Professional Documents
Culture Documents
Definition -
Business Ethics are those principles, policies or philosophies that are concerned
with moral judgment and good conduct as they are applicable to a business
situation.
Business ethics refers to right or wrong behavior in business decisions.
Business ethics involves morally accepted behavior in business practices.
It deals with norms relating to customers, shareholders, employees, dealers, govt.
and competitors.
Characteristics/Features of Business Ethics -
Business ethics is the code of conduct which businessmen should follow while
conducting their normal business activities.
Business ethics has universal application.
It is a relative term. It changes from one business to another. It differs from country
to country.
It is strictly followed in western countries and is not followed properly in the poor
and developing countries.
It has universal application- Large or small.
It is more about earning long-lasting relationships in business.
It includes self control, service to society, fair treatment to social groups and not to
harm others.
It gives protection to customers and other social groups such as shareholders,
employees and the society at large.
It suggests legal, social, moral, economic and cultural limits within which business
has to be operated.
It must be accepted as self-discipline by businessmen.
Businessmen should be given proper education, guidance and training in order to
motivate them to follow ethical business practices.
It is not against profit-making. It is against profiteering by cheating and exploiting
consumers, employees or investors.
It supports expansion of business activities but by fair means and not through illegal
activities or corrupt practices.
Approaches to Business Ethics -
Empirical, Intuitive, Rational and Revelation
Empirical: It states that ethics is derived through experiences of businessmen who
determine what is right and what is wrong.
Intuitive: It states that business is not necessarily derived from experience of
businessmen or logic but businessmen automatically process an understanding of
what is good and what is bad.
Rational: It states that businessmen need not require any past experience for
determination of ethics.
Revelation: It states that religious moral principles help life to rise to its greatest
potential.
Scope for Business Ethics -
Criminal behavior and legal framework.
Human values and personal behavior.
Corporate and business ethics.
Importance of Business Ethics -
Customers will be satisfied only if the business follows all the business ethics.
Business ethics is needed in order to make businessmen conscious as regards their
duties and responsibilities towards consumer and other social groups.
Business ethics is needed to make business activities fair to consumers. It checks
business malpractices and offers protection to consumers.
It is needed in order to improve the confidence of consumers as regards quality,
price, reliability etc. of goods and services supplied.
It is needed for the protection of rights of consumers at the business level such as
right to health and safety, right to be informed, right to choose, right to be heard etc.
It is needed in order to protect the interest of all those concerned with business- the
employees, shareholders, dealers and suppliers. It avoids their exploitation through
unfair trade practices.
To create good image of businessmen in the society and also to avoid public
criticism.
Business Ethics and Profits -
Profit and Only Profit concept.
Firms-Non performance means huge liabilities.
Promotes inefficiency and cannot discharge social responsibility.
Corporate Code of Conduct -
Values and principles that determine the purpose of the company. Define
responsibilities to different groups of the stakeholders.
“This is how we except you to behave” Must and Must not.
Prohibitions-Penalties for violating the rules can be identified.
Realistic and focus on the potential ethical dilemmas faced by employees, it must be
communicated to all employees and enforced.
Managers must attend not only to the content of the code but also to the process of
determining that content.
Code should be developed and disseminated in an open, participate environment
involving as many employees as possible.
Beliefs and norms of an org. can be turned into an ethical code.
It is generally proposed, discussed and defined by the senior executive in the firm
and then published and distributed to the employees and shareholders.
Codes of standards of behaviour, the way the managers want the other people in the
organisation to act when confronted with a given situaton.
The norms are usually stated as a series of negative statements, what the employees
should not do.
The beliefs in the code are standards of thought, the ways that the managers in the
org. want the others to think.
The beliefs are stated in a positive way.
Reasons-Code of Ethics -
Manage or respond to internal organisational activity.
Means for making roles and expectations within the organisation clear.
To define the framework of the acceptable behaviour.
To follow high standards of practice.
To create benchmarks for self-evaluation.
To enhance sense of community.
Codes of ethics can be a dishonest way of gaining legitimacy in the eyes of
shareholders. The goal of the code can also be to control or regulate the behaviour of
employees in order to follow legal requirements as it is-
To create transparency in business activities.
To foster higher standards of business ethics.
To comply with government laws and norms.
Highlights of Code of Ethics -
Do not cheat/exploit consumers through business malpractices such as artificial
products and adulteration.
Do not resort to hoarding, black marketing, profiteering and sale of harmful goods.
Do not destroy healthy competition, which offers certain benefits to consumers. Do
not tarnish the image of competitors by unethical means.
Ensure accuracy in weighing, packing and quality while supplying goods to
consumers.
Pay taxes and other charges to the concerned authorities honestly and regularly.
Avoid bribing officials and lobbying for favours.
Maintain accurate accounts and make them available to all authorized persons and
authorities.
Pay fair wages, provide facilities and incentives and also give human treatment to
employees.
Supply reliable information to shareholders regarding financial position and other
policy decisions of the company.
Avoid injustice and partiality to employees in transfers and promotions. Avoid
discrimination among them on the basis of gender, religion and language.
Do not make secret agreement with fellow businessmen for controlling production,
pricing or for any other activity harmful to consumers.
Accept the principles of “service first and profit next”
Make your business efficient and dynamic. Give the benefits of these features to
consumers.
Avoid formation of private monopolies and concentration of economic power.
Adjust your business activities as per the needs and expectations of consumers.
Give due respect and honour to the basic rights of consumers.
Honour responsibilities towards different social groups on voluntary basis and not
by force.
Charge fair and reasonable price.
Ensure that intermediaries do not manipulate the prices.
Provide product warranty in clear terms.
Not to trade in smuggled products.
No public misleading and deceptive advertisements.
Corporate Codes -
Corporate Ethics
Corporate Practices
Code of conduct or behavior
Steps involved in implementation of code of ethics:
Drafting and preparation
Communication
Enforcement/Disciplinary action
Periodic review
Measures to improve ethical conduct of business
At Institutional level
At Government level
At Society level
At Institutional level:
Code of ethics, Increase in transparency, Rewards, Punishment, Continuous
appraisal, Lectures/Seminars
At Government Level:
Enactment of laws, Institution of awards, Awareness through mass media, Taking
quick action
At Society level:
Consumer awareness programmes, Public interest litigation, Consumers association,
Publishing journals, Liaison with government agencies, Boycotting products,
Measures for effective implementation of ethical standards and morals, Ethical audit,
Ethical training, Business ethics consultants, Ethical code of conduct, Ethics
committee, Ethics hotlines, Rewarding exemplary conduct, Disciplinary action,
Efficient systems, Government Laws
Corporate Governance
Meaning
• It promotes corporate fairness, transparency and accountability.
• It is concerned with structures and processes for decision making, accountability,
control and behavior at the top level of the org.
• Transparency in decision-making.
• Accountability which follows from transparency because responsibilities could be
fixed easily for actions taken or not taken and
• The accountability is for the safeguarding the interests of the stakeholders and the
investors in the organization.
Definition
• According to Sir Adrian Cadbury, World Bank Publication, “Corporate Governance is
holding the balance between economic and social goals and between individual and
community goals.”
• According to SEBI Committee, “Corporate Governance is the system by which the
companies are directed and controlled by the management in the best interest of the
stakeholders and others, ensuring greater transparency and better and timely
financial reporting.
Scope
• Shareholders rights;
• Enhancing the shareholder’s value;
• Issues concerning the composition and role of the Board of Directors;
• Deciding the disclosure requirements;
• Prescribing the accounting systems;
• Putting in place effective monitoring mechanism etc.
Objectives of CG
• A properly structured board capable of taking independent and objective decisions
is in place at the helm of affairs.
• The board is balanced with representation of adequate no. of non-executive and
independent directors who will take care of their interests and well-being of all the
stakeholders.
• The board adopts transparent procedures and practices.
• The board keeps the shareholders informed of relevant developments impacting the
company.
• The board effectively and regularly monitors the functioning of the mgt. team.
• The board remains in effective control of the affairs of the co. at all times.
• To confirm that rules are followed.
• To confirm that proper accounting is done.
• To confirm that responsibilities are followed.
• To confirm that proper control is created in simple words- Team of Mgt (Control &
Mgt.)
Prerequisites
• Political Responsibility-Legitimate law, respect for rights and principles of
constitutional state.
• Social Responsibility- Shared values.
• Economic Responsibility- Management’s obligation of maximising shareholder’s
value.
• BOD- Adequate internal controls and reports to the co. in a tranparent manner.
• Shareholders- Appoint Directors and the auditors to hold the board accountable
• Mgt.- Adequate control systems and to ensure their operation and to provide
information to the board on a timely basis.
Principles of CG
• Integrity and Fairness
• Transparency and Disclosures
• Accountability and Responsibility
• Honesty
• Trust and Integrity
• Openness
• Performance orientation
• Mutual respect and commitment to the org.
Basic essentials of CG
• Role and power of Board
• Legislation
• Board Independence
• Board Skills
• Management Environment
• Board Appointment
• Board Meetings
• Strategy Setting
• Business and Community Obligations
• Financial and Operational Reporting
• Monitoring the Board Performance
• Audit Committee
• Risk Management
Issues of CG
• Internal controls and internal auditors.
• The independence of the entity’s external auditors and the quality of their audits.
• Oversight and mgt. risk.
• Oversight of the preparation of the entity’s financial statements.
• Review of the compensation arrangements for the chief executive officer and other
senior executives.
• The resources made available to directors in carrying out their duties.
• The way in which individuals are nominated for positions on the board.
• Dividend policy.
Advantages of Corporate Governance
• It takes care of all stake holders i.e. share holders, creditors, debtors, workers,
customers etc.
• It avoids to disturb the ethics.
• It creates transparency in all activities.
• It creates good image of organization.
Mechanism of CG
• The Companies Act.
• Securities Law.
• Discipline of the Capital Market.
• Nominees on company boards.
• Statutory audit.
• Code of conduct.
Roles of SEBI
• Issue of guidelines.
• Public interest ads.
• Dealing with complaints of investors.
• Investor education.
• Investor surveys.
• Disclosures by companies.
• Code regarding takeovers.
Concepts in CG
• Insider Trading
• Whistle Blowing
• CG represents the value framework, the ethical framework and the moral framework
under which business decisions are taken.
• CG principles of transparency and accountability are crucial to the integrity and legal
credibility of our market system.
• One of the major problems of CG in India (be it the public sector, the multinationals
or the Indian pvt. Sector) is that of disciplining the dominant shareholder and
protecting the minority shareholders.
• The Corporate Governance codes are only a guideline. Effective CG depends upon the
commitment of the people in the organization.
• The key to good CG is a well functioning board of directors. The board should have a
core group of excellent, professionally acclaimed non-executive directors who
understand their dual responsibility role-of appreciating the issues put forward by
the management, and of honestly discharging their fiduciary responsibilities
towards the company’s shareholders as well as creditors
Your business doesn't exist in isolation, simply as a way of making money. Your
employees depend on your business. Customers, suppliers and the local community are all
affected by you and what you do. Your products, and the way you make them, have an
impact on the environment.
Corporate social responsibility (CSR) takes all this into account and can help you create
and maintain effective relationships with your stakeholders. It isn't about being "right on",
or mounting an expensive publicity exercise. It means taking a responsible attitude, going
beyond the minimum legal requirements and following straightforward principles that
apply whatever the size of your business. This guide explains how you can exploit the
benefits that CSR can bring to your bottom line.
Definition
CSR:
MallenBaker:
“A way companies manage the business processes to produce an overall positive impact
on society.”
HISTORY
The concept of CSR in India is not new, the term may be. The process though
acclaimed recently, has been followed since ancient times albeit informally. Philosophers
like Kautilya from India and pre-Christian era philosophers in the West preached and
promoted ethical principles while doing business. The concept of helping the poor and
disadvantaged was cited in much of the ancient literature. The idea was also supported by
several religions where it has been intertwined with religious laws. “Zakaat”, followed by
Muslims, is donation from one’s earnings which is specifically given to the poor and
disadvantaged. Similarly Hindus follow the principle of “Dhramada” and Sikhs the
“Daashaant”. In the global context, the recent history goes back to the seventeenth century
when in 1790s, England witnessed the first large scale consumer boycott over the issue of
slave harvested sugar which finally forced importer to have free-labor sourcing.In India, in
the pre independence era, the businesses which pioneered industrialisation along with
fighting for independence also followed the idea. They put the idea into action by setting
upcharitable foundations, educational and healthcare institutions, and trusts for
community development. The donations either monetary or otherwise were sporadic
activities of charity or philanthropy that were taken out of personal savings which neither
belonged to the shareholders nor did it constitute an integral part of business. The term
CSR itself came in to common use in the early 1970s although it was seldom abbreviated.
By late 1990s, the concept was fully recognised; people and institutions across all sections
of society started supporting it. This can be corroborated by the fact that while in 1977 less
than half of the Fortune 500 firms even mentioned CSR in their annual reports, by the end
of 1990, approximately 90 percent Fortune 500 firms embraced CSR as an essential
element in their organisational goals, and actively promoted their CSR activities in annual
reports (Boli and Hartsuiker,2001).
BACKGROUND OF CSR
The role of corporates by and large has been understood in terms of a commercial
business paradigm of thinking that focuses purely on economic parameters of success. As
corporates have been regarded as institutions that cater to the market demand by
providing products and services, and have the onus for creating wealth and jobs, their
market position has traditionally been a function of financial performance and profitability.
However, over the past few years, as a consequence of rising globalisation and pressing
ecological issues, the perception
of the role of corporates in the broader societal context within which it operates, has been
altered. Stakeholders (employees, community, suppliers and shareholders) today are
redefining the role of corporates taking into account the corporates’ broader responsibility
towards society and environment, beyond economic performance, and are evaluating
whether they are conducting their role in an ethical and socially responsible manner. As a
result of this shift (from purely economic to ‘economic with an added social dimension’),
many forums, institutions and corporates are endorsing the term Corporate Social
Responsibility (CSR). They use the term to define organisation’s commitment to the society
and the environment within which it operates. The World Business Council on Sustainable
Development’s
Making Good Business Sense and the OECD Guidelines for 1 Multi-National
Enterprises which includes a discussion on how CSR is emerging as a global business
standard. Further, there is a global effort towards reinforcing CSR programmes and
initiatives through local and international schemes that try to identify best-in-class
performers.
It differentiates the firm from its competitor and can be a source of competitive
advantage
CSR was a buzzword created in the early 1970's although it was seldom abbreviated
back then. Corporate social responsibility (CSR, also called corporate citizenship, corporate
responsibility, responsible business and sometimes corporate social opportunity) is a
concept whereby a business organisation considers the wider social and environmental
effects that it has as a trading entity outside of its direct trading environment. For example,
a mining company destroys the natural landscape when mining so part of its social
responsibility to the community where they are mining could be to invest in reforestation
projects.
Japanese companies often have 100 year business plans. If you are planning to be
around in business for the long-run then making sure ALL your stakeholders are
looked after is wise. If you mess the environment up people notice. If you mess
people around people remember. If you mistreat people they never forget. And yet
when you care for the environment you are awarded. When you care for people you
are awarded. You are rarely forgotten when you genuinely care. A business
enterprise is no different to a human - people will have feelings about it and that
impacts business positively or negatively.
Many companies say they care and yet they may not take the actions of caring. Going
beyond what is expected becomes exemplar and noted. An enterprise' actions are
notes the most by its employees and staff. The business team that runs an
organization knows what is going on. They know all the high and low points of a
company. These exact same people interact each and every day with the businesses
customers. How they feel about the company they work for impacts the bottom line
of a company directly. A sales person who loves his work and the company will sell
more. The receptionist who cares for her company will care for its customers
making them feel better and of course they are then more likely to return.
Many businesses make a loss the very first time a customer shops with them. This is
an amazing little known fact outside of the business world. It may cost thousands of
dollars for some companies to gain new customers because of long lead times or
expensive advertising campaigns. If they only sell to a customer once then they don't
ever recover their investment in acquiring that new customer or make a profit.
Customers these days are spoilt for choice. Many customers choose a business on
how they feel about the company of the people in the company. Most purchasing
decisions are subjective. Adding subjective and hard to measure components to a
business such as solid CSR programmes add to the perceived value added benefit a
customer received when they shop with the company.
2008's Good purpose™ global study of consumer thinking showed that almost seven
out of 10 (68%) consumers say they would remain loyal to a brand during an
economic downturn if it supports a good cause. Surprising. And logic-defying!
That same very recent study highlighted some other interesting things too. Like this:
half (52%) of global consumers are more likely to tell others about a brand that
supports a good cause over one that does not, with 54% saying they would help a
brand promote a product if there was a good cause behind it. And going even
further…Around the world, consumers have voiced a strong desire for business
marketers to link their brands to social action. Forty-two percent say that if two
products are identical in price and quality then the one that has the commitment to
a social purpose trumps key factors like design, innovation and brand loyalty when
selecting one brand over the other. Stunning isn't it?
The citizen brand emerges. And this comment from this key report just says it all: It
means that putting meaning into marketing is more important than ever. One of the
reporters puts it this way: "These findings present brands with an opportunity to
engage in 'mutual social responsibility'-brands and consumers working together to
effect positive social change for mutual benefit -and to realize a 'return on
involvement,' a new metric that looks at participation and involvement as true
builders of brand loyalty. When a brand acts as a 'citizen brand,' contributing to
community and society beyond its functional benefits, 'doing good' can translate to
'doing well' and the brand can forge a stronger emotional bond with its consumers.
Gandhiji was a person who in several respects was ahead of his time. His view of the
ownership of capital was one of trusteeship, motivated by the belief that essentially society
was providing capitalists with an opportunity to manage resources that should really be
seen as a form of trusteeship on behalf of society in general. Today, we are perhaps coming
round full circle in emphasizing this concept through an articulation of the principle of
social responsibility of business and industry. While the interests of shareholders and the
actions of managers of any business enterprise have to be governed by the laws of
economics, requiring an adequate financial return on investments made, in reality the
operations of an enterprise need to be driven by a much larger set of objectives that are
today being defined under the term Corporate Social Responsibility (CSR).
The broad rationale for a new set of ethics for corporate decision making, which
clearly constructs and upholds a company's social responsibility, arises from the fact that a
business enterprise derives several benefits from society, which must, therefore, require
the enterprise to provide returns to society as well. Of course, the system of taxation in
most countries does ensure that basic services provided by government such as a system of
law and order, provision of infrastructure that includes assets such as roads, transportation
facilities, the benefits received from the apparatus of society for respecting and enforcing
property rights, etc. are paid for through taxation on economic goods and services
produced and consumed. But there are other aspects of services provided by society that
have now become even more important than traditional relationship between government
and business. These go far beyond what was the case a few decades ago.
Why should companies whose major objective has been to maximize profits for the
benefit of their shareholders worry at all about serving the interest of society at large? The
answer is simple and yet somewhat circular in nature. A business cannot succeed in a
society which fails. This, therefore, clearly establishes the stake of a business organization
in the good health and well being of a society of which it is a part. More importantly, in this
age of widespread communication and growing emphasis on transparency, customers of
any product or service are unlikely to feel satisfied in buying from a company that is seen to
violate the expectations of ethical and socially responsible behaviour. We find, therefore,
that to a growing degree companies that pay genuine attention to the principles of socially
responsible behaviour are also favoured by the public and preferred for their goods and
services.
GLOBALIZATION AND CORPORATE SOCIAL RESPONSIBILITY
The social responsibilities of business in a market society have been discussed for
decades, long before globalization became a catchword (see, e.g., Baumhart 1961; Bowen
1953; Donham 1927). The capitalist system, i.e., voluntary exchange on free and open
markets, is widely considered the best societal coordination measure to contribute to
individual freedom and the wellbeing of society (Friedman 1962, Hayek 1996). Though the
functions of the state system have always been a matter of debate (see, e.g., Block 1994), it
is generally acknowledged that in capitalist societies it is the task of the state to establish
the preconditions for the proper working of markets, i.e., to define legal rules such as
property rights and contractual rights, to erect an enforcement body, to provide public
goods, and to reduce or avoid the consequences of externalities. At the same time, private
firms are entitled to own means of production and to run a business, i.e. to supply goods
and services for a return in private profits, as it is the “invisible hand” of the market which
directs the behavior of firm owners towards the common good. The state, it was assumed,
is capable of setting the rules in such a way that the consequences of market exchange
contribute to (or at least do not harm) the well-being of society.
Business firms have to obey the law – this has always been a precondition and has
been accepted as a minimum social responsibility of businesses, even by the harshest
critics of CSR (see, e.g., Friedman 1970; Levitt 1970). However, as the system of law and the
enforcement apparatus of the state are incomplete there is a likely possibility of regulation
gaps and implementation deficits which have to be filled and balanced by diligent managers
with prosocial behavior and an aspiration to the common good (e.g., Stone 1975). In as
much as the state apparatus does not work perfectly there is a demand for social
responsibilities of business, i.e. corporations are asked to comply to the law when the
enforcement body is weak and to even go beyond what is required by law, when the legal
system is imperfect or legal rules incomplete.
SECTION 130 Professional Competence and Due Care 130.1 The principle of professional
competence and due care imposes the following obligations on professional accountants:
(a) To maintain professional knowledge and skill at the level required to ensure that clients
or employers receive competent professional service; and (b) To act diligently in
accordance with applicable technical and professional standards when providing
professional services. 130.2 Competent professional service requires the exercise of sound
judgment in applying professional knowledge and skill in the performance of such service.
Professional competence may be divided into two separate phases: (a) Attainment of
professional competence; and (b) Maintenance of professional competence. 130.3 The
maintenance of professional competence requires a continuing awareness and an
understanding of relevant technical professional and business developments. Continuing
professional development develops and maintains the capabilities that enable a
professional accountant to perform competently within the professional environments.
SECTION 150 Professional Behavior 150.1 The principle of professional behavior imposes
an obligation on professional accountants to comply with relevant laws and regulations and
avoid any action that may bring discredit to the profession. This includes actions which a
reasonable and informed third party, having knowledge of all relevant information, would
conclude negatively affects the good reputation of the profession. 150.2 In marketing and
promoting themselves and their work, professional accountants should not bring the
profession into disrepute. Professional accountants should be honest and truthful and
should not: (a) Make exaggerated claims for the services they are able to offer, the
qualifications they possess, or experience they have gained; or (b) Make disparaging
references or unsubstantiated comparisons to the work of others.
SECTION 200 Introduction 200.1 This Part of the Code illustrates how the conceptual
framework contained in Part A is to be applied by professional accountants in public
practice. The examples in the following sections are not intended to be, nor should they be
interpreted as, an exhaustive list of all circumstances experienced by a professional
accountant in public practice that may create threats to compliance with the principles.
Consequently, it is not sufficient for a professional accountant in public practice merely to
comply with the examples presented; rather, the framework should be applied to the
particular circumstances faced. 200.2 A professional accountant in public practice should
not engage in any business, occupation or activity that impairs or might impair integrity,
objectivity or the good reputation of the profession and as a result would be incompatible
with the rendering of professional services. Threats and Safeguards 200.3 Compliance with
the fundamental principles may potentially be threatened by a broad range of
circumstances. Many threats fall into the following categories: (a) Self-interest; (b) Self-
review; (c) Advocacy; (d) Familiarity; and (e) Intimidation. These threats are discussed
further in Part A of this Code. The nature and significance of the threats may differ
depending on whether they arise in relation to the provision of services to a financial
statement audit client, ∗ a non-financial statement audit assurance client* or a non-
assurance client. 200.4 Examples of circumstances that may create self-interest threats for
a professional accountant in public practice include, but are not limited to: • A financial
interest* in a client or jointly holding a financial interest with a client. • Undue dependence
on total fees from a client.
SECTION 220 Conflicts of Interest 220.1 A professional accountant in public practice should
take reasonable steps to identify circumstances that could pose a conflict of interest. Such
circumstances may give rise to threats to compliance with the fundamental principles. For
example, a threat to objectivity may be created when a professional accountant in public
practice competes directly with a client or has a joint venture or similar arrangement with a
major competitor of a client. A threat to objectivity or confidentiality may also be created
when a professional accountant in public practice performs services for clients whose
interests are in conflict or the clients are in dispute with each other in relation to the matter
or transaction in question. 220.2 A professional accountant in public practice should
evaluate the significance of any threats. Evaluation includes considering, before accepting
or continuing a client relationship or specific engagement, whether the professional
accountant in public practice has any business interests, or relationships with the client or
a third party that could give rise to threats. If threats are other than clearly insignificant,
safeguards should be considered and applied as necessary to eliminate them or reduce
them to an acceptable level.
SECTION 230 Second Opinions 230.1 Situations where a professional accountant in public
practice is asked to provide a second opinion on the application of accounting, auditing,
reporting or other standards or principles to specific circumstances or transactions by or
on behalf of a company or an entity that is not an existing client may give rise to threats to
compliance with the fundamental principles. For example, there may be a threat to
professional competence and due care in circumstances where the second opinion is not
based on the same set of facts that were made available to the existing accountant, or is
based on inadequate evidence. The significance of the threat will depend on the
circumstances of the request and all the other available facts and assumptions relevant to
the expression of a professional judgment. 230.2 When asked to provide such an opinion, a
professional accountant in public practice should evaluate the significance of the threats
and, if they are other than clearly insignificant, safeguards should be considered and
applied as necessary to eliminate them or reduce them to an acceptable level. Such
safeguards may include seeking client permission to contact the existing accountant,
describing the limitations surrounding any opinion in communications with the client and
providing the existing accountant with a copy of the opinion.
SECTION 260 Gifts and Hospitality 260.1 A professional accountant in public practice, or an
immediate or close family member, may be offered gifts and hospitality from a client. Such
an offer ordinarily gives rise to threats to compliance with the fundamental principles. For
example, self-interest threats to objectivity may be created if a gift from a client is accepted;
intimidation threats to objectivity may result from the possibility of such offers being made
public. 260.2 The significance of such threats will depend on the nature, value and intent
behind the offer. Where gifts or hospitality which a reasonable and informed third party,
having knowledge of all relevant information, would consider clearly insignificant are made
a professional accountant in public practice may conclude that the offer is made in the
normal course of business without the specific intent to influence decision making or to
obtain information. In such cases, the professional accountant in public practice may
generally conclude that there is no significant threat to compliance with the fundamental
principles. 260.3 If evaluated threats are other than clearly insignificant, safeguards should
be considered and applied as necessary to eliminate them or reduce them to an acceptable
level. When the threats cannot be eliminated or reduced to an acceptable level through the
application of safeguards, a professional accountant in public practice should not accept
such an offer.
Ethics and Financial Reporting Ethics are the moral principles that an individual uses in
governing his or her behaviour. Ethics refers to a discipline in which matter of right and
wrong, good and evil, virtue and vice are systematically examined (Brinkmann, 2002;
Ogbonna & Appah, 2012). Ethics looks at human behavior, moral principles and the effort to
separate good from bad. When trying to recognize common matters being dealt with,
within the corporate environment, professional bodies’ codes of ethics is the right place to
look. These codes characterize what can be considered to be the image of business ethics.
Codes of ethics should principally address the particularities of high risk activities and are
built on the collective integrity of a profession as a resolution for the group’s
acknowledgment of the moral dimension. Ethical obligation in the corporate world is not
all-inclusive, but what can be done is to consider any phenomenon that within a definite
situation inspires ethical behavior (Micewski & Troy, 2006). Jenfa (2000); Nwagboso
(2008) and Ogbonna & Appah, (2012), observed that professional ethics offers accountants
with these benefits: it aids the accountant to regulate the affluence of his behavior in his
professional association; it provides clients and potential clients a basis of having confident
that the professional frankly wishes to serve them well and places service above financial
reward; this guide the kind of professional attitude the accountant must maintain if he is to
thrive. It guarantee clients that standards of competence, independence and integrity shall
remain the goal of the accountant; it allows member bodies and regulatory authorities to
accomplish their obligation of ensuring that the professional accountants have the know-
hows and capability expected of them by employees, clients and the public and public
interest is safe and the integrity of the profession is enriched. Accounting is a profession
that relies greatly on the basis to show a high sense of responsibility and stewardship, and
this stress the need for all members to be steered by professional code of conduct
(Nwagboso, 2008). ICAN and ANAN provided the fundamental guidelines applicable to the
practice of accounting & auditing in Nigeria. These guidelines are summarizing below: -
Integrity: A professional accountant should be honest in their professional relationships
and transactions - Objectivity: Professional accountant should take into professional
judgment and the realities your business and not allow prejudice, bias, conflict of interest
or influence of others on the professional judgment and affect her work - Professional
competence and due care: Professional accountant should perform the service that it is
possible to afford. A Professional accountant should have knowledge and skills in their
professional development, new methods and techniques and etiquette to the level at which
the employer or the employer has to ensure that the professional services efficiency -
Confidentiality: A professional accountant should the information obtained in the course of
professional services without explicit permission of the employer or the employer's
confidential and disclose such information unless or without the professional legal duty
exposing the information on be permitted.
Every organization desires honesty from and among its employees. The presence of
honesty allows for complete dedication to the organization’s mission and success. By
encouraging a whistle blowing culture, the organization promotes transparent structure
and effective, clear communication. More importantly, whistle blowing can protect the
organization’s clients. For example, if a hospital employs a number of negligent staff
members, other, more ethically inclined, employees would need to bring such issues to the
hospital’s attention, protecting the organization from possible lawsuits or severe mishaps
resulting in a patient’s demise.
As with most matters, there are positives and negatives. Whistle blowing, too, has some
negative aspects. For instance, in a 1972 case, an arbitrator told a whistle-blowing
employee that the employee could not, “Bite the hand that feeds you and insist on staying
on the banquet.” If the entire organization does not have the same positive attitude in
regards to whistle blowing, employees may fear speaking up.
Although these two negative aspects of whistle blowing can be quiet unsettling, both can be
curbed. By promoting a whistle blowing culture within the organization, employees will feel
comfortable speaking up when necessary. Here are some tips for promoting a whistle
blowing culture:
Top Management must demonstrate the inclusion of whistle blowing in the culture.
Discuss with employees their personal thoughts on topics to make sure everyone
has a similar mindset.
Whistle blowing is an essential tool for an organization. Without it, fraud, misconduct, and
failure may dominate an organization. By promoting clear communication and keeping the
organization’s goals in focus for everyone, one can minimize their chances of being the next
Enron.