Ethical Essay Example: What Is Ethical?
Ethics is a notion that refers to a moral system that sets up criteria for assessing right and wrong. A situation in which a person or a group faces a decision that brings this moral system to the test is called an ethical dilemma. Some of the dilemmas can be easily resolved, although there are many that call for hours of contemplation and serious decision-making.
Nowadays, ethical conduct of professionals in the sphere of accounting is a topical issue owing to startling corporate scandals that occurred in many states and caused damages to both society and economy. The scandals call into question the ethics of a business world in general and the morality of accountants in particular. It is still an undecided question whether the accountants contribute that much towards the recession of ethics in business. The International Federation of Accountants (2003) stated that all the recent financial scandals are the features of much more serious problems. It was declared that improvements of ethical code and standards, reporting mechanism, and financial management would foster society's confidence in financial reporting as accounting professionals are responsible for the areas, the defects in which result in corporate scandals.
Ethical standards in accounting were first presented in 1494 in the book Summa de Arithmetica, Gepmetriia, Proportioni et Proportionalita written by Luca Pacioli, who is known as the 'father of accounting'. Since then, ethical standards were developed by government groups, companies and professional organizations. Throughout the history of accounting, a number of codes of ethics were elaborated for the accountants to properly perform their duties and responsibilities in a professional environment. In the USA, moral system in accounting is being regulated by the following accounting societies: the Association of Government Accountants, the National Association of Accountants, and Institute of Internal Auditors.
Societal, personal and professional values shape the notion of ethics. Some scientists outline the significance of society's interest; the others focus on the importance of personal interests. Despite the difference in the viewpoints on the meaning of the term 'ethics', it can be said without doubt that the term has to be defined in this particular context.
Professor Samanti Senaratne (2011) in her research on ethics in accounting states that ethics is about making a choice. People always have to behave properly in order to make the right choice, which will produce good result. A person should examine principles, norms and values, consider all available choices in order to make the right decision. Therefore, ethics demands the acquirement of the moral knowledge and skill in order to apply the knowledge to the dilemmas in the right way.
It happens that decision-making, which is based on both intuition and personal feeling, does not result in the right actions. Thus, ethical decision-making calls for a criterion to guarantee good judgments. The ethical philosophical theories provide us with distinct criteria for right, good, and moral judgments.
There are three well-known philosophical theories of ethics: utilitarianism, rights and justice. All of them are normative theories of ethics. They provide principles or standards on how people should act towards others by contemplation over the right and wrong of an action. The theories are divided in two broad classifications, consequential and non-consequential. Consequential theory defines "good" in terms of its consequences (the best-known example is the theory of utilitarianism). Contrary, non-consequential theory determines "good" not by its consequences but by its inner value (the best-known examples are the rights and justice theories).
According to the theory of utilitarianism, the ethical alternative maximizes good consequences over the bad ones. The father of utilitarian ethics Jeremy Bentham defines utilitarianism as the principle of greatest happiness (the principle of utility).This principle measures good and bad consequences in accordance with notions of happiness and pain.
These notions have broad meaning and enlarge all aspects of human welfare, that include pleasure and sadness, knowledge and ignorance, health and sickness, positive and negative emotions, satisfaction and disappointment, achievement and failure. When applying the utilitarian principle, there are five steps to be involved:
- Problem identification;
- Identification of the stakeholders affected by this problem;
- Identification of alternative courses of actions to resolve the problem;
- Identification and calculation of the short- and long-term losses and benefits (which are pain and happiness) for each course of action.
- Selection of the course of action that provides the biggest number of benefits over the number of failures for the largest number of people.
- Thus, according to this theory ethical conduct of accountants means consideration of all possible consequences of a decision for the parties affected by it.
The theory of rights originates from the belief in people having an inherent inner worth as human beings that one must respect. Thus, in accordance with the theory, a good decision is one that would respect the rights of others. Conversely, a decision is wrong if it violates the rights of another person. Generally, the rights can be divided in two categories:
- natural rights (exist independently from legal structures);
- legal rights (created by social agreements).
The natural rights are also called constitutional rights or human rights. Among many human rights, the right for the truth is by far the most important for the function of accounting. The user of the accountant's services has the right for fair and accurate information. This right places a moral obligation on the accountant and the reporting entity to prepare true and accurate financial statements. At the same time, legal and contractual rights are crucial for the relationships between accountant and employer and those between accountant and client. The contractual relationships signify that both employers and clients have a legal right to be provided professional service from an accountant. In his or her turn, the accountant has a legal duty to perform his tasks to the best of his ability within the constraints of his expertise.
Understanding the theory of justice calls for the understanding of various notions of justice. In general, justice is delineated as fairness, which concerns the relation between contribution and reward. Nevertheless, the term justice cannot be defined only by the notion of fairness.
There are some other forms of justice, that embrace equality (which states that all people are equal), procedural justice (concerns with due process) and compensatory justice (which addresses the loss that results from a wrong act). Thus, the theory of justice is based on the principle of distributive justice. The theory focuses on how fairly one"s decision distributes benefits and burdens among the group and its members. Unfair distribution of benefits and burdens is perceived as an unfair act, which is morally wrong. Thus, in accordance with this theory, a truly ethical act produces the fairest for all distribution of benefits and burdens.
However, there is no single comprehensive theory, which incorporates all various domains of justice.
The Association of Government Accountants, the National Association of Accountants, and the Institute of Internal Auditors have elaborated informative and helpful ethical codes for the accountants to follow. One of them is the Handbook of the Code of Ethics for Professional Accountants (the Code) (2013) issued by the International Ethics Standards Board for Accountants (IESBA), which is an independent standard-setting body. As it is stated in the handbook, the IESBA aims at serving the public interest setting ethics standards of high quality for professional accountants. It is also outlined that the existence of a single set of standards can foster the quality of services, which professional accountants provide all over the world, and can improve the effectiveness of global capital markets.
Accountancy profession distinguishes its acceptance of responsibility to act in the interest of society. Thus, the responsibility of a professional accountant is not only to meet the needs of a client or an employer. Acting in the interest of the public, a professional accountant has to comply with the Code.
In the Part A of the Code, the fundamental principles of the ethics in accounting are described; those are the principles of integrity, confidentiality, professional competence and due care, objectivity, and professional behavior.
The principle of integrity obliges all professional accountants to be fair and honest in all professional and business relationships. The principle also implies the truthfulness and fair dealing. If the reports, communications, returns, or other information contain a materially misleading statement, a professional accountant should never knowingly be associated with it.
The principle of objectivity requires not allowing bias, conflict of interest or illegal influence of other parties to disregard professional or business judgments.
The principle of professional competence and due care obliges an accountant to sustain professional skills and knowledge at the required level in order to make sure that clients or employers receive services of high quality, which are based on modern developments in legislation, practice, and techniques and that accountant acts diligently and according to professional standards.
The principle of confidentiality requires respecting the confidentiality of the information acquired in the result of business and professional relationships and not disclosing any information to third parties without specific authority, unless there is a legal right or duty to do so.
The principle of professional behavior obliges an accountant to comply with current laws and regulations as well as to avoid any acts that discredit the profession.
The principles stated above imply the importance for accounting professionals to be ethical in their practices on account of the nature of the accountancy profession. This nature puts them in a position of trust from the clients, employers and society, who confide in their professional judgment as well as guidance in the process of decision-making. Those decisions in turn affect the process of resource distribution of the economy. The accountants are confided in due to their professional status and ethical standards. Therefore, the key to maintaining confidence of clients and the public is ethical and professional conduct.
The Code of Ethics for Professional Accountants provides them with the frame of conflict resolution in an ethical way in accordance with the latter principles.
When initiating a process of conflict resolution, the following factors are to be considered:
- Relevant facts;
- Ethical issues involved in a conflict;
- Fundamental principles are related to the matter under conflict;
- Established internal procedures;
- Alternative action.
When the relevant factors are considered, a professional accountant has to determine a proper course of action, foreseeing all possible consequences. In case the matter is still unresolved, the professional accountant should consult with other persons within the employing organization or company.
It is important to both a 'public accountant' (the one who provides his services to clients for a fee) and an 'accountant in business' (the one who is employed in a public or private sector company for a salary) to guarantee the highest possible ethical standards. Both 'public accountants' and 'accountants in business' are engaged in a fiduciary relationship, 'public accountants' with the client and 'accountants in business' with the employer. Being in such relationships, they are responsible for ensuring their services to be performed in accordance with the ethical values of honesty, integrity, objectivity, confidentiality, due care, and commitment to the public interest before one"s own. Therefore, professional accountants are expected to retain a level of ethical conduct that exceeds society"s laws.
However, as it was mentioned above, the involvement of accountants in large corporate scandals recently reflects that they have to compile with the expected ethical standards. Nowadays, it is often stated that accountants focus too much on technical issues and lack ethical sensitivity, which prevent them from recognizing ethical dilemmas involved in their work. Altogether, it will finally lead to making incorrect decisions.
Therefore, accountants have to be trained sensitivity towards identifying the moral dimension of technical issues at the first sight. This emphasizes the need to include ethics education as the basic part of accounting education, which in its turn will prepare the accounting professionals to different ethical dilemmas they face when performing duties.
The 'Framework for International Education Standards for Professional Accountants' elaborated by International Accounting Education Standards Board (2013) indicates that the accounting education aims at training competent professional accountants, who would acquire the necessary professional knowledge, professional skills, and professional values, attitudes, and ethics. The International Education Standard 4 - Professional Values, Ethics and Attitudes elaborated by IAESB recommends a program of professional accounting education in order to provide a framework of ethics, professional values and attitudes for potential professional accountants to train professional judgment and acting in an ethical manner that is of the best interest of our society and the profession.
Nevertheless, IES 4 calls for professional accounting bodies to discern teaching students about ethics, professional values, and attitudes and developing ethical behavior. The development of ethics, professional values, and attitudes has to begin at the very beginning of the professional accountant's education. Moreover, it should be re-emphasized throughout the studying and career. Therefore, developing an ethical behavior is in reality a constituent of life-long learning of a professional accountant.
For educators is important to understand how vital the discussing of current issues around the profession is. It serves as a way to keep ethics discussion applicable and relevant and to the career path of students. The profession of accountant is one that is in the constant process of evolving owing to to new regulatory issues and different legislative changes. Therefore, it is vital to keep students" current on the ethical issues the industry they are going to work in.
The students should recognize and understand the profession"s responsibility towards the society. In other words, the ways in which the society depends on professional accountants should be communicated to the student
So, that there will be no communication gap between the upcoming accountant and the society, as it might happen that the former might not know the rules on the contract the enter, of which th second party is society.
Thus, it has become evident that ethics education is an appropriate aim in the accounting profession. However, then appears an overwhelming series of questions on when, where, and how the ethics should be taught. In reality, educators have to exploit their opportunity to reach students and teach them ethics from the very beginning of the professional training. College students have to be taught about the challenges and internal pressure we associate with public accounting.
Educators should promote students to discuss various case studies, and explain that in reality there is no single correct answer. Moreover, accounting ethics education should focus on studying of the philosophical concepts that are in the basis of the ethical standards in accounting.
If the latter is done, the students will be able to understanding how professional judgments function in reality for a professional accountant. Understanding this, students will be able and are more likely to become much more effective in making sensible judgments and decisions.
- International Federation of Accountants. (2003). Rebuilding public confidence in financial reporting - an international perspective. Retrieved from http://www.ifac.org/sites/default/files/publications/files/rebuilding-public-confidenc.pdf
- International Ethics Standards Board for Accountants. (2013). Handbook of the Code of Ethics for Professional Accountants. Retrieved from http://www.ifac.org/sites/default/files/publications/files/2013-IESBA-Handbook.pdf
- Senaratne, S. (2011). The role of ethics in accounting. Chartered Institute of Management Accountants. Retrieved from http://www.cimaglobal.com/Thought-leadership/Newsletters/Regional/The-CIMA-Edge-South-Asia-and-Middle-East/20111/July--August-2011/The-role-of-ethics-in-accounting/