ACCA - The global body for professional accountants

Understanding the conceptual framework

We are all shaped by our upbringings and experiences, and that includes our personal ethics. We are bound by the laws of the country in which we live. Additionally, as ACCA members and students, we are bound by ACCA’s bye-laws, regulations and the Code of Ethics and Conduct. However, the ACCA Rulebook is principles-based. Fundamental principles have been identified, and few people would disagree that these are principles that professional accountants (and others) must observe. As a result of this broad agreement, there is a clear responsibility on each ACCA member and student to safeguard the fundamental principles, and ensure that any threats to them are adequately addressed by the implementation of safeguards.

While the adequacy of such safeguards is a matter of judgement, a member who fails to recognise threats to the fundamental principles, or ignores his or her responsibility to address obvious threats, will be liable to disciplinary action.

The ACCA Rulebook sets out a framework to assist in the process of recognising threats and addressing them. By using this principles-based approach to addressing ethical dilemmas the risk is reduced of unethical actions being taken simply because they are not outlawed. In addition, ethical practices tend to be followed, not simply because members accept the Social Contract theory, but because they are better equipped to recognise threats and to satisfy themselves that they have acted ethically when addressing those threats to the fundamental principles.

The ACCA framework for solving ethical dilemmas is, in fact, the IESBA model.  It consists of five steps in the form of questions to be considered when confronted with an ethical dilemma:

  1. What are the relevant facts?
  2. What are the ethical issues involved?
  3. Which fundamental principles are threatened?
  4. Do internal procedures exist that mitigate the threats?
  5. What are the alternative courses of action?

Finally, a member will consider whether he can face himself in the mirror after making the decision and applying any necessary safeguards.

An ethical dilemma

Each of the five steps is explored further below. Click on the down arrow to expand each section. Throughout this explanation of the framework, we will draw upon the following example:

You are the management accountant of a pharmaceuticals company. Your finance director asks you to contact the marketing director about the implications of increasing significantly the price of a generic drug you produce for thinning the blood in heart patients. The request follows a pricing agreement drawn up between the three main companies supplying these drugs to the national health service of a country. (All three companies have agreed to increase their prices.)

Sometimes the real issue is obvious. However, if clarification is required, one might have to ask questions such as:

  • Is this my problem, or does it belong to someone else?
  • Is it the real problem or part of a larger one?
  • Is this a real problem or am I only avoiding a difficult task?
  • Do I need more information?

Is this your problem?

You might think not, because you have not made the decision to fix the drug price, nor brokered the agreement with the company's main competitors. On the other hand, it could be your problem, since doing this could be seen as helping to implement a potentially illegal arrangement. If not strictly illegal, the arrangement could be considered to be unethical, as it is detrimental to the tax payers of the country, who finance the national health service through taxation.

Is being asked to change the price the real problem?

No. it is part of a larger problem – namely coming into possession of knowledge of a wider conspiracy of a serious nature, in other words, that a cartel is being operated and that price-fixing is taking place which you are being asked to condone. The problem you face is that, if you go along with it, you are aiding and abetting an illegal/unethical process; if you do not go along with it, there may be career implications or other problems for you in the future.

Is this the problem or am I only avoiding a difficult task?  

The problem certainly exists in this case, but rather than just implementing the price change and ignoring the wider issue, or refusing to do so, you should sit down to discuss the larger problem with the finance director. You should try to establish the reason for the price-fixing arrangement and question its legality as well as its ethics.

If the situation gets difficult, there may be a need for you to find out more about your options. Where you feel pressured to act against your professional judgement or to use information that you have about illegal or unethical behaviour, you might need to discuss this with your solicitor or your professional body. You may need to consider alerting appropriate authorities about this arrangement, in other words to consider the act of ‘whistleblowing’ and all its wider implications for you, your organisation, its stakeholders and others.

Logic Errors

As you are thinking about the issue, do watch out for some common errors in logic. Remember that logic, like ethics, is also a branch of philosophy. Logic errors are different from factual errors. A factual error is simply being wrong about the facts. In a logic error, the statement leading to the conclusion does not provide the needed degree of support. You can sometimes spot a logic error by looking out for these words:

Either/or – ‘It’s either this or that; there are only two choices’. This is not always the case. There are often many other solutions to a problem beyond the two extremes mentioned. In this example, you may abide by the wishes of the finance director; you may resign; or you may take a less extreme course of action, such as discussing the issue with appropriate people initially.

All or nothing - Like either/or, things are rarely so black and white.

No exceptions - Rules that are followed blindly, without taking specific situations into account, can lead you to make wrong decisions. Again, things are usually more grey than black and white.

If... then … – ‘If we do x then y will happen’. This may not always be the case. Beware of emotive language.

Everyone’s doing it - Stop and ask yourself two things if you hear these words: is everyone really doing it; and is it the right thing to do? This is another example of emotive language.

We’ve always done it that way - You do not want to change things simply for the sake of changing them. However, if this line is used to defend a practice that you think is wrong, consider suggesting alternatives.

In our example, the issue of which you are now aware is one of possible price-fixing. The impact would be to artificially inflate the price of a drug which is required by a large number of people, and funded by public money.

You are well aware of the fundamental principles of Integrity, Objectivity, Professional Competence and Due Care, Confidentiality, and Professional Behaviour. Is one or more of them being compromised, and in what manner? The price-fixing example is one of integrity, and your objectivity may also be threatened, due to intimidation from the finance director and your wish to retain your job.

The threats to the fundamental principles can come from a number of different directions.

Self-interest threats - These come about if you or a close family member stands to gain (or not lose) something from a particular course of action. These threats can take many forms, and certainly the example considered above is not without self-interest.

Self-review threats -These often exist when you are in the position of having to review your own work. This could put your objectivity at risk, as there is a tendency to support your own judgement.

Advocacy threats -This can occur if you are promoting a position that compromises your objectivity, or promoting a position or opinion to the point that subsequent objectivity may be compromised.

Familiarity threats -These can occur if you have (or develop) a close personal relationship with someone, and so you become too sympathetic to their interests. 

Intimidation threats -These can occur if you are physically or verbally threatened, or if there is a perceived threat - perhaps to your career or prospects. In the price-fixing example, it is likely that you would feel intimidated by the finance director, who presumably has an influence over your career prospects.

Determining the significance of a threat depends on the individual situation. Only you or a disinterested third party who knows all the facts can determine whether the threat is significant. In our example, the fundamental principles most threatened are those of integrity and objectivity.

You must always consider what others would make of the situation and your proposed actions. The ‘disinterested third party’ is the theoretical voice of reason you would consult to help you gain perspective on the issue. 

If a threat is significant, you will want to put safeguards in place or rely on any that already exist. For example, safeguards can range from government regulations and professional standards, to people or policies in your workplace. If you take the time to consider, you may find that some safeguards are already in place to help you.

First, there are the safeguards created by laws and regulations in your country and by your own accounting profession. These are designed to ensure that all accountants work in line with the fundamental principles, that compliance with the fundamental principles is regulated, and that sanctions are imposed on those professional accountants who do not comply.

Another safeguard is the education and training you underwent before entering the profession and the continuing professional development requirements you have faced since qualifying as an accountant. This training teaches you current practices and helps keep you up-to-date with accounting standards and regulations. These safeguards can be reinforced by controls established in the work environment. These can include the introduction of organisational ethics policies and procedures and the development of training for all employees to ensure their compliance; strong internal controls; appropriate disciplinary procedures; and a culture that encourages employees to communicate to senior levels about ethical issues without fear of retribution. Unfortunately, the circumstances of our example would suggest that these safeguards are not going to be adequate in the face of the threats presented.

Finally, there are safeguards you can create for yourself such as complying with continuing professional development requirements; keeping records of contentious issues and how they were addressed; using an independent mentor; and using the services of legal advisors and your professional body.

When you make a decision on a course of action you propose to take, you should be able to point to the principles being threatened, the nature of the threat, and the safeguards in place to reduce the threat to an acceptable level and allow the proposed course of action to go ahead.

If you cannot recognise an existing safeguard, or implement an appropriate safeguard, you should refuse to carry out the activity in question. Of course, there are some threats which are, in themselves, so serious that no adequate safeguards can mitigate against them.  In such situations, the accountant may have to disengage from an assignment or refuse to participate in a particular course of action.

Final step

As a final step in the resolution of an ethical problem, you should ask yourself if you could look at yourself in a mirror with self-respect and take responsibility for the action taken.

In doing so, you might also ask questions such as:

  • What would I tell my child or parent to do?
  • How would I feel if my family, friends or neighbours knew I had done this?
  • How will I feel about myself afterwards?
  • Will I sleep soundly tonight?
  • How would it look on the front page of the newspapers?
  • What could go wrong with the solution chosen?
  • Will my action stand the test of time?
  • Could the action give a negative perception?
  • Am I confident I can justify this decision?

Last updated: 26 Nov 2014