Ethics Flashcards
Absolutism VS Relativism
ABSOLUTISM
Unchanging set of ethical principles that apply in all situations, at all times, in all societies
Methods of est: Religion, Law, Natural Law (natural moral rules exist which we can discover), Deontological
Strengths:
- unambiguous rules which you know are right
- application of CG and comparing more achievable
Criticisms:
- No account of evolving norms
- irrespective of source, subject to different interpretations
- never be universal agreement
- two absolutist positions incompatible and irreconcilable. Lie to save life
RELATIVISM
Wide variety of acceptable ethical behaviour and practices exist
Recognises different rules of behaviour prevailing in different cultures and ethical opinions changing over time
Ends of a spectrum. Most people acknowledging that other views exist (Relativism) whilst some are shared values (Absolutism)
What is Ethics?
- Concerned with Right and Wrong, and how conduct is judged to be good or bad
- How we live our lives, behave towards others
- Relevant to all human activity including business
- Problematic in business due to primary purpose being material gain
Deontological (judges Action) v Teleological (judges Outcome)
DEMONOLOGICAL
Application of universal ethical principles in order to arrive at rules of conduct (Emmanuel Kant)
Method:
- Apply rules universally and consistently
- Rules should respect human dignity
Criticism:
- taking actions in a vacuum without regard to consequences
- Cannot always know consequences of actions
TELEOLOGICAL
Moral judgements on courses of action by reference to outcomes : right or wrong becomes a question of benefit and harm
Two versions:
Utilitarianism - greatest good for greatest amount of ppl
Egoism - ethically justified if freely decided
Kohlberg stages of human moral development
Development of individuals ethical reasoning
Focus on how decision is reached not what is decided
(1) Pre-conventional
• Obedience and punishment - obedience compelled by threat or application of punishment
• Individualism, Instrumentalism, Exchange - acting in ones best interest
(2) Conventional
• Peer pressure - seek approval of others
• Law and Order - abide by law, obligations of duty
(3) Post-conventional
• Social contract - understanding of social mutuality, genuine interest in welfare of others
• Principled conscience - respect for universal principles, demands of individual conscience
Frameworks for ethical conflict resolution
IFAC Code - firms have established policies to resolve conflict and must consider
(a) Facts
(b) Ethical Issues
(c) Related fundamental principles
(d) Established internal procedures
(e) Courses of action, considering consequences of each
AAA Model - series of answers to questions
(a) What are facts
(b) What are Ethical Issues
(c) What are norms, principles, values that relate to case
(d) What are the possible course of action
(e) Which action is most consistent with (c)
(f) What are the consequences of each course of action
(g) What is decision
Tuckers 5-question Model - benchmark against which to test ethicality of decisions
(1) Profitable?
(2) Legal?
(3) Fair and equitable?
(4) Right? Prone to subjective judgement
(5) Sustainable or environmentally sound
IFAC Proffesional Code of Ethics
Principles based approach
- Upfront acceptance of professions responsibility to act in public interest
- underlying fundamental principles followed by detailed guidance
- Conceptual framework requiring accountants to identify, evaluate and address threats of compliance, and apply safeguards to eliminate or reduce threats to acceptable level
FUNDAMENTAL PRINCIPLES (PIPCO)
• Professional competence and due care
Maintain professional knowledge and skill to level needed to provide competent professional service based on current developments, legislation and techniques
Act diligently
• Integrity
• Professional behaviour
Comply with relevant laws and avoid actions that discredit profession
• Confidentiality
Unless legal or professional right or duty to disclose
Information acquired should not be used for personal or third party advantage
• Objectivity
Safeguards
Created by profession, legislation, regulation (e.g CG)
Within Client/Firms own systems and procedures
Educational training and experience requirements for entry into profession
Priciples Based Framework
ADV v disADV
Adv
- Think about relevant issues rather than checklist of things to avoid
- Prevents professionals from getting around ethical requirements by interpreting legalistic requirements narrowly
- Allows for variations
- Can accommodate rapidly changing environment
DisAdv
- Requires a very good understanding of underlying principles
- Cannot capture cultural variations in beliefs and practise
- Difficult to enforce legally unless blatant breach. Therefore voluntary and perhaps less effective
Threats to compliance
(1) Self Interest
Close relationships|Fees contingent on outcome of transaction|Client lend material sum to audit firm or member|Valuable gift/hospitality|Client large proportion of total fees|Partner/employee on board of client|Lowballing
Safeguards:
Discuss issues with client audit committee
Take steps to reduce dependency
Consulting independent third party
Maintaining records to demonstrate appropriateness
Compliance with all applicable audit standards, guidelines & quality control procedures
(2) Self Review
(3) Advocacy
Occurs when auditor is asked to represent (court) or promote them (shares on stock market) in some way, and therefore cannot be objective
Safeguard:
Use different departments of firm
Full disclosure to client audit committee
Withdraw from engagement if risk to independence is too great
(4) Familiarity
Leads to too sympathetic to their views and interests
(5) Intimidation
deterred from acting objectively by threats (Dismissal, Litigation, Perceived), actual or perceived.
Responsibilities of a Professional
- Because of status of Professional is accorded a special privilege - acting in public interest at all time is expectation of society
- Owed duty of professional care to all stakeholders
- Status as a professional supported by society in exchange for competence, objectivity, professional care
