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What Do We Mean by Ethics?
Ethics covers moral principles and norms by which human actions may be judged. Business ethics is about managing ethics in an organizational context and involves applying principles and standards that guide behavior in business conduct.
Business ethics applies to all aspects of business practices—from how organizations develop, produce, and deliver products and services, to interactions with customers, suppliers, employees, and society. It encompasses human rights; labor and employment practices, such as training, diversity, gender equality, and employee health and well-being; and bribery and corruption. Some organizations also use the term to cover environmental sustainability issues, such as climate change and resource efficiency.
Practice ethics concerns the professional ethics that arise in the context of an accounting firm rendering professional services, encompassing assurance through to advisory, and to clients.
Why Is Ethics Important?
Unethical business practices harm organizations and economies. The business failures of Enron, WorldCom, Tyco International, Parmalat, and Arthur Andersen, as well as the more recent failures related to the global financial crisis, highlight the consequences of unethical business practices and amoral management.
Business ethics is increasingly part of a wider trend that recognizes corporate social responsibility as a driver of sustainable organizational success. A growing number of organizations go far beyond viewing ethical practices as a means to avoid penalties or fines; they believe that corporate responsibility and ethical practices lead to sustainable value creation. Many organizations view corporate responsibility as a core part of corporate culture, which can bring an array of benefits to both the organization and society. These organizations typically have leaders who are passionate about the positive role of organizations in facilitating societal welfare and believe that corporate responsibility makes good business sense.
Business ethics can have a measurable impact on corporate and brand reputation and, ultimately, license to operate. In addition, organizations can suffer damage from actions that are legal but perceived by customers and society as unethical or not in the spirit of the law.
Practice ethics matters since it is crucial to the trust placed by the end user in the professional services offered by accounting firms. In the absence of trust, such services will be perceived to have little or no value. The independence of professional accountants in practice, both in fact and appearance, is the key to securing trust. Hence, professional accountants in practice comply with independence requirements related to everything from investments to business and employment relationships to services delivered to clients.
Global Perspectives on Ethics
Various international frameworks, standards, and principles include issues of corporate responsibility in which ethics is a subset, including the UN Global Compact's Ten Principles, UN Guiding Principles on Business and Human Rights, and Organisation for Economic Co-operation and Development (OECD)’s Guidelines on Multinational Enterprises.
The application of business ethics differs depending on the country, culture, and traditions, as well as the level of maturity in terms of regulation and enforcement of organizations’ legal responsibility and the expectations and duties of directors. However, the nature of ethical issues is generally similar across organization types, sizes, and geographies. For finance and accounting activities, typical ethical issues include conflicts of interest, providing truthful information and reports, and facilitating payments and bribes. The main safeguards are also universal and include ethical leadership, effective governance, a values-based code of conduct reinforced by a responsible business culture, and effective stakeholder engagement, transparency, and accountability.
In some jurisdictions, particularly in Europe and the US, aspects of business ethics are typically reinforced by regulation, laws, and stock exchange listing rules. Examples of regulatory and legislative approaches to business ethics and conduct include the US Federal Sentencing Guidelines (1991), Section 406 of the Sarbanes Oxley Act of 2002, UK Bribery Act (2010), and Clause 49 of the listing agreement of India’s stock exchange.
Ethics and business conduct have not traditionally been considered the board’s responsibility, as set out in corporate governance standards and guidance or company law, but this is beginning to change. Some jurisdictions are defining core principles encompassing sustainability and ethical conduct and ensuring that company ethics are managed effectively and in the interests of a wider set of stakeholders, such as the King III Corporate Governance Framework in South Africa.
Significant progress has been made toward the global convergence of ethical standards by professional accountants. The International Ethics Standards Board for Accountants (IESBA) develops and issues, under its own authority, the Code of Ethics for Professional Accountants (the Code). The IESBA’s objective is to serve the public interest by setting high-quality ethics standards for professional accountants. Its long-term objective is convergence of the Code's ethical standards for professional accountants, including auditor independence standards, with those issued by regulators and national standard setters.
The Role of Accountants and the Accountancy Profession
A distinguishing characteristic of the accountancy profession is the responsibility to act in the public interest.
In addition, for accountants, business ethics requires the application of professional ethics. IFAC’s member organizations are required to apply ethical standards at least as stringent as the Code. Convergence to a single set of standards can enhance the quality and consistency of services provided by professional accountants throughout the world and can improve the efficiency of global capital markets. The Code requires professional accountants to comply with five fundamental principles: integrity; objectivity; professional competence and due care; confidentiality; and professional behavior.
The profession has developed a range of resources—including reports, guidance, and support helplines—to help accountants and their employers apply the Code (and local adaptations) and resolve ethical dilemmas.
The decisions and behaviors of accountants should reinforce good governance and ethical practices, develop and promote an ethical culture, foster trust and transparency, bring credibility and value to decision making, and present a faithful picture of organizational health to stakeholders.
Accountants appointed to senior management positions, both in business and practice, have a particular responsibility to provide ethical and trusted leadership. They are not only expected to be technically competent but to also use their position of influence to encourage ethical behavior and decision making throughout their organization.
February 27, 2015 - Accounting Today
February 25, 2015 - Accountancy Age
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February 17, 2015 - In the Black
July 17, 2014 - International Ethics Standards Board for Accountants
May 31, 2007 - IFAC
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