CA IPCC BUSINESS LAW, ETHICS & COMMUNICATION

CA IPCC BUSINESS LAW, ETHICS & COMMUNICATION

BUSINESS ETHICS

“It is the mark of an educated mind to be able to entertain a thought

without accepting it.”
- Aristotle

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UNIT 1 : PRINCIPLES OF BUSINESS ETHICS

‘Ethics’ has been derived from the Greek word ‘Ethikos’ which means ‘Character’.

It is concerned with the basic concepts and fundamental principles of right human conduct. It is a discipline
dealing with what is good and bad and with moral duty and obligation.

It covers truthfulness, honesty, integrity, respect for others, fairness and justice.
It involves study of universally accepted values such as equality of men and
women, obedience to the law, human or natural rights, natural environment.
Ethics is a set of moral principles or values giving an idea about what is right &
wrong, fair & unfair, just & unjust, proper & improper.

SEVEN DEADLY SOCIAL SINS AS PER MAHATMA GANDHI

Key Code: P2W2C mai KS .

1) Politics without Principle

2) Pleasure without Conscience
3) Wealth without Work
4) Worship without Sacrifice
5) Commerce without Morality (Business without Ethics)
6) Knowledge without Character
7) Science without Humanity

Q) State with reasons whether the following statements are correct or incorrect. Trusteeship provides
a means of transforming the present capitalist order of society into an egalitarian one.
Answer:
Correct: Commerce without morality was developed into the idea of Trusteeship by Gandhiji. A
businessman has to act only as a trustee of the society for whatever he has gained from the society.
Everything, finally, belongs to the society. Hence, "Trusteeship provides a means of transforming the
present capitalist order of society into an egalitarian one."

ETHICS & MORALE

Ethics means character which involves personal values. Ethics are
internally defined and adopted. Morals are set of rules or principles
defining right & wrong, accepted by some group or society. Morals are
externally imposed on people, and accepted due to some authority.
Ethics have a much wider scope, whereas morals work on relatively
smaller scale than ethics.

DIFFERENCE BETWEEN ETHICS & MORALE

Moral vs. Ethics: Following are the points of difference between Ethics and Moral:

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1) The word Ethics' is derived from Ancient Greek ethikos' meaning character'. The word 'moral’ is
derived from Latin 'mos' meaning custom',
2) Character is the essence of values and habits of a person or group. It severs the analysis and
employment of concepts such as right and wrong, good and evil and acting responsibly. Moral is
defined as relating to principles of right and wrong.
3) Character is a personal attitude, while custom is defined by a group over a period of time. In other
words, People have character, Societies have custom.
4) Morals are accepted from an authority (such as cultural, religious etc.) while ethics are accepted
because they follow from personally accepted principles. An ethical view might on an idea of personal
property that should not be taken without social consent. Moral norms can usually be expressed as general
rules and statements such as ‘always tell the truth'.
5) Morals work on smaller scale than ethics, more reliably, but by addressing human needs for belonging
and emulation, while ethics has a much wider scope.

NEED & BENEFITS OF BUSINESS ETHICS

1) Social Duty
Business en ty being a part of the society, it is expected that it will direct its policies towards the
enhancement & be erment of consumers, employees and community.
2) Social Pressure
There is a huge social pressure especially from various consumer forums, trade unions and other similar
groups to resort to ethical prac ces.
3) Legal Requirements / Avoidance of criminal acts or omissions
Law is generally passed to implement some ethical prac ces or discourage unethical prac ces. Non-
compliance of laws leads to penal consequences. Thus, ethical en es are not subject to any fines and
penal es.
4) Strong Public Image
The organiza ons that pay a en on to its ethics are seen by people as valuing them more than profit
and striving to operate with integrity. Thus, ethical prac ces help earn business good image in the
society.
5) Higher Profit
Ethical business prac ces result in customer sa sfac on, strong industrial rela ons, contented
investors. Thus, goodwill, sales and profits will increase considerably, if all the stakeholders are sa sfied
with their associa on.
6) Strong teamwork & high morale of employees
Ethics at workplace involves a climate of integrity and openness, thereby leading to a be er
performance & produc vity of the employees. Employees feel a strong alignment between individual
values and principles of the workplace. Unethical prac ces affect their produc vity.

ETHICAL DILEMMA – CONFLICT OF INTERESTS

There is o en a situa on involving conflict of interest between one or more of the par es. In business,
people face moral and ethical issues regularly. There are not only ques ons between right and wrong, but
between right and right. These ethical dilemmas are highly complex with no clear guidelines.

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STEPS TO COME OUT OF THIS DILEMMA:

1) Analyze the situa on
2) Find out reasons of situa on
3) Check your own inten on
4) Confirm that your profit mo ve is not harmful to anyone else.
5) Confirm that it is not harmful to the person relying on you.
6) Address following ques ons:
a) How did the situa on arise?
b) Are you confident that your part will be valid for a long period?
c) Under what condi on would you allow excep on to your stand?

Q) Examine the following hypothetical situation and give a brief analytical note on it.
Mr. XYZ is a CEO of a pharmaceutical company. His R&D department, while experimenting with a
chemical molecule, sees the possibility that the molecule may be developed into a drug for a rare,
painful, life-threatening genetic disease that afflicts only one child in ten million. But to develop the
drug, his company may have to invest huge sums of the shareholders’ money, despite the drug not
having wide salability. Is Mr. XYZ confronted by an ethical dilemma? Howshould he resolve the issue?
Answer:
Mr. XYZ is in a situation where he has to choose between carrying on the development of a drug for
a painful and life-threatening disease which afflicts one in ten million and the action of spending huge
sum of shareholders’ money for such development. As we can see, both are positive and ethically
right choices. As a socially responsible person he has to think in terms of eliminating a serious illness
but at the same time he must be careful in dealing with shareholders’ money. This is a classic case of
an ethical dilemma. Such an ethical dilemma must be resolved by addressing the following points:
1) Defining the problem clearly.
2) How to define the problem if you stood on the other side of the fence?
3) How did the situation arise?
4) To whom are you loyal as a person and as a member of the organization?
5) What is your intention in making this decision?
6) How does this intention compare with the probable results?
7) Whom could your decision or action injure?
8) Can you discuss the problem with the affected parties before you make your decision?
9) Are you confident that your position will be as valid over a long period?
10) Could you disclose without any doubt your decision or action to your boss, your CEO, the Board of
Directors, your family, society as a whole?
11) What is the symbolic potential of your action if understood? Misunderstood?
12) Under what conditions would you allow exceptions to your stand?

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Q) State with reasons whether the following statements are correct or incorrect:
(i) ‘Fairness and Justice’ are two different approaches as a source of ethical standards.
(ii) Inclusion of environmental consideration as a part of corporate strategy improves corporate
performance.
Answer:
(i) INCORRECT: The given statement “Fairness and Justice” are two different approaches as a source
of ethical standards is incorrect. Aristotle and other Greek philosophers have contributed the idea
that all equals should be treated equally. Today we use this idea to say that ethical actions treat all
human beings equally or if unequally, then fairly based on some standard that is defensible. We pay
people more based on their harder work or the greater amount that they contribute to an
organization, and say that is fair. But there is a debate over CEO salaries that are hundreds of times
larger than the pay of others; may ask whether the huge disparity is based on a defensible standard
or whether it is the result of an imbalance of power and hence is unfair.

(ii) CORRECT: Inclusion of environmental consideration as a part of corporate strategy improves

corporate performance is a correct statement. Environmental consideration is a part of corporate
strategy, which means incorporating environmental issues in the process of developing a product,
in new investments and in the organizational set up. A good environmental practice improves
corporate performance. In many industries it has been found that environmental friendly practices
have resulted in more saving; for example the process of recycling the waste. Thus, environmental
considerations play a key role in corporate strategy. Markets of new millennium will be able to
create wealth if they respond to the challenges of sustainable development, as unsustainable
products will become obsolete.

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UNIT 2 : CORPORATE GOVERNANCE

As per the Ins tute of Company Secretaries of India (ICSI),

“Corporate Governance” is the applica on of best management
prac ces, compliance of law in true le er and spirit and
adherence to ethical standards for effec ve management and
distribu on of wealth and discharge of social responsibility for
sustainable development of all stakeholders.

CHARACTERISTIS OF CORPORATE GOVERNANCE

1) Par cipatory
2) Consensus oriented
3) Accountable
4) Transparent
5) Responsive
6) Effec ve and efficient
7) Equitable and inclusive and
8) Follow the rule of law
This way a be er society would produce a be er environment in which the business may gain long term
profit maximiza on.

Q) What is meant by corporate governance? Explain the benefits of good corporate governance.
Answer:
Meaning: According to J. Wolfensohn, President of the World bank, “Corporate governance is about
promoting corporate fairness, transparency and accountability”. It is concerned with structures and
processes for decision-making, accountability, control and behavior at the top level of organizations. It
influences how the objectives of an organisation are set and achieved, how risk is monitored and
assessed and how performance is optimized.
Corporate Governance can also be defined “as the formal system of accountability and control for
ethical and socially responsible organizational decisions and use of resources.”
Benefits of good Corporate Governance:
1. Protection of investor interests and strong capital markets,
2. Studies show clear evidence that good governance is rewarded with a higher market valuation.
3. Ensure commitment of the board in managing the company in a transparent manner.

FUNDAMENTAL PRINCIPLES OF CORPORATE GOVERNANCE

Key Code: FALTU .

1) Fairness
Deals fairly with all stakeholders.
2) Accountability
Policy decisions taken by BOD, rela ng to when, where & how to produce, when, where and at what
price to sell; dividend policies etc. have been tremendous implica ons on various segments of society,
BOD must therefore behave responsibly and be accountable to the stakeholders.

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3) Legal Compliance
All applicable laws, rules & regula ons be complied with.
4) Transparency
Accurate, adequate & mely disclosure of relevant informa on to all stakeholders.
5) Utmost Ethical conduct
It means ac ng in good faith & fulfilling obliga on towards all the stakeholders.

STAKEHOLDERS

Suppliers

Trade unions Employees

Community Government

Stakeholders

Customers Investors

Shareholders Competitors

Creditors

CORPORATE SOCIAL RESPONSIBILITY (CSR)

It is closely related to ‘Sustainable Development’ which suggests that organiza ons
should consider not only financial but also the social, environmental and other
consequences of their prac ces. An organiza on needs to fulfil social needs &
expecta ons to survive. This is called as the ‘Iron law of responsibility’*. CSR goes
beyond charity and involves balancing the needs & expecta ons of all stakeholders.
CSR & Ethics both focus on values, objec ves and principles. Moreover, socially
responsible organiza ons must act ethically. But the main difference is that ethics is
concerned with individual’s ac ons, whereas CSR is about the organiza on’s obliga ons to all stakeholders.

*The Iron Law of Responsibility:

The ins tu on of business exists only because it performs invaluable services for
society. Society gives business its license to exist and this can be amended or revoked

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at any me if it fails to live up to society's expecta ons. Therefore, if a business intends to retain its exis ng
social role and power, it must respond to society's needs construc vely. This is known as the "Iron Law of
Responsibility". In the long-term those who do not use power in a manner that society considers
responsible, will tend to lose it.

Q) State with reasons whether the following statements are correct or incorrect:
The phrase ‘Iron Law of Responsibility” means that the institution of business exists only because it
performs invaluable services towards its promoters.
Answer:
Incorrect: The phrase “Iron Law of Responsibility” means the institution of business exists only because
it performs invaluable services for society. Society gives business its license to exist and this can be
amended or revoked at any time if it fails to live upto society’s expectations. Therefore, if a business
intends to retain its existing social role and power, it must respond to society’s needs constructively
rather than it performs invaluable services towards its promoters.

Businesses have been delegated economic power and have access to produc ve resources of a community.
They are obliged to use these resources for the common good of society so that more wealth for its
be erment may be generated. Technical and crea ve resources are also helpful to it. A business
organiza on sensi ve to community needs would in its own self-interest like to have a be er community
within which the business may be conducted. This way, the resul ng benefits would be:
1) Decrease in crime
2) Easier labour recruitment
3) Reduced employee absenteeism.
4) Easier access to interna onal capital, be er condi ons for loans on interna onal money market.
5) Dependable and preferred as supplier, exporter, importer and retailer of responsibly manufactured
components and products.

CSR

Economic Legal Ethical Discretionary

Responsibilities Responsibilities Responsibilities Responsibilities

1) Economic Responsibili es
Every organiza on must be profitable; it is the basis or founda on upon which all other things are
dependent.
2) Legal Responsibili es
Law should be obeyed in le er as well as in spirit.
3) Ethical Responsibili es
Ethical norms cover truthfulness, honesty, integrity, fairness and jus ce.
4) Discre onary Responsibili es
An organiza on must contribute to the community and work towards the be erment of the society.

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FEW ACTIVITIES UNDERTAKEN TO PROMOTE (CSR)

1) Commitment to diversity in hiring employees and barring discrimina on;
2) Adop on of internal controls reform in the wake of Enron and other accoun ng scandals
3) Management teams that view employees as assets rather than costs;
4) High performance workplaces that integrate the views of line employees into decision-making
processes;
5) Adop on of opera ng policies that exceed compliance with social and environmental laws
6) Advanced resource produc vity, focused on the use of natural resources in a more produc ve, efficient
and profitable fashion (such as recycled content and product recycling);
7) Taking responsibility for condi ons under which goods are produced contract employees domes cally
or abroad.

SOCIAL ACCOUNTABILITY – SA 8000

SA 8000 is a comprehensive, global, verifiable performance standard for audi ng and cer fying compliance
with corporate responsibility. The heart of the standard is the belief that all workplaces should be managed
in such a manner that basic human rights are supported and that management is prepared to accept
accountability for this. SA8000 is an interna onal standard for improving working condi ons. This standard
is based on the principles of the interna onal human rights norms as described in Interna onal Labour
Organiza on conven ons, the United Na ons Conven on on the Rights of the Child and the Universal
Declara on of Human Rights. The requirements of this standard apply regardless of geographic loca on,
industry sector, or company size.

Q) What is meant by ‘Corporate Governance’? State the ‘measures of Corporate Governance’ with
reference to Indian companies.
Answer:
Meaning: “Corporate governance is about promoting corporate fairness, transparency and
accountability. It is concerned with the structures and processes for decision making, accountability,
control and behavior at the top level of organizations. It influences how the objectives of an organization
are set and achieved, how risk is monitored and assessed and how performance is optimized.
Measures: In general, corporate governance measures include appointing nonexecutive directors,
placing constraints on management power and ownership concentration, as well as ensuring proper
disclosure of financial information and executive compensation. Many companies have established
ethical and/or social responsibility committees on their Boards to review strategic plans, assess progress
and offer guidance on social responsibilities of their business. In addition to having committees and
Boards, some companies have adopted guidelines governing their own policies around such issues like
board diversity, independence, and compensation. Indian companies are also required to comply with
Clause 49 of the listing agreement.

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CLAUSE 49 OF LISTING AGREEMENT

It includes appoin ng non-execu ve directors, placing constraints on management power and ownership
concentra on as well as ensuring proper disclosure of financial informa on & execu ve compensa on.

AREAS FOCUSED BY CLAUSE 49:

Key Code: BAS CEO RISK LO .

1) Board Composi on & procedure

2) Audit Commi ee’s
3) Subsidiary Companies
4) CEO/CFO cer fica on of financial statements and internal controls
5) Risk Management
6) Legal Compliances
7) Other Disclosures.

DIFFERENT COMMITTEES
Key Code: BAN C2ID .

1) Board of Directors:
The Board's role is that of trusteeship to protect and enhance shareholders value through strategic
supervision. The strategy should aim at accountability and fulfillment of goals.
2) Audit Commi ee:
They have to provide assurance to Board on adequacy of internal control systems and financial
disclosures.
3) Nomina on Commi ee:
It recommends nomina ons for membership of the Corporate Management Commi ee and the Board,
and oversee succession to the senior most level of management below the Execu ve Directors.
4) Compensa on Commi ee:
The commi ee has to recommend to the Board compensa on terms for execu ve Directors and the
senior most level of management below the Execu ve Directors.
5) Corporate Management Commi ee:
Its primary role is to strategic manage company's businesses within Board's approved direc on /
framework.
6) Investor Services Commi ee:
It is to look into redressal of Shareholders' and Investors' grievances, approval of transmissions, sub-
division of shares, issue of duplicate shares etc.
7) Divisional Management Commi ee:
It is to realize tac cal and strategic accordance with Corporate Management Commi ee/Board
approved plan.

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UNIT 3 : WORKPLACE ETHICS

Workplace Ethics refer to codes of conduct influencing the development of ethical culture at the
workplace. It is an extension of the individual & personal standards of the workers. It is the manner of
application of principle & values at the time of actual decision-making. It involves the various right and
wrong actions influencing the workplace.
Individual standards and values

Ethical/Unethical choices at
Managers and co-workers influence
workplace

Compliance requirements

1) THE INDIVIDUAL
The various ac ons of an employee depend upon his personal beliefs, values & principles. Managers
are under pressure to take quick decisions for the achievement of business targets. The pressure to
perform may lead them to resort to unethical decisions.
2) MANAGERS AND CO-WORKERS' INFLUENCE
The power & authority of the boss and also the examples set by colleagues influence the decisions and
ac ons of the individual.
3) COMPLIANCE REQUIREMENTS
Company policies and code of conduct are also very important especially when an individual faces an
ethical dilemma. Use of company's assets like sta onery etc. for personal purposes by others may
prompt a person to do the same thing. To ensure ethical behavior, a strong & proper internal control
mechanism should be in place'.

Q) Describe the factors which influence the ethical behaviour at work in an organization
Answer:
Factors which influence the ethical behaviour at work- Ethical decisions in an organization are influenced
by three key factors:
1. Individual moral standards: One may have great control over personal ethics outside workplace.
2. The influence of managers and co-workers: The activities and examples set by coworkers along with
rules and policies established by the firm are critical in gaining consistent ethical compliance in an
organization.
3. The opportunity to engage in misconduct: If a company fails to provide good examples and direction
for appropriate conduct; confusion and conflict will develop and result in the opportunity for unethical
behavior.

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DISCRIMINATION
Discrimina on is the unjust or prejudicial or differen al treatment of people,
because of their age, gender, race, religion or other protected class status. It
is the wrongful act of making a difference in treatment or favor on a basis
other than individual merit. It involves a decision against one or more
employees not based on individual merit, but derived solely or partly from
racial or sexual prejudice, or some other kind of unjus fied a tude against
the members of the class to which the employee belongs.

Elements of Discrimina on:

1) If the decision against one or more employees is taken which is not based on individual merit, such as
the ability to perform a given job, seniority or other morally legi mate qualifica on.
2) If the decision has been derived solely from racial or sexual prejudice, false stereotypes other kind of
morally unjus fied a tude against members of which the employee belongs.
3) If the decision has a harmful or nega ve impact on the interests of the employees, perhaps cos ng
them jobs, promo ons or be er pay.

Article 15(1) of the Constitution of India says "The State shall not discriminate against any citizen on
grounds only of religion, race, caste, sex, place of birth or any of them".

Article 16(1) of the Constitution of India states that “There shall be equality of opportunity for all
citizens in matters relating to employment or appointment to any office under the State”.

Various Forms of Discrimina on:

Discrimina on in employment may take any of the following forms:
Key Code: GRAND .
1) Gender Discrimina on
2) Religious Discrimina on
3) Age Discrimina on
4) Na on / Origin Discrimina on
5) Discrimina on against handicapped

HARASSMENT AT WORKPLACE
It means tormen ng someone by subjec ng him to constant interference or by bullying. Workplace
harassment involves offensive treatment through various a empts to undermine or insult an individual
employee or groups of employees. It is an abuse of power which can cause stress and an ill-health, mental
distress etc.
Harassment can be by superiors, or subordinates. The reasons for causing harassment could be bias,
jealousy, hatred to persons of par cular caste etc. It is very difficult to prove, even though it can be felt by
the employee. It includes:
1) Use of abusive language;
2) Physical abuse
3) Insul ng before others;
4) Deliberately denying leave;

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5) Nega ve a acks on performance;

6) Pressuring for extra work;
7) Deliberately giving some work just before leaving office, calling it as 'urgent / important'

SEXUAL HARASSMENT
Sexual harassment means unwelcome sexually determined behavior or conduct
including:
1) Physical contact and advances (eg. blocking movement, inappropriate touching
etc.);
2) A demand or request for sexual favors including derogatory gestures;
3) Sexually colored remarks (eg. remarks about clothing or body);
4) Showing pornography, pictures, emails of sexual nature;
5) Any other unwelcome physical, verbal or non-verbal conduct of sexual nature.
Sexual harassment is prohibited. Irrespec ve of the fact whether the employer has knowledge, he is held
responsible for all sexual harassment engaged in by his employees.
In Vishaka v. State of Rajasthan - It shall be the duty of the employer or other responsible persons in
work places or other institutions to prevent the commission of acts of sexual harassment and to provide
the procedures for the resolution, settlement of prosecution of acts of sexual harassment by taking all
steps required.

WAYS TO MANAGE WORKPLACE ETHICS

The focus on core values and sound ethics, the hall mark of ethical management, is being recognized as an
important way to ensure the long term effec veness of governance structures and procedures and to avoid
the need for whistle blowing.

Employers, who understand the importance of work place ethics, provide their work force with an effec ve
framework and guiding principles of iden ty and address ethical issues as they arise. These guidelines for
managing ethics and to avoid the need for whistle-blowing in the work place may be summarized as
follows:
1) Have a Code of Conduct and ethics.
2) Establishment open communica on.
3) Make ethical decisions in group and make decision public whenever appropriate.
4) Integrate ethics with other management prac ces.
5) Use of cross func onal teams when developing and implemen ng the ethics management program.
6) Appoin ng an ombudsman.
7) Crea ng an atmosphere of trust.
8) Regularly upda ng of policies and procedures
9) Include a grievance policy for employees
10) Set an example from the top.

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Q) State with reasons whether the following statement is correct or incorrect:

Fairness and honesty are the pillars of success in business.
Answer:
Correct: The success of the business depends very much on fairness and honesty in the business.
Fairness and honesty are at the heart of the business ethics and relate to the general values of decision
makers. At a minimum, business professionals and persons are expected to follows all applicable laws
and regulation. Even then, they are expected not to harm customers, employees, clients or competitors
knowingly through deception, misrepresentation, coercion or discrimination.
One aspect of fairness and honesty is related to disclosure of potential harm caused by product use. For
example, Mitsubishi Motors, a Japanese automaker, faced criminal charges and negative publicity after
executives admitted that the company had systematically covered up customer complaints about tens
of thousands of defective automobiles over a 20 year period in order to avoid expensive and
embarrassing product recalls.
Another aspect of fairness relates to competition. Although numerous laws have been passed to foster
competition and make monopolistic practices illegal, companies sometimes gain control over markets
by using questionable practices that harm competition.
These aforesaid examples show that fairness and honesty pay in the long run; they secure the stability
of the business and overall reputation in the business world. Therefore, we may say that fairness and
honesty are the pillars of success in the business.
Q) What problems may arise at work place when ethical behaviour is not adopted?
Answer:
Incorrect. Every organization, whether a business or a government agency, is first and foremost a human
society. In all these setups, ethical behaviour is essential to working environment. If an employer does
not take steps to create a working environment where the employees have a clear, common
understanding of what is right and wrong, and feel free to discuss and ask questions about ethical issues
and report violations, some significant problems may arise namely:
1) Increased risk of employees making unethical decisions.
2) Increased tendency of employees to report violations to outside regulatory authorities (whistle
blowing) because they lack an adequate internal forum.
3) Inability to recruit and retain top people.
4) Diminished reputation in the industry and the community.
5) Significant legal exposure and loss of competitive advantage in the market place.
6) Therefore, ethical behaviour is essential to working environment at the workplace.

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UNIT 4 : ENVIRONMENT & ETHICS

Sustainable Development refers to maintaining development over me. It means development that
meets the needs of the present genera ons without compromising the ability of future genera ons to
meet their own needs. We should sa sfy our requirements - social, economic, environmental and others
without jeopardizing (neglec ng) or affec ng the interest of future genera ons. (May 2007)

POLLUTION AND RESOURCE DEPLETION

Pollu on is the introduc on of contaminants & harmful substances into a
natural environment causing harm or discomfort to the ecosystem. It
involves the undesirable and unintended contamina on of the
environment due to manufacture and/or use of commodi es. Resource
deple on refers to the consump on of finite or scarce resources. Pollu on
can also be considered as resource deple on because contamina on of air,
water etc. diminishes their beneficial quali es.

1) Air pollu on
The increase in the rate of diseases such as asthma and lung cancer today is due to the increase in the
air pollu on. It is also a cause of global warming and acid rain. It also affects other forms of life including
animals and vegeta on.
2) Water pollu on
Polluted water causes diseases such as cholera, typhoid, jaundice etc.
3) Noise pollu on
Automobiles, trains, industries, loud speakers are main cause of noise pollu on which is harmful to
health and life.
4) Land pollu on
The main sources of pollu on are disposal of garbage, industrial waste, use of pes cides and chemical
fer lizers.

SOME INITIATIVES TAKEN BY GOVERNMENT OF INDIA TO CHECK POLLUTION

1) Se ng-up of Pollu on Control Boards (Central & State Level)
These boards have been set up to regulate pollu on levels. They have the power to issue orders for
closing down pollu ng industries.

2) Checking of emissions from automobiles

Government has taken various ini a ves like all commercial vehicles in metro ci es are required to use
Compressed Natural Gas (CNG) etc.

3) Checking of Industrial pollu on

List of major pollu ng industries has been drawn up, emission norms have been prescribed, noise
pollu on norms have been specified, throwing industrial waste into rivers has been prohibited.

4) Other Measures
Smoking in public places has been banned. Prohibi on has been imposed on use of recycled plas c
bags. Environmental audit has been introduced. Various laws including Air (Control and Preven on of
Pollu on) Act, Water (Control and Preven on of Pollu on) Act, Motor Vehicles Act, prescribe an -
pollu on measures.

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GREEN ACCOUNTING SYSTEMS

Green accoun ng is a type of accoun ng that a empts to factor environmental costs into the financial
results of opera ons. The conven onal accounts may result in policy decisions which are non-sustainable
for the country as a whole. It is a management tool used for various objec ves including improving
environmental performance, controlling costs, developing environment friendly products and most
importantly to align its business strategies with environmental ini a ves. The system of green accoun ng
focuses on addressing the limita ons the deficiencies of the conven onal system of accoun ng, with
respect to the environment & relate aspects. It lays down stress on the need to reflect the environmental
costs in the prices of the goods and services.

Q) The industries that are based on natural resources, like minerals, timber, fibre and foodstuffs, have
some special responsibility for making "environment-friendly products". Examine this statement and
also explain in brief the concept of Green Accounting System.
Answer:
Sustainable Development: Literally sustainable development refers to maintaining development over
time. It may be defined as development that meets the needs of the present without compromising the
ability of future generations to meet their own needs. A nation or society should satisfy its requirements
– social, economic and others – without jeopardizing the interests of future generations.
Special responsibilities of industries based on natural resources: Industries that are based on natural
resources, like minerals, timber, fibre, and foodstuffs etc. have a special responsibility for :
(1) adopting practices that have built-in environmental consideration
(2) introducing processes that minimize the use of natural resources and energy, reduce waste, and
prevent pollution.
(3) making products that are ‘environment-friendly’, with minimum adverse impact on people and
ecosystem.
Green accounting systems: Conventional accounts may result in policy decisions which are non-
sustainable for the country. Green accounting on the other hand is, focused on addressing such
deficiencies in conventional accounts with respect to environment. If the environmental costs are
properly reflected in the prices paid for goods and services then companies and ultimately the consumer
would adjust market behaviour in a way that would reduce damage to environment, pollution and waste
production. Such measures would facilitate the approach of ‘polluter pays principle’. Removing
subsidies that encourage environmental damage is another measure.

GLOBAL WARNING
MEANING:
1) Global warming means increase in earth's temperature all over the world.
2) The main cause of global warming is the increase in level of greenhouse gases
(because of burning of fossil fuels and deforesta on) in the atmosphere.

ADVERSE EFFECTS:
1) Higher temperatures.
2) Glaciers will melt, causing sea levels to rise.
3) Expansion of the world's deserts.

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4) Ex nc on of several species of plants and animals.

5) Reduced agricultural yield.
6) Increase in the intensity and frequency of natural disasters such as floods, droughts, hurricanes and
wildfires.
SOLUTION:
1) Reducing emission of greenhouse gases.
2) Plants and trees absorb carbon dioxide. Increasing trees and forests can help taking out gasses from
the atmosphere.

ACID RAIN
Like Global Warming, "Acid Rain" is a threat to the environment that is closely related to the combustion
of fossil fuels (oil, coal and natural gases) which are heavily used by utilities to
produce electricity. Burning fossil fuels, particularly coal containing high levels of
Sulphur, releases large quantities of Sulphur oxides and nitrogen oxides into the
atmosphere. When these gases are carried into the air, they combine with water
vapour in clouds to form nitric acid and sulphuric acid. These acids are then carried
down in rain, which often falls hundreds of miles away from the original sources of
the oxides raising the acidity of the water sources. It also soaks into soils and falls
directly on trees and other vegetations.
Numerous studies have shown that many fish popula ons and other aqua c organisms are unable to
survive in lakes and rivers that have become highly acidic due to acid rain. Other studies have shown that
acid rain directly damages forests and indirectly destroys the wildlife and species that depend on forests
for food and breeding. Acidic rain water can also contaminate drinking water. Acid rain can corrode and
damage buildings, statues and other objects, par cularly those made of iron, lime stone and marble
thereby causing great threat to life and property over a long period of me.

OZONE DEPLETION
MEANING:
It means destruc on of the ozone layer which protects the earth from the
harmful ultraviolet rays of the sun. It is a big threat to human, animal and
plant life.
CAUSES:
1) When chlorine and bromine compounds reach the stratosphere, they
destroy ozone molecules resul ng in destruc on of ozone layer.
2) Use of chlorofluorocarbons (CFCs) and other ozone deple ng
substances Bromo fluorocarbons (halons), refrigerants, solvents and
insula on.
ADVERSE EFFECTS:
1) Severe health problems like skin cancer and eye diseases.
2) Adverse effect on aqua c life and animal life.
3) Destruc on of agricultural crops and reduced agricultural yield.
4) Adverse effect on trees, plants and forests.

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UNIT 5 : ETHICS IN MARKETING AND CONSUMER PROTECTION

MARKETING ETHICS
Ethical marke ng is a process by which companies generate customer interest in
products / services, build strong customer rela onships and create value for all
stakeholders by incorpora ng social considera ons in products and promo ons.

Common cases of Unethical marke ng prac ces:

1) Unethical pricing.
2) An -compe ve prac ces.
3) Offering so called 'free gi s' though the cost of the free gi is included in the price of the main product.
4) Price discrimina on.
5) False claims about sponsorships.
6) False claims with respect to standards etc.
7) Decep ve packaging.
8) Warran es with no inten on of mee ng them.

REASONS FOR MAINTAINING ETHICAL BEHAVIOUR

Marke ng execu ves should prac ce ethical behaviour because it is morally correct. To maintain ethical
behaviour in marke ng, the following posi ve reasons may be considered by marke ng execu ves:

1) To reverse declining public confidence in marke ng:

Some me misleading package labels, false claim in adver sement, phony list prices, infringement of
trademarks pervert the market trends and such behaviour damages the marketers' reputa on. To
reverse this situa on, business leaders must demonstrate convincingly that they are aware of their
ethical responsibility and will fulfill it. Companies must set high ethical standards and enforce them.
Moreover, it is in management's interest to be concerned with the wellbeing of consumers, since they
are the lifeblood of a business.
2) To avoid increase in government regula on:
Business apathy, resistance, or token responses to unethical behaviour increase the probability of more
governmental regula on. The governmental limita ons may also result from management's failure to
live up to its ethical responsibili es. Moreover, once the government control is introduced, it is rarely
removed.
3) To retain power granted by society:
Marke ng execu ves wield a great deal of social power as they influence markets and speak out on
economic issues. However, there is a responsibility ed to that power. If marketers do not use their
power in a socially acceptable manner, that power will be lost in the long run.
4) To protect the image of the organisa on:
Buyers o en form an impression of an en re organisa on based on their contact with one person. That
person represents the marke ng func on. Some mes a single sales clerk may pervert the market
opinion in rela on to that company which he represents.

Q) Answer ‘yes’ or ‘no’ with brief reason:

Ethics are necessary in marketing to build Brand image only.
Answer:
No, the ethics are necessary in marketing not only to build image, but ethics are necessary for
sustainable development of business, and ultimately for transparency and good corporate governance
in the country.

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ETHICAL ASPECTS OF ADVERTISING

1. ADVERTISING CONTENT - DECEPTIVE ADVERTISING
Decep on exists when an adver sement is introduced into the
perceptual process of the audience in such a way that the output differs
from the reality of the situa on. It includes a misrepresenta on,
omission or a prac ce that is likely to mislead.
a) Misrepresenta on or Exaggerated Claims
Many prac ces are resorted to for misleading the public. It does not include 'puffery', which implies
use of harmless terms like finest, best and the like. Eventually, how the adver sement is perceived
& received by the audience will determine whether it involves puffery or decep on.
b) Concealment
Important informa on which might affect the decision of the prospec ve customer is generally not
disclosed in the adver sement.
c) Sex appeals
They are used even where it is not appropriate to the product or service being adver sed.
d) Adver sements aimed at children
Children are vulnerable to adver ser's en cements, as they lack independent judgment.
e) Bait adver sing
It involves announcement of a 'SALE' which is subsequently discovered to be unavailable. Once the
consumer enters the store, more o en than not, they purchase some other goods.

2. QUANTUM OF ADVERTISING
These days, too much money is being spent in publicity & adver sing. The same resources can be
u lized for some be er purpose.

3. UNWANTED INFLUENCES ON THE SOCIETY

Over-adver sement some mes results in unwanted influences on the people, who despite not having
the resources or funds, s ll go for the par cular commodity. Hence, for arranging the resources they
may resort to unfair prac ces & immoral ac vi es.

HEALTHY COMPETITION AND PROTECTING CONSUMERS’ INTEREST

COMPETITION
It is a situa on in the market in which sellers independently
a empt for the buyers' patronage in order to achieve their
business objec ve. Due to compe on, the consumer welfare
is greatly enhanced. This is because there is more variety, be er
quality, low pricing.

COMPETITION POLICY AND LAW

Compe on Policy is regarded as a genus, of which the
Compe on Law is specie. The Compe on Policy is
implemented through Compe on Law in which necessary
powers have been given to the Compe on Commission of
India (CCI). The main objec ve of Compe on Policy is to
promote and sustain compe on in the markets.

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COMPETITION ACT, 2002

It intends to:
1) provide for the establishment of Compe on Commission of India (CCI) to prevent prac ces having
adverse effect on compe on;
2) prohibi on of an -compe ve agreements;
3) preven ng abuse of dominant posi on

Q) Answer whether the statement is correct or incorrect with brief reason:

‘Competition Act, 2002 protects the interest of consumers’.
Answer:
Correct: The Competition Act, 2002 intends to protect the interests of consumers by establishing a
commission to prevent practices having adverse effect on competition and to promote and sustain
competition in markets. The commission is empowered to prohibit certain agreements which are
considered as anti-competitive in nature, abuse of dominant position and regulation of combinations
likely to cause appreciable adverse effect on competition.

CONSUMER
Defini on of consumer is given in Consumer Protec on Act, 1986

Sec on 2(d) of the Act provides that 'Consumer' means any person who
1) Buys any goods for considera on paid or promised or partly paid and partly
promised, or under any system of deferred payment and includes any user of such
goods, but does not include a person who obtains the goods for resale or for any
commercial purpose; or
2) Hires or avails any services for considera on paid or promised or partly paid and partly promised,
or under any system of deferred payment and includes any beneficiary, but does not include a
person who avails of such services for any commercial purpose.

RIGHTS OF A CONSUMER
1) Right to Safety
It means the right to be protected against the marke ng of goods and services which are hazardous to
life and property.
2) Right to be informed
The right to be informed about the quality, quan ty, purity, standard and price of goods or services so
as to protect the consumer against unfair trade prac ces.
3) Right to Choose
It involves the right to be assured, wherever possible, access to a variety of goods and services at
compe ve prices.
4) Right to be Heard
It is the right to be represented in various forums formed to consider the consumers' welfare.
5) Right to Seek Redressal
It is the right to seek redressal against unfair prac ces or restric ve trade, prac ces or unscrupulous
exploita on of consumers.

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6) Right to Consumer Educa on

It involves the right to acquire the knowledge and skill to be an informed consumer.

REDRESSAL MACHINERY
The Act provides for a three- er quasi-judicial machinery at District, State & Na onal level for redressal of
consumer disputes & grievances.

Redressal Machinery

District Forum

State Commission

National Commission

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CA IPCC BUSINESS LAW, ETHICS & COMMUNICATION
UNIT 6 : ETHICS IN ACCOUNTING & FINANCE

Financial Ethics is an important part of ethics. The func ons performed by

finance and accoun ng professional affect all the stakeholders, public at
large, and the economy.
Finance and accoun ng professionals were rated very high in terms of
professional ethics. However, various accoun ng scandals witnessed during
the past few years have put a serious ques on mark on the role of the finance
and accoun ng professional in providing the accurate informa on for
decision-making.

CAUSES OR UNETHICAL BEHAVIOUR ON THE PART OF ACCOUNTING AND

FINANCE PROFESSIONALS
In order to create an ethical environment, it is necessary to know the reasons for unethical behaviour.
Finance and accoun ng professionals may indulge in unethical prac ces because of the following reasons:

1) Emphasis on short term results

This is one of the reasons that have led to the downfall of many companies.
2) Overlooking small ethical lapses
Most of the major scandals have their roots in small lapses. Companies and managers overlook minor
lapses which later assume serious propor ons. Companies, therefore, ought to develop an
environment where small ethical lapses are taken note of and not allowed to be repeated.
3) Complex accoun ng rules
Accoun ng rules are changing faster than ever before. The rules have become more complex and it is
difficult to iden fy devia ons from these complex set of requirements resul ng in unethical prac ces.
The complexity of these principles and rules and the difficulty associated with iden fying abuse are
reasons which may promote unethical behaviour.
4) Greed & Opportunity
Accoun ng of companies offers the opportunity to "cook the books" (manipulate), without anyone
ge ng hurt by the ac on. Accoun ng o en involves dealing with very large amounts of money, some
of which can be conveniently siphoned off. Due to this reason, the accoun ng and finance professional
may get tempted.

FUNDAMENTAL PRINCIPLES OF ETHICS RELATING TO FINANCE AND

ACCOUNTING
Certain fundamental principles need to be adhered with for behaving in an ethical manner. These principles
include
1) Integrity
2) Objec vity
3) Confiden ality
4) Professional competence
5) Professional behaviour

EXAMPLES OF VARIOUS THREATS FACED BY FINANCE PROFESSIONALS

1) Self-interest threats
Self-interest threats to financial or other interests of the finance and accoun ng professional or of a
close family member.

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Examples:
a) Undue dependence on total fees from a client Concern about the possibility of losing a client.
b) Poten al employment with a client.
c) Financial interests, loans and guarantees in the company the professional is working.
2) Self-review threats
Self-review threats, which may occur when a previous judgment needs to be reevaluated by the finance
and accoun ng professional responsible for that judgment;
The discovery of a major error during a re-evalua on of the work of the finance and accoun ng
professional.
3) Advocacy threats
Advocacy threats occur when a professional promotes a posi on or opinion to the point that
subsequent objec vity may be compromised;
Ac ng as a solicitor on behalf of a client in court ma ers or disputes with third par es.
4) Familiarity threats
Familiarity threats occur when the finance and accoun ng professional has close rela onships in the
work environment and such rela onships impair his selfless a tude towards work.
a) A former partner of the firm being a director or officer of the client or an employee
b) Accep ng gi s or preferen al treatment from a client, unless the value is clearly insignificant.
5) In mida on threats
In mida on threats occur when a professional may be prohibited from ac ng objec vely by threats,
actual or perceived.
a) Being threatened with dismissal or replacement.
b) Being threatened with li ga on.

Q) Answer whether the statement is correct or incorrect with brief reason:

‘Window-dressing of financial statements will not be useful in the long run’.
Answer:
Correct: In window-dressing, efforts are made to show a 'good balance sheet' by manipulating
accounting entries. This can help companies to boost their market image and obtain further capital from
the market for some time. Window dressing is on the assumption that next year performance will be
better and accounts will be regularised next year. Window dressing can go on for 2 or 3 years but not
more. It will lead to the downfall of the company in a few years.

Q) Describe the safeguards which may be created by finance and accounting profession and legislation
to eliminate or reduce the threats to an acceptable level to ensure an ethical environment in an
organization.
Answer:
Safeguards created by the profession, legislation or regulation are as follows:
i. Educational, training and experience requirements for entry into the profession.
ii. Continuing professional development requirements
iii. Corporate governance regulations
iv. Professional standards
v. Professional or regulatory monitoring and disciplinary procedures.
vi. External review by a legally empowered third party of the reports, returns, communications or
information produced by concerned professionals.

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