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____________________________________________________________PROFESSIONAL ETHICS ϭ EDITOR COMMITTEES Managing Editor Norleza Binti Lehat Editor Dr. Radziah Binti Mohd Dani Writer Amirah Zawani Binti Wakhi Anuar Norazura Binti Masdor Nurul Wahida Binti Abdullah Designer Amirah Zawani Binti Wakhi Anuar Norazura Binti Masdor Nurul Wahida Binti Abdullah Application Publishers and Developers Amirah Zawani Binti Wakhi Anuar Norazura Binti Masdor Nurul Wahida Binti Abdullah 1st Edition 2023 All rights reserved. No part of this work may be reproduced, stored in any form or by any means without the written permission of the publisher. Published by: Politeknik Muadzam Shah, Lebuhraya Tun Abdul Razak, 26700 Muadzam Shah, Pahang Darul Makmur
____________________________________________________________PROFESSIONAL ETHICS Ϯ ACKNOWLEDGEMENT We express our sincere gratitude and appreciation to the several individuals and organisations who have offered valuable support and constructive feedback in the development of this Professional Ethics eBook. We aspire for this eBook to facilitate students in acquiring a more comprehensive comprehension of the subject matter covered in this course. AMIRAH ZAWANI BINTI WAKHI ANUAR NORAZURA BINTI MASDOR NURUL WAHIDA BINTI ABDULLAH Lecturer Department of Commerce Politeknik Muadzam Shah
____________________________________________________________PROFESSIONAL ETHICS ϯ PREFACE Professional ethics provide a comprehension of the ethical theories, philosophies, and values underlying the individual, organisational, and professional levels. Students will concentrate on developing the skills necessary to cope with ethical issues in accounting and business. The best way to discuss the implementation of these ethical principles is within the context of sound corporate governance, corporate social responsibilities, professional scepticism, and an ethics code. In the domain of ethics in the accounting profession, there are several important topics that attract attention. They consist of the fundamental principles which constitute the basis of ethical behaviour and the influence exerted by professional accounting bodies and regulatory on the maintenance of professional and ethical standards related to the accounting profession as a whole, the implementation and impact of corporate codes of ethics and the concept of professional scepticism, as well as the examination of ethical conflicts and dilemmas. Additionally, the inclusion of tasks at the conclusion of each chapter serves as a means to assess students' comprehension of the respective content covered in each chapter. We hope this eBook will be useful for all students of Polytechnics especially for Diploma Accountancy students to understand and grasp the professional ethics concepts well. Suggestions for improving the coverage and the content of this eBook are most welcome from the end-users. We honestly feel and hope that these suggestions will greatly help us further improve the quality of the eBook. AMIRAH ZAWANI BINTI WAKHI ANUAR NORAZURA BINTI MASDOR NURUL WAHIDA BINTI ABDULLAH Lecturer Department of Commerce Politeknik Muadzam Shah
____________________________________________________________PROFESSIONAL ETHICS ϰ Table of Contents TOPIC 1 FUNDAMENTAL PRINCIPLES OF ETHICAL BEHAVIOUR͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ ϲ 1.1 Definition of Ethics ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ ϳ 1.2 Importance of Ethics in Business͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ ϴ 1.3 Consequentialist Ethical Theories͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ ϵ 1.4 Non Consequentialist Ethical Theories͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϭϮ 1.5 Organizational Values in Promoting Ethical Behavior ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϭϲ 1.6 Unethical Behavior in Organizations͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϭϳ 1.7 Ethical Challenges in Organizations͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϭϴ EXERCISES ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϮϬ CASE STUDIES͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϮϬ TOPIC 2 ROLE OF REGULATORY AND PROFESSIONAL ACCOUNTANCY BODIES IN PROMOTING ETHICAL AND PROFESSIONAL STANDARDS IN THE PROFESSION͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϮϮ 2.1 Guidelines of Codes of Ethics and Profession͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘Ϯϯ 2.2 Regulatory and Professional Accountancy Bodies in Promoting Ethical and Professional Standards ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘Ϯϯ 2.3 IFAC & MIA By-Laws: Principles of Code of Ethics͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϯϬ 2.4 How Professional Bodies and Regulators Promote Ethical Awareness and Prevent the Unethical Behavior͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϯϭ 2.5 Factors that Distinguish Accounting Profession from other Types of Profession ͘͘͘ϯϱ 2.6 Roles of The Accountant in Promoting Ethical Behavior͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϯϲ 2.7 Disciplinary Process Following Suspected Ethical Breaches ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϯϳ EXERCISES ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϰϬ CASE STUDY ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϰϬ TOPIC 3 CORPORATE CODES OF ETHICS AND PROFESSIONAL SKEPTICISM ͘͘͘͘͘͘͘ϰϮ 3.1 Definition Corporate Code of Ethics and Professional Skepticism͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϰϯ 3.2 Applying Professional Skepticism in Auditing͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϰϱ 3.3 Specific applications of professional skepticism ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϰϳ EXERCISES ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϰϵ CASE STUDIES͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϰϵ TOPIC 4 ETHICAL CONFLICTS & DILEMMAS͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϱϭ 4.1 Define ethical conflicts ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϱϮ
____________________________________________________________PROFESSIONAL ETHICS ϱ 4.2 Discuss Situations Ethical Conflicts and Whistle-Blower Can Arise͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϱϯ 4.3 Threats to Ethical Behavior͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϱϰ 4.4 Ethical Dilemmas in Workplace͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϱϳ 4.5 Safeguards Against Ethical Threats and Dilemmas͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϱϴ EXERCISES ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϲϯ TOPIC 5 CORPORATE GOVERNANCE & CORPORATE SOCIAL RESPONSIBILITY ϲϰ 5.1 Definition Corporate Governance ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϲϱ 5.2 Theories Concept of Corporate Governance͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϲϲ 5.2.1 Theories of Corporate Governance͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϲϴ 5.3 Importance of Corporate Governance in Organizations ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϳϲ 5.4 Developments of Corporate Governance ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϳϳ 5.4.1 Historical Development of Corporate Governance in United Kingdom ͘͘͘͘͘͘͘͘͘͘͘ϳϳ 5.4.1 Historical Development of Corporate Governance in United States (US)͘͘͘͘͘͘͘͘͘ϴϰ 5.4.2 Development of Corporate Governance in Malaysia͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϴϱ 5.4.3 Regulatory Framework of Corporate Governance in Malaysia ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϵϰ 5.4.4 Features on poor Corporate Governance ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϵϵ 5.5 Best practice in effective Corporate Governance͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϭϬϬ 5.6 Reporting of Corporate Governance ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϭϬϱ 5.7 Define Corporate Social Responsibility (CSR)͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϭϬϳ 5.7.1 Importance of corporate social responsibility in organizations͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϭϭϬ 5.7.2 Reporting on Corporate Social Responsibility ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϭϭϭ EXERCISES ͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϭϭϲ CASE STUDIES͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϭϭϲ REFERENCES͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘͘ϭϭϵ
____________________________________________________________PROFESSIONAL ETHICS ϲ TOPIC 1 FUNDAMENTAL PRINCIPLES OF ETHICAL BEHAVIOUR Learning Outcomes At the end of the topic, students able to: x Define meaning of Ethics x Explain importance of ethics in business x Explain Consequentialist Ethical Theories x Explain Non-Consequentialist Ethical Theories x Discuss Organizational Values in Promoting Ethical Behaviour x Discuss various of Unethical Behaviour in Organizations x Discuss ethical Challenges in Organization
____________________________________________________________PROFESSIONAL ETHICS ϳ 1.1 Definition of Ethics The introductory section of the study on ethics will provide guidance on the overarching notion of differentiating ethics from morality and then identifying the key elements that influence the formation of an individual's ethical principles. The significance of ethics in various aspects of life, particularly in the fields of business and individual professional occupations and careers, requires the establishment and the demand of justifications for certain behaviors. Some people will have some basic questions in their mind either: How they should lead their life? Which type of persons should they strive to be? Is there any specific standards or principles to be followed in conducting their daily life? As a result of people's self-reflection regarding personal issues, we examine right or wrong behavior and moral reasoning. Moral reasoning will be motivated to learn more about morality, which is ethics. Humans and non-humans are contradict, in which humans in worldwide known as an individual being and as leaders in this universe with a magnificent, fully functional mind that enables them to use their superior intelligence and highest level of free will to consider with reason either their actions considered to be right or wrong while pursuing their own self-interest. Ethics is a system of principles that determine what is right and wrong based on behavioral codes. In addition, it outlines the moral duties and obligations that every individual should uphold. In addition, ethics can be defined as a criterion by which an individual determines whether a particular action or behavior is acceptable and appropriate in business or their career profession. Our morality derives from our emotions, which reflect into our moral behavior. Creation as a human, we are solely liable towards our own unethical and ethical behavior, as each of our actions or behaviors has consequences or effects. Business ethics in the daily business operation is the application of an ethical moral code and moral principles to business situations. A company is obligated to demonstrate ethical behavior in all internal and external interactions.
____________________________________________________________PROFESSIONAL ETHICS ϴ 1.2 Importance of Ethics in Business All businesses or organizations comprises of business people who participate in planning, directing or organizing work to provide products and services while pursing and achieving a high level of earnings. Economic character is always considered as one of main feature of business organizations. People in the business from low level employee to high level of management interact with each other to maximize organization’s objective, vision, and mission, and therefore accounted to different roles according to organization’s system to achieve the vision and mission of the organisation. While ensuring organization’s vision and mission are in the right path and in the smooth track in other hand, businesses must connect and build relationship with several stakeholders in which the business is operating including shareholders, customers, suppliers, government agencies, non-governmental organizations (NGO’s), bankers, employees, the community and even competitors. The more concentrated the activity of business operations and the greater the number of businesses that enter global and international markets, the larger proportion of stakeholders and the level difficulty for businesses in balancing all of their requirements to ensure business sustainability. Herein lies the importance of ethics in conducting any business operation activity. In order to alert everyone at work of the importance of workplace ethics, the majority of well-established businesses have formalised either a compliance-based or a code of ethics predicated on integrity and business ethics guidelines. In fact, a code of ethics has become an essential element in most organisations to remind employees to conduct their work in an ethical manner. Ethical codes remain as legal documentation of reference for employees in business to foster and improve an ethical organisational culture; therefore, modern business professionals have plenty of causes to be dealing and cautious about their organisations' ethical standards: x Increase sales and profits by attracting customers to the company's products. x Increase productivity by encouraging employees to remain with the company, thereby reducing turnover. x Attract and retain more current employees fascinated about working for a business, consequently decreasing recruiting costs and increase the organization's ability to hire the most outstanding people. x Inspire investors and maintain a high share price to safeguard the business from acquisition.
____________________________________________________________PROFESSIONAL ETHICS ϵ x Legitimate organisations should avoid future lawsuits in order to maintain their excellent reputation and respect and dignity. 1.3 Consequentialist Ethical Theories Ethical theories widely were bound by two conceptual theories of Consequentialist and Non-Consequentialist Theory. i. Consequentialist Often referred to as teleological ethical theory. Consequentialism is the theory that a behavior is considered beneficial or bad depended on its consequences. A beneficial action is one that generates more benefits than harm, whereas a poor action generates more harm than good. In other words, the consequentialist theory holds that the morality of actions is solely determined by the number of positive outcomes they generate. The consequences are defined by various theories such as: Utilitarianism ¾ In accordance with utilitarianism, a person's obligation or duty in any responsibility or role with regard to anything given circumstance is to take behaviour that results in the most significant success of virtue over an evil. ¾ Good behaviour refers to an inherent characteristic of human beings. Anything makes people in general become beneficial to them is good; whatever makes them miserable or is harmful to them is evil. ¾ Utilitarianism attempts to evaluate all positive and negative consequences of a course of action, whether they occur before or after the action. ¾ Before deciding on the best course of action, utilitarian proponents are going to propose a number of actions to evaluate the positive and negative consequences. ¾ The more consequences a decision or action has for the majority, the more ethical it will be. ¾ A course of action is just if it maximises the happiness of the greatest number of individuals.
____________________________________________________________PROFESSIONAL ETHICS ϭϬ ¾ An activity can be considered morally acceptable if it has the potential to promote personal fulfilment or happiness, while it is morally evil if it has the potential to lead to unfavourable circumstances or suffering, not just for the one performing the action but also for all others impacted by it. ¾ There exist two distinct forms of utilitarianism, namely Jeremy Bentham's classical utilitarianism and John Stuart Mill's rule utilitarianism. ¾ Jeremy Bentham (1748–1832) devised classical utilitarianism, which held that the moral value of an activity is reliant upon the outcomes resulting from its performance. Classical utilitarianism necessitates that consequences be measured in order to aggregate the pleasure and suffering experienced by different individuals and to compare the consequences of different courses of action. ¾ Classical utilitarianism does not address the importance of following codes and laws. It asserts that it is OK to tell a falsehood or break a promise if doing so leads to better outcomes compared to alternative courses of action. It emphasises the principles of utility by describing it as the maximisation of pleasure and minimization of suffering. ¾ John Stuart Mill (1806–1873) reevaluated the principles of utilitarianism as a result of the controversy and 'over-freedom' it generated. Mill's principle pertains to the need of adhering to rules while assessing the moral character of actions. Individuals are responsible for determining the morality of their actions, and it is suggested that the term "pleasure" encompass not only sensual delight but also mental pleasure, such as music, literature, and friendship. Mill desired to elevate intellectual pleasures above luxurious ones. ¾ Both classical and rule utilitarianism focus on the consequences or outcomes of an action in order to determine its morality. Classical utilitarianism, on the other hand, emphasises results irrespective of compliance with rules, so long as the action's consequences bring a sense of fulfilment to everyone. ¾ In summary, utilitarianism comprises six points: 1. When determining which action will result in the most pleasure, we must also consider unhappy circumstances and suffering.
____________________________________________________________PROFESSIONAL ETHICS ϭϭ 2. Some actions have some effect on people in general. 3. Because utilitarianism evaluates actions based on their consequences, and Actions generate various consequences within varying situations, nearly everything in principles may be morally acceptable in some specific contexts. 4. Not only do utilitarians seek to maximise happiness immediately, but also in the long term. 5. Utilitarians recognise that we frequently do not know with certainty the future repercussions of our actions. Consequently, we must act so that the anticipated pleasure is maximised. 6. Before taking action or making a decision, we should attempt to weigh the positive and negative outcomes. The action must generate more joy or pleasure than disappointment or suffering. ¾ Strength of Utilitarianism: Utilitarianism is result-oriented, as people attempt to evaluate the outcomes, whether positive or negative, prior to acting. In addition, Utilitarianism is characterised by its ease of application and provision of a readily understandable framework for decision-making. In order to better understand and forecast a wide range of economic phenomena, for instance the allocation of resources or prices, economists always base their decisions on the utilitarianism principle, based on the assumption that each individual attempts to maximise their utility and welfare. Egoism ¾ Egoism is the theory that promotes a self-centred way of acting towards others. This theory emphasize that a person must always perform or take action in his/her own interest. The key concept of this theory is that an action is considered to be ethically right only when it promotes a person’s self-interest. ¾ A course of action is fair as long as it maximizes one's own happiness. Egoism is a philosophical perspective that supports
____________________________________________________________PROFESSIONAL ETHICS ϭϮ the alignment of moral principles with the self-interest of individuals or organizations. ¾ Ethical egoism: an action is proper if and only if it advances the individual's self-interest. ¾ What is beneficial for me in the sense that it brings me pleasure and happiness is also morally correct. ¾ Adam Smith (1723–1799) asserts When individuals engage in the pursuit of a particular endeavour "the gratification of their own vain and insatiable desires," they unintentionally, as if "led by an invisible hand," benefit society as entirety. ¾ There are 3 types of egoism: o Individual: I believe that everyone should act in their own best interests. o Personal: The personal perspective posits that individuals need to priorities their own self-interests, without making prescriptions for the actions of others.. o Universal: I would contend that everyone should act in their own self-interest. 1.4 Non Consequentialist Ethical Theories Also referred to as deontological ethics. Refuses to accept the claim that an action's result decides whether it is good or bad. It determines moral rightness and wrongness based on the intrinsic characteristics or nature of an action, not its consequences. Make the proper decision, do it because it's the right thing to do, don't do incorrect things, and avoid doing wrong things; this is duty-based ethics. In other words, this theory emphasizes the obligations or responsibilities that motivate a decision or action rather than its consequences. Defined by numerous theories, including Kant’s ethics ¾ An action is proper if it is motivated by the willingness of individuals to act for the benefit of others, despite the possibility of personal loss.
____________________________________________________________PROFESSIONAL ETHICS ϭϯ ¾ Immanuel Kant (1724–1804) believed that doing something for the correct reason was significantly more important than achieving a specific result. ¾ In business contexts, Kantianism requires businesses to handle all individuals with respect. Particularly, it is imperative to demonstrate respect towards others, irrespective of one's objectives and purpose. The pursuit of a particular objective, such as achieving the goal of financial gain, must not supersede the moral duty to treat everyone with equity and respect. ¾ The categorical imperatives of Kant are based on two categories: o First Categorical Imperatives - One should only act in conformity with a principle that can be desired to be universally applicable. In basic terms, it refers to the way you would like everyone to treat others. It necessitates only that we put ourselves in the shoes of the recipient. If the action will cause others suffering rather than pleasure, then it is unethical. o Second Categorical Imperatives - Always regard humanity as an end and never as a means, whether in your own person or in that of another. A person's conduct is morally correct only if he or she does not use others to further his or her own interests. ¾ The Strengths of Kantian Ethics o The initial categorical imperative stipulates strict moral decision-making guidelines. Some actions are always evil, regardless of their consequences or their perpetrator. Examples include lying, cheating, and greed. o The subsequent categorical imperative emphasises the significant of the humanistic dimension, which entails not using or treating other people as a means to an objective, but rather as ends in and of themselves. This principle is consistent with principles of human rights. o The theory emphasises the significance of motivation and acting on the principles out of a sense concept of obligation towards fellow human beings, which contrast to selfinterest.
____________________________________________________________PROFESSIONAL ETHICS ϭϰ o Indeed, it can be argued that Kant's concepts of obligation exhibit compatibility with the Islamic notion of Khalifah. The individual is expressly made aware of his significant function as a leader within the greater universe. Therefore, as Khalifah, he has specific obligations, commitments, and responsibilities. o Kant's ethics prioritise respect for every individual. As a matter of logical reasoning, it clarifies that people should be consistent in their judgements. There should be no discrimination in actions that could result in prejudice and disregard for others. o The ethics of Kant provide a solid foundation for rights. Individual human rights should be recognised. Prima facie obligations ¾ Conditional duty. It may be overridden by a duty of greater importance. ¾ Basic obligation o Duties of fidelity- The duty of fidelity encompasses the obligation to honour both express and implicit guarantees or agreements that an individual has made. o Duties of Reparation- The concept of Duties of Reparation pertains to the obligation to rectify and compensate for past wrongful actions committed against others. o Duties of Gratitude- The concept of Duties of Gratitude pertains to the obligation to show appreciation for acts of kindness or favours that have been granted upon oneself in the past. o Duties of justice- The obligations of justice encompass the need to both prevent and rectify any instances of inequality or incongruity. o Duties of beneficence- The concept of beneficence implies the need to enhance the circumstances of others in various aspects.
____________________________________________________________PROFESSIONAL ETHICS ϭϱ o Duties of self-improvement- The obligation of selfimprovement entails the responsibility to enhance one's personal circumstances in that sense. o Duties of non-injury- The obligations pertaining to noninjury involve refraining from causing harm to others. Moral right ¾ A moral theory based on the notion that all people have human rights that serve as the justification for obligations because they best represent the purpose of morality, which is the protection of liberties or other benefits for the holder of the right. ¾ The determination of individual rights occurs regardless of the existence of a legal system. ¾ Synonyms with Natural and human Rights ¾ Natural Right- Subset of moral rights. Prominently discussed in classic literature which human rights is belong to all individuals. Among fundamental human rights are: o The right to be treated fairly. o Freedom of expression o To choose one religion or manner of life. ¾ 2 main features of Human Right: o Universality: Everyone has the same rights, regardless of demographic differences (ethnicity, gender, religion). o Unconditionally: Unlimited rights are those that are not relying on any particular practise or institution. There is nothing we can do to deprive ourselves or others of these rights.
____________________________________________________________PROFESSIONAL ETHICS ϭϲ 1.5 Organizational Values in Promoting Ethical Behavior What is Organizational Values? The beliefs, philosophies, and principles that drive an organization. These values will impact the whole employees as well as the relationship between organization and customers, partners, and shareholders. They help in promoting ethical behavior in an organization. There are six examples of values commonly practiced in an organization; i. Openness A culture with a high level of openness encourages the exchange of ideas and emotions between both the internal and external environments. Openness can also refer to spatial accessibility, such as implementing Facebook or providing a separate cabin for executives. Combined with a tendency to share, this transparency results in a more comprehensive understanding of objectives and more relaxed interactions between individuals. ii. Trust Regardless of how many formal structures exist in organisations, we are unable to conduct business in the modern age if we have no faith in each other to do what we say we will. (Berube, 1985) Trust is assurance concerning a person's honesty, ability, character, and integrity. In the absence of trust, knowledge initiatives will fail regardless of how comprehensively they are supported by technology and rhetoric (public speaking) (Davenport and Pruss, 1998). iii. Honesty People are considered honest in human communication when they tell the truth to the best of their knowledge and do not conceal what they know or believe. In addition to being transparent, it is commonly believed that honesty entails avoiding unfair behavior. iv. Respect Respect is a fundamental value that takes into account the strengths and weaknesses of others as well as who they are as individuals.
____________________________________________________________PROFESSIONAL ETHICS ϭϳ Additionally, respect involves courtesy towards others and a willingness to retain confidentiality. v. Empowerment Empowerment should be understood as the process by which an individual enables himself to take action and independently control work and decision-making. It is the responsibility of the organisation to create a work environment that encourages employees' ability and motivation to behave in empowered ways. It is the responsibility of the work organisation to eliminate obstacles that prevent employees from acting in empowered ways. vi. Accountability The term is commonly used to describe a dynamic of persons providing explanations or justifications to one another. For instance, the concept of accountability entails that individual A is obligated to provide information to individual B regarding A's past or future actions and decisions, to provide justifications for them, and to accept consequences in the event of future wrongdoing. It is important to note that accountability is contingent upon the presence of appropriate accounting procedures. In essence, the lack of accounting practices signifies the absence of accountability. 1.6 Unethical Behavior in Organizations Ethical Behavior in Organizations Appropriate behavior depends on principles. Ethical behavior occurs when a person is on their finest behavior. All of their actions and words adhere to high moral standards. This refers to the behavior that employers anticipate their employees to exhibit while on the job. The majority of organizations have formulated documents known as "codes of conduct" that outline acceptable workplace behaviors. Non-Ethical Behavior in Organizations Any action intended to take full advantage of another without properly their permission or knowledge. It can also be defined as manipulating another person without their consent. Unethical behavior is a method of conducting oneself that is disapproved by society. It is the behavior that is 'poor' or "inappropriate" in a given
____________________________________________________________PROFESSIONAL ETHICS ϭϴ context. Excessive use of spoken language and physical violence towards other individuals are examples of unethical behavior. Examples of non-ethical behavior in Workplace; Misrepresent the labour of others as one's own. In order to persuade others to purchase a product or service, employees falsely represent facts. Lie about expenditures to receive a larger monthly reimbursement cheque from their employer. Making changes to the number of hours worked while lying, Making an international call on the office phone, They are copying commercial software to use it at home. 1.7 Ethical Challenges in Organizations Competitive and global free market system make all types of business including sole proprietorship, partnership and corporations struggle to maximize profits. This driven objective to maximize profit sometimes may lead to consideration of risk of conducting a business and more opportunity cost involved in business setups. Nevertheless, the board of directors, managers, and employees at various hierarchical levels of a business organization are bound to face ethical challenges or conflicts in achieving objectives of the business either in short term or long term. Among those are achieving a balance between profit maximisation and ethical business conduct, exercising rights and justice to please stakeholders, and satisfying organisational requirements and individual aspirations. Given the vast scope of human interactions within the realm of business, it can be speculated that businesses will inevitably encounter many ethical dilemmas that necessitate resolution. Among the challenges are; x Bribes The act of providing a recipient with money, products, or other forms of compensation in exchange for a change in their behaviour. x Conflict of interest When a person or organisation has multiple conflicting interests, it presents an ethical dilemma. COI is especially problematic when a person in a position of trust is involved.
____________________________________________________________PROFESSIONAL ETHICS ϭϵ x Honesty and integrity Sometimes in business, you must determine whether or not to tell the truth. Businesspeople make decisions regarding Acknowledging a mistake, revealing relevant information, and referring a customer to a rival company due to concerns of honesty and integrity. x Whistle-blowing A whistleblower is a person who reveals unlawful, unethical, or improper information or activity within a private or public organisation.
____________________________________________________________PROFESSIONAL ETHICS ϮϬ EXERCISES 1. Define ethics and business ethics. 2. List five (5) importance of ethics for an organisation. 3. Differentiate between consequentialism theory and non-consequentialism theory. 4. Briefly explain the following organizational values a. Openness b. Accountability c. Respect d. Empowerment e. Honesty 5. Discuss the ethical challenges faced by organization. 6. Select Private-Listed Companies in Malaysia. Examine its code of ethics. CASE STUDIES Case Study 1 Salman works at a housing development company as a project manager. As a project manager, Salman is responsible on the financial and non-financial issues of the project. Currently, he is responsible to ensure that the biggest investment of SP Aspura Berhad to develop a residential area called ‘Project Villa Langkapuri’ in Puncak Alam, Selangor, follows the prescribed plan and will be completed within the budget. The project will take three years to be completed with a total cost of RM10million. His salary and bonus depend on his capabilities to handle this project. Salman recently received a report from the appointed Site Consultant requiring the company to undertake an additional soil treatment for 30 villas due to unexpected soft soil condition. However, the budget of RM2 million for the soil treatment was not included in the original plan. The Head of Engineer of SP Aspura Berhad also issued a notice that if the soil treatment is not performed, the villa would slowly sink after three years and eventually facing the risk of collapsing in due course. Salman decided not to proceed with the soil treatment since the warranty given by SP Aspura Berhad to all villa purchasers is only valid for a period of two years. Until such time, the company would no longer be responsible for any defect on the villa purchased. You are required evaluate Salman’s decision based on the Utilitarianism Theory.
____________________________________________________________PROFESSIONAL ETHICS Ϯϭ Case Study 2 Sorna and Wan are office mates for the last 15 years in Orogon Berhad, a telecommunication company. One day, the Chief Executive Officer of Orogon Berhad informed them that a new position, General Manager of Procurement Department, had been created and that he intended to interview Sorna and Wan to fill that position. Sorna was initially not interested in the new position, but when he heard that the salary offered would be four times his current salary, he changed his mind. On the day of the interview, Sorna brought to the interviewers attention losses the company made seven years ago, when Wan was heading up a project. Even though Sorna knew the losses were due to the economic crisis at that time, he hoped to sabotage Wan’s chances of being selected for the new position. You are required evaluate Sorna’s action based on the Egoism Theory. Case Study 3 Semarak Berhad is a small and medium food processing enterprise based on Penang Island. The Chief Executive Officer (CEO), Mr Amiruddin, has been approached by a giant foreign corporation for a merger, with the objective of gaining competitive advantage. The terms offered by the corporation for the merger are lucrative to the CEO, who would receive a generous severance (separation package). The shareholders of Semarak Berhad would also benefit because the offer for their shares is substantially above the current market price. Mr Amiruddin realizes that the merger plans would call for a closure of the food processing plant. The plant currently provides job for most of the local residents. He is now unsure of how to balance his employees’ welfare- who would be thrown out of work-and the community where the plant is located, against the interests of the shareholders. He is also in dilemma as to how much he should take his own interest into account. Assume that you are Mr Amiruddin. Should you support the merger plan? Justify your position from utilitarian principles.
____________________________________________________________PROFESSIONAL ETHICS ϮϮ TOPIC 2 ROLE OF REGULATORY AND PROFESSIONAL ACCOUNTANCY BODIES IN PROMOTING ETHICAL AND PROFESSIONAL STANDARDS IN THE PROFESSION Learning Outcomes At the end of the topic, students able to: x Describe the Guidelines of Codes of Ethics and Profession x Recognize Regulatory and Professional Accountancy Bodies in Promoting Ethical and Professional Standards x Discuss IFAC & MIA By-Laws: Principles of Code of Ethics x Elaborate How the Professional Bodies and Regulators Promote Ethical Awareness and Prevent the Unethical Behavior x Discuss factors that Distinguish Accounting Profession from other Types of Profession x Explain Roles of The Accountant in Promoting Ethical Behaviour x Explain Disciplinary Process Following Suspected Ethical Breaches
____________________________________________________________PROFESSIONAL ETHICS Ϯϯ 2.1 Guidelines of Codes of Ethics and Profession Professional accountants worldwide along with other key players in governance structure play a crucial role in enhancing ethical and reducing corruption. Public deem fully expect on all professionals in which they will show highest level of credibility in presuming their career. The word of profession in a career is not just only performing work or job, instead it is beyond than that where it is a career for individual to contribute significant knowledge or skills to the society with fully utilize their competency and specialize in field area. Attending course and training will boost profession expertise hence make them keep with their requirement of continuing professional development (CPD) and in result, eventually will help them to work professionally and ethically for the sake of the public. The profession needs to be certified, represented by institutes and having the degree certification and commissioning from government regulation. The Code of Ethics for the profession indicates the ethical standards that govern decision-making and behavior within a corporate entity or an organized group. The provided recommendations encompass a broad range of expectations regarding the behavior of employees, in addition to offering explicit directives on how to handle certain matters, including but not limited to instances of harassment, safety concerns, and conflicts of interest. A professional body's code of ethics is a set of guidelines that highlights the ethical standards governing the actions and behavior of those who are members of an association or organization. The provided guidelines include comprehensive instructions for the appropriate behavior expected from members, encompassing several aspects such as integrity, harassment, safety, and conflicts of interest. 2.2 Regulatory and Professional Accountancy Bodies in Promoting Ethical and Professional Standards Worldwide, most important part for a business to succeed especially to employees is to enhance the ethical principles as a main culture in business mostly in Malaysia. World-famous scandals such as Enron Corporation, Arthur Andersen, and World.com, as well as 1MDB, have demonstrated unambiguous that professional accountants owe their primary affiliation to the public interest. Business need to be more accountable to their shareholder and other group of stakeholders to protect and maximize their interest. Eventually, both business and
____________________________________________________________PROFESSIONAL ETHICS Ϯϰ professional accountants will be depending on their ability to uphold with regulations and ethical expectations of the stakeholders. Several national regulatory and professional bodies have over time regulated the accountancy profession entities in Malaysia. The entities involved in the oversight of audits in Malaysia include the Audit Oversight Board (AOB), the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia or SSM), the Malaysian Institute of Accountants (MIA), and the Malaysian Institute of Certified Public Accountants (MICPA). Professional Accountants in Malaysia was introduced with continuously code of ethics for generally associated with the following code of professional conduct which embarked by: i. The International Ethics Standards Board for Accountants (IESBA) established by the International Federation of Accountant (IFAC) ii. The Malaysian Institute of Accountant (MIA) By-Laws iii. The Malaysian Anti-Corruption Commissions (MACC) Code of Ethics IFAC x The International Federation of Accountants (IFAC) is dedicated to establishing a global system for setting standards that is widely recognised for its credibility, diversity, and validity. x This system aims to provide international standards that are relevant, innovative, and capable of adapting to future difficulties. The establishment of transparent and high-quality international accounting standards is a crucial cornerstone of the global financial framework. x The worldwide Federation of Accountants (IFAC) is an organisation that advocates for the advancement of worldwide auditing and assurance practises, as well as the promotion of ethics and independence within the accounting profession. x Additionally, IFAC is committed to enhancing education in the field of accounting and establishing standardised accounting practises for the public sector. x These requirements facilitate the attainment of significant outcomes for: x Greater international uniformity and business easiness
____________________________________________________________PROFESSIONAL ETHICS Ϯϱ x Increased international capital, financial flows, and investment x Increased financial stability and decreased regulatory arbitrage risks in corporate reporting. x Additionally, the International Federation of Accountants (IFAC) is an organisation that upholds its dedication to the development of standards of exceptional quality, which requires a meticulous process of defining standards, worldwide collaboration, and comprehensive oversight mechanisms. x The International Federation of Accountants (IFAC) is responsible for overseeing a governance model that involves multiple stakeholders and a collaborative effort between the public and private sectors. This model aims to develop standards that prioritise the public interest and are free from any political or commercial influence. x Additionally, it incorporates mechanisms to prevent any single stakeholder from exerting excessive control or influence. x The International Federation of Accountants (IFAC) remains committed to ensuring the profession's active participation in a widely accepted and utilised public/private standard-setting framework, which effectively communicates robust standards that serve the public interest. Main functions of IFAC are: x The primary objectives of this initiative are to promote the development, acceptance, and implementation of globally recognized standards of exceptional quality x To provide the accounting profession with the necessary skills and knowledge to effectively navigate future challenges and changes. x To function as the international profession's spokesperson on pertinent public issues. x To develop benchmark guidance and encourage resource sharing. x To provide services to professional accountants x The International Federation of Accountants (IFAC) Board has established the International Ethics Standards Board for Accountants (IESBA) with a primary emphasis on professional ethics.
____________________________________________________________PROFESSIONAL ETHICS Ϯϲ x The IESBA is responsible for setting internationally recognised standards for ethics, including independence, which serve as a fundamental basis for ethical conduct in both business and organisational contexts. x These standards play a crucial role in fostering public trust in financial and nonfinancial information, which is vital for the effective operation and long-term viability of organisations, financial markets, and global economies. x The International Code of Ethics for Professional Accountants, which includes the International Independence Standards, is a set of guidelines established by the IESBA. x The IESBA is an independent organisation responsible for defining global standards. These guidelines outline the fundamental principles of ethics, conduct, and practises that are relevant to all professional accountants. x The supervision of the International Ethics Standards Board for Accountants (IESBA) ethical standards is carried out by the Public Interest Oversight Board (PIOB), with support from the IESBA Consultative Advisory Group (CAG). IESBA Code outline 4 parts x Part 1 pertains to the adherence to the Code, Fundamental Principles, and Conceptual Framework, which encompasses the fundamental principles and the conceptual framework, and is universally applicable to all professional accountants. x Part 2 of the document focuses on Professional Accountants in Business and provides supplementary information that is relevant to professional accountants in business throughout the execution of their professional duties. x Part 3 of the document pertains to professional accountants in public practise and encompasses supplementary information that is relevant to their provision of professional services. x Part 4 of the International Independence Standards delineates further information that is applicable to professional accountants in public practise while delivering assurance services, namely for Audit and Review Engagements and for Assurance Engagements Other than Audit and Review Engagements.
____________________________________________________________PROFESSIONAL ETHICS Ϯϳ The MIA By-Laws x A professional accountant may engage in either financial accounting, auditing, management accounting, company secretary or consulting and hold both title as accountant thus deemed to be professional. x As an accountant, they are required to have special technical expertise, uphold extensive knowledge and skills that associated and related with accounting. In addition, they also need to comply to the general professional duties, values, code of ethics that prescribed by the legislator and regulators as well as to the membership body that they belong to. x In the case of professional accountants violate code of ethics and put professional accountant’s self-interest higher than interest of other stakeholders as regulated in Code of Ethics by MIA By-Laws, it could negatively impact public’s confidence and credibility the whole profession. x The Malaysian Institute of Accountants (MIA) is an official organisation that was created in accordance with the Accountants Act of 1967. Its primary objective is to oversee and enhance the field of accountancy in Malaysia, thereby contributing to the overall progress and development of the nation. x The Malaysian Institute of Accountants (MIA) confers the Chartered Accountant Malaysia designation, commonly referred to as "C.A.(M)". MIA collaborates closely with businesses to facilitate the connection of its members to a diverse array of information and resources, as well as opportunities for professional growth, networking, and participation in events. x The MIA By-Law is a collection of principles and guidelines that outline the ethical and behavioural expectations for individuals and organisations that are members of the MIA. x These standards are designed to ensure that members uphold their professional obligations and responsibilities towards clients, employers, regulatory bodies, and the wider community. x When a certified professional accountant becomes aware of a breach of any provision in the Code, it is necessary for them to evaluate the importance of the violations and how it may impact their capacity to adhere to the fundamental principles.
____________________________________________________________PROFESSIONAL ETHICS Ϯϴ x Additionally, it is imperative for the accountant to promptly undertake all appropriate actions to mitigate the legal ramifications resulting from the breach. x Evaluate the necessity of reporting the incident to the relevant stakeholders. MIA's primary functions include: x In order to effectively govern and advance the accounting profession in Malaysia, it is imperative to establish appropriate regulations and foster its growth. x To ascertain the qualifications of applicants for membership x To provide education and training to members and other organisations x The organisation is responsible for offering financial or other forms of aid to its members or their dependents, as it sees fit, with the intention of safeguarding or advancing the well-being of said members. MIA By-Law outline 4 parts • Part 1 Complying with the Code, Fundamental Principles and Conceptual Framework • Part 2 Professional Accountants in Business • Part 3 Professional Accountants in Public Practice • Part 4 International Independence Standards The MACC Code of Ethics x The Malaysian Anti-Corruption Commission (MACC) is entrusted with the responsibility of investigating and preventing all forms of corruption and abuse of authority, as stipulated in the Malaysian Anti-Corruption Commission Act of 2009. x The Act of 2009 grants the Malaysian Anti-Corruption Commission (MACC) the authority to conduct investigations into offences specified as "Prescribed Offences" under other acts. x These are the primary functions of this body:
____________________________________________________________PROFESSIONAL ETHICS Ϯϵ x Receive allegations of corruption and positional abuse. x Conducting corruption case investigation x Providing consulting and advisory services to enhance the system in order to eliminate corruption's opportunity and space. x Educate the community and enlist their support in the struggle against bribery and corruption. x The Code of Ethics and Conduct of the Malaysian Anti-Corruption Commission (MACC) integrates ethical principles with prescribed behaviours to provide guidance to MACC officers in carrying out their duties and responsibilities. x Its main objectives are to enhance the integrity of MACC officers in the performance of their duties and responsibilities, and to establish clear boundaries for acceptable and unacceptable actions in accordance with existing policies, guidelines, and the law. x Integrity constitutes a fundamental component under the Code of Ethics and Conduct of the Malaysian Anti-Corruption Commission (MACC). x The fundamental principles of integrity that underpin the Malaysian AntiCorruption Commission (MACC) in formulating the "MACC Values" encompass the following: Trustworthiness, Firmness, Fairness, Independence, Transparency, and Professionalism. x Furthermore, the "MACC Values" encompass positive attributes such as Discipline, Cooperation, Loyalty, and Commitment, which are expected to be constantly adhered to by all MACC officers in the performance of their duties and obligations.
____________________________________________________________PROFESSIONAL ETHICS ϯϬ 2.3 IFAC & MIA By-Laws: Principles of Code of Ethics The adherence to the Code of Ethics and Conduct is mandatory for all members and partners (or directors) engaged in the practises of the MIA. In addition to this, it pertains to the individuals employed within such a professional setting, regardless of their affiliation with the MIA or any other professional association. A certified professional accountant is required to comply with all of the essential principles. The fundamental rules of ethics delineate the expected conduct of a professional accountant. The conceptual framework delineates the approach that accountants are required to utilise in order to comply to the essential principles. The Fundamental Principles The Fundamental Principles delineate the responsibilities that are imposed upon all members, irrespective of their current applicability. The following enumeration presents the five fundamental principles: i. Integrity x Integrity is a fundamental principle that requires individuals to exhibit honesty and transparency in all their professional and corporate interactions. Integrity is more than just honesty; it also encompasses principles of fair dealing and truthfulness. ii. Objectivity x The second aspect to consider is objectivity. x Members are expected to exercise professional or business judgement in a manner that is not influenced by bias, conflicts of interest, or undue influence from individuals, organisations, technology, or other factors. iii. Professional competence and due care x The importance of professional expertise and exercising due care. x Members are required to acquire and sustain professional knowledge and skills at a level that is sufficient to provide competent professional service to clients or employing organisations. This should be done in accordance with current technical and professional standards and legislations. x Members are required to demonstrate diligence in adhering to relevant technical and professional standards when delivering professional services.
____________________________________________________________PROFESSIONAL ETHICS ϯϭ iv. Confidentiality x The fourth aspect to consider is confidentiality. x Members are required to uphold the principle of secrecy in reference to any information they obtain through their professional and business connections. x Members are prohibited from revealing any such information to external parties unless they possess appropriate and explicit authorization, or if there exists a legal or professional obligation or entitlement to release said information. x In a similar vein, it is imperative that members and third parties refrain from utilising confidential information obtained through professional and business connections for personal gain. v. Professional behaviour x The concept of professional behaviour is an essential aspect in various fields and industries. x It refers to the conduct and demeanour exhibited by individuals in their respective professional roles. x Members are required to adhere to applicable laws and regulations and must refrain from engaging in any conduct that could potentially bring disrepute to the profession. x Members are expected to exhibit politeness and thoughtfulness when interacting with individuals in a professional context. 2.4 How Professional Bodies and Regulators Promote Ethical Awareness and Prevent the Unethical Behavior Several methods can be used to promote or even enforce ethical conduct. x If some immoral practises are widespread and have detrimental effects on the general public, a national government or supranational authority may intervene by implementing criminalization measures that seek to eliminate them. x Two prominent instances include workplace discrimination and the provision of high-interest consumer loans to persons who are susceptible to financial exploitation. Several governments have implemented national legislation to prohibit different types of discrimination and establish disclosure requirements during the pre-application stage. This stage occurs when individuals who are
____________________________________________________________PROFESSIONAL ETHICS ϯϮ considering obtaining loans that may not be advantageous to them are in the process of making a decision. x Legislation is not always feasible for addressing every matter of concern, therefore underscoring the vital role that professional bodies assume in the regulation of unethical conduct. Professionalism is defined by the delivery of specialised services that are underpinned by specific educational prerequisites. x Regrettably, despite the feasibility of imparting ethics education, its efficacy in fostering ethical behaviour among its recipients remains uncertain. Due to this rationale, a significant proportion of professional associations enforce ethical guidelines upon its members. Non-compliance with established regulations may lead to disciplinary action, such as reprimand or potential expulsion from the organisation. x The consideration of ethical concerns in both a global and national context is crucial for the accounting profession. IFAC plays a significant role in this context. The International Federation of Accountants (IFAC) is a renowned global accounting association comprising 164 members and associates hailing from 125 nations. x The organisation is responsible for establishing global benchmarks pertaining to ethical practises, audits and assurance, educational initiatives, and accounting standards specifically applicable to the public sector. x The International Ethics Standards Board for Accountants (IESBA) is responsible for the development of ethical standards and guidelines, operating under the oversight of the International Federation of Accountants (IFAC). The oversight of IESBA's operations is carried out by the Public Interest Oversight Board. Similar to other main accounting organisations, the MIA By-Law outlines the following fundamental principles: 1. Integrity – A professional accountant should be straightforward and honest in all professional and business relationships.’ Integrity implies not merely honesty, but fair dealing and truthfulness. A professional accountant should not prepare, attest, certify or otherwise be associated with reports, returns, communications or other information where the professional accountant believes that the information
____________________________________________________________PROFESSIONAL ETHICS ϯϯ (a) Contains a materially that is false or misleading statement; (b) Contains statements or information negligently provided; or (c) Omits or obscures required information when doing so would be misleading. 2. Objectivity – A professional accountant should not permit bias, conflicts of interest, or undue influence from others to sway professional or business decisions. A professional accountant shall not engage in a professional activity if a circumstance or relationship impairs the accountant's professional judgement. 3. Professional competence and due care – A professional accountant has an ongoing obligation to maintain professional knowledge and skill at the level necessary to ensure that a client or employer receives competent professional service based on current developments in practise, legislation, and techniques. When providing professional services, members should act with diligence and in accordance with applicable technical and professional standards. Maintaining professional competence implies an ongoing awareness and comprehension of pertinent technical, professional, business, and technology-related developments. Continuing professional development enables a professional accountant to maintain and develop the skills necessary to perform competently in the professional environment. In order to comply with the principle of professional competence and due care, a professional accountant must take reasonable steps to ensure that those operating in a professional capacity under his or her supervision have received the appropriate training and supervision. 4. Confidentiality – A professional accountant should respect the confidentiality of information acquired as a result of professional and business relationships and should not disclose any such information to third parties without proper and specific authority, or unless there is a legal or professional right or duty to disclose. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of himself or third parties.
____________________________________________________________PROFESSIONAL ETHICS ϯϰ Professional accountant shall: (a) Be alert to the possibility of inadvertent disclosure, including in a social environment, and particularly to a close business associate or an immediate or a close family member; (b) Maintain confidentiality of information within the firm or employing organization; (c) Maintain confidentiality of information disclosed by a prospective client or employing organization; (d) Not disclose confidential information acquired as a result of professional and business relationships outside the firm; (e) Not use confidential information acquired as a result of professional and business relationships for the personal advantage of the accountant or for the advantage of a third party; and (f) Not use or disclose any confidential information, either acquired or received as a result of a professional or business relationship, after that relationship has ended. 5. Professional behaviour – A professional accountant must abide by all applicable laws and regulations and avoid actions that bring disrepute to the profession. Everyone with whom he or she interacts in a professional capacity should be treated with courtesy and respect. Professional accountants are strictly forbidden from engaging in any business, career, or activity that could potentially undermine the integrity, objectivity, or esteemed reputation of their profession. Such actions would be in direct contrast with the fundamental principles that govern the practise of accounting. When participating in marketing or promotional endeavours, it is imperative for a certified public accountant to uphold the reputation of the profession and avoid any actions that may tarnish it. In the realm of professional accounting, it is imperative for practitioners to adhere to principles of honesty and transparency. It is expected that an accountant refrains from engaging in the dissemination of exaggerated assertions regarding the services rendered, as well as their own qualifications and expertise.
____________________________________________________________PROFESSIONAL ETHICS ϯϱ The MIA By-Law subsequently provides detailed provisions concerning various areas of practise, including but not limited to money laundering, obligations of whistleblowing, advertising and publicity, delineations of members and firms, alterations in professional appointments, legal ownership and accessibility of records and other documents, professional liabilities, and management of client funds. 2.5 Factors that Distinguish Accounting Profession from other Types of Profession x In contrast to other professions, there is a growing need for professional accountants to exhibit their pertinence in the capital market and their ability to effectively respond to emerging difficulties. x The perceived accountability of professional accountants, not only to their respective firms but primarily to the general public, will determine their value. x Accountants are bound by both the regulations of their organisation and the professional standards of the accounting industry. Accountants bear ethical obligations to a multitude of stakeholders, encompassing both internal and external entities associated with the firm. x Professional accountants play a vital role inside organisations by actively contributing to the generation and preservation of value and facilitating growth. The ongoing significance of their role is contingent upon their capacity to effectively carry out their responsibilities amidst persistent environmental fluctuations. x Professional accountants in the corporate sector play a crucial role as leaders in maintaining the integrity of financial reporting and ensuring the provision of reliable financial information to the wider public. x Professional accountants in the business sector are obligated to maintain elevated standards and assume a pivotal role in supporting businesses in their pursuit of ethical conduct. Public accountants are required to be entrusted with the responsibility of delivering value to the general public.
____________________________________________________________PROFESSIONAL ETHICS ϯϲ x In the absence of public trust, accountants may face a decline in their legitimacy as guardians of the public interest. Confidence in the financial data generated by specialists within organisations forms the fundamental basis for establishing public trust and public worth. 2.6 Roles of The Accountant in Promoting Ethical Behavior x In certain scenarios, it is anticipated that professional accountants within corporate settings may provide support to the firm in attaining specific financial objectives. In certain cases, the necessary course of action may potentially compromise compliance with accounting and financial reporting laws. In such circumstances, professional accountants employed within organisations encounter a state of stress. x To provide an example, accountants working within organisations may face pressures to report inventory at inflated values or to select alternative accounting systems that yield financial advantages for the company. x Nevertheless, these actions may exhibit a lack of adherence to accounting principles or fail to meet the criteria of acceptability as determined by a professional accountant. x Accountants often face inherent conflicts between adhering to the ethical principles of their profession and fulfilling the practical requirements of the business environment. x Professional accountants are required to demonstrate professional judgement when carrying out their responsibilities to ensure that they refrain from taking actions during challenging circumstances that may erode public trust in the accounting profession as guardians of the public interest. x Professional accountants are obligated by ethical rules on a global scale to maintain the principles of integrity, objectivity, professional competence and due care, confidentiality, and professional conduct, irrespective of their specific duties. x Nevertheless, accountants often find themselves in difficult and even troublesome situations due to conflicting forces. The conflicts at hand pertain to matters of ethical considerations, commercial influences, and the weight of regulatory obligations.
____________________________________________________________PROFESSIONAL ETHICS ϯϳ 2.7 Disciplinary Process Following Suspected Ethical Breaches x The initiation of a disciplinary proceeding against a member can occur through various means, as outlined in the Malaysian Institute of Accountants (Disciplinary) (No. 2) Rules 2002 ('the Rules'). These include the submission of a complaint to the Registrar of MIA in accordance with Rule 3, an inquiry prompted by a court decision as per Rule 18(2), or complaints received from the Financial Statement Review Committee and the Practise Review Committee of MIA. x In order for complaints to be handled, it is imperative that they adhere to the stipulations outlined in Rule 4 of the Rules. Failure to meet these standards will result in the complaints being deemed ineligible for further consideration by the registrar. Upon the registration of the complaint, the registrar will proceed to issue a formal Notice of Complaint (NOC). x This document will encompass comprehensive information regarding the complaint, including an invitation for the respondent to provide a written explanation in response to the allegations made against them. Additionally, the NOC will also indicate whether the respondent expresses a desire to present their case before the Investigation Committee (IC). At this juncture, there is no need for a factual determination or inquiry; rather, the sole necessity is the administrative issue of a Notice of Complaint (NOC) based on the submitted complaint or assertion(s). x Once the designated period stated in the Notice of Complaint (NOC) has lapsed, the registrar is obligated to forward the case to the Investigative Committee (IC) for examination and extend an invitation to the respondent to provide a written explanation. At this juncture, the Investigating Committee (IC) is granted the authority to solicit investigation-related materials from both the respondent and any other individuals involved. x Any individual affiliated with the Institute who fails to adhere to established norms is deemed to have committed an offence and is liable to face disciplinary 1.Registrar Office 2.Investigation Committee 3.Disciplinary Committee 4.Disciplin ary Appeal Board 5.Judicial Review
____________________________________________________________PROFESSIONAL ETHICS ϯϴ measures. As per Rule 9 of the Rules, the Investigating Committee (IC) has the option to either submit the case to the Disciplinary Committee (DC) along with a report detailing its findings, or to dismiss the complaint. x After the complaint has been referred, the Disciplinary Committee (DC) will proceed with the hearing against the respondent. The respondent will be notified of the hearing and provided with the Investigating Committee's (IC) report, which states that they will have the chance to present their case and may choose to be represented by an attorney, solicitor, or member of the MIA. It is imperative to acknowledge that prior to the commencement of the DC, it is necessary to provide evidence in an oral manner or, if deemed essential, through sworn affidavits. x In accordance with Rule 13 of the Rules, the Disciplinary Committee (DC) is authorised to proceed with the hearing even in the event that the respondent does not attend, although having been duly notified. Similarly, the IC will be afforded an equal opportunity to submit their case throughout the hearing. According to Rule 17 of the Rules, the DC is granted the authority to govern its own proceedings in alignment with both the Act and the Rules. x The disciplinary committee (DC) will assess the culpability of the respondent in relation to unprofessional conduct subsequent to considering the arguments presented by both parties. According to Rule 18(3) of the Rules, in the event that the defendant is determined to be guilty, the designated authority is granted the discretion to impose a combination of penalties, taking into account the factual evidence given as well as any aggravating or mitigating factors. x In instances of serious wrongdoing, the Disciplinary Committee (DC) have the jurisdiction to dismiss or temporarily suspend the individual in question. When fulfilling its responsibilities, the DC is also mindful of the requirement for all instructions and rulings to adhere to principles of procedural fairness. x In relation to cases initiated by the Disciplinary Committee (DC) based on a court's decision involving a member of the Institute, as per Rule 18(2) of the Rules for unprofessional conduct, it is important to highlight that neither a factfinding process nor an investigation is necessary in instances involving fraud, dishonesty, or bankruptcy offences.
____________________________________________________________PROFESSIONAL ETHICS ϯϵ x A comprehensive inquiry shall be undertaken, and upon the satisfaction of the Disciplinary Committee (DC) with the results, it will proceed to enforce the suitable penalty as stipulated in Rule 18(3) of the Rules. x If the individual who has received a decision from the Disciplinary Committee is not satisfied with the outcome, they have the option to appeal to the Disciplinary Appeal Board (DAB) within a period of 21 days. This can be done by submitting a notice of appeal that outlines the reasons for the appeal and by covering the costs that have been imposed by the Disciplinary Committee. Non-payment of the expenses results in the DAB appeal being rendered invalid. x It is important to acknowledge that the appeal will solely be evaluated based on written arguments. As per the provisions outlined in Section 21(3) of the legislation, the DAB possesses the authority to assess, overturn, or alter the decision made by the DC subsequent to careful consideration of the appeal. The determination made by the DAB is considered to be final and definitive. x According to Order 53 of the 2012 Rules of Court, the sole avenue for contesting the judgement of the DAB is by means of a judicial review proceeding in the High Court. In a customary judicial review hearing, the courts refrain from evaluating the substantive merits of the case. Instead, their focus lies in ascertaining whether the entirety of the disciplinary process adhered to the provisions outlined in the relevant legislation and regulations. x According to Section 1 of the Court of Judicature Act of 1964 and Rule 53 r.3(6) of the Rules of Court of 2012, it is required to file a judicial review application within a period of three months after the communication of the disputed DAB decision.
____________________________________________________________PROFESSIONAL ETHICS ϰϬ EXERCISES 1. Discuss the function of the following regulatory and professional accountancy bodies in promoting ethical and professional standards a. Malaysian Institute of Accountant (MIA) b. International Federation of accountant (IFAC) c. Malaysian Anti-Corruption Commissions (MACC) 2. Briefly explain the following fundamental principles set out by the MIA ByLaws: a. Integrity b. Objectivity c. Professional competence and due care d. Confidentiality e. Professional behaviour 3. Discuss factors that distinguish accounting profession from other types of profession. 4. Explain roles of the accountant in promoting ethical behavior. CASE STUDY Harlina is an MBA graduate from a Malaysian Institution of higher learning. She had majored in marketing and is interested in retailing. One day, while browsing Jobstreet.com, to her excitement, she received a job offer from a large and prestigious department chain store in Kuala Lumpur. Harlina accepted the job offer with open hands. She is all sets to face the challenges at the new workplace. At the entry point, she is appointed as entry executive, whereby she will be rotated on the job and task to all the departments to gain exposure and appreciate the nature of the business. Helena’s first assignment is to assist Madam Marina, a qualified buyer in the food and Beverages department. Buyers play a critical in the management of the department store. They select the goods to be offered, negotiate purchase terms and conditions, set retail prices, arrange displays, organize promotions, and are generally responsible for the operations of the departments within the store. Harlina was extremely happy on the first month of her employment. Madam Marina respected her as an employee. On several occasions she has received praised for good discipline. Her views and opinions have been well considered and workload is just right.
____________________________________________________________PROFESSIONAL ETHICS ϰϭ However, an event occurred that threatened to destroy all her contentment. According to Madam Marina, the department store has received a shipment of imported halal biscuit from Australia with an authentic chocolate cream filling. They are well-packed in attractive foil covered boxes, but somehow some of them had become infested with mould and insects. Not all the boxes were infested, since only a few customers have returned the item after purchase. But the point is some people did return their purchase packs. Obviously, said Madam Marina, “We cannot continue to sell them at our department store to uphold our good image. We also do not have the time to inspect every package and keep the ones that are not infested.” Madam Marina went on to discuss the cost implications. She uttered, “What about the losses that we have to incur? We have already committed a capital cost of almost RM50,000. The biscuit manufacturer will not refund us since it is doubtful whether the infestation had occurred during shipment, or even during storage at our own warehouse.” After a serious discussion, Madam Marina asked Harlina to get rid of the biscuit. Harlina thought that Madam Marina asked her to throw them away at the rubbish bins provided by the KL municipality (DBKL) near the store, but Madam marina further clarified to Harlina, “Absolutely not! Call Mr Maniam. He operates a mini market at the outskirts of the Klang Valley where the majority of the residents are in the low income groups. We have to get our money back!” Harlina protested openly, but Madam Marina further assured, “Look, there is nothing wrong with our actions. The residents of these areas have never had high quality foodstuff of this nature. These imported biscuits will be sold very cheaply, and for most people who buy them, it will be an opportunity to try something really good. Only a few people will get the infested boxes. They will not be very happy, but at such remote areas, they will have expected this especially when they see a low price on an expensive product. They make the choice. We don’t!” Harlina is in dilemma…should she follow the instructions of her boss?
____________________________________________________________PROFESSIONAL ETHICS ϰϮ TOPIC 3 CORPORATE CODES OF ETHICS AND PROFESSIONAL SKEPTICISM Learning Outcomes At the end of topic, students able to: x CORPORATE CODE OF ETHICS o Describe corporate codes of ethics o Explain the benefits of a corporate code of ethics to the organization and its employees x PROFESSIONAL SKEPTICISM o Describe professional scepticism o Provide explanation on the increasing importance of professional scepticism o Specific application of professional scepticism
____________________________________________________________PROFESSIONAL ETHICS ϰϯ 3.1 Definition Corporate Code of Ethics and Professional Skepticism Definition of Corporate Code of Ethics The primary purpose of the corporate code of ethics is to establish a framework for guiding the conduct of individuals inside an organisation. This framework aims to ensure that the services rendered by the organisation meet acceptable standards of quality, while also safeguarding the company's reputation from potential compromise. For codes of conduct to be effective, they must combine fundamental principles with a limited number of specific rules. Corporate conduct codes are entirely voluntary. Examples of corporate codes of ethics include: x In relation to the general public, clients, potential clients, employers, employees, and professional peers, it is imperative to exhibit behaviors characterised by honesty, competence, diligence, and respect. x It is essential to prioritise the interests of the client above one's own. x When engaging in professional activities such as analysis, giving suggestions, taking action, and others, it is advisable to apply reasonable prudence and independent professional judgement. x One should engage in the consistent practising of professional and ethical behaviour, while also promoting and encouraging others to do the same. By doing so, individuals can enhance their own reputation and contribute positively to the field or occupation they are associated with. x The objective is to enhance the sustainability and ethical standards of global markets for the collective benefit of society. x It is imperative to consistently uphold and augment one's professional competence, while also striving to facilitate the development of others in this regard.
____________________________________________________________PROFESSIONAL ETHICS ϰϰ Importance of Code of Ethics to the Organization • In order to establish a company's ethical positions towards matters such as material sourcing, conflict resolution, and legal compliance, it is imperative to develop a comprehensive ethics code that ensures universal comprehension among all members of the organisation. • To prevent lawsuits and legal challenges • Creating a positive public image Importance of Code of Ethics to the Employee x In order to safeguard the rights of employees, Two common issues that arise in the workplace are pay conflicts and discrimination. x To protect from Sexual harassment is a pervasive issue that occurs in various contexts, encompassing unwelcome sexual advances, requests for sexual favours, and other verbal or physical conduct of a sexual x To derecognize Disparate treatment refers to a form of differential treatment or unequal handling of individuals or groups based on certain characteristics or attributes. x The process of resolving conflicts x The individual is actively seeking career advancements. x To facilitate employees in making informed decisions by adhering to established criteria. Definition of Professional Skepticism Professional scepticism consists of a sceptical mindset and a sceptical attitude (Nolder & Kadous, 2018). A sceptical mindset is a cognitive process that comprehends the issue, collects the facts, and analyses them. A sceptical attitude is a cognitive and affective evaluation-based evaluation process. The result of a sceptical attitude is the intention to act, which will be followed by actual behaviour.
____________________________________________________________PROFESSIONAL ETHICS ϰϱ “An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of evidence.” IAASB’s Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements Importance of Professional Skepticism x In recent years, the increased use of judgement in financial reporting has made professional scepticism an increasingly essential competency for accountants. x All professional accountants must exercise professional scepticism, not just auditors. Before providing information to external auditors, it is crucial that preparers exercise their own scepticism. No longer acceptable are the practises of 'gaming' auditors to see how far they can be stretched. x Prior to providing information to external auditors, audit committees, and internal auditors, it is imperative for these entities to critically evaluate themselves, the controls they establish, and the accuracy and reliability of the information they generate. x It is not the auditors' responsibility to disprove management's assertions; rather, management must substantiate its claims. x Whether performing audit, tax, consulting, or industry work, maintaining accounting independence, the mental state in which an individual can perform his services without having his professional discernment compromised by outside influences, requires due professional care. x Every successful accountant's career is built on a foundation of healthy scepticism and sound professional discernment. To be sceptical is to question the truth. It is a safeguard that enables an accountant to exercise due professional care when determining which auditing procedures, accounting principles, tax positions, or consulting advice are optimal in any given circumstance. 3.2 Applying Professional Skepticism in Auditing ISA 200: Overall Objectives of the Independent Auditor and the Conduct of Audits in Accordance with International Standards on Auditing outlines professional skepticism, such as being paying attention to:
____________________________________________________________PROFESSIONAL ETHICS ϰϲ • Inconsistencies observed in the audit evidence as compared to other sources of audit evidence collected. • In order to substantiate our audit findings, we will rely on evidence that raises doubts about the accuracy and reliability of documents and the responses provided during inquiries. • Factors that could potentially suggest the presence of fraudulent activities. • Situations that suggest the necessity for supplementary audit procedures beyond the prescribed requirements outlined in the International Standards on Auditing (ISA 200 A.18). Five auditing stages that require professional skepticism; 1. Evaluating the Acceptance of Engagement x The primary considerations in assessing the suitability of an audit client are the management's adherence to principles of integrity and the presence of any factors that may hinder the auditor's exercise of professional scepticism.. 2. Conducting Risk Assessment Procedures x It is advisable to exercise scepticism when conducting risk assessment methods in the planning phase of an audit. x When engaging in discussions with management regarding the outcomes of analytical techniques, it is imperative for the auditor to exercise caution and refrain from accepting management's explanations without further scrutiny. Instead, the auditor should diligently seek corroborating evidence to substantiate the claims made by management. 3. The process of acquiring audit evidence x Acquiring audit evidence enables auditors to effectively question management, especially in relation to intricate and subjective matters that necessitate the exercise of managerial judgement. x The evaluation of evidence's reliability and adequacy is crucial, especially in the presence of fraud concerns. 4. The assessment of audit evidence x The process of evaluating audit evidence necessitates a meticulous assessment of the evidence gathered during an audit, while also remaining vigilant for any
____________________________________________________________PROFESSIONAL ETHICS ϰϳ contradictory evidence that could potentially weaken the reliability and adequacy of the received evidence. 5. The process of establishing the auditor's opinion x The task involves assessing the adequacy of evidence in supporting the audit opinion and ascertaining if the financial statements accurately represent the underlying activities and events. 3.3 Specific applications of professional skepticism ISA 240-The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements x The concept being discussed pertains to professional skepticism, which emphasizes the auditor's duty to maintain a skeptical mindset throughout the audit process. This involves acknowledging the possibility of management overriding controls and recognizing that audit procedures designed to detect errors may not necessarily be effective in detecting fraudulent activities. x Specify the following requirement for the auditor: "The auditor shall maintain professional skepticism throughout the audit, recognizing the possibility of a material misstatement due to fraud, regardless of the auditor's prior experience with the honesty and integrity of the entity's management and those charged with governance." x The importance of evaluating the reliability of information intended for use as audit evidence, as well as the controls overseeing its creation and maintenance, should be underscored. x This statement posits that management often holds the most advantageous position for engaging in fraudulent activities. As a result, when assessing the responses provided by management in response to enquiries, it is important for the auditor to use a professional and sceptical approach. x In order to ensure the reliability and accuracy of these statements, the auditor may find it essential to verify and support them with further evidence.
____________________________________________________________PROFESSIONAL ETHICS ϰϴ IAASB-Staff Q & A document entitled Professional Skepticism in an Audit of Financial Statements x Accounting estimates: This can include fair value accounting estimates, the use of significant assumptions by management in developing accounting estimates, and an evaluation of the judgements and decisions used by management in developing accounting estimates for evidence of management bias. x Going concern: the auditor should review management's assessment of the entity's ability to continue as a going concern and whether management's plans are feasible, with this being especially essential if there are substantial doubts about the entity's ability to continue as a going concern. x Related party relationships and disclosures: it can be challenging to acquire information on related parties, as management's knowledge may be limited, requiring the auditor to rely on management to identify all related parties. When evaluating the business justification for related-party transactions, the auditor should also be skeptical. x Consideration of laws and regulations: Throughout the audit, the auditor should be on the lookout for indications of possible noncompliance with laws and regulations.
____________________________________________________________PROFESSIONAL ETHICS ϰϵ EXERCISES 1. Define code of ethics 2. Discuss the importance of code of ethics to the employer and employee 3. Define professional skepticism 4. List and briefly explain five (5) stages in audit process to apply professional skepticism 5. Explain specific applications of professional skepticism relating to fraud in an audit of financial statements. CASE STUDIES CASE STUDY 1 Find relevant news articles that are related to the following issues. In group, discuss how these issues impact employees performance and satisfaction. x Safety and health at the workplace x Sexual harassment in the workplace x Workplace discrimination, e.g. discrimination based on gender, discrimination in terms of promotion. CASE STUDY 2 Noraini is a professional accountant who was hired by RO Bhd as the payroll manager. She works closely with Fendy, the Chief Executive Officer (CEO) of RCO Bhd. Before Noraini started her job at RCO Bhd, Fendy emphasizes to her on the maintain strict confidentiality regarding employees’ salaries and pay scales. On Noraini’s first day in RCO Bhd, she was introduced to Latifah, the founder of RCO’s Bhd, who told Noraini to see her if she has any problem at work. In their conversaion, Latifah told Noraini that Fendy is good and highly motivated staff, After four months of employment, Noraini notices that Zubaidi, a technician, who is also the CEO’s brother, makes huge commission compared to the other technicians. She assumes that Zubaidi must be hold a highly qualification education and must be working hard. Consistently, Noraini would prepare the job sheet for all RCO Bhd’s technicians. The technicians are instructed to take whatever job given and are not allowed to choose their job tasks. They cannot choose the work that they prefer or work that gives higher commission. One day, however, Noraini receives