Qs.
1 What is Ethics and why is there a need for a Code of Ethics for accounting and
finance professionals?
Ethics in essence, are a set of moral principles which guide a person’s ability to distinguish
which act is right from wrongful acts. These morals come from within a person and can be
tested when the person has to make a decision and there are multiple sets of directions he
could go about it. Although in most cases, not being morally correct isn’t against the law, there
are some consequences a person will have to face if he isn’t compliant with them.
Ethics is a major part of the accounting and finance profession, as accountants are faced with
such ethical dilemmas daily while making financial statements, working for the supervisors and
for the stakeholder interest side by side. People generally view accountants as trustworthy
people, and indirectly the profession of accountancy is dependent on the trust the stakeholders
have in accountants to report a fair and accurate picture of the company’s accounts, thereby
protecting stakeholder interest. Being unethical will render the accounting profession useless
which is why there is such a strict code of ethics for accounting and finance professionals. This
Code of Ethics maintains the respect and trust the stakeholders have in the accountants.
To ensure that all professional accounting and financial professionals work for the interest of the
public at all times and uphold the principles of integrity, transparency and accountability, the
International Federation of Accountants have made a set of rules to which all accounting
professionals must comply with, thereby ensuring that the reputation of the accounting
profession is protected at all times.
Qs. 2 (a) What are the three questions you need to ask yourself in such situations?
a) When a professional accountant finds himself in an ethical dilemma he needs to ask
himself the following questions:
1. What does the law say?
The steps which a professional accountant takes must be lawful and one must ensure they are
by either consulting a lawyer or going through the relevant statutes. If the steps are unlawful it
would again be unethical in nature and the purpose of finding another way to go about the
situation is no more.
2. What might happen?
Each course of action that a professional can think of should be listed down along with the
consequences of the related steps to all the affected parties. For example if an auditor lists
whistle-blowing as his alternative course of action he should outline the parties that are going to
be affected by his action, that is the stakeholders, the management and the employees of the
company itself. He must list down all possible alternatives to choose what might be the most
ethical but the least problematic way to go about the situation.
3. Who can you ask?
If a professional accountant feels like he should share the ethical dilemma with someone he
should do so ideally with management, but before doing so he should review the company’s
policies regarding such situations and how they go about it, to make sure he is making the right
decision.
b) Think about at least two possible ethical dilemmas / examples of situations that can
arise for the following professionals:
i. Accountants
1) Dilemma 1: If an accountant is paid a bonus based on the profitability of the company at
the end of a financial period, and is in dire need of that money, he is facing an ethical
dilemma where he could overstate the company’s profits to earn a handsome bonus or
he could be truthful and report the actual profits thereby, foregoing the bonus he could
have had.
2) Dilemma 2: When a new accountant is asked by his supervisor to wrongly classify
expenses or liabilities, and the person is pressurized to do so he is facing an ethical
dilemma where if he succumbs under the pressure of his supervisor he will not be in
accordance with the reporting principles (IFRS or GAAP) or if he stands up to the
supervisor and calls him out for the wrongful reporting he is at a risk of losing his job.
ii. External Auditors
1) Dilemma 1: A close friend of the auditor who has undergone many financial difficulties
has decided to buy shares of company ABC. The auditor has confidential information
regarding company ABC and is sure that the company is in financial distress and is
planning on downsizing which would cause the share price to fall. The auditor is facing
an ethical dilemma where he could either tell his friend about the confidential information
and prevent him from buying the shares or he could comply with the principle of
confidentiality and let his friend go through with the plan.
2) Dilemma 2: The independence of the external auditor is at risk due to intimidation threats
by the board of directors of a company he is assigned to audit. He could either comply
with the demands of the company’s directors and influence his opinion accordingly or he
could leave the audit engagement altogether or he could discuss the dilemma with his
audit partners and the audit firm’s management and ask them the best course of action
he should take in such a circumstance.
