Professional Documents
Culture Documents
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By following the CIMA code you will practice the good virtues embodied in
this code. Studying the code will give you a good sense of what is considered
ethically right and wrong behaviour.
The fundamental principles of this code will be fully explained in chapters
one and two.
Tips when studying this section
It is important that you do not see ethics as a topic distinct from other areas
of business. You will be expected to understand how ethical ideas affect
every decision you make as an accountant.
The syllabus expects you to distinguish between:
Regulations
Codes of conduct
Personal ethics/beliefs
2.
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The Law
In order to live and work together humans have developed frameworks of
rules to regulate behaviour. Without these frameworks things would spiral
out of control.
Laws have evolved to protect society from illicit conduct. The law
represents the minimum standard of behaviour required within a particular
society.
Breaking the law is illegal and therefore a punishable offence.
What is considered unlawful however, will vary from society to society.
Even within the same society not everyone agrees with every law.
Regulations
Regulations are standards set by organisations within particular contexts.
Most organisations expect their members to abide by its regulations. For
instance, as a member of CIMA you should follow its code of conduct.
In some businesses, regulations can also applied by external regulators. This
is common amongst old state owned industries such as energy,
telecommunications, water and railways. In the UK, for example, OFCOM
regulate the telecommunications industry controlling the way the companies
run and manage operations to ensure they operate fairly.
Ethical behaviour
Ethical behaviour goes further than meeting laws and regulations. Ethical
behaviour is the highest level of conduct.
Aristotle identified fundamental virtues in a person, e.g honesty and
integrity, and these create ethical conduct. The ethical code of CIMA is
based on similar fundamental virtues. This code is examined at the end of
this chapter.
Professional ethics are standards of conduct agreed by a profession, such
accountancy or medicine. In the case of CIMA, the professional ethics
required of accountants are specified in the CIMA code of ethics.
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The last few years have highlighted the cost of acting unethically. A spate of
business failures and financial misdemeanours led to severe public mistrust
in the financial world. It is therefore essential that members of CIMA not
only uphold the code but act as role models for correct professional
behaviour.
3.
Since the 1980s, a number of high profile business scandals (e.g. Enron,
Worldcom) resulted in decreasing public confidence in the accountancy
profession. This highlighted the need for ethical strategies and policies,
and increased regulation, training and guidance.
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The Enron scandal led to the collapse of the Enron Corporation and the
dissolution of a huge auditing and accountancy corporation, Arthur
Andersen.
4.
5.
Legal frameworks
There are two basic theoretical approaches that can be followed when
developing a code of ethics. They are
A rules-based approach
A framework-based approach
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Disadvantages include:
Legislative example
The US Sarbanes-Oxley Act is an example of the rules-based approach.
Also known as the Public Company Accounting Reform and Investor Act,
this act set out new and enhanced standards for all public company boards,
management and public accounting businesses. This bill was enacted as a
result of high profile business scandals including the Enron scandal. It
became a federal law.
Critics of this bill argue that has hindered business by producing an overly
complex regulatory system. Others regard its as a blessing for reestablishing confidence in fund managers investors.
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members are expected to follow are set out as principles and general
guidelines.
In the UK there are many examples of voluntary frameworks.
Case Example 1. The Combined Code is the main source of corporate
governance in the UK. This code is not a legal requirement. However all
companies listed in the stock exchange are encouraged to follow it and
could face pressure from stakeholders if they fail to do so.
Case Example 2. The CIMA code of ethics is also a value-based framework,
based on key standards and best practice.
Advantages of voluntary frameworks include:
Disadvantages:
6.
UK regulation of accountants
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7.
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Although most accountants do not live a public life they are a good set of
principles which professionals such as CIMA members are encouraged to
follow.
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Accountability
Accountants should take responsibility for their own actions, judgments and
decisions, and be accountable for them. For example they should not pass
their own poor work off as being done by another individual.
Social Responsibility
As members of society individual accountants are expected to behave in a
socially responsible manner, so for example, recycling stationary and other
materials in an environmentally friendly manner.
Lifelong Learning
Life long learning is the concept that an individual should be open to the
pursuit of learning throughout their personal and professional life.
Accountants are expected to update their technical and practical skills,
keeping pace with changes in the profession and the business world.
It is their duty as professional accountants to do so.
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9.
The IFAC code of ethics was published in 2005 and revised in 2009.
IFAC members across the world must comply with the code. The mission of
the IFAC is to
The code (which CIMA has adopted) has the aim of identifying the
responsibilities that a person employed as an accountant takes on.
The code is in 3 parts:
General Application of the code
This introduces the fundamental principles as outlined in the Code of Ethics
below.
Professional Accountants in Public Practice
This provides guidance on following these principles for accountants working
for an accountancy practice, for example, advice on fees and remuneration,
conflicts of interest, hospitality, objectivity etc.
Professional Accountants in Business
This section is particularly relevant to those working in commerce (business
sector). For example, it gives guidance on preparing information, financial
inducements etc.
10.
CIMA Code
The CIMA Code of Ethics is based on the IFAC Handbook of the Code of Ethics
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by CIMA under the CIMA code of ethics
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This means being unbiased and acting in an impartial manner. There should
be no conflicts of interest or illicit relationships that might influence
members in their professional or business judgements.
For example, an accountant should not accept (or offering) excessive
hospitality from people with whom they might have to review their work as
this could lead to bias creeping in or feelings of embarrassment, which
might prejudice their independence.
3. Professional Competence and Due Care
This means ensuring that ones professional knowledge, skills and technical
standards are maintained at the level required to practice with full
competence. Keeping up to date with developments in practice, legislation
and techniques. Any limitations in technical and professional standards
should be disclosed and remedied. For example, attending professional
courses to update knowledge of the latest accounting rules.
4. Professional Behaviour
This means avoiding actions that could discredit the profession, and
complying with relevant laws and regulations. They should be honest and
truthful.
For example, the accountant should not make exaggerated claims about
their qualifications or the services they offer and should not make
disparaging references to the work of others or say anything dishonest or
untrue.
5. Confidentiality
This means respecting confidentiality and safeguarding information obtained
through professional and business relationships. The accountant should not
use information for their personal advantage. They should not disclose
unauthorised information, acquired from professional relationships, to
others outside the company or employing organisation. This includes
breeching confidentiality in a social situation.
For example, you should not discuss a colleagues financial information with
a family member.
The principle of confidentiality continues even after a business relationship
has been terminated.
Disclosure
The exception to maintaining confidentiality is when there is a legal or
professional right or duty to disclose. CIMAs code of conduct lists the
particular circumstances in which confidential information could be
disclosed. They are:
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Personal use only - not licensed for use on courses
Sharing or copying these notes is illegal and punishable
by CIMA under the CIMA code of ethics
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Disclosure by law
The disclosure principle in accountancy states that all material information
should be disclosed in financial statements. This includes accounting
policies, balance sheets, details of cash flows and income statements.
In full disclosure any event that might affect financial statements should be
revealed.
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