How Best to Respond to Ethical Challenges in Business

How Best to Respond to Ethical Challenges in Business

by Stathis Gould, Head of Professional Accountants in Business, IFAC | December 14, 2013 |

Most accountants in business and the public sector, whether working in a small organization or serving as the chief financial officer (CFO) of an international corporation, face ethical dilemmas during their professional careers. Ethical dilemmas come in many forms and accountants sometimes need support to address complex and challenging conflicts. Accountants may also treat ethical dilemmas as “business decisions” and not utilize their professional code to assess potential courses of action.

The CGMA survey report Managing Responsible Business, A Global Survey on Business Ethics shows the trends, pressure points, and ethical gaps within some organizations. The key findings of the CGMA survey include:

  • Business challenge 1—Ethical Culture

The survey showed a 10%-15% increase since 2008 in organizations providing both statements of ethical values and a code of ethics, as well as related training, provision of hotlines, and incentives, such as performance-based rewards.

Corporate leadership appears to be less actively engaged in reviewing and taking responsibility for ethical performance compared to 2008 as shown by a significant decline in the number of corporate leaders who held formal responsibility for ethics. This provides more evidence of a gap between the rhetoric from corporate leadership on ethical issues and actual practice. A weakened “tone from the top” has potentially serious implications for the overall ethical operating culture of an organization.

  • Business challenge 2—Accounting for Ethics

The survey showed an almost 20% increase in organizations both collecting and reporting ethical information. The majority of management accountants feel it is important to collect and analyze ethical information, but one in five do not believe their organization will do so in the near future.

  • Business challenge 3—Ethical Dilemmas and Pressures

Despite an increase in ethical codes and training, there is greater pressure within organizations to act unethically. Pressures are most apparent in emerging economies.

  • Business challenge 4—Business Issues

Security of information remains the biggest issue of concern across all markets. Bribery has risen from sixth to third in the rankings of issues of concern, reflected by the increase in anti-bribery and corruption legislation.

Fewer now believe that business has a moral imperative to help address global issues, with a decline from 84% to 77% since 2008.

Examples of the most common ethical dilemmas in the business environment are varied and include:

  • Dealing with pressure to act unethically, particularly from dominant superiors;
  • Balancing confidentiality with blowing the whistle on illegal or improper actions of others;
  • Disclosing information in the public interest; and
  • Wrongful trading in a distressed situation where insolvency might be imminent.

Such ethical dilemmas cover various ethical issues, such as overstating performance and valuation, participating in fraudulent activity, non-disclosure and withholding of information from auditors and other stakeholders, and making a decision without adequate information.

Many IFAC member organizations provide guidance, ethical resolution frameworks, and pathways to help accountants deal with ethical dilemmas. A key question for a professional accountant is whether you would be able to justify your decision to deal with a problem or conflict.

A common aspect to guidance on resolving ethical dilemmas is to help accountants define and apply the fundamental principles in their professional code of ethics. A distinguishing mark of the accountancy profession is the responsibility to act in the public interest and professional ethics places an expectation on accountants to self-regulate their behavior in accordance with the Code of Ethics for Professional Accountants (the Code) developed by the International Ethics Standards Board for Accountants (IESBA). IFAC member organizations are required to abide by ethical standards at least as stringent as those stated in the Code.

The principles may potentially be threatened by a broad range of circumstances including self-interest, self-review, advocacy, familiarity, and intimidation. An awareness and understanding of these circumstances will help to establish which fundamental principles are affected by a situation and why.

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