Chapter 1

INTRODUCTION

Background of the Study

Accountants are entrusted with people's money and other equity. It may not even be an

exaggeration that they are entrusted with the very lives of the people. With this, it is important

that they be trustworthy and ready to handle this big responsibility. This is why accountants have

set of ethical behavior and practices to follow in order to establish trust with their clients and not

to sully the name of their company. This research study shall observe on how the accountants in

Bank of the Philippine Islands also known as BPI, one of the best banks in the Philippines,

uphold their ethics involved in accounting.

Code of ethics is the set of moral principles used by an organization to lead the conduct

of the organization and employees in all their business activities both internally and externally.

These ethical behaviors include independence, objectivity, integrity, confidentiality, and

competence. Independence and objectivity are necessary in order to insure that there will be no

conflict of interest that could hinder an accountant’s judgment. Integrity requires honesty

towards the clients and other business transactions. Confidentiality binds an accountant to a non-

disclosure agreement. This should be strictly applied unless there is a legal or professional reason

to do so. Competence is also a necessity in this ever progressing world. In business, people use

the information collected by accountants to make very important decisions, including decisions

on how to structure the organization’s profit system and whether to invest in a particular business

or not. The government also uses information provided by accountants to make decisions

concerning laws and taxes. Since most of the financial statement users depend on the results
given by accountants, ethical concerns are more prominent in the field of accounting than other

industries.

BPI is a full-service universal bank in the Philippines. As the first bank established in both

Philippines and Southeast Asia, it is now the third largest bank in terms of assets, second in

terms of market capitalization, and one of the most profitable banks in the country. As a financial

institution, BPI believes that managing their behavior in an ethical way not only because it is the

right thing to do, but it is fundamental to their business, their reputation, as well as to their

success. This is eloquently stated in the BPI Code of Business Conduct and Ethics. This

Philosophy is deeply rooted in BPI’s corporate culture as it believes that their business will

always be a business of trust. As such, the Bank upholds the highest standards of ethical

behaviour and responsible conduct of business as it protects the interests of and creates value for

its stakeholders.

Review of Related Literature and Studies

According to Johannes Brinkman (as cited in Akadakpo and Enofe, 2013), ethics is the

discipline that exhibits the matters related to evil and good, wrong and right, and vice and virtue.

Therefore, ethics are used to examine moral principles, human behavior, and their efforts to

distinguish between good and bad. The development of ethical codes within organizations can

secure the fidelity of business transactions and financial processes, which in turn, affect

employee performance, relationship, and credibility of the company. Micewski and Troy (as

cited in Akadakpo and Enofe, 2013), stated that the ethical responsibility within the business

world is not holistic, but lies under the particular context of ethical behavior. A majority of the

corporations in the world have instituted ethical issues in the accounting processes, which

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increases the potential for conflict of interest. Breach of ethical rules within the corporate finance

practice, through financial misstatements, usually damages an organization’s reputation,

customer satisfaction levels, and the trust of investors on the company.

Unethical behaviors not only degrade the reputation and credibility of an individual, but

the company as well, increasing the likelihood of criminal activities that could result in the

decrease in profit levels says Sims (as cited in Akadakpo and Enofe, 2013).

That’s why unethical activities by accounting professionals affect an organization’s

trustworthiness and reputation to its stakeholders. Absence of trust due to unethical activities

taints the firm’s identity, which makes it difficult to achieve a higher percentage of productivity

in an organization. Conducting business will also be difficult because of that. Unethical

behaviors of accountants are also violations of the regulations because they entail financial

statement information manipulation. Consequently, such financial statements have a less

appropriate legal status, which greatly affects the decision-making process not only to the

external users but also to the organization as a whole.

These literatures are related to the current study because it mentions the effects of having

or not having ethical rules to be practiced in an organization. It is significant to the study because

it gives scenarios about practicing or not following the ethical guidelines a company has that can

help the researchers to establish strong ideas that’ll help in making conclusions.

Gould (2013) in his article “Ethical Leadership and Developing a Code of Conduct for

Organizations” discussed that effective approaches in generating ethics and integrity and using

codes of conduct are key elements in having a sound corporate governance and management

control.

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 Codes of conduct really help in reassuring investor s and other future stakeholders

particularly those that are looking for socially responsible investment and a commitment to

ethics. In addition, generally, employees prefer to work under an organization that is committed

to values and ethics.

IFAC’s guidance Defining and Developing an Effective Code of Conduct for

Organizations emphasize that accountant plays a very important role in driving and supporting

organizational ethics. For example, leading rather than relying on written policies and rules,

accountants can promote an environment that encourages employees to adapt the principles of

integrity and to do the right thing by letting them to make right and just decisions in a given

situation.

This literature is closely related to the present study because it discusses the relationship

of ethics with sound corporate governance and management control which are key factors in

achieving organizational productivity. The present study like the one that is reviewed, aim to

know if there is a significant relationship between ethical accounting practices and organizational

productivity

Roderick M. Vega (2012), a partner of SGV & Co. indicated that corruption and

unethical behavior are on the rise. It sensed that the risk of fraud in organizations will be rising.

The company will conduct a plan in order to strengthen the effectiveness of their monitoring in

regards to unethical behavior on their organization. He also mentioned the increasing acceptance

of unethical behavior. Some of the CFO’s are willing to do unethical conduct, specifically the

misstatement their financial performance for the survival of their business. The author suggested

creating and maintaining strong corporate culture of integrity and ethical conduct.

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 The article relates to the present study as it discussed about seasonable unethical conduct.

It is really a risky thing to do as it can damage an organization’s reputation, as well as the

productivity of that organization.

Corporate governance has become a buzzword in today’s business world. With greater

connectivity and the rise of social media, investors and consumers are increasingly monitoring—

and demanding—better corporate governance.

Donaldson (most influential “thought leader” in Ethisphere Magazine’s 2009) that,

regardless of the business model, companies must operate in a society and financial

environments where integrity is a key to governance (“Responding to the need to create culture

of ethics”, 2013)

In this article, it is discussed that creating a culture where in people can speak up and

lead. Speak up of those observed risky practices and do the right ones. This one is significant to

the study because its ideas and principles can help in assessing researchers’ conclusions and

discussions of the current study.

Having a theft and fraud problems in a company have been widespread, there are four

ways to protect your business against employee fraud and theft. The 1st way to protect your

business is establishing a code of conduct you should a set of rules for the employees,

management to follow the 2nd one is Set up organizational checks and balances, you shall not

tolerate the wrong doings of your employees. If you have already suspected your employees

doing fraud or theft in your company as an owner CEO of the company you should give the tasks

or work to the right number of employees according to their designations. Avoid assigning same

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person to a different station.3rd is to institute policies and procedures. And the last one is watch

employee’s behavior.

They may sound alike with other but, implementing these ways is a smart choice. Joe

Worth helped us in having a less fraud and theft problem. (May 2015)

The Professional Regulation Commission (PRC) published Resolution no. 263 entitled

“Adoption of the IFAC 2013 Code of Ethics for Professional Accountants as ‘The Code of

Ethics for Professional Accountants in the Philippines’ and prescribing amendments therefore”

last December 2015. This tackles thwarting familiarity and self-interest threats as a result of long

rapport with the client. Now, the IFAC Code of Ethics is approved by both the Board of

Accountancy (BoA) and the Professional Regulation Commission (PRC). It is now used as the

ethics code for the CPAs in the country. (2015)

In the CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS IN THE

PHILIPPINES (2015), The International Federation of Accountants (IFAC) believes that due to

national differences of culture, language, legal and social systems, the task of preparing detailed

ethical requirements is primarily that of the member bodies in each country concerned and that

they also have the responsibility to implement and enforce such requirements. However, IFAC

also believes that the identity of the accountancy profession is aims to achieve a set of common

objectives worldwide, and considering its own role to be that of providing guidance, encouraging

the efforts, and promoting harmony, has deemed it essential to establish an international Code of

Ethics for Professional Accountants to be the basis on which the ethical requirements (code of

ethics, detailed rules, guidelines, standards of conducts, etc.) for professional accountants* in

each country should be founded.

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 As argued by the authors of the article in The CPA Journal, accounting professionals

must have high moral principles and conduct their activities in a highly ethical manner. The

authors believe that any organization’s code of ethics would be more important if it would

embrace the moral principle as an integral part of its development of ethical standards.

Accountants should be act morally because it is the right thing to do. This article emphasizes that

the accountants should be clearly showing behavior in their lives, rather than simply avoiding

unethical actions. The likelihood of success will be greater if ethics and morality are considered

together beside a well-developed code of ethics and top management who lives strictly by that

code. This can happen if top management establishes that the ethical behavior must be based on

moral principles.

This research work was relevant to the present study because it tackled accounting ethics

that must be done by the accountants. But the difference is that the article above emphasizes the

connection of ethics and morality. It was mentioned that if these two were done together, it will

have a good impact to the organization’s productivity.

Cameron et al (n.d.) from University of Michigan conducted a study about effects of

positive practices on organizational productivity. A part of their study particularly discuss that

positive practices in financial service business units were significantly associated with financial

performance. Some of the specific positive practices are integrity, meaningful work and respect.

One of the codes of conduct accountants must have is integrity. They must be

straightforward, work with honesty and responsibility in all professional and business

relationship. They must be also respectful of what ethical objectives their company has.

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 This study showed that positive practices like ethical practices are significantly

associated with performance which is similar to one of the objectives of the present study.

In “A Comparison of Board Governance Practices of Selected Philippine and Hong

Kong Banks (2012) by Debbie Chua Bun Pho‐Wong”, she discussed the incident regarding

the 2008 global financial turmoil, which triggered widespread bank and financial institutions

failures in developed countries, has again elevated corporate governance in the center stage. Whi

le

the series of corporate failures in the United States at the turn of the century was primarily due to

the lack independence of external auditors and the lack of adequate accounting

disclosures and transparency, the Organization for Economic Cooperation and

Development (OECD), the leading authority on corporate governance based in Europe, in

2009 issued a report entitled “Corporate Governance and the Financial Crisis: Key

Findings and Main Messages”. According to this, they had identified these

major corporate governance weaknesses

namely, risk management, remuneration scheme and the role of shareholder as contributory to th

e global financial crisis.

The banks and financial institutions in developed economies were the worst hit in 2008. Thus,

British Prime Minister, Gordon Brown, commissioned Sir David Alan Walker, formerly chairma

n and current senior advisor of Morgan Stanley International, to review the governance of

banks and

financial institutions in the United Kingdom (UK). In mid‐2009, the Walker Review came up wi

th 39 recommendations encompassing the four key areas identified by OECD.

Both the United Kingdom and Hong Kong Code of Corporate Governance have adopted some o

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f these best governance practices in their codes and in their supervisory policy manuals. With

this,

the Philippine financial system was not badly hurt by the crisis. However, it ranked last among t

he 11 Asian countries in the CG Watch 2010 Report1, which merits that a study of the

Philippine corporate governance on publicly‐listed banks be done, particularly on board

governance.

A BusinessWorld news article2, which provided a synopsis of the CG Watch 2010 Repor

t, reported that the Philippines fared poorly in all corporate governance indicators in said report e

xcept in the adoption of tougher accounting rules. It landed at the bottom in three of the five cate

gories, namely, corporate governance rules and practices,

enforcement and corporate governance culture.

Hong Kong, in contrast, was one of the best performers in the same report and has started to ado

pt some of the recommendations in the Walker Review.

A research study entitled “Investigation of the Impact of an Ethical Framework and

an Integrated Ethics Education on Accounting Students’ Ethical Sensitivity and Judgment”, aims

to provide evidence of the impact of providing a framework on its own and providing a

framework as part of a comprehensive integrated ethics education component of a first-year unit

of study, on accounting students’ ethical sensitivity and judgment. (2013)

In a study called Ethics education in accounting: An investigation of the importance of

ethics as a factor in the recruiting decisions of public accounting firms (2014) they discussed

how a significant amount of attention had been directed to the role of ethics in the business

environment. The study explored the importance of ethical behavior as a factor in the recruiting

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decisions of public accounting firms. Factors related to the ethical behavior of entry-level

employees were compared with other personal characteristics that are traditionally viewed as

important to public accounting firms. Recruiters from both huge and small firms indicated strong

views on the importance of the students' ethical propensities. In fact, ethics received the highest

rating by the public accounting firms regardless of their size. The results of this study provide

strong evidence for accounting educators to continue to stress to their students the importance of

ethical behavior and to continue their efforts to more fully integrate ethics education into the

accounting curriculum.

In an Analysis of the Relationship between IFAC Code of Ethics and CPI (2012), which

they believe that fundamental function of the code of ethics is to influence people in their

decision-making process which should acceptable by the organization (Ferrell and Fraedrich,

1991). The code of ethics incorporates the responsibilities that the company management has

towards its shareholders, in other words, briefly the environment they act in; and provides

standards indicating what is within the line of “right and acceptable course of conduct”

definition. When the international accounting code of ethics is reviewed, The International

Federation of Accountants (IFAC) contributes to the development, adoption and implementation

of high quality ethical standards for the accountants through the International Ethics Standards

Board for Accountants’ (IESBA) support (IESBA, 2). IESBA’s long-term objective is to

converge the rule of code of ethics, which is valid for the accountants, with the standards

published by the regulators and standard setters. Convergence to only one set of standards may

well increase the quality and consistency of the services provided by the accountants all over the

world, and improve the efficiency of the global capital markets.

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 According to Valix’ (2012) book, conservatism is just the same as prudence. These are

some of the characteristics that the accountant needs to possess. “Anticipate no profit and

provide for probable and measurable loss,” “Don’t count your chicks until the eggs hatch”.

These are some of the expressions of conservatism or prudence that was stated in the book.

Conservatism must be done by the accountant in order to have a better outcome in the

organization’s financial statement. When alternatives exist, if a person has conservatism, he/she

would choose the alternative that has the least effect on the equity.

This study is closely related to the present study because it mentioned an ethical

accounting practice. This characteristic must be possessed by an accountant so the discussion of

the financial information of an organization would be complete.

The need for the CPA’s to correspond to the ethical standards of the profession become

essential. In the study of Ballada (2015), it was stated that sometimes professional ethics may

collide with business ethics. He stated some challenging sample situations: To remain

competitive, a company decided to use cheaper lumber in the ladders it sells; although this may,

in some instances, cause injury. A human resource manager must lay off a staff who desperately

needs the income and the staff is without any good alternative job option, etc. These are called

ethical dilemmas that the businesses would possibly encounter. An organization is a good source

of ethical dilemmas, so it is important to apply ethical rules in decision making in order to avoid

potentially undesirable situations.

Companies doing business in the Philippines must comply with the Philippine Financial

Reporting Standards (PFRS). The PFRS is a set of Generally Accepted Accounting Principles

(GAAP) issued by the Accounting Standards Council (ASC) to govern the preparation of

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financial statements. These standards aim to promote fairness, transparency, and accuracy in

financial reporting. To ensure compliance with the standards, it is ideal for a company doing

business in the Philippines to have an accounting manual/process flow or documentation and

recording guidelines in relation to the following: Proper cash management, proper inventory

management, proper fixed asset management, proper order to cash process, proper purchase to

pay process

This study is closely related to the current study in light of the fact that it gives

information in regards of ethical practices.

Ethical dilemmas are not avoidable by all of the companies. According to Racelis (2016),

when one looks at governance mechanisms, one usually looks at the leadership, ownership (if

any), incentives system and monitoring, external stakeholders, and rules, codes and laws. As

regards to leadership, there is a need for institutions to ask themselves whether they are led

by good people. That they might be becoming competent accountants, competent professional

but are they good persons?

In the corporate world, sustainability ratings consider environmental, social, and

governance issues alongside financial or economic performance. New ratings standards, such as

Sustainalytics, Sustainable Asset Management, and the Global Initiative for Sustainability

Ratings, among others, have recently arisen.

This article discusses about governance mechanism, which is one element of ethical

accounting practice that must be done to sustain good performance. This study is essential to the

current one since it gives idea to one of the studies objectives.

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 Strong ethical leadership and good governance are essential for sustaining an

organization value. Securing that the entire organization is conditioned to high ethical standards

and aligned with the values, goals and objectives of the organization helps it in maintaining its

productivity because it’ll help the organization to function better. With this responsibility comes

a rule—a code of ethics that guides them in making the right decisions. Before the Philippines

gained its independence, it needed a Constitution. In the same way that the Philippine

Constitution defines what it means to be the Philippines, it is the code of ethics that defines what

it means to be a CPA (“Independence: The CPA as journalist of your business”, 2016)

Theoretical Framework

Ethics are moral principles that an individual use in leading his or her behavior.

According to Ogbonna (2010) ethics and ethical values refers on how we think about things, on

how we practice or say what our views are that will not violate the rules of the organization, it’s

our sense of morality, our sense of right and wrong. They concern about issues like conflict of

interest, integrity, objectivity, independence, confidentiality and other similar acts that are not

against moral principles and ethical standards.

Ajibole (2008) states that the field of ethics can be divided into meta ethics, ethical

theories and applied ethics. Meta ethics is the reflection upon ethics concepts and theories.

Ethical theories is the substantive proposals regarding those considerations that would determine

morally acceptable conduct and applied ethics is the deliberation related to a specific field of

inquiry. Examples are ethics in business, public service and general professional ethics.

Researchers on Related Literature confer those ethical accounting principles, if practice

will keep or help in achieving organizational productivity. Based from the related materials,

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there has only one study that has the same thought but conducted outside of the country. Many

have studied about the effect of accounting ethics but focuses on different matters like financial

statements and different areas of accounting practices and management.

Research above indicates the consequences of having unethical practices, as well as the

ethical problems done by the accountants and how to resolve it. Another study also reveals the

causes of unethical practices in an organization and how it can be prevented, advantages and

disadvantages of unethical principles or the possible outcomes of not following company rules.

And also, that there are disadvantages of following the code of ethics. The research are all

helpful to the researchers in the fact that it was all connected to this research study and it

answered some of the research questions of this study.

Conceptual Framework

The main objective of this study is to determine the effect of ethical accounting practices

on the productivity of accountants in BPI. Below is the conceptual paradigm which illustrates

how the variables connect with each other and how the researchers made use of it in order to

come up with the results and recommendations. The variables under input are the code of ethics

that governs all of the accountants and the ethical standards implemented by the selected bank.

These variables will then be processed by data gathering, descriptive and correlation analysis and

the later on be interpreted. Output variable then shows the relationships between the input and

process variable which are the effect of ethical accounting practices on accountants productivity

and the significant relationship of ethical accounting practices and accountants productivity

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 INPUT PROCESS OUTPUT

 Accountants  Data Gathering  Effect of Ethical

Code of Ethics  Descriptive Accounting
 Ethical Analysis Practices on
Standards  Correlation Productivity of
Applied/Imple Analysis Accountants
mented in the  Interpretation  Significant
selected Bank of Data Relationship of
Ethical
Accounting
Practices and
Productivity

Statement of the Problem

This study focuses on determining the effect of ethical accounting practices on the

productivity of accountants in BPI. In attaining this, the following questions sought to be

answered:

1. What are the codes of ethics that BPI uses as a guide on their performance?

2. Do ethical accounting practices have a significant relationship with accountant’s productivity?

3. Are the ethical accounting practices observed by the accountants?

4. What are the advantages of using ethical accounting practices on accountant’s productivity?

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Null Hypothesis

Ho: There is no significant relationship between ethical accounting practices and productivity of

accountants in BPI.

Significance of the Study

The study is deemed important to the following:

Organizations. Organizations may benefit this study in terms of measuring the

productivity of their employees, specifically the accountants, and what can be the action to be

taken in order to maintain quality and order within their organization.

Investors. Findings of the study will serve as guide for the current and/or potential

investors in making decision whether to invest or not by assessing the productivity of the

accountants who strictly implements these practices.

Certified Public Accountants. Accountants may benefit from the results of this study in

terms of knowing the consequences and the effects of exercising unethical accounting practices

on their productivity. This study may also motivate the accountants to achieve the highest level

of professional and ethical behavior.

Managers.The findings of this study can be used by the organizational managers as well

as the decision makers in determining the best course of action to be taken to ensure compliance

with ethical standards in the preparation and presentation of financial information.

Future Researchers. This study may be used as a reference data in conducting new

researches or testing the validity of their related findings.

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Scope and Limitations

The general intent of this study is to know the effects of ethical accounting practices on

the productivity of accountants in BPI. The activities of the respondents as well as the tight

schedule of the researchers were put into consideration, thus arriving to study a specific location.

The object of this research were the accountants of the said organization as well as their

department head, as the researchers asked for their views and facts regarding the matter.

The purposive sampling was used to select the respondents of this study which are the

accountants in recon-department and its department head. Since BPI is a centralized

organization, researchers can’t choose among its branches by the reason of branches doesn’t

have its own sets of accountants. The researchers did not select any more departments

considering that the accountants in recon-department are best suitable to be the respondents of

this study.

Definition of Terms

For the better understanding of the readers of this study, terminologies are operationally

defined below.

Accountants are the ones who are subjected to follow the accounting ethical practices.

Accounting Ethical Practices is the set of conducts to be followed by an accountant in

order to work as a professional, and avoid actions that may damage the company and the

profession.

Code of Ethics is the set of code of conduct and business ethics provided by the

company to be followed by the employees.

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 Ethics refers to practices upholding the principles of a company in order to function as an

organization in an orderly manner.

Fraud means the possible result of disobeying of Code of Conduct and Business Ethics

provided by the company.

Organizational Productivity is referring to the total contribution of an accountant,

considering their effectiveness and efficiency to the productivity of the organization.

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