ACCA - The global body for professional accountants

Ethics go beyond the ACCA Rulebook.  An ethical dilemma may be resolved by applying a conceptual framework. However, in order to achieve this, it will be necessary to understand fundamental ethical principles, before we can ensure that there is minimal risk that they will be undermined. An honest appraisal of the threats to those principles will require the application of personal ethics. For this reason, the ACCA Rulebook does not consist wholly of rules (although certain specific situations are addressed in that way), but sets out a framework that helps members to resolve or avoid ethical dilemmas in a way that should not conflict with personal ethics.

The remainder of this page explains the difference between a rules-based approach to ethics and a principles-based appoach; it details some of the relevant ethical theories; and it explores the impact of society on our personal ethics. 

Rules v Principles

In very broad terms, there are three approaches to ethics that have developed over time, namely:

  • rules conformance
  • good intentions
  • competence.

Rules conformance
The first and earliest definition in many societies was conforming to rules. In this definition, ethics is defined as a list of things to do and to not do. Sometimes, the list gets very long and complicated and needs to be interpreted by a whole institution of people. The ethical person is one who conforms to the rules.

Good intentions
The next development was the good intentions definition. In this a behaviour is considered ethical if it is based on good intentions. Rules may be too complicated or extensive to follow accurately, but surely, good behaviour must follow from good thinking.

Competence
The third definition is competence. In the 20th century, a definition emerged which said that the ethical person was the one who could make decisions based on internal principles, and then act on them. Hence the ‘competence’ definition, because ethics is defined in terms of an ability instead of just an attitude.

People still naturally tend towards either a more rules-based (factual) approach, or a more  principles-based (emotional) approach. 

Ethical theories

The subject of ethics itself is divided into different areas of study. The area which concerns itself with the search for a principle to guide our conduct - is called normative ethics. (Normative ethics is the branch of philosophical ethics concerned with what people should believe to be right and wrong, as distinct from descriptive ethics, which deals with what people do believe to be right and wrong.)

Normative ethics has developed several schools of thought. In other words, people have identified different ways of thinking about ‘doing the right thing.’ One way of thinking is not necessarily better than any other; they are just different. As a professional accountant working with people, it may be useful to be aware of your own way of thinking ethically, and to know why other people may think differently to you. Some of the better known ethical schools of thought, in no particular order, are described below.

The golden rule
The classic golden rule is to ‘do unto others as you would have them do unto you.’ The negative version of that rule is ‘do not do unto others as you would not have them do to you.’  In simpler words, ‘I will not wrong that person because I would not want them to wrong me.’

The golden rule is a simple and useful tool, but it does have some limitations. We cannot always know how someone else wants to be treated, and so this school of thought is based on our own feelings of how we would want to be treated. The two are not necessarily the same.

As an accounting example, this rule could be applied to mean that you disclose all information in a set of financial statements because, if you were the reader of those financial statements, you would expect to receive all that information. However, another user of the financial statements might prefer the information to be restricted to that which is most relevant to his or her relationship with the reporting entity.

Our duty to others (Deontology)
Another way to think about ethics is to acknowledge that there are things that someone just does not do as part of a duty to others (fundamental, widely accepted rules).  A limitation of this principle is that you have to decide what those things are that someone should not do.

At least one philosopher (Immanuel Kant) has defined those duties by saying ‘consider what would happen if everyone in the world did this’. Take the example of disobeying traffic lights.  What would happen if everyone did so?

As an accounting example, a professional accountant would not deliberately issue false or inaccurate financial statements, because if everyone did so, no financial statements could be trusted and, as a consequence, there would be no need for any financial statements, as they would have no relevance.

Utilitarianism (Consequentialism)
Another way of thinking about ethics is based on thinking about the consequences for different people. Briefly, you assess for whom the consequences are expected to be positive or negative — yourself, others or everyone. This category of thinking says an action is right if it leads to the most pleasure and the least pain for the greatest number of people. 

One limitation of the Utilitarianism school of thought is that one has to define pleasure and pain. A modern version of this is the cost-benefit analysis where you assign monetary values to the costs and benefits of an action and see how they add up. This practice is often used in evaluating new public projects. Another limitation is that it may disregard the rights of a minority in favour of the preference of the majority. (Consider human rights in the example of slavery).

As an accounting example, an accountant would seek to issue ‘true and fair’ financial statements because doing so would bring the most benefit to the greatest number of people, namely stakeholders inside and outside the organisation, who can make more informed decisions as a result.

Mirror test
The ‘mirror test’ is a quick way to evaluate a decision that you are about to make. Imagine you are looking in a mirror and asking yourself three questions:

  • Is it legal? - If not, do not do it.
  • What will others think if I take this course of action? – ‘others’ meaning a friend, a parent, a spouse, a child, a manager, the media, etc.
  • Is it right? - What does your conscience or your instinct tell you?

The mirror test reinforces the notion that you are responsible for your own actions.

Virtue theory
In Virtue theory, the emphasis is on deciding what sort of person one should try to be, and to define the virtues of that person. You consider what makes a good person (where “good” means virtuous), instead of what makes a good action.

In the West, virtue ethics was the prevailing approach to ethical thinking in the ancient and medieval periods. It returned to prominence in Western philosophical thought in the twentieth century, and is today one of the three dominant approaches to normative theories (the other two being Deontology and Consequentialism).

The limitation of this way of thinking is that what constitutes a virtue must be agreed upon, and it can vary by culture and over time. A virtuous female, for example, was once thought to be quiet and servile. That is no longer the case in many cultures.

As an accounting example, you might try to consistently under-spend on your departmental budget because that is what you think a good person would do. However, it may be inappropriate if the budget was set at a realistic level to achieve certain agreed objectives, and the effect of under-spending is that some of these objectives would not be met.

Social Contract theory
This school of thought is relevant where there is agreement among the people in a group to abide by the rules in order to stay within the group. The group might be an organisation, for example, or even a country.

The Social Contract theory has been further developed to include the idea that humans have absolute rights. These notions formed the philosophical basis for the anti-slavery movement and for democracy itself. One of the criticisms of this model is that everyone in the group must agree to the contract voluntarily. This is not always possible, for example, if you are born or live in a constitutionally faith-based country but are raised in another faith and hold a different set of values to those held by the majority.

As an accounting example, a set of financial reporting standards is recognised by a regulatory body following a consensus of expert and professional opinion. Once this set of standards has been adopted, many qualified accountants would be required by their own professional bodies to adhere to them (regardless of whether they took an active part in their development).

Confucian ethics
The Confucian ethical approach seeks to provide harmonious relationships within society, the family, and the individual. Introspection and experience are seen as the main roads to wisdom and self-harmony. The emphasis on experience leads to respect and reverence for the past, the aged, and for one’s ancestors.

The emphasis is on relationships, rather than people or rules. But one of the criticisms of this model is that, in a society where relationships are considered more important than the laws themselves, corruption and nepotism are likely to arise.

Using an accounting example, as an auditor you might be tempted not to qualify an erroneous or inaccurate set of financial statements, as the implications of doing so could cause friction in relationships between you, your clients and/or your employers.

Ethics and society

Ethics and religion
Morality, like ethics, is about the principles we use to judge the right and wrong of our actions. But morality considers religious beliefs in addition to the philosophical concepts we have just mentioned.

If you belong to a faith-based community, you may have learned ethical behaviour from the religious leader in your church, temple, mosque, synagogue, or other place of worship. That experience provides you with another point of view to approach ethical decision-making. Even if you do not belong to a faith-based community, you should be aware that some people do, and may bring that point of view to a discussion of ethics. It is important to remember that business ethics need not conflict with religious beliefs. Most, if not all, religions contain some direction about treating other people ‘fairly’, and that is also the premise of most ethical models. On a practical note, treating the customer or client ‘fairly’ is seen as good business practice, as well as being morally right.

Ethics and gender
Some researchers have questioned whether men and women approach ethics in a different way. There is considerable debate over such an idea. The justice and rules-based approach says that the rules should be applied equally to everyone and that justice and objectivity are most important. Some have suggested that this is a more masculine approach to the world.

The care-based approach says that care, rather than justice, is most important and that we should respond accordingly to people in need. Some have suggested that this is a more feminine approach to the world. Generally, in North American and European groups, men will have higher ‘justice’ scores and women will have higher ‘care’ scores. (Please see the related link to the LMU quiz to explore your own ethical style.)

Those leaning towards a justice approach to ethics are measuring their actions against an abstract principle like justice or ‘fairness’. That sounds compatible with both Deontology and  Virtue theory which we have already considered. Those leaning towards a care approach would tend to think about how much good or harm would result from their actions. That sounds more like the Utilitarianism school of ethics. So the gender question might be reframed into an age-old philosophical question about the best way to evaluate right and wrong. It is important to know how you tend to approach ethical questions, and to recognise that other people may approach them in a different way, irrespective of gender.

Ethics and maturity
There is a theory of moral development which says that people move through six stages as they mature. This theory was popularised by Lawrence Kohlberg through research studies conducted at Harvard’s Centre for Moral Education. His theory of moral development was dependent on the thinking of the Swiss psychologist Jean Piaget and the American philosopher John Dewey. He was also inspired by James Mark Baldwin. These men said that human beings develop philosophically and psychologically in a progressive fashion.

In stage one, people are concerned with obedience and punishment and the immediate results to themselves (Egoism). ‘Will I be punished if I do this?’.

In stage two, people are still concerned about the consequences, but have moved on to thinking about what else is in it for them. ‘You scratch my back and I’ll scratch yours.’

In stage three, people begin thinking about their social relationships. They want to be a ‘good boy’ or a ‘good girl’ and seek approval.

In stage four, a functioning society is paramount, and people seek to obey laws and social conventions.  If one person violates a law, perhaps everyone would (duty to others), so there is an obligation to uphold the law.

In stage five, people see themselves as separate from society. Laws are seen as social contracts, and all opinions must be honoured with majority decisions and compromise. ‘Who am I to judge if it’s right or wrong?’

The theory says that people rarely reach stage six.  If they did, they would show respect for universal principles and the demands of individual conscience, acting because it is right, not because it was legal or expected of them.

Although this theory of moral development has been criticised for being overly concerned with justice and not enough with care, it is still a useful framework for exploring your personal ethics.

Last updated: 4 Aug 2014