Ethics

Question 1

Define ethics

Answer 1

Ethics is a branch of philosophy and deals with principles of moral rights and wrongs that influence a person’s behaviours and decisions.

Question 2

What is the difference between absolute and relative ethics theories?

Answer 2

Absolute - moral values are universal, unchangeable, always true; a murder for example

Relative - moral values evolve over time and may not be universally true; e.g. an activity that may be in order in one country but not in another.

Question 3

Define the three schools of ethics, give examples.

Answer 3

Teleology/utilitarianism/consequentialism - an action should be considered in terms of what it achieves. Utilitarianism favours an act that produces the greatest good.

Deontology - considers whether an action is right or wrong (and is therefore opposite of utilitarianism). Duty & rule bound ethics.

Virtue ethics - it considers virtues or positive moral character of the person carrying out an act. It is used by accountancy profession.

Question 4

What are the benefits of good ethics in business?

Answer 4

1. Profits are likely to increase in the long term
2. Less likely to pay penalties/damages e.g. by not concealing harmful effects of their products, by not under-declaring tax etc
3. Reduced risk of investment / lower costs of finance as more investors likely to invest
4. Attracts high quality employees
5. Customers likely to enjoy their products / services more e.g. not using slave labour
6. Business expansion / joint venture more likely
7. More trust by public / government / international communities etc

Question 5

Give examples of what ethical issues the following businesses might face:

1. A pharmaceutical company developing a new drug asap but having to do a lot of testing.
2. Moving from an old factory to a new one that is on the other side of the country.
3. Development of residential homes in an under-developed area.
4. An accountant reporting to a lender/investor about not so well performing client.

Answer 5

1. The quicker the drug is developed, the more lives it can save, however, the more testing is done the more chances of identifying undesirable side effects.
2. Reducing carbon foot print by moving into the new factory but local employees that can’t relocate will lose their jobs.
3. Providing people with living space but can be detrimental to the landscape/nature
4. A poor report might mean closure of the client’s business but an optimistic report might lead to lender/investor possibly losing their money.

Question 6

Name sources of professional ethics and their roles.

Answer 6

1. Law - countries’ laws take precedence over other sources but provide little guidance on ethics
2. IFAC - international federation of accountants develops accounting standards
3. IESBA - The International Ethical Standards Board for Accountants (part of IFAC) develops
   ethical codes and guidance.
4. FRC - financial reporting council responsible for implementing IFAC standards in UK
5. Conduct committee - oversees FRC’s conduct division and its work in promoting corporate reporting
6. Auditing practices board - part of FRC, prepares UK guidance on standards and auditing

Question 7

7 examples of areas where companies can implement ethics code

Answer 7

1. Equal opportunity / discrimination
2. bullying
3. Use of internet
4. Report wrong-doing
5. Bribery
6. Money laundering
7. Conflict of interest

Question 8

Describe the two approaches to formulating ethics.

Answer 8

Rules/compliance based - instructions/checklists are clearly given as are penalties for not obeying them

Framework/integrity based - promotes guiding principles and lets persons do the right thing