c) The directors of Muni Limited are involved in takeover talks with another entity. In the discussions, one of the directors stated that there was no point in an accountant studying ethics because the profession already has a set of moral beliefs that are followed and these are created by simply following generally accepted accounting practice. He further stated that in adopting a defensive approach to the takeover, there was no ethical issue in falsely declaring Muni Limited’s profits in the financial statements used for the discussions because, in his opinion, the takeover did not benefit the company, its executives or society as a whole.
Required:
Discuss the above views of the director regarding the fact that there is no point in an accountant studying ethics and that there was no ethical issue in the false disclosure of accounting profits. (5 marks)
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There are several reasons why an accountant should study ethics. The moral beliefs that an individual holds may not be sufficient because often these are simple beliefs about complex issues. The study of ethics can sort out these complex issues by teaching the principles that are operating in these cases. Often there may be ethical principles which conflict and it may be difficult to decide on a course of action. The study of ethics can help by developing ethical reasoning in accountants by providing insight into how to deal with conflicting principles and why a certain course of action is desirable.
Another important reason to study ethics is to understand the nature of one’s own opinion and ethical values. Ethical principles should be compatible with other values in life. For example, one’s reaction to the following circumstances: the choice between keeping your job and violating professional and ethical responsibilities, the resolution of conflicts of interest if they involve family.
A good reason for studying ethics is also to identify the basic ethical principles that should be applied. Professional accountants are required to adhere to a set of fundamental principles in the course of their professional duty, such as confidentiality, objectivity, professional behaviour, integrity and professional competence and due care. The main aim of professional ethics is to serve as a moral guideline for professional accountants. By referring back to the set of ethical guidelines, the accountant is able to decide on the most appropriate course of action, which will be in line with the professional body’s stance on ethics.
Although the takeover does not benefit the company, its executives or society as a whole, the action is deceptive, unethical and hence unfair. It violates the relationship of trust, which the company has with society and the professional code of ethics. There are nothing but good reasons against the false disclosure of profits.
d) Accounting professionals are responsible for acting in the public interest, and for promoting professional ethics. The directors of Jungle Limited feel that when managing the affairs of a company the profit motive could conflict with the public interest and accounting ethics. In their view, the profit motive is more important than ethical behaviour and codes of ethics are irrelevant and unimportant.
Required:
Discuss the views of the directors regarding the fact that codes of ethics are irrelevant and unimportant. (5 marks)
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The directors should be persuaded that professional ethics are an inherent part of the accounting profession. Professional ethics are a set of moral standards applicable to all professionals. Each professional body has its own ethical code which requires its members to adhere to a set of fundamental principles in the course of their professional duty, such as confidentiality, objectivity, professional behaviour, integrity and professional competence and due care.
Often there may be ethical principles which conflict with the profit motive and it may be difficult to decide on a course of action. An accountant has an ethical obligation to encourage the directors to operate within certain boundaries when determining the profit figure. Users are becoming reactive to unethical behaviour by directors. This is leading to greater investment in ethical companies with the result that unethical practices can have a greater impact on the value of an entity than the reporting of a smaller profit figure. Ethical issues are becoming more and more complex and it critical to have an underlying structure of ethical reasoning, and not purely be driven by the profit motive.