1. PH.D Zhanglinyi 2016-6-18 CHAPTER 18 Ethical conflict

2. PH.D Zhanglinyi 1 Consequences of unethical behaviour –1.1 You as an accountant Any unethical behaviour risks being discovered at some stage. If it is discovered, then you risk: –Being subject to a professional disciplinary hearing 纪律听证会 –Being fined or being struck off as an accountant 取消会计资格 –Losing your job, either through an employer disciplinary hearing or being unable to practice –Your actions becoming public knowledge and your personal reputation damaged –Prosecution if the behaviour is criminal –Being sued for damages by an affected party Even if your behaviour is not discovered, you will have to live with your actions for the rest of your life, and the threat that one day they will be discovered.

3. PH.D Zhanglinyi 1.2 The accountancy profession –Accountants have a high degree of trust placed in them by society. Therefore any breaches will have severe consequences on the profession. These may include: Loss of reputation, and therefore Reduced employability of accountants Pressure by outside bodies to tighten up regulations and penalties Government intervention if it is thought the profession is incapable of self-regulation Accountancy bodies losing their ‘Chartered’ status

4. PH.D Zhanglinyi 1.3 Society as a whole –The work of all accountants would be called into question –Unethical companies would eventually fail as they will lose public confidence – The financial markets would be affected if investors could not rely on audit reports and financial statements – The tax authorities may question tax computations, affecting the amount of tax collected – Criminals may gravitate towards the profession to make money from fraud or other financial crime – Commercial organisations would not function if they are unable rely on their accountants’ work

5. PH.D Zhanglinyi 2 Ethical conflicts –Many dilemmas challenge both personal integrity and business skills and therefore a strong ethical understanding is important. We now consider potential situations where accountants have to make ethical decisions, and how they should resolve them. –2.1 Ethical conflicts and conflicts of interest Ethical conflicts are situations where two ethical values or requirements seem to be incompatible. A conflict of interest arises where an individual has a duty to two or more parties. Whilst working, information or other matters may arise that mean they cannot continue work for one party without harming another.

6. PH.D Zhanglinyi 2.2 Situations where ethical conflicts and conflicts of interest occur –Ethical conflicts occur as a result of tensions between four sets of values. Societal values – the law. Personal values – values and principles held by the individual. Corporate values – the values and principles of the organisation where the individual works, often laid down in ethical codes. Professional values – the values and principles of the professional body that the individual is a member of, often laid down in ethical codes. –where a professional duty conflicts with statute, CIMA’s advice is clear – the law overrides it every time.

7. PH.D Zhanglinyi 2.2.1 Ethics and contractual obligations –This means an individual may break contractual obligations without breaking the law. For this reason, professional ethics should be followed even if this is at the expense of a contractual obligation. Logically this means that given the choice of breaking professional ethics or a term in your contract of employment you must give the profession priority. The law and employment tribunals will support an employee whose employer required them to break their professional ethics – the problem is that many employees would not want to go to court over such matters.

8. PH.D Zhanglinyi 2.2.2 Examples of ethical tensions –(a) Societal values and corporate values An individual may be asked by their employer to act in an illegal way, for example to discriminate against a disabled or ethnic employee. –(b) Personal values and corporate values An individual may not agree with certain activities of their organisation, such as the use of child labour in foreign factories. Whilst not necessarily illegal it goes against their own moral beliefs. –(c) Professional values and corporate values An individual is put into a position by their employer where they are required to amend a set of accounts to improve the profit figure. Such amendments go against the code of conduct of their accountancy body.

9. PH.D Zhanglinyi 2.3 Spotting an ethical dilemma –Accountants will encounter situations throughout their professional life that presents them with an ethical dilemma or conflict of interest. The following questions （ see textbook ） will help develop your ability to identify problems in the future. Use the information given to identify the ethical principles at stake.

10. PH.D Zhanglinyi 3 Resolution of ethical conflicts Ethical conflicts may arise from: – Pressure from an overbearing colleague or from family or friends – Members asked to act contrary to technical and/or professional standards – Divided loyalties between colleagues and professional standards – Publication of misleading information – Members having to do work beyond their degree of expertise or experience they possess – Personal relationships with other employees or clients – Gifts and hospitality being offered

11. PH.D Zhanglinyi Individuals should ask themselves: –(a) Transparency Do I feel comfortable with others knowing about my decision, is my decision defensible? –(b) Effect Have I considered all parties who may be affected by the decision and have all factors been taken into account such as mitigating circumstances? –(c) Fairness Would a reasonable third party view the decision as fair?

12. PH.D Zhanglinyi 3.1 Raising and dealing with ethical dilemmas –A number of options are available for accountants wishing to raise ethical issues, for example: Direct with their accountancy body Within their organisation via a help or whistleblower line To external organisations such as customers, suppliers or agents Anonymously

13. PH.D Zhanglinyi