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GMT Free Accounting Study Material - ACCA Global Examinable Documents FREE PDF DOWNLOAD zica past exam papers licentiate Pdf free download s. This Study Guide for the Accountant in Business (AB) module is designed to From 26 February ACCA has introduced an improved student Accountant in Business - syllabus and study guide September to August (PDF. PDF. Sample March/June questions · PDF. Sample September/December questions · PDF. June questions · PDF. December questions.

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As the business is primarily retailing. The Swiss philosopher Benjamin Constant put forward the 'enquiring murderer' argument. The current definitions of assets and liabilities require a probable expectation of future economic benefits or resource outflow. It is suggested that eco-audit must come before an eco-label can be given. So the revenue recognised in such a period will be equal to the expenses incurred, with no profit. Question Contamination Site C Considerable contamination needs to be remedied. If we make moral judgements about facts.

Note that objective test questions are not published. A full exam is published after any change to exam format. As a new exam format was introduced in September with the introduction of CBEs, the CBE and paper exams were published in full for this session. They cannot be published in any form paper or soft copy , or sold for profit in any way, without first gaining the express permission of ACCA. Nor can they be used as examinations, in whole or in part, by other institutions or awarding bodies.

September - answers. September - questions. June - answers. June - questions. December - answers. December - questions. Paper past exams. Past exams Past exams are made available so that you can view and become familiar with the styles of question that you may face in your exam. On this page you will be able to view past exams for paper exams Important note: Download past exam papers Questions.

Exam support resources. At the other end of the scale, seemingly separate transactions must be considered together if apart they lose their commercial meaning.

An example would be to sell an asset with an agreement to buy it back at a later date. The second transaction cancels the first and so both must be considered together. The entity has transferred the significant risks and rewards of ownership of the goods to the buyer.

The entity has no continuing managerial involvement to the degree usually associated with ownership, and no longer has effective control over the goods sold.

It is probable that the economic benefits associated with the transaction will flow to the enterprise. The transfer of risks and rewards can only be decided by examining each transaction. Mainly, the transfer occurs at the same time as either the transfer of legal title, or the passing of possession to the buyer — this is what happens when you buy something in a shop.

If significant risks and rewards remain with the seller, then the transaction is not a sale and revenue cannot be recognised, for example if the receipt of the revenue from a particular sale depends on the buyer receiving revenue from his own sale of the goods. It is possible for the seller to retain only an 'insignificant' risk of ownership and for the sale and revenue to be recognised. The main example here is where the seller retains title only to ensure collection of what is owed on the goods.

This is a common commercial situation, and when it arises the revenue should be recognised on the date of sale. The probability of the enterprise receiving the revenue arising from a transaction must be assessed. It may only become probable that the economic benefits will be received when an uncertainty is removed, for example government permission for funds to be received from another country.

Only when the uncertainty is removed should the revenue be recognised. This is in contrast with the situation where revenue has already been recognised but where the collectability of the cash is brought into doubt. Where recovery has ceased to be probable, the amount should be recognised as an expense, not an adjustment of the revenue previously recognised.

These points also refer to services and interest, royalties and dividends below. Matching should take place, ie the revenue and expenses relating to the same transaction should be recognised at the same time. It is usually easy to estimate expenses at the date of sale eg warranty costs, shipment costs, etc.

Where they cannot be estimated reliably, then revenue cannot be recognised; any consideration which has already been received is treated as a liability.

The outcome of a transaction can be estimated reliably when all these conditions are satisfied. The costs incurred for the transaction and the costs to complete the transaction can be measured reliably. The parties to the transaction will normally have to agree the following before an enterprise can make reliable estimates.

Each party's enforceable rights regarding the service to be provided and received by the parties The consideration to be exchanged The manner and terms of settlement. There are various methods of determining the stage of completion of a transaction, but for practical purposes, when services are performed by an indeterminate number of acts over a period of time, revenue should be recognised on a straight line basis over the period, unless there is evidence for the use of a more appropriate method.

If one act is of more significance than the others, then the significant act should be carried out before revenue is recognised. Revenue is recognised only to the extent of the expenses recognised that are recoverable. This is particularly likely during the early stages of a transaction, but it is still probable that the enterprise will recover the costs incurred. So the revenue recognised in such a period will be equal to the expenses incurred, with no profit.

Obviously, if the costs are not likely to be reimbursed, then they must be recognised as an expense immediately. When the uncertainties cease to exist, revenue should be recognised as laid out in the first paragraph of this section. It is probable that the economic benefits associated with the transaction will flow to the enterprise; and.

Interest is recognised on a time proportion basis that takes into account the effective yield on the asset. Royalties are recognised on an accruals basis in accordance with the substance of the relevant agreement. It is unlikely that you would be asked about anything as complex as this in the exam, but you should be aware of the basic requirements of the standard. The effective yield on an asset mentioned above is the rate of interest required to discount the stream of future cash receipts expected over the life of the asset to equate to the initial carrying amount of the asset.

Royalties are usually recognised on the same basis that they accrue under the relevant agreement. Sometimes the true substance of the agreement may require some other systematic and rational method of recognition. Once again, the points made above about probability and collectability on sale of goods also apply here. The accounting policies adopted for the recognition of revenue, including the methods used to determine the stage of completion of transactions involving the rendering of services.

The amount of each significant category of revenue recognised during the period including revenue arising from: The sale of goods The rendering of services Interest Royalties Dividends. The amount of revenue arising from exchanges of goods or services included in each significant category of revenue. Any contingent gains or losses, such as those relating to warranty costs, claims or penalties should be treated according to IAS 37 Provisions, contingent liabilities and contingent assets covered in your earlier studies.

The examiner has recently emphasised that revenue recognition is an important topic, so have a go at the questions below. Given that prudence is the main consideration, discuss under what circumstances, if any, revenue might be recognised at the following stages of a sale.

Goods are acquired by the business which it confidently expects to resell very quickly. A customer places a firm order for goods. Goods are delivered to the customer. The customer is invoiced for goods. The customer pays for the goods. The customer's cheque in payment for the goods has been cleared by the bank. A sale must never be recognised before the goods have even been ordered by a customer.

There is no certainty about the value of the sale, nor when it will take place, even if it is virtually certain that goods will be sold. A sale must never be recognised when the customer places an order.

Even though the order will be for a specific quantity of goods at a specific price, it is not yet certain that the sale transaction will go through. The customer may cancel the order, the supplier might be unable to deliver the goods as ordered or it may be decided that the customer is not a good credit risk. A sale will be recognised when delivery of the goods is made only when: The sale is for cash, and so the cash is received at the same time; or The sale is on credit and the customer accepts delivery eg by signing a delivery note.

The critical event for a credit sale is usually the despatch of an invoice to the customer. There is then a legally enforceable debt, payable on specified terms, for a completed sale transaction. The critical event for a cash sale is when delivery takes place and when cash is received; both take place at the same time.

It would be too cautious or 'prudent' to await cash payment for a credit sale transaction before recognising the sale, unless the customer is a high credit risk and there is a serious doubt about his ability or intention to pay. It would again be over-cautious to wait for clearance of the customer's cheques before recognising sales revenue. Such a precaution would only be justified in cases where there is a very high risk of the bank refusing to honour the cheque.

Caravans Deluxe is a retailer of caravans, dormer vans and mobile homes, with a year end of 30 June 20X8. Delivery is arranged for 1 August 20X7. Required Advise the director of the correct accounting treatment for this transaction. Show the journal entries for this treatment. Answer The director wishes to recognise the sale as early as possible. However, following IAS 18 Revenue, he cannot recognise revenue from this sale because the risks and rewards of ownership of the caravan have not been transferred.

This happens on the date of delivery, which is 1 August 20X7. Accordingly, no revenue can be recognised in the current period. However, while the deposit is termed 'non-refundable', it does create an obligation to complete the contract. The other side of the entry is therefore to deferred income in the statement of financial position. The journal entries would be as follows: Being deposit received in advance of the sale being recognised.

On 1 August 20X7, when the sale is recognised, this deferred income account will be cleared. In addition: The revenue from the sale of the caravan will be recognised. The service plan is not really 'free' — nothing is. It is merely a deduction from the cost of the caravan. It is deferred income and will be recognised over the three year period. The sales revenue recognised in respect of the caravan will be a balancing figure.

The journal entries are as follows: BPP Note. This question is rather fiddly, so do not worry too much if you didn't get all of it right. Read through our solution carefully, going back to first principles where required. Previously, IAS 18 covered the accounting treatment for amounts collected by an agent on behalf of a principal, which is: However, it did not give guidance on determining whether an entity is acting as agent or principal.

The most significant change is the additional guidance in the appendix to IAS 18 Revenue on determining whether an entity is acting as an agent or principal. The guidance is as follows. Features that indicate that an entity is acting as a principal include individually or in combination: Primary responsibility for providing goods or services to the customer or for fulfilling the order. The entity having the inventory risk before or after the customer order, during shipping or on return.

Discretion in establishing prices directly or indirectly eg providing additional goods or services. One feature that indicates that an entity is an agent is that the amount the entity earns is predetermined eg fixed fee per transaction or percentage of amount billed to the customer.

Revenue recognition in contracts with customers 4. In US GAAP, there are more than revenue recognition standards which produce results for different industries which are sometimes inconsistent with each other. The ED was issued in June , following a Discussion Paper and re-exposed with some modifications in November Identify the contract with the customer.

Identifying a contract is usually straightforward, as there will be a written agreement or an alternative according to normal business practice. The entity would normally treat each contract separately, but there are cases where they might combine them. The key point is price interdependence.

Usually a company would apply the proposals to a single contract. However, in some cases the company would account for two or more contracts together if the prices of those contracts are interdependent.

Conversely, a company would segment a single contract and account for it. Identify the separate performance obligations. The key point is distinct goods or services. A contract includes promises to provide goods or services to a customer. Those promises are called performance obligations. A company would account for a performance obligation separately only if the promised good or service is distinct.

A good or service is distinct if it is sold separately or if it could be sold separately because it has a distinct function and a distinct profit margin. Determine the transaction price. The key proposal is a probability weighted expected amount. The transaction price is the amount of consideration a company expects to be entitled to from the customer in exchange for transferring goods or services.

Allocate the transaction price to the performance obligations. The key proposal is relative selling price allocation. A company would allocate the transaction price to all separate performance obligations in proportion to the stand-alone selling price of the good or service underlying each performance obligation.

If the good or service is not sold separately, the company would estimate its stand-alone selling price. Recognise revenue when a performance obligation is satisfied. A company would recognise revenue when it satisfies a performance obligation by transferring the promised good or service to the customer. The good or service is transferred when the customer obtains control of the promised good or service. An indicator of this is when the customer has the risks and rewards of ownership.

The amount of revenue recognised is the amount allocated to that performance obligation in Step 4. A company would recognise the costs of obtaining a contract eg selling and marketing costs as expenses when incurred. If the costs incurred in fulfilling a contract are not eligible for recognition as an asset in accordance with other standards eg inventory , the company would recognise an asset only if those costs: Relate directly to a contract Relate to future performance under the contract and Are expected to be recovered.

The proposed standard would also contain enhanced disclosure requirements to help users of financial statements better understand the amount, timing and uncertainty of revenue and cash flows from contracts with customers. Those proposals would require a company to disclose qualitative and quantitative information about: Its contracts with customers, including a maturity analysis for contracts extending beyond one year.

The significant judgements, and changes in judgements, made in applying the proposed standard to those contracts. Revenue would be recognised only in the transfer of goods or services to a customer.

This proposal would affect some long-term contracts currently accounted for using a percentage of completion method when the customer does not receive goods or services continuously eg some construction and some software development contracts. Under the proposal, a company would apply the percentage of completion method of revenue recognition only if the company transfers services to the customer throughout the contract — ie if the customer owns the work in progress as it is built or developed.

This could result in a company recognising some revenue when it transfers a good or service to a customer even if there is uncertainty about the collectability of the consideration.

This proposal could result in some revenue being attributed to goods or services that are now considered incidental to the contract — for instance.

This proposal would affect companies that currently capitalise such costs — for example. This could result in a company recognising some revenue on the transfer of a good or service.

This will affect some existing practices. Financial reporting framework Quick Quiz 1 What is corporate governance? Answers to Quick Quiz 1 Corporate governance is the system by which companies are directed and controlled. It is not clear that a conceptual framework does in fact facilitate the preparation of financial statements.

Different standards. This chapter focuses on the professional integrity of the accountant and director. An attempt to massage profit figures. They need to be applied in all aspects of managerial behaviour. Professional and ethical duty of the accountant Topic list Syllabus reference 1 Ethical theories A2 2 Influences on ethics A2 3 The social and ethical environment A2 4 Ethics in organisations A2 5 P ri nciples and guidance on professional ethics A2 6 P ractical situations A2 7 Examination questions: This viewpoint is known as teleological ethics.

The opposing view is that ethics are unchanging over time and place. The view that there are certain unchanging ethical rules is known as ethical absolutism and is discussed in Section 1. A scenario question at the end of this Study Text asks for a discussion of why directors might have acted unethically in adopting accounting policies to boost earnings. How important the consequences of actions should be in determining an ethical position is also a significant issue.

The different variations of the teleological viewpoint try to do this. If you take this viewpoint. The opposing viewpoint is that you cannot divorce an action from its consequences.

Slavery for example is now regarded as wrong. The argument is that people will undermine society if they disobey the ethical rules. This viewpoint.

The view that ethics vary between different ages and different communities is known as ethical relativism and is discussed in Section 1. We have to use this terminology as the examiner will use it in questions.

One view is that society is best served by everyone following certain ethical rules. However provided that you focus on certain basic issues.

One viewpoint is that ethics do vary between time and place. A simple example would be saying that it is always wrong to steal. A question on the Pilot Paper asked you to explain why a deliberate misrepresentation in the financial statements was unethical. Study guide Intellectual level A2 Ethical requirements of corporate reporting and the consequences of unethical behaviour a Appraise the potential ethical implications of professional and managerial decisions in the preparation of corporate reports 3 b Assess the consequences of not upholding ethical principles in the preparation of corporate reports 3 Exam guide Ethics are most likely to be considered in the context of the accountant's role as adviser to the directors.

This is payments for services to which a company is not legally entitled. It can be defended on the grounds that the supplier is actually selling a fantasy or dream rather than a physical article. Multinational companies are sometimes unable to obtain services to which they are legally entitled because of deliberate stalling by local officials.

This is a consequentialist argument. This is because of the obvious impact of sudden unemployment on aspirations and living standards. It can also be opposed on consequentialist grounds as contributing to the continuation of the regime. The idea of a job as property to be defended has now disappeared from labour relations in many countries.

Nevertheless businesses have to consider the cost of employing labour as well as its productive capacity. Many products are promoted exclusively on image. Professional and ethical duty of the accountant Deliberately creating the impression that purchasing a particular product will enhance the happiness. Foreign officials have been known to threaten companies with the complete closure of their local operations unless suitable payments are made.

What the theories are aiming to do is to complete the following sentence: Cash payments to the right people may then be enough to oil the machinery of bureaucracy.

There are some fine distinctions to be drawn. The ethics that are most appropriate in a given situation will depend on the conditions at that time. Question Morality What can be said about the morality of a society that allows abortion within certain time limits in certain circumstances.

Managers responsible for strategic decision making cannot avoid responsibility for their organisation's ethical standing. Non-cognitivism recognises the differences that exist between the rules of behaviour prevailing in different cultures.

This is clearly a matter of significance in the context of international business. It is about how we should live our lives and. Acceptance of ethical relativism implies that a society should not impose moral imperatives strictly. It is therefore relevant to all forms of human activity. In some cultures such as Japan gifts are regarded as an essential part of civilised negotiation.

Banning abortion would be one sign of an ethically absolute society. Managers encountering cultural norms of behaviour that differ significantly from their own may be puzzled to know what rules to follow. It establishes and follows rules for the protection of shareholder wealth and the reporting of the performance of capital investment.

Business life is a fruitful source of ethical dilemmas because its whole purpose is material gain. It is important to understand that if ethics is applicable to corporate behaviour at all. Success in business requires a constant. The relativist approach suggests that all moral statements are essentially subjective and arise from the culture.

They should consciously apply ethical rules to all of their decisions in order to filter out potentially undesirable developments. Those that always apply or those that hold only in certain circumstances?

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Ethical assumptions underpin all business activity as well as guiding behaviour. The continued existence of capitalism makes certain assumptions about the 'good life' and the desirability of private gain. Answer The suggested treatment of these issues implies that the society is a non-cognitivist.

The question is however what ethical rules should be obeyed. The view that right and wrong are culturally determined is called ethical relativism or moral relativism. As we shall see in Chapter Accordingly accounting. Ethical rules will differ in different periods within the same society.

Managers operating in such a culture may feel at liberty to adopt the local customs. Where there is a right. There is a set of moral rules that are always true. These are not necessarily religious laws. For those concerned with business ethics there are undeniable implications for behaviour towards individuals.

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In terms of business ethics. There are various methods of establishing these: Absolutist approaches to ethics are built on the principle that objective. However it is possible to argue that some universal truths certain laws of physics exist. Law must be free from ambiguity. The definitive treatment of deontological ethics is found in the work of the eighteenth century German philosopher.

A categorical imperative. Kant's approach to ethics is based on the idea that facts themselves are neutral: Kant went on to suggest that this imperative meant that we have a duty not to act by maxims that result in logical contradictions. A hypothetical imperative lays down a course of action to achieve a certain result.

For instance. Immanuel Kant. Many absolutists would accept that some ethical truths may differ between different cultures. Thus if we only helped others when there was advantage for ourselves.

Deontology lays down criteria by which actions may be judged in advance. If we make moral judgements about facts. Theft of property for examples implies that it is permissible to steal.

We must act in certain ways because it is right to do so — right conduct is an end in itself. Kant spoke of motivation to act in terms of 'imperatives'. Kant however would argue that certain actions were universally right or wrong.

However they would also believe in certain basic truths that should be common to all cultures for example. The difference between Kant's views and the golden rule is that under the golden rule.

For Kant. We use objects as means to achieve an end: We regard people differently from the way we regard objects.

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Kant suggested that the criteria come from within ourselves and are based on a sense of what is right. People are different. In everything do to others what you would have them do to you. Kant arrived at three formulations of the categorical imperative. Kant also argued that we should act only by maxims that we believe should be universal maxims.

Man is therefore capable in effect of rising above nature. The prefix telios is derived from the Greek and refers to issues of ends or outcomes. Others have suggested that longer lists of harmful and beneficial things should be applied.

This says that when deciding on a course of action we should choose the one that is likely to result in the greatest good for the greatest number of people. Free markets. In addition. The Swiss philosopher Benjamin Constant put forward the 'enquiring murderer' argument.

Yet Kant also argues that human beings are capable of self-determination with full freedom of action and in particular an ability to act in accordance with the principles of duty.

Kant pointed out that we cannot always know what the consequences of our actions would be. The 'right' or 'wrong' can vary between situations and over time according to the greatest happiness of the greatest number. Utilitarianism underlies the assumption that the operation of the free market produces the best possible consequences. Utilitarianism is the best-known formulation of this approach and can be summed up in the 'greatest good' principle — 'greatest happiness of the greatest number'.

Right or wrong becomes a question of benefit or harm rather than observance of universal principles. It therefore contrasts sharply with any absolute or universal notion of morality.

Kant's response was that lying to a murderer denied the murderer's rationality.

For example. Exam focus point The Pilot Paper asked for the consequentialist and deontological approaches to ethics to be contrasted. It emphasises the importance of morality as a social phenomenon. It could not. Adam Smith argued that an egoistic pursuit of individual self-interest produced a desired outcome for society through free competition and perfect information operating in the marketplace. Most fundamentally egoism is argued to be the ethics of the thief as well as the short-termist.

Producers of goods for example have to offer value-for-money.

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A more serious criticism has been that the markets do not function perfectly. It has been used to derive wide ranging rules and can be applied to help us make judgements about individual. They are designed to align a country's economic incentives so that. Irreconcilable ethical disputes tend to arise when absolutists argue with relativists.

However a consensus may not always be possible. Case Study A connected problem lies in outcomes that may in fact be beneficial but are not recognised as such. A modified view would give most validity to exercising those short-term desires that were in long-term interests.

A pluralist viewpoint is helpful in business situations where a range of perspectives have to be understood in order to establish a course of action. Egoism can also link in with enlightened self-interest. The rights of the poor are more important than those of bondholders and to insist on repayment is unethical. A situation in which a large majority achieved great happiness at the expense of creating misery among a small minority would satisfy the 'greatest good' principle.

The structural adjustment programmes provided by the International Monetary Fund are a case in point. The IMF might argue. Critics of IMF structural adjustment programmes might suggest the opposite: The subject to all ethical decisions is the self. The utilitarian approach may also be questioned for its potential effect upon minorities. Situational factors include the systems of reward.

In a high power distance culture. Kohlberg's framework relates to individuals' degree of ethical maturity. Individual factors include age and gender. This arguably reflects an American focus on individual economic participants. Hofstede has indicated that significant differences lie in the following four areas: Hickson and Pugh describe power distance as 'how removed subordinates feel from superiors in a social meaning of the word distance.

The problem with identifying these factors is that it is difficult to break them down individually since many of them are interdependent. Also evidence on the importance of individual factors seems to be mainly from the USA. There do appear to be some differences in ethical decision-making between those with different educational and professional experiences. Globalisation may weaken the influence of national factors. This distinction suggests that those with an internal locus will take more responsibility for their actions and are more likely to consider the moral consequences of what they do.

Individuals with a high internal locus believe that they can shape their own lives significantly. These circumstances might include issue-related factors the nature of the issue and how it is viewed in the organisation and context-related factors the expectations and demands that will be placed on people working in an organisation. The consequences of having a wide moral imagination could be an ability to see beyond the conventional organisational responses to moral difficulties.

Its ethical consequences are potentially very significant.

Other influences might be on how individuals respond to ethically questionable directives from their superiors. Discussion has centred on cognitive moral development and locus of control. These factors may influence how an individual tackles an ethical problem. This may also link into attitudes towards risk and what can be done to deal with risk.

Research however does not clearly indicate whether this is true in practice. Basing awards on sales values achieved may encourage questionable selling practices. Sadly a majority of studies on this area seem to indicate that there is a significant link between the rewarding of unethical behaviour and its continuation. Failing to act can be as bad as acting. This works both ways. Instead issues are more likely to be discussed in terms of rational corporate self-interest.

Language is very important. Using words such as fairness and honesty is likely to trigger moral thinking. Studies suggest that many employees perceive their managers as lacking ethical integrity. Bureaucracy underpins the authority and reward system. It can include shared: If the recipe is followed. The result of being in an organisational field can be a desire to achieve legitimacy — meeting the expectations that those in the same organisational field have in terms of the assumptions.

Organisations within an organisational field tend to share a common business environment. Case Study An example would be a private sector manager joining a public service organisation and having to get used to different traditions and mechanisms. This means that they tend to cohere round common norms and values. Within an organisational field a recipe is a common set of assumptions about organisational purposes and how to manage organisations.

Strong evidence suggests that the expectations staff have about the roles that they adopt in work will override the individual ethics that may influence their decisions in other contexts. If someone spends a certain length of time working in another country. Social attitudes. Whereas the political environment in which an organisation operates consists of laws. All he had to do in order to claim that amount was submit bills for lunch or dinner with anyone.

In addition to the main organisational culture. Other beliefs have either gained strength or been eroded in recent years: Unsurprisingly it has been identified as a key element in decisions of what is morally right or wrong. Case Study In his memoirs the journalist Hunter Davies related that when he started working on a newspaper in London.

Davies was told what the normal expense claim for his role as a junior reporter was. The paradigm represents the common assumptions and collective experience that an organisation must have to function meaningfully Organisational culture may be different to may conflict with the official rules of the bureaucracy. Pressures on organisations to consider the environment are particularly strong because most environmental damage is irreversible and some is fatal to humans and wildlife.

Globalisation may complicate the position on this. Davies was informed that management knew. In the area of products and production. The Consumer Protection Act and EU legislation generally is beginning to ensure that ethical standards are similarly enforced in the UK. Many organisations pursue a variety of social and ethical objectives. Legislation has been passed in an attempt to prevent discrimination on grounds of race.

Attempts to increase profitability by cutting costs may lead to dangerous working conditions or to inadequate safety standards in products. The ethical environment refers to justice. Large organisations tend to be more often held to account over this than small ones. This is because a market can only be free if competition is. In the United States. Clarence Walton refers to the fine distinctions which exist in this area.

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In The Ethics of Corporate Conduct. Business ethics are also relevant to competitive behaviour. The conduct of an organisation. This refers to payments for services to which a company is not legally entitled. There is a distinction between competing aggressively and competing unethically. Another ethical problem concerns payments by companies to government or municipal officials who have power to help or hinder the payers' operations.

Employees a b c d A minimum wage. At the same time. How far is it reasonable. This argument rests on certain assumptions. The shareholders might. Suppliers may be offered regular orders and timely payment in return for reliable delivery and good service. Society as a whole a Control of pollution b Provision of financial assistance to charities. After all. This is often easier said than done — more often. Management has no moral right to dispose of business assets like cash on non-business objectives.

One school of thought would argue that the management of a business has only one social responsibility. The question as to whether it is the business of businesses to be concerned about wider issues of social responsibility at all is discussed shortly. Many of the above objectives are commercial ones — for example.

There are two reasons to support this argument. In other words. When appointed to run British Airways. Such leaders create the ethical style. Ethical principles are not necessarily enforced by law. Senior managers are also symbolic managers. Some will judge situations on 'gut feel'. Companies have to follow legal standards.

These leaders change an existing culture or set of ethics. People that work for organisations bring their own values into work with them.

Other leaders aim to create consensus through people. Some will consciously or unconsciously adopt a general approach to ethical dilemmas. Ethics in organisations relates to social responsibility and business practice. Ethics might be contained in a formal code. Roebuck was deluged with complaints that customers of its car service centre were being charged for unnecessary work: Colin Marshall changed the sign on his door from Chief Executive to his own name. There are four types of cultural leadership in organisations.

A problem might be that ethics does not always save money. Such leaders sustain. People have different ethical viewpoints at different stages in their lives.

The culture of an organisation often reflects its founder. A culture is partly a collection of symbols and attitudes. Organisations contain a variety of ethical systems. Note that these should not be confused with leadership styles. The danger is that this can turn to political manipulation. Who sets priorities? Case Study Organisation systems and targets do have ethical implications.

Ethics management has several tasks: This is especially the case in the UK. When integrated into the day-to-day operations of an organisation. This might be contrasted with UK. Some organisations. It should be clear to you from this quotation that an integrity-based approach to ethics treats ethics as an issue of organisation culture.

An integrity based approach suggests a wider remit. Paine suggests that there are two approaches to the management of ethics in organisations. Organisations sometimes issue codes of conduct to employees. March-April suggests that ethical decisions are becoming more important as penalties.

Lynne Paine Harvard Business Review. Many employees are bound by professional codes of conduct. An example of the difference between the legality and ethicality of a practice is the sale in some countries of defective products without appropriate warnings.

Integrity strategies strive to define companies' guiding values. This had the advantage that 'by making drivers critics of the system their roles as outsiders were preserved and promoted'. The culture had five dilemmas.. The table below indicates some of the differences between the two main approaches..

HR specialists etc Methods both includes education. It tried to tap their heroism as promoters of public safety. Western Oil had a bad safety record. Their advice was sought on improving the system. Western Oil could have hired more specialist staff. Truckers see themselves as 'fearless pioneers of the unconventional lifestyle.

The safety engineers rarely spoke to the line manager in charge of the delivery schedules. Western Oil had a culture which put safety in conflict with other corporate values. Instead of trying to control the drivers.

Case Study Charles Hampden-Turner in his book Corporate Culture notes that attitudes to safety can be part of a corporate culture. He quotes the example of a firm called for reasons of confidentiality Western Oil.

The company instituted Operation Integrity to improve safety. The unreconciled dilemma between safety and productivity had been evaded at management level and passed down the hierarchy until drivers were subjected to 2: The ethics codes described above can be related to mission. It rules on misconduct. To deal with this problem. It was felt that if 'safety' was seen as a form of management policing it would never be accepted.

The device of recording 'unsafe' acts in operations enabled them to be monitored by cross-functional teams. Accountants can also appeal to their professional body for ethical guidance. It may seek advice from specialists in business ethics. It has also been suggested that the following institutions can be established. In theory.

Peer presence was seen to be a better enforcer of safety than the management hierarchy. A compliance-based approach suggest that bureaucratic control is necessary.

For many the duties of commercial confidentiality are felt to be more important. Some professional bodies have narrow interpretations of what is meant by ethical conduct. Whistle-blowing is the disclosure by an employee of illegal. The habit of management 'blaming the victim' had to stop.

Whistle-blowing frequently involves financial loss for the whistle-blower. ACCA prohibits making loans to clients. Members should act diligently and in accordance with applicable technical and professional standards when providing professional services. Members should comply with relevant laws and regulations and should avoid any action that discredits the profession. Members should respect the confidentiality of information acquired as a result of professional or business relationships and should not disclose any such information to third parties without proper and specific authority unless there is a legal or professional right or duty to disclose.

Members have a continuing duty to maintain professional knowledge and skill at a level required to ensure that a client or employer receives the advantage of competent professional service based on current developments in practice. It also requires him to demonstrate that a responsible conclusion has been reached about ethical issues.

Auditors claim to give an independent view. This guidance is given in the form of fundamental principles. Advantages of an ethical framework over a rules based system A framework of guidance places the onus on the auditor to actively consider independence for every given situation.

These are outlined in the table below. It contains some rules. As the auditor is required to be. Members should be straightforward and honest in all professional and business relationships. It is therefore critical that accountants. ACCA publishes guidance for its members. There are a number of advantages of a framework over a system of ethical rules. Accountants deal with a range of issues on behalf of clients.

The fundamental principles of the two Associations are extremely similar. It can be seen as being a framework rather than a set of rules. Confidential information acquired as a result of professional and business relationships should not be used for the personal advantage of the professional accountant or third parties.

Syllabus and study guide

Members should not allow bias. The public interest is considered to be the collective well-being of the community of people and institutions the professional accountant serves.

They often have access to confidential and sensitive information. The secret profits on the sale of the unit had been used. A framework can accommodate a rapidly changing environment. The problem. Without their help. The company had acquired land on which it built industrial units. The difference had been siphoned off to another company — one in which his boss.

Close relationships between the parties or other conflicts of interest are often a complication. The Finance Director confronted the Managing Director and asked him to reveal his position to the board.

Each situation is likely to be different. A framework allows for the variations that are found in every individual situation. B has become aware of it and D requires some kind of response from B. The Finance Director discovered that. Later in this chapter we are going to suggest an approach that you may find helpful in dealing with such questions.

There is an extent to which rules engender deception. Advantages of an ethical framework over a rules based system The framework prevents auditors interpreting legalistic requirements narrowly to get around the ethical requirements. Your second option. Question Relationships Identify the relationships in the scenario above.

He has ethical obligations not to ignore his legal obligations. Try to imagine what you would do in practice in this situation. B's subordinate. He is also a member of the board and is longer established as such than B. B's equal in the organisational hierarchy. B's husband. But note that this is only in the last resort.

Even if the problem were to be resolved the episode would sour all future dealings between these two parties. Here it is the Finance Director. In this case the two amount to the same thing. What are the possible problems arising from these relationships? D is the principle that requires B not to be a party to an illegal act. C is the MD's breach of his directorial duties regarding related party transactions not to obtain any personal advantage from his position of director without the consent of the company for whatever gain or profit he has obtained.

Note that we distinguish between ethical and legal obligations. The problem is of the second basic type. If you knew that your best friend at work had committed a major fraud. The Finance Director may find that he is ignored or even dismissed. The Managing Director still refused.

The Finance Director then told the Managing Director that unless he reported to the board he would have to inform the board members himself. The important point is that just because you are dealing with a situation that involves ethical issues. Surely your first course would be to try to persuade your friend that what they had done was wrong.

There is obviously a limit to how far you can take this. A is clear. B has legal obligations as a director of the company.