Chapt 1 - Ethics

Ethics
Ethics: the rules that help us tell the difference between right and wrong and
encourage us to do the right thing. Ethics are based on individual values,
beliefs, and standards in society.
‘Just because an action is not illegal, it doesn’t make it ethical.’
Examples;
- making personal calls or surfing the internet on company time
- calling in sick to work, but you’re not really sick
In order to help you think about the legal versus ethical argument in decision making
more clearly, consider that an action may be:
 Legal and ethical

 Legal but not ethical
 Ethical but not legal
 Not ethical and not legal
Examples: Ethical versus Legal Actions
Legal and Ethical Ethical but not Legal
 The ‘Ideal’ or Good Citizen  Providing pirated copies of

software for disadvantaged
 Home installation of youth
purchased software only
Legal but not Ethical Not Ethical and not Legal
 Software sold that contains  Something usually considered

adware hidden in it so the criminal like copying and
buyer/user is unaware. selling pornography software
to adolescents for a profit
Ethical Dilemma
-is a moral problem with potential right or wrong answers
- A person or an organization (i.e. a business) may face an ethical dilemma
-the business has a decision to make that weighs values and morals against
profitability and competitiveness
Resolving an Ethical Dilemma

-requires honesty, the ability to work cooperatively, respect for others, pride
in one’s work, willingness to learn, dependability, responsibility for one’s
actions, integrity and loyalty.
Answer these 4 questions:

1. Who will be helped by your action?
2. Who will be hurt by your action?
STAKEHOLDERS
3. What are the benefits and problems of such a decision?
- those affected by the
4. Will the decision survive the test of time?
..decisions & actions
Ethics in Business
Corporate social responsibility: is the obligation of a business to contribute to a community’s
well-being.
Businesses, like individuals, must follow ethical standards and must be socially responsible
towards their employees, their immediate community, and the wider global community.
Many companies choose to have a code of ethics, which is a document that explains
specifically how employees should respond in different situations.
Ethics & Accounting

Accountants are in a position of trust. Many parties involved with the business base their
decisions on the work & information produced by the accounting department.
Accountants must be ethical. It is their most fundamental duty. They must follow the rules
and principles of accounting (known as accounting standards) to the best of their abilities.
Accounting standards: International Financial Reporting Standards (IFRS), Accounting For

Private Enterprises (ASPE), Generally Accepted Accounting Principles (GAAP).
The Purpose of Accounting Standards (IFRS, ASPE, GAAP)
-to create transparent, uniform & verifiable (accurate) financial statements on which users
can rely on to make financial decisions.
If accountants weren’t ethical . . .

 the profession would lose creditability
 no reliable info for users to analyze and compare companies
 many groups of interest could be mislead and make wrong decisions based on false data
 economy would suffer because less people willing to invest in companies and banks less
likely to give out business loans
 since accountants are the ‘watch dogs’, other employees would become unethical
 more frequent cases of fraud, scandals and white-collar crimes
 the business world would become very chaotic and dark
Learning about the Importance of Ethics in Accounting

-is the responsibility of all educational institutions in Canada involved in business studies
-a CPA program requirement is the teaching of ethics to accounting students and the
research of ethical issues in accounting
- the goal; to help prepare future accountants and financial managers to exercise
professional judgment within an ethical framework and promote high ethical standards.
What happens to a business if its employees and/or management are involved in
unethical behaviour and it becomes known to the public?
- ‘business scandals’; headline the business news ; ‘Accounting Irregularities’ found

- the company’s image is destroyed
- company share values drop as investors quickly sell to get out
- famous examples; Enron, Worldcom, Bre-X
- consequences;
- fines, termination of employment, arrests, lawsuits, jail time
- class action lawsuits (where shareholders collectively sue company)
- company bankruptcies
IMPORTANT NOTE:
An accounting error is the result of an unintentional mistake;
It is neither ethical nor unethical.
An accounting irregularity is an intentional mistake, which is

generally viewed as unethical.

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Ethics

‘Just because an action is not illegal, it doesn’t make it ethical.’

 Legal and ethical

Legal and Ethical Ethical but not Legal

 The ‘Ideal’ or Good Citizen  Providing pirated copies of

 Software sold that contains  Something usually considered

Resolving an Ethical Dilemma

Answer these 4 questions:

Ethics & Accounting

Accounting standards: International Financial Reporting Standards (IFRS), Accounting For

If accountants weren’t ethical . . .

Learning about the Importance of Ethics in Accounting

- ‘business scandals’; headline the business news ; ‘Accounting Irregularities’ found

- famous examples; Enron, Worldcom, Bre-X

An accounting irregularity is an intentional mistake, which is

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