Quality of Life: Pollution control helps to

improve the quality of air. It prevents blackening of buildings by
pollution. For example, environmental experts have stressed the
need to protect Taj Mahal from the pollution caused by Mathura
Refinery. Pollution control will also reduce foul odours.

15. Explain various approaches to pollution control.

Ans:The main approaches adopted for checking pollution are as

follows:
 (i) Environmental Evaluation: The first approach is to make a
comprehensive analysis of the impact of every industrial activity
before it is undertaken. The government should not approve any
industrial activity until the primary and secondary affects of such an
activity are evaluated and all alternatives are considered. For
example, every government agency which wants to undertake a
project that affects the environment is required to submit an
Environmental Impact Statement.

(ii) Establishment of Pollution Standards: Limits on the

maximum allowable level of pollutants may be laid down. For
example, pollution standards have been prescribed for air pollution.
Small cars manufactured in India are required to adhere to Euro II
emission norms.

(iii) Environment Pollution Regulations: Government of India

has enacted laws to prevent pollution of air, water and land. Special
regulations are prescribed for major polluting industries. Licensing
procedures are used to regulate discharge of liquid water by
industries to prevent water pollution. Fiscal incentives are offered for
shifting of industries from residential areas and for installation of
pollution control equipment.

(iv) Ban: Use of substances which are hazardous or unsafe is

banned or restricted. For example, smoking in public places and use
of polythene bags is banned in some states.

(v) Awareness and Self Regulation: People should be made

aware of ecological imbalance. They should exercise self restraint
while interacting with the environment.

16. Explain the role of business in environmental protection.

Ans:Business can survive and grow only when the environment in

which it operates is clean and safe for people, animals and
vegetation. Therefore, environmental protection is an important
responsibility of business. Business can contribute to environmental
protection in the following ways.
(i) Use of clean and low waste technology in industry.
(ii) Recycling and reusing industrial waste e.g. use of combustible
waste in industrial boilers.
(iii) Scientific treatment of emissions before their release
(iv) Assisting governmental agencies and NGOs in cleaning polluted
rivers, managing hazardous substances and checking
deforestation
 (v) Installation of pollution resistant machinery
(vi) Promoting awareness about ecological balance
(vii) Planting trees on roads to keep the city green
(viii) Use of CNG vehicles
(ix) Fulfilling requirements for products to bear ECOMARK label
(x) Adopting other environmental friendly measures.

17. Define business ethics.

Ans:Business ethics may be defined as the moral principles which

should govern business activities in relation to society. It suggests
the ways and means of running a business on moral grounds.
Business ethics requires businessmen to be honest and truthful in
their dealings. They should adopt practices which are beneficial to
society.

Business ethics is a set of moral principles governing the conduct of

business men. The most important question raised in business ethics
is: should businessmen earn profit by any means? The answer is
negative. Business ethics does not permit a businessman to adopt
dishonest means for earning profits. Businessmen should be honest
and truthful and should not cause harm to others for personal gain.
Thus, business ethics suggests ways and means of running a
business on the basis of sound moral conduct.

Business ethics require businessmen to observe certain moral and

ethical standards in business dealings. Ethical considerations are
important in business because businessmen are responsible for the
welfare of society. They can fulfil their social obligations only when
they adopt ethical practices. Business ethics helps in maintaining
harmonious relationships between business and society. Social
values, personal beliefs and government rules and regulations are
the main factors influencing business ethics.

18. Explain the concept of social values.

Ans:Social values mean the moral standards by which members of

a society judge the behaviour of each other. Values determine what
is right or wrong or what people consider goods or bad behaviour.
With regard to business, social values include the following (i) the
features of good business, (ii) The objectives which business should
pursue, and (iii) The manner in which businessmen should perform
their affairs in the best interests of the society and on the basis of
sound moral principles.
 According to the prevailing social values, businessmen should not
sell adulterated products or should not use false weights. They
should pay fair wages to employees and right amount of tax to the
government.

19. “Business ethics varies from person to person, place to place and
time to time”. Explain the statement with relevant examples.

Ans:Business ethics refers to a system of moral standards are a

rule of behaviour of professional code of conduct which businessmen
should follow. It includes all the moral standards of business such as
honesty in all dealings, truth in advertisements, use of right weights
and measures, etc.

Business ethics depends on several factors. The personal beliefs of a

businessman influences the code of conduct he or she follows in his
business dealings. For example, a businessman who believes that it
is not bad to over charge customers will consider over charging as
normal business behaviour. Another businessman who considers it
unethical is not likely to overcharge and cheat customers. Therefore,
business ethics varies varies from person to person.

Social values and social forces exercise considerable influence on

business ethics. For example, in a developing country like India it is
normal for a tailor not to deliver the clothes on the promised date.
But in many developed countries the tailor failing to deliver the
clothes the promised date can be penalized severely. Thus, business
ethics differs from place to place.

Business ethics also undergoes change with time. Government rules

and regulations change from time to time. Now a producer of baby
food has to mention “Mother’s milk is the best food for a baby” in his
advertisement. Earlier it was not required. Thus, business ethics
varies from time to time.

20. What is Business Ethics? Explain the elements of Business Ethics.

Ans:Business ethics requires that business persons must take

decisions and actions which are in conformity with the prevailing
norms or standards of society. Ethics determines whether business
behaviour is right or wrong in terms of truth and justice. For
example, adulteration, black marketing, false advertising are against
business ethics. Ethical behaviour is above behaviour required by
law. Law reflects what society considers minimum standards of
behaviour. Business ethics refers to standards of morality to be
followed in business. It varies from society to society and from one
time period to another.
The main elements of business ethics are as follows:
(i) Ethical Imagination: It means being sensitive to ethical
issues while taking business decisions. Businessmen must identify
the situations where there decisions maybe detrimental to the
welfare of society.

(ii) Ethical Identification and Ranking: Businessmen must be

able to identify the ethical factors which are relevant in business
decision making. They should also rank the ethical issues in order of
their importance.

(iii) Ethical Evaluation: In addition to economic costs and

benefits, ethics should also be used in evaluating outcomes of
business decisions. However, there is bound to be some ambiguity
and disagreement in ethical thinking. Businessmen must be able to
tolerate such ambiguity and disagreement.

(iv) Ethical Competence: Businessmen require not only

managerial competence but also ethical competence. Unethical
behaviour is very costly. Therefore, ethical perspective must be an
integral part of managerial training.

(v) Ethical Obligation: Managerial decision making must be

based upon a concern for justice, fairness and equality to people,
groups and communities.