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CIMA BA4 Fundamentals of Ethics, Corporate Governance and Business Law > Chapter 1 Business Ethics and Ethical Conflict > Flashcards

Chapter 1 Business Ethics and Ethical Conflict Flashcards

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1
Q

What is the definition of Ethics?

A

Set of moral principles that guide behaviour

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2
Q

What is the definition of a Code of Ethics?

A

Set of standards, e.g. CIMA code, governing conduct of members of a certain profession

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3
Q

What are the 3 main things for how an accountant should behave?

A
  1. Trustworthy - public relies on them
  2. Act in public interest and socially responsible
  3. Greater transparency & higher level of responsibility
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4
Q

What is the CIMA code of Ethics?

A
  • CIMA’s own professional code of ethics which is based on the Code of Ethics published by the IESBA. IESBA is part of the IFAC. (IFAC represents all the major accountancy bodies in the world)
  • Emphasizes that accountants must act in public interest
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5
Q

Do the IESBA and IFAC take action against transgressors of the Code?

A

No they do not. But CIMA can and does. Contravening the code has no legal effect but => serious professional and commercial consequences.

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6
Q

What 4 characteristics does the code set out as the basic needs for the accountancy profession?

A
  1. PROFESSIONALISM - identifiable as professional person
  2. CREDIBILITY - Information and info systems must be credible
  3. PROVIDE HIGH QUALITY SERVICES - highest standards
  4. CONFIDENCE - should feel confident that it frames governs provision of ethics
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7
Q

What are the principles of the code?

A

CIPOP

  1. Confidentiality
  2. Integrity
  3. Professional Behaviour
  4. Objectivity
  5. Professional Competence and Due Care
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8
Q

What is the confidentiality principle of the Code for CIMA?

A
  • Do not disclose info unles there is a legal or professional right to do so.
  • The two circumstances where you have responsibility to disclose:
  • *Obligatory responsibility** - suspect client has use money laundering, drug-trafficking, terrorist offences
  • *Voluntary disclosure** - disclose information if in the public interest e.g. if manager involved in fraud
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9
Q

What is the Integrity principle of the Code for CIMA?

A
  • Straightforward and honest in all professional and business relationships
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10
Q

What is the professional behaviour principle of the Code for CIMA?

A
  • Comply’s with laws and regulations and avoid any action that discredits profession e.g. unsubstantiated claims
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11
Q

What is objectivity principle of the Code for CIMA?

A
  • Don’t allow bias, conflict of interest or undue influence e.g. gift from 3rd parties
  • Practise impartiality
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12
Q

What is the professional competence and due care principle code for CIMA?

A
  • Maintain professional knowledge and skill, act in accordance to professional standards. Take time to do things sufficiently, don’t undertake work unless competent to do so.
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13
Q

What are the 5 personal qualities required of an accountant?

A

Come To Really Respect Roger

  1. COURTESY
  2. TIMELINESS
  3. RELIABILITY
  4. RESPONSIBILITY
  5. RESPECT
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14
Q

What are the 4 professional qualities required of an accountant?

A

SASI

  1. SCEPTICISM
  2. ACCOUNTABILITY
  3. SOCIAL RESPONSIBLITY
  4. INDEPENDENCE
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15
Q

What is the rules-based approach to incorporating ethical behaviour?

A
  1. Ensure comply within letter of the law
  2. Minimum standards must be achieved
  3. Punish offenders
  4. Supervision
  5. Record activities
  6. Little discretion
  7. Emphasis on training, communication, investigation
  8. Ethical behaviour imposed
  9. Consistent
  10. Easy to follow
  11. Might be possible to find work-arounds
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16
Q

What is the principles-based approach to incorporating ethical behaviour?

A
  1. Use law as basis for action
  2. Employees encourages to take responsibility
  3. Create environment that supports ethical behaviour
  4. Communicate organisational values to staff
  5. Build values into systems
  6. Consult with staff over best ethical stance
  7. Adaptable to diff organisations
  8. Lead to inconsistencies and confusion
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17
Q

What type of frame is CIMA’s Code?

A

This = CONCEPTUAL framework

  • Guide ethical behaviour rather than prescriptive rules
  • Impossible to legislate for every situation
  • Identify, evaluate and address threats
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18
Q

What are the 7 organisational values for promoting ethical behaviour?

A
  1. OPENNESS
  2. HONESTY
  3. ACCOUNTABILITY
  4. RESPECT - allow different viewpoints, ensure everyone observes need for meetings
  5. TRUST
  6. EMPOWERMENT
  7. LEADERSHIP - set tone at the top

Business’s may have their own Codes of Conduct or Codes of Practice, help identify how to behave in line with the organisations values and any particular legal requirements

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19
Q

What is involved in embedding an ethical code?

A
  • Drawing up code not enough alone
  • Should influence behaviour and strategy
  • Ethical values part of org culture
  • Communication and training
  • Example top down
  • Reflected in core activities and policies
  • Whether meeting own standards and upholding values
20
Q

What is the CGMA?

A
  • AICPA (American institute of CPA’s) and CIMA’s joint venture
  • CGMA = Chartered Global Management Accountant Designation (international)
    => build recognition of management accounting as a profession
21
Q

What is the CPD?

A

This is the Continual Professional Development - this is at the heart of CIMA membership and is a condition of membership.

22
Q

What is the 6-stage development cycle approach?

A
  1. Define - expectations of present and desired roles
  2. Assess - capability gap, needs and outcomes
  3. Design - around activities relevant to the role
  4. Act - Qualifications, Training, Conferences, Reading, Research, Discussion groups etc
  5. Reflect - How did it go? What was learned?
  6. Evaluate - actual development vs development outcomes, outstanding development into next cycle
23
Q

How long should records be kept for the development cycle?

A

CIMA states records should be kept for at least 3 years on a rolling cycle. They will review a sample of member’s records each year
- If inadequate => given time and help to improve

24
Q

What is the FRC’s conduct committee?

A
  • Financial Reporting Council
  • This is the UK’s professional oversight board for the accounting, auditing and actuarial professions.
  • Regulates accountancy bodies inc CIMA.
25
Q

What does the FRC’s conduct committee regulation cover?

A

> Registration and monitoring of members
Training and Education
CPD
Conduct & discipline

  • Maintain codes and standards for accounting, and stewardship for institutional investors.
26
Q

What are the seven principles of public life?

A
  1. Leadership - promote other principles
  2. Integrity - avoid being put under other obligations
  3. Selflessness - act in public int
  4. Accountability - subject to scrutiny
  5. Honesty - declare private interests
  6. Objectivity - award contracts based on merit
  7. Openness - info about reasons for decisions made freely available
27
Q

What is the difference between ethics & law?

A
  • All legal persons must comply with the law vs ethical principles not same as legal principles
  • The law is the floor - sets a minimum
  • Not all unethical behaviour is illegal, but unprofessional
28
Q

What is the difference between ethics & social responsibility?

A
  • Social responsibility involves considering all stakeholders needs, inc shareholders’ need for accurate info
  • Social responsibility is mostly influenced by public opinion
  • Socially responsible => increased business
    If not => revolt from stakeholders
  • No legal requirement to have a social conscience. May be overlaps though.
    -Two key objectives of business:
    a) make a profit
    b) grow market share
29
Q

What are the 8 ethical stances you can take?

A
  1. Consequentialism - consequences any action may have, if good consequences => acting morally
  2. Utilitarianism - quality of outcome in terms of greatest happiness
  3. Egoism - is ethically justified if based on needs/ interests of the individual. What is best for me?
  4. Ethical Relativism - Relative rights and wrongs rather than absolutes
  5. Ethical Absolutism - fixed rights or wrongs
  6. Pluralism - several values may be equally correct, yet conflict
  7. Virtue Ethics - justice and generosity help us act in ways that benefit both person possessing and persons society. As seen in accounting profession.
  8. Deontological Approach - we are rational and duty to respect each other
    CUEEEPVD
30
Q

What are the benefits of ethical behaviour for the individual accountant?

A
  • Enhanced Reputation
  • Better promotion prospect
  • Better job
  • Peace of mind
  • Job satisfaction
31
Q

What are the benefits of ethical behaviour for the accountancy profession?

A
  • Enhanced Reputation
  • Better earnings prospects
  • Better employability
  • Reduced pressure for govt regulation
  • Favourable media coverage
  • Trust and respect of public
  • More opps for increasing scope of the profession
32
Q

What are the benefits of ethical behaviour for society as a whole?

A
  • Confidence in accountants
  • Stability in financial markets
  • Protection from criminal activities
  • Success of commercial orgs
  • Success of society as we know it
33
Q

What are the disadvantages of unethical behaviour for the individual?

A
  • Loss of rep
  • Poor promotion prospects
  • Loss of job
  • Disciplinary hearing
  • Loss of qualification
  • Criminal prosecution also illegal
  • Legal action for damages for negligence
34
Q

What are the disadvantages of unethical behaviour for the profession?

A
  • Loss of reputation
  • Reduced earnings for accountants
  • Reduced employability
  • Increased govt regulation of the professsion
  • Loss of chartered status
  • Increased lobbying from pressure groups for regulation
  • Adverse media coverage
  • Loss of respect of public
35
Q

What are the disadvantages of unethical behaviour on society as a whole?

A
  • Lack of confidence in accountants, financial statements & markets
  • risk of criminals infiltrating profession
  • failure of commercial orgs
  • tax receipts wrong
  • breakdown of society
36
Q

What are the 3 main conflicting ethical stances?

A
  1. Profit Motive - ethical stance taken based on ‘whatever it takes, within the law, to inc shareholder wealth’
  2. Accountant in finance function have ethical stance that takes public interest into account, requires integrity
  3. Business put pressure on the accountant to act in breach of their ethics, opposite perspective is that the accountants ethics are in conflict with the business’s responsibilities towards its shareholders.
37
Q

What is an ethical dilemma?

A

Where two conflicting obligations are faced

38
Q

What are examples of ethical dilemma?

A

a) asked to delivery a predetermined profit figure
b) offered inappropriate gifts by 3rd parties
c) asked to disclose confidential business info to friends and family
d) presenting info that paints a rival in a poor light
e) being asked by a client to facilitate unethical or illegal earnings
f) issuing reports that misrepresent the facts

39
Q

What is conflict of interest?

A

Where two or more interests exist within one person or org and are incompatible. This threatens objectivity and could influence decision making.

40
Q

What is the CIMA Code’s conceptual framework?

A

This is a methodology for dealing with ethical dilemmas inc conflicts of interest

41
Q

If an accountant realises they have jeopardised one of the fundamental principles of CIPOP, what should they do?

A
  • Identify principle in danger
  • Identify nature of the threat to the principles
  • Identify safeguards to reduce or eliminate threats
42
Q

What are the main Threats to compliance with fundamental principles?

A

S - Self-interest threat - having shares in company auditing
S - Self-review threat - both preparing and auditing FS
A - Advocacy threat - remaining with supplier you introduced
F - Familiarity threat - using family members
I - Intimidation threat - threatening sack and giving way

43
Q

What are the safeguards for ethical dilemmas?

A
  • Education, training
  • CIMA’s CPD requirements
  • Statutory or common law rules
  • Corp governance regulations
  • Professional monitoring & disciplinary procedures
  • External review by a 3rd party
  • Employer’s whistleblowing procedure
    Last ditch is to resign from you role or to blow the whistle externally.
44
Q

What is ethics v law?

A

Law e.g. statute takes the precedence

- Complying with law does not remove duty to behave ethically

45
Q

What is the CIMA’s Ethics checklist?

A
  1. Check all your facts
  2. Is it Ethical
  3. Is it Legal
  4. Identify which fundamental principles affected
  5. Identify affected parties
  6. Possible course of action internal and external
  7. Seek professional or legal advice
  8. Refuse to remain associated with the conflict
46
Q

What is the process for resolving ethical conflicts using IFAC’s code?

A
  1. Try to resolve yourself before doing anything else
  2. Consider the fundamental principles related to the situation
  3. Consider the facts and ethical issues involved
  4. Consider any established internal procedures
  5. Consider alternative courses of action and consequences of each
  6. Select a course of action consistent with IFAC and CIMA’s code and fundamental principles
  7. Keep a record of all conversations/correspondence
  8. Consult with appropriate ppl in the organisation e.g. line manager
  9. Obtain professional advice from your professional body
  10. Obtain legal advice
  11. Change role or department

If all else fails, resign. If it breaches law consider whistleblowing

CIMA BA4 Fundamentals of Ethics, Corporate Governance and Business Law (7 decks)

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