Accountant in business (1) compressed

ACCOUNTANT IN BUSINESS Contents Exam Structure Examiner Comments on Candidate Performance Chapter 1: Business Organizations Chapter 2: Stakeholders Chapter 3: The Business Environment-Political and Legal Factors 16 Chapter 4: The Business Environment-Social and Demographic Factors 24 Chapter 5: Business Environment: Technological and Environmental Factors 29 Chapter 6: Business Environment-Competitive Forces 36 Chapter 7: Business Environment-Macroeconomic Factors 45 Chapter 8: Business Environment: Microeconomic Factors 58 Chapter 9: Formal and Informal Organization 70 Chapter 10: Business Organization Structure and Design 73 Chapter 11: Organizational Culture 95 Chapter 12: Committees in Business Organizations 101 Chapter 13: Governance and social responsibility in business 106 Chapter 14: The Relationship Between Accounting And Other Business Functions 115 Chapter 15: Accounting and finance functions within business 119 Chapter 16: Principles Of Law And Regulation Governing Accounting And Audit 126 Chapter 17: Financial Systems, Procedures and Related IT Applications 130 Chapter 18: Internal controls, Authorization, Security and Compliance within Business 139 Chapter 19: Fraud and fraudulent behavior and their prevention in business 147 Chapter 20: The impact of Financial Technology (Fintech) on accounting systems 154 Chapter 21: Leadership, management and supervision 163 Chapter 22: Recruitment and selection of employees 177 Chapter 23: Individual and Group Behavior, Teams within an Organization 189 Chapter 24: Motivating individuals and groups 196 Chapter 25: Learning and training at work 205 Chapter 26: Review and appraisal of individual performance 214 Chapter 27: Personal Effectiveness 221 Chapter 28: Communicating in business 229 Chapter 29: Fundamental principles of ethical behavior 237 Answers to Questions 244 Exam Structure The new structure will see the paper divided into two parts - - Section A: Section A of the new style exam will contain a mix of 30 two-mark questions and 16 one-mark questions One-mark questions are new and are usually shorter and will either have no background statement or a brief one The structure of these questions is that they will either be multiple-choice questions (MCQ) where there is one correct option from two or three options, or they will be multiple-response (MR) questions where there are two correct options from a total of three In the MCQ versions of the one-mark questions, the two option questions may be presented as true or false questions Section B: The six MTQs in Section B may be sub-divided Where this is the case, some or all parts may be related to a common scenario However, a scenario may be relevant to just part of the question For example, part (a) of a question may be built around a team scenario with a requirement to apply the theories of Belbin or Tuckman, with part (b) set on a related theme but not directly connected to the scenario Examiner Comments on Candidate Performance ‘Accountant in Business’ is a gateway paper, testing many topics but at a relatively shallow level Candidates should recognize that none of the topics examined in this paper require a detailed or comprehensive knowledge, and that it is best practice to have a general understanding of as many topics as possible As many candidates have limited time in which to prepare, it may be counterproductive to drill down too deeply into some subject areas, thereby giving too little attention to others It is understood that very few candidates will be equally proficient across all areas of the syllabus, but the student who invests a reasonable amount of time in meaningful preparation should pass For a typical candidate, it is wise to spend a little more time on more complicated theories and concepts, as well as those which include more information For example, when dealing with organisational culture, questions on Handy’s theory pose less difficulty than those on Schein’s theory, because for the average candidate the latter is more difficult to grasp than the former But in turn, candidates may find organisational culture more difficult than other organisational theories, implying that study time should be adjusted accordingly Candidates are unlikely to be under time pressure when sitting this paper, but time management may be an issue for some If well prepared, candidates may be able to deal with the paper in ‘sweeps’, by quickly going through questions on which they are absolutely confident and then investing more of the available time on questions that they find more challenging In this respect, it is also important to stress that this paper never contains trick questions, so quite often thinking too hard and too long about answers initially considered to be incorrect, may be counter-productive Chapter 1: Business Organizations In this Chapter a) Define ‘business organizations’ and explain why they are formed b) Describe common features of business organizations c) Outline how business organizations differ d) List the industrial and commercial sectors in which business organizations operate e) Identify the different types of business organization: i Commercial ii Not-for-profit iii Public sector iv Non-governmental organizations v Cooperatives Organizations Definition: An organization is an arrangement where a collection of people with a set of shared objectives create a formalized group Organizations are formed to provide goods or services (or both) to consumers, they are able to control their own performance and have a boundary separating them from the environment Organizations have an impact on the environment and various factors from the environment affect them Why are Organizations Formed? Why are Organizations Formed Time Saving When a lot of people work together for a common objective, they can achieve their goals faster Division of Labour People working togther can focus on what they best In that manner they can concentrate on their tasks Synergy Effect People working together can produce higher output than the output if they worked separately 2+2=5 Knowledge Sharing Organizations will combine the knowledge of all people working in it People can learn from each other and improve their knowledge Satisfying Social Needs People come together in an organization and share ideas, opinion and feelings They interact which is a basic social need How Organizations Differ Ownership and Control: Some organizations are sole proprietorships and are owned and controlled by one owner while others are partnerships where two or more people jointly own and control an organization Public listed companies are owned by general public and controlled by board of directors Legal Status: Organizations can be differentiated based on the law under which they are formed e.g limited companies in the UK are formed under the UK Company Law while partnerships are formed under the Partnership Act 1890 Activity: Different organizations provide varying goods and services Some organizations are manufacturing concerns like General Motors and Ford while other companies provide services like law firms and audit firms Profit or Not for Profit Organizations: Some organizations exist to make a profit like Honda while other organizations exist to serve the society or environment like Red Cross and Make a Wish Foundation Size: Some organizations are small and their operations are restricted to one country or city while others are large and are spread across countries and continents like Adidas and IKEA Level of Technology: Businesses use varying levels of technology There are organizations that use advanced technology like Samsung and Airbus while other organization’s processes use basic level technology like Walmart Industrial and Commercial Sectors in Which Business Organizations Operate Given below are some of the sectors in which businesses can operate Industry Activity Example Manufacturing Sector Transforming raw material with the Nestle help of machines and manpower into Volkswagen Group finished, usable products for sale Samsung Electronics Extractive Sector This sector extracts its products from Barrick Gold-Precious natural resources like earth, sea and Metals air It extracts and refines raw material Shenhua Energy-Coal Construction Sector This sector engages in construction activities like bridges, sky scrapers and roads Organizations in this sector buy finished products and sell them to public Includes organizations that provide services to consumers Services could be of any nature including healthcare or legal etc Retailing/Distribution Sector Service Sector Grupo ACS-Spain Balfour Beatty-UK Walmart Tesco Netflix American Express -Partnerships -Private limited -Public limited These organizations are owned or controlled by the governement They work for the welfare of the people Co-operatives -Sole Traders These organziations not exist to make a profit, their purpose is to provide benefit to the society or the environment Public Sector Organizations Also known as Profit-making organizations Examples: Not For Porfit Organizations Commercial Sector Different Types of Business Organizations An organization or association that is owned and managed jointly by those who use its facilities and services Commercial Sector Organizations in this sector exist to make a profit Their activities revolve around the fact that their revenue should be greater than the cost Such entities are created to generate a profit There are several types of organizations in the commercial sector: Commercial Sector Sole Trader i Partnerships Private Limited Companies Public Limited Companies Sole Traders In sole trader organizations, the owner runs the business One person owns and controls the organization Although other people work in the organization, the ultimate responsibility of the business lies with the owner Such business have unlimited liability meaning that the owner would be responsible for all debts of the business ii Partnerships A partnership is formed when two or more individuals pool resources to jointly own and control a business In this way the responsibility of the business is divided among partners iii Limited Companies In limited companies, the ownership and control of the business is legally separate They are owned by shareholders who are the fund providers and controlled by a Board of Directors There are two types of limited companies: a) Private limited company b) Public limited company The differences between these two can be summarized as the following Characteristic Owned by Traded Managed by Financed by Private Limited Friends and family Privately (not on stock market) Board of Directors • Founder • Banks • Venture Capitalists Public Limited General public On the stock market Board of Directors • Share capital raised by public • Loan notes • Institutional Investors Not For Profit Organizations In direct contrast to commercial organizations, not-for-profit organizations are started and run for the purpose of providing benefits on an individual level or to society as a whole Their primary goal is not to generate a profit, they exist to provide benefits to people Not-for-profit organizations can derive their income from donations given by the public or through government funding Not-for-profit organizations vary greatly in terms of both size and type Non-Governmental Organizations Non-governmental organizations (NGOs) are any organizations that work towards a social, cultural, economic or educational cause They are usually started and run to provide a good or service that the government is not providing or for the interests of citizens NGOs cover a wide spectrum of aims ranging from education to the environment Examples include Amnesty International, Greenpeace and the Red Cross Amnesty International campaigns for human rights across the globe Greenpeace activities are geared towards protecting and preserving the natural environment The Red Cross’ mission is to provide relief to victims of wars and internal conflicts Public Sector Organizations Public sector organizations are owned and controlled by the government They are run by elected government officials and obtain funds from tax payers, borrowing or charging individuals for services Their objectives are defined by the government and depend on what the public wants They will often provide services that profit making organizations not provide like electricity, water, gas, public transportation etc Cooperatives These organizations and associations are jointly owned and controlled by consumers who use their services Since they are jointly owned, all members have equal votes and enjoy a democratic control on the organization Examples include cooperative banks Test Your Knowledge The industrial sector can be classified into primary sector, secondary sector, tertiary sector and quaternary sector Primary industries are essentially: A Extractive industries B Engaged in provision of service C Manufacturing units D Engaged in providing intellectual services ‘World Action Now’ is dedicated to engaging in activities for conserving nature and the environment It has in the past been able to engage prominent scientists and use famous publications to spread awareness about how commercial activities have led to climate change What type of organization is World Action Now? A Cooperative B Non-government organization C Public sector organization D Commercial organization Which of the following provides an example of a ‘boundary’ separating an organization from its environment? A A divisional structure B Systems and procedures C Factory gates D Recruitment policy A mobile phone company has just found out that there is demand for a low cost basic phone as consumers like having a phone with basic functionality They would like to find out more about which consumer group will be interested in these phones and what specifications they would like A Purchasing, Research and Development B Research and Development, Marketing C Purchasing, Manufacturing D Sales, Purchasing Andy and Jane are studying types of organizations According to Andy: The word “limited” is used in the case of private limited companies because their ownership is not open to the public and is restricted to a lower number of owners than public limited companies Jane disagrees, according to her: ‘limited’ is used for private limited companies because the liability of the owners of the organization is limited to their investment in the company Whose statement is incorrect? A Jane B Andy Chapter 2: Stakeholders In This Chapter a) Define stakeholders and explain the agency relationship in business and how it may vary in different types of business organization b) Define internal, connected and external stakeholders and explain their impact on the organization c) Identify the main stakeholder groups and the objectives of each group d) Explain how the different stakeholder groups interact and how their objectives may conflict with one another e) Compare the power and influence of various stakeholder groups and how their needs should be accounted for, such as under the Mendelow framework Communication Definition: Communication can be described as the transmission and receipt of information between two or more individuals (as there must be at least two parties involved) For communication to take place, one individual must understand what the other is communicating This communication can take place in either written or spoken form The Communication Process Sender Stages in Communication Model Stage 1: Encoding Message Stage 2: Decoding the message Stage 3: Feedback Stage 4: Relay Coded Message Receiver Decoded Message Explanation The sender sends an encoded message in a language that both parties understand Message can be verbal or nonverbal in the form of expressions, body language etc Proper communication mediums should be used such as memos, pictures, diagrams, emails or meetings The receiver, receives and decodes the message interpreting the message in his own way The receiver will then act on what he/she has understood from the message giving feedback, verbal or nonverbal, to the sender Feedback makes communication two way so that sender has the opportunity to know if the message was interpreted the way sender intended it Sender then understands the feedback and sends his response back to the receiver hence making communication a cycle In this process, there will be noise, or distortions that tend to distort facts sent by the sender Distractions and interference in the environment in which communication is taking place may be physical noise (passing traffic), technical noise (a bad telephone line), social noise (differences in the personalities of the parties) or psychological noise (anger, frustration, tiredness) 230 | P a g e Methods of Communication Methods of Communication Verbal Communication Non-Verbal Communication Verbal Communication Verbal communication is where spoken word is used and can take two forms: i Written communication ii Oral communication i Written Communication The formats for written communication usually used in an organization are: - Letters - Reports - Emails - Quotations, proposals, forms, enquiries - Memos - Handbooks, bulletins, minutes, notices, circulars etc Written communication has several advantages for an organization as it can be useful where the information is meant for a large group of employees especially when they are geographically dispersed For example, an email can be used to send written information to a large group of employees that is geographically dispersed Written communication also has a record that can be accessed at any time so that complex information can be accessed and interpreted whenever employees want Emails, memos can also be cost effective when sending large amounts of data to a big group of employees ii Oral Communication The common formats of oral communication used in an organization are: - Meetings and discussions - Telephone calls - Video conferencing - Interviews - Presentations and speeches 231 | P a g e Oral communication has several uses like the fact that it is face to face so reduces confusions and misunderstanding since messages that are not completely conveyed through written words are understood better with body language and expressions Oral communication adds a personal touch and allows interaction so that employees can seek further clarity if message is vague It also helps in motivating employees as a personal touch is added, this can be used to convey a message better and encourage change Nonverbal Communication Include body language and signs of disinterest or boredom within the means of communication Identifying and understanding body language enables the receiver of information to be better able to understand and grasp the underlying theme in the communication or message Nonverbal communication provides: Examples of non-verbal indicators include: - Facial expressions - Gestures for example, shrugs or hand waving - Posture - Proximity and contact - Movement and stillness - Silence and sounds - Appearance Types of Communication Types of Communication Vertical Formal Communication Informal Communication Horizontal Diagonal Formal Communication Formal communication normally occurs between departments within an organization where there are defined senders, receivers and a formal medium of communication used There are departmental and 232 | P a g e organizational policies used to guide formal communication for example a department wide daily memo, used to remind employees of the most urgent tasks at hand There are three channels of formal communication: i Vertical Channels: involves the flow of information up and down the scalar chain; superior to subordinate and back Purpose of vertical communication - To give instructions/direction - To delegate responsibilities - To control activities of subordinates ii Horizontal Channels: flows between people of the same status or position, in the same section or department, or in different sections or departments Horizontal communication between equals or peers is easier and more direct than vertical communication and can be both formal and informal Purpose of lateral communication: - To co-ordinate the activities of different individuals and groups - To develop and maintain social relationships at work iii Diagonal Channels: They represent the way employees (holding the same rank) communicate with employees from other departments This communication can take place for coordination among departments, resolving inter-departmental conflicts, problems or friction It can also be used for sharing inter departmental ideas and information sharing Informal Communication Informal communication complements the formal system Unofficial means of communication and rumors within an organization is sometimes referred to as grapevine Some features of grapevine are: - Information flows easily and quickly through the grapevine - Information is distributed or divulged in a selective fashion - Grapevine usually works inside the place of work and not outside - The grapevine is most effective when the formal system is operating effectively - Higher level executives are better communicators and better informed than lower level staff Qualities of Information Effective communication should lead to good quality information being distributed amongst employees Attributes of good quality information are: - Timely – the speed of communication must be linked to the urgency of the issue being communicated A report that a machine is out of action is of little use if it is delayed for hours or days, as it will increase the amount of production time lost - Accurate and complete – any information in the communication should be factually correct and all relevant facts should be stated to avoid wrong conclusions being drawn - Relevant – the message should not be excessive in volume as this will overload the receiver For example, managers higher up the chain of command may not need data that is too detailed - Directed to the right people – care must be taken not to send information to the wrong people This could cause confusion or even loss of confidentiality of sensitive information - Understandable – care must be taken with the presentation of the information, so that all recipients will be able to comprehend its meaning - Cost effective – as far as possible, the communication must be achieved at a reasonable cost to the organization Information Needs at Different Levels of Organization Level of Organization Information Needs 233 | P a g e Strategic Level For Strategic Decision Making long term objectives of the organization Tactical Level For tactical decision making – for implementation of decisions and achievement of objectives Operational Level For operation decision making – for day to day activities - Primarily external information about the environment that business operates in e.g tax legislations, interest rates, inflation rates, state of the economy Information needs to be concise and focused as it needs to be discussed in board meetings e.g executive summaries Information needs to be qualitative as well as quantitative Information may only be gathered for a meeting and agenda so, relatively less frequent Primarily internal information with some external factors Current performance of business and output of workforce Comparisons of actual performance with budgets and analysis of variances Product features and sales data Information needs to be detailed and more regular E.g monthly reports Internal instructional information for day to day activities Information needs to be communicated daily Ensures takes are efficiently and effectively communicated to employees Barriers to Communication Barriers The sender of information might use technical words (‘jargon’) that the recipient does not understand For example, accountants might talk to non-accountants in technical terms that the non-accountant does not understand There may be technical ‘noise’, such as a breakdown in the communication system itself The recipient of the information might misunderstand the message The sender of the message might get the information wrong Personal differences can cause breakdown in communication where different personality types may lead to problems in communication Difference in the status of the sender and receiver may also be a problem where subordinates may not feel comfortable giving feedback to their managers Practical Resolutions Keeping the knowledge level and department of the recipient in mind should solve this problem This would help in sender avoiding jargon that the recipient may not understand Avoiding information passing through a lot of channels may help in reducing noise and distortion Information should be clear and detailed in order to reduce confusions This can be ensured by using the correct medium for example meetings should be used where the data is complex while straightforward information can be emailed This can be managed by timely identification of problem and conflict management techniques like compromise or negotiations Open communication channels and lines may help resolve problems Management may set aside a specific time every day to ensure all employees can voice concerns Consequences of Ineffective Communication Breakdowns in communication can lead to several issues like: 234 | P a g e - A break down in top down communication may lead to confusions in employees as information may not be sent accurately to subordinates thus leading to confusions - A breakdown in top down communication may also lead to demotivated workforce as they would not understand what to - Ineffective upward communication may lead to lack of acknowledgement of employee issues by management leading to higher turnover - Lack of upward communication may also lead to conflicts as management may not be aware of issues early on - Lack of diagonal communication will lead to lack of coordination between departments - Ineffective diagonal communication may also lead to lack of commitment towards organizational goals Patterns of Communication There are different patterns of communication: - Chain - Wheel - "Y" network - Circle The chain, wheel and Y systems of communication system are found in many formal organization structures The speed and effectiveness of communication in each of these patterns depends on the communication abilities of particular individuals in the system - A chain communication structure is likely to be slow and inefficient In the diagram above, the ability of the sender to get a message to the final recipient depends on the efficiency and competence of employees in between This is because a message must go through them before it can get from the sender to receiver - A wheel structure is a much quicker way to send a message, because all messages go directly to or from the person at the centre In the diagram above, sender can send a message to everyone For one employee to get a message to another, it must go through the sender, but there are only two stages in the communication of the message - The speed of sending messages, and the effectiveness of communication, in a Y structure depends on the length of the chain or ‘stem’ of the Y pattern In the diagram above, the chain in the stem of the Y consists of just three individuals, C, D and E However, this chain could be much longer 235 | P a g e - Similarly, the speed and efficiency of a circle network depends on the number of people in the circle When there are many people in the circle, it can be a very long time before an item of information reaches everyone An all-channel system of communication is the quickest and most efficient, but it is not suitable for a formal communication structure in a formal hierarchical organization structure Test your Knowledge Jim needs a summary of the forecasts of economic factors for the next few years He will be using these to draw up a feasibility for an upcoming project and needs to look at how external factors will affect the project Which level of organization is Jim preparing this information for? A Operational Level B Technostructure C Tactical Level D Strategic Level The factory staff at BDC have all been complaining that they not understand the instruction manual given to them to use the newly installed machinery as it has technical terms that they cannot understand Which barrier to effective communication is this? A Noise B Jargon C Bias D irrelevant information Which of the following statements about informal communication are not correct: (i) Grapevine normally works outside of the organization since it is informal communication (ii) Informal communication is usually slower as employees not interact that regularly inside the workplace A Both are correct B Neither C Only (i) D Only (ii) The choice of a medium used in communication depends on which factors? A Urgency and cost B Complexity and vocabulary C Good writing, typing and suitable style D Sensitivity and fluency A has to communicate policies formulated by the board to his department He calls in a meeting and conveys policies while concentrating on feedback given by employees on the feasibility of new policies Employees were given some time to deliberate on policies and discuss them amount themselves before getting back to A with their feedback Which option correctly specifies the channels of communication used? A Vertical channels B Horizontal channels C Vertical and Horizontal channels D Vertical and Diagonal channels 236 | P a g e Chapter 29: Fundamental principles of ethical behavior In this Chapter a Define business ethics and explain the importance of ethics to the organization and to the individual b Describe and demonstrate the following principles from the IFAC (IESBA) code of ethics, using examples i Integrity ii Objectivity iii Professional competence iv Confidentiality v Professional behavior c Describe organizational values which promote ethical behavior using examples i Openness ii Trust iii Honesty iv Respect v Empowerment vi Accountability d Explain the concept of acting in the public interest The role of regulatory and professional bodies in promoting ethical and professional standards in the accountancy profession a Recognize the purpose of international and organizational codes of ethics and codes of conduct, IFAC (IESBA), ACCA etc b Describe how professional bodies and regulators promote ethical awareness and prevent or punish illegal or unethical behavior c Identify the factors that distinguish a profession from other types of occupation d Explain the role of the accountant in promoting ethical behavior e Recognize when and to whom illegal, or unethical conduct by anyone within or connected to the organization should be reported Corporate codes of ethics a Define corporate codes of ethics b Describe the typical contents of a corporate code of ethics c Explain the benefits of a corporate code of ethics to the organization and its employees Ethical conflicts and dilemmas a Describe situations where ethical conflicts can arise b Identify the main threats to ethical behavior c Outline situations at work where ethical dilemmas may be faced d List the main safeguards against ethical threats and dilemmas 237 | P a g e Ethics Definition: Ethics is concerned with what society considers to be right or wrong It therefore relates to standards of behaviour Business ethics can be defined as the branch of ethics that examines rules and principles within a commercial context Importance of Ethics Being ethically conscious and taking decisions that reflect moral behavior of an organization may have several advantages like: - Ethical decisions can enhance business reputation thus encouraging investors to invest in company shares - Businesses that are ethically responsible can see a shift in reputation in the long run ensuring ling term survival of the organization - Customers prefer businesses that are ethically responsible and buy more from them hence increasing revenue - Satisfied stakeholders will lead to higher profitability of a business as hindrances are removed from a business’s operations Approaches to Ethics Ethical behavior may be defined in terms of duties Many philosophers have argued that certain core duties are imperatives, and as such will always apply, regardless of circumstances Absolutists (or dogmatists) admit no exceptions, as these duties are believed to be sacrosanct They often have their foundations in religion or deeply embedded values, universally accepted by society The most common examples are the duties not to kill and to always tell the truth This approach to ethics is sometimes called the deontological approach (from the Greek word ‘deon’, meaning ‘duty’) Relativists (or pragmatists) accept that duties are important but are prepared to admit exceptions For example, they may argue that it is right to kill if the cause is just, or to tell a lie if the purpose is noble So if a frail and terminally ill loved one asks ‘Am I dying?’, it may sometimes be right to lie Ethical behavior may also be defined in terms of consequences This is sometimes referred to as the teleological approach (from the Greek word ‘telos’, meaning ‘the end’) Here, the right course of action is that which will result in the most acceptable outcome Most acceptable to whom? This is dependent on the ethical stance of those who determine what an acceptable outcome is Utilitarians regard the right course of action as that which will benefit the majority, or serve the ‘greater good’ In doing so, the ethical decision may disregard any impact on the minority, believing that they should defer to the greater needs and influence of the majority On the other hand, pluralists pursue consensus in order to accommodate the needs of both the majority and the minority Finally, egoists favour courses of action that are right for them This last, seemingly selfish approach to right and wrong was supported by Adam Smith, the 18th century UK economist, who suggested that pursuit of self-interest is often a catalyst for the creation of prosperity through entrepreneurial innovation and risk taking 238 | P a g e A practical application of these concepts may be considered in relation to the conflicting views on the use of mobile telephones on commuter trains Should railway users be denied the right to use their mobile telephones while travelling on trains? If one assumes that the majority will tolerate constantly ringing telephones and loud conversations during a railway journey: - the utilitarian will propose that mobile telephones are acceptable to most commuters, so the minority will have to put up with them - the pluralist accommodates both groups by setting aside a limited number of ‘quiet’ carriages in which mobile telephones cannot be used - the egoist decides on the course of action that is most desirable for him, which may in turn be based on profit motive or personal belief Implications of Ethical Approaches in an Organization Using the duty-based and consequentialist-based approaches to ethical decisions may result in different potential outcomes Consider the case of a highly successful and dynamic chief executive officer who has been caught up in a scandal relating to his personal life, reported widely in the national newspapers and on television, with resultant embarrassment to his organization Should he resign? The duty-based approach may suggest that, as a senior executive, he should adopt high moral standards in and out of work, and because he has failed to meet those standards, he should resign The consequentialist may agree, stating that by not resigning it will result in damage to the reputation of the organization as long as he remains in office However, the consequentialist may also disagree, arguing that by resigning the chief executive officer deprives the organization of his knowledge, skill and experience, which will result in a lack of leadership and direction, at least in the short term This argument may be reinforced by the view that, in future, other organizations may choose to accept resignations on the same basis, even though the individual’s personal life should have nothing to with his work Organizational Values and Ethics It is not adequate to simply identify and articulate the above principles In order to put them into practice, organizations must adopt values that will promote adherence to the principles, thereby maintaining the confidence of stakeholders Accountants have to recognize that their duties are not limited to what clients expect of them, and must accept that they have a fiduciary duty, or duty of absolute trust, to a wide range of stakeholders The following table sets out additional values that should be adopted Value Openness Trust Honesty Respect Empowerment Accountability 239 | P a g e Meaning Being full and complete in the provision and disclosure of information and reasoning behind decisions Relying on the judgments and information provided by other professionals, and embracing values that encourage others to rely on our judgments Not only telling the truth, but being prepared to give complete information on which others can fully depend Treating others with dignity and adopting a professional manner Ensuring that those who are entrusted with responsibilities have the authority to carry out the tasks necessary to fulfil their duties Taking full responsibility for the outcomes of our work, including work carried out on our behalf by others Corporate Code of Ethics Corporate codes of ethics are published by private sector organisations in order to communicate their values and beliefs to stakeholders These include: - customers, whose buying decisions may be influenced by ethical considerations - shareholders, whose investment decisions may be influenced by ethical factors - employees, who have to know the standards expected of them - suppliers, who need to understand the expectations of their customers and also that they will be treated ethically during the course of the commercial relationship - lobby groups, who may have specific interests in certain practices of the organization - the community in which the organization is situated, which may seek reassurance that the organization will act in its interest as an employer and as a good ‘corporate citizen’ Contents of Corporate Code of Ethics Commitment Core Principles Financing Customers Suppliers Employees Community Lobby Groups 240 | P a g e Content These should refer not only to its commercial objectives but the manner in which they will be pursued For example, they may state social and environmental commitments as well as best practices that will be adopted How share and loan capital will be raised This must also allude to how the organization will deal with providers of share and loan capital, confirming that its published statements will be honest Customers may refer to the statement in order to confirm the minimum standards that can be expected from their purchases, especially in terms of benefits to be derived from the products and services They may also be interested in matters such as customer service and distribution channels, supply chain policies (such as ‘Fairtrade’ commitments, organic ingredients, and so on) and animal testing The code may refer to how suppliers will be chosen and the standards to which they must adhere It may also set down the terms of business on which suppliers are engaged The code should confirm employment practices in relation to engagement of workers, including equal opportunities and diversity, working conditions and how employees will be developed Organizations bring value to the community by providing employment and generating income, but may also have adverse effects through traffic congestion, emissions and even unemployment if the company decides to downsize or relocate The code may provide assurances in respect of such factors Lobby groups express specific concerns relating to factors such as raw materials, working conditions and environmental impact The code may address such issues by stating broad policies Professional Ethics In common with other major accountancy bodies, ACCA publishes a Code of Ethics and Conduct, as well as a non-examined, online Ethics and Professional Skills module Both are available on its website (see 'Related links') All ACCA members are bound by the provisions of this code, so it is not only desirable but essential reading The ACCA Code also defines fundamental principles It elaborates on the principles discussed earlier in the article as follows: - Integrity – ‘Members should be straightforward and honest in all professional and business relationships.’ The ACCA Rulebook (and the IFAC Code of Ethics) goes on to state that integrity implies not merely honesty, but fair dealing and truthfulness - Objectivity – ‘Members should not allow bias, conflicts of interest or undue influence of others to override professional or business judgments.’ - Professional competence and due care – ‘Members have a continuing duty to maintain professional knowledge and skill at a level required to ensure that a client or employer receives competent professional service based on current developments in practice, legislation and techniques Members should act diligently and in accordance with applicable technical and professional standards when providing professional services.’ - Confidentiality – ‘Members 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 m embers or third parties ’ - Professional behavior– ‘Members should comply with relevant laws and regulations and should avoid any action that discredits the profession.’ The ACCA Rulebook goes further, and states that members should behave with courtesy and consideration towards all with whom they come into contact in a professional capacity The Code then goes on to elaborate on specific responsibilities in relation to many aspects of practice, including money laundering, whistleblowing responsibilities, advertising and publicity, the descriptions of members and firms, changes in professional appointments, legal ownership and access to books and other documents, professional liabilities and clients’ monies The Role of Regulatory and Professional Bodies Ethical behavior can be promoted, or even enforced, in several ways If specific unethical practices are considered to be widespread and detrimental to the public at large, a national government or supranational authority may take action to curtail such practices by making them illegal The most obvious examples are discrimination in the workplace and selling high interest consumer loans to vulnerable people Many governments have outlawed various forms of discrimination by passing national legislation and have introduced disclosure requirements at pre-application stage when personal borrowers are considering taking out loans that many not be in their best interests Professional Bodies: It is not possible to legislate on every matter of concern, however, so professional bodies have a vital role to play in controlling unethical behaviour Professions are characterised by offering specialist services that are underpinned by certain minimum educational standards Unfortunately, although it is possible to teach ethics, this does not ensure that those who learn about it will necessarily become ethical as a result For this reason, most professional bodies set ethical standards to which all their members are expected to adhere Failure to so may result in censure or even removal from membership 241 | P a g e IFAC-International Federation of Accountants: The accountancy profession has to consider ethical issues not only nationally but also in a global context It is in this regard that IFAC has a role to play IFAC is a global representative body for accountants, with 164 members and associates from 125 countries It develops international standards on ethics, auditing and assurance, education and public sector accounting standards Under the auspices of IFAC, the International Ethics Standards Board for Accountants (IESBA) develops ethical standards and guidelines In turn, the work of IESBA is overseen by the Public Interest Oversight Board Ethical Conflicts and Dilemmas As the number of human interactions in business is infinite, it follows that professional accountants will be faced with conflicts of interest and ethical dilemmas that they have to address Sources of Conflicts Conflicts of interest arise from various sources The accountant may be asked to: - take a decision on a matter in which the individual has a personal involvement, such as where the accountant has a family or personal relationship with the client - advise a company that is in direct competition with an existing client - support two clients who are in competition with one another The ACCA Code provides clear guidance on conflicts of interest It states that members should not accept engagements in which such conflicts arise, or even where there is a possibility of such conflicts arising Members should evaluate the threats arising from conflicts and apply relevant safeguards against the threats materializing If in doubt, the accountant should disclose the conflict to relevant parties Ethical Dilemmas Ethical dilemmas arise when the accountant has to consider two or more seemingly incompatible ethical obligations For example: - he may be asked by a manager to remain silent about certain matters that would have an adverse impact on the financial accounts of an organization, thereby testing the accountant’s loyalty to his manager on the one hand, and his responsibilities as a professional accountant on the other - he may consider that the policies of his employer are unethical and may find it difficult to reconcile personal values with those of the organization - he may be advising a longstanding client who is also a personal friend, only to discover that one of the client’s family is behaving dishonestly, thereby playing the bond of friendship against the professional duty to give objective, truthful advice Resolution of Ethical Dilemmas The IFAC Code offers a framework through which ethical dilemmas may be addressed When faced with ethical conflicts, the decision taker should consider: - the facts of the situation - the ethical principles involved - related fundamental principles - relevant internal procedures - the alternative courses of action - consequences of each alternative course of action 242 | P a g e Test Your Knowledge Which of the following should be included in a corporate code of ethics? A A detailed description of all of the commercial objectives of the company B The consequences for employees of violating the standards of behavior expected of them C A summary of the responsibilities of the individual directors of the company D A list of laws and regulations with which the company will comply Which of the following describes a pluralist approach to ethical decision taking? A The decision taker will seek to satisfy some of the demands of all those affected B Actions will be determined by the personal preferences of the decision taker C Decisions will be taken in order to satisfy all the needs and desires of the majority of those affected D The decision will optimise the demands of the majority and the minority of those affected Which of the following is the best definition of acting in the public interest? A Showing concern for the collective well-being of the stakeholders served by the organization B Complying with all laws and voluntary codes to which the organisation is committed C Maximising the welfare of all stakeholders at all times D Placing a greater emphasis on external, rather than internal, stakeholders’ needs Sara has just informed the audit partner at her firm that she has been assigned to the audit of Derma plc however her brother works as a marketing trainee there If Sara continues to be a part of the audit team, which of the fundamental principles of ACCA’s Code of Ethics will be breached? A Objectivity B Integrity C Confidentiality D None EFG Co has just got planning permission for a large production facility near a village Adam, the Chief Operations Officer believes the company should use its CSR budget to make a recreational park in the village Not only would it reflect positively on the company’s image, it would also make future recruitment easy from the village and expedite further planning permissions for expansion Adam’s approach to ethics is: A Pluralist B Absolutist C Egoist D Dogmatist 243 | P a g e Answers to Questions Chapter 1 A B C B B Chapter A B B&C A D Chapter B A B D A D Chapter C C D A&B C Chapter C B D A C Chapter B B C A D Chapter D C A C A 244 | P a g e 5 5 5 Chapter B A C B C Chapter B D A B B Chapter 10 D A C A&D C Chapter 11 B C C B C Chapter 12 D A A B A Chapter 13 C D C B B Chapter 14 B D A B C 5 Chapter 15 D C C A A Chapter 16 A B B C D Chapter 17 C A B A D Chapter 18 C A B D A Chapter 19 D C D B D Chapter 20 C A D D Chapter 21 A A D D B 5 5 5 5 Chapter 22 D A C B C Chapter 23 C C B D A Chapter 24 C A B B D Chapter 25 D A D B C Chapter 26 A C B A C Chapter 27 A A A D C Chapter 28 D B B A C Chapter 29 B A A D C ... changes in business activity is as follows: Business activity Boom Bust 49 Impact on Households and Individuals In times of rising demand and business activity: - Employment would increase with businesses... and business activity will pick up i.e existing businesses will invest more to increase output and new businesses will set up Investment by firms: This refers to availability of finance in an... incorporated businesses C All individuals, living and dead, and all businesses D All living individuals 23 Chapter 4: The Business Environment-Social and Demographic Factors In This Chapter a) Explain