An ethical dilemma may be resolved by applying a conceptual framework. However, in order to achieve this, we first need to understand fundamental ethical principles so we can ensure there’s minimal risk of them being undermined. An honest appraisal of the threats to those principles requires the application of personal ethics. That’s why the ACCA Rulebook isn’t just a list of rules, but instead sets out a framework that helps us to resolve or avoid ethical dilemmas in a way that shouldn’t conflict with our personal ethics.

Next, we look at the differences between a rules-based approach to ethics and a principles-based approach, some relevant ethical theories and society’s impact on our personal ethics.

Rules v principles

Broadly speaking, three approaches to ethics have developed over time:

  • Rules conformance;
  • Good intentions; and
  • Competence.
  • Rules v principles

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

    • rules conformance
    • good intentions; and
    • competence.

    Rules conformance

    The earliest definition in many societies was conforming to rules. In this definition, ethics is defined as a list of things to do and not do. Sometimes, the list gets very long and complicated and needs to be interpreted by an 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’s based on good intentions. Rules may be too complicated or extensive to follow accurately, but surely, good behaviour must follow from good thinking.


    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. That’s why it’s called 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 more principles-based (emotional) approach.

Ethical theories

There are lots of different areas of study, but the one we’re most interested in as accountants is normative ethics: the search for a principle to guide our conduct.

Even within this one area, people have identified different ways of thinking about ‘doing the right thing.’ One way of thinking isn’t necessarily better than any other; they’re 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. 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 won’t wrong that person because I wouldn’t want them to wrong me’.

    The golden rule is a simple and useful tool, but it does have some limitations. We can’t, for example, always know how someone else wants to be treated, and so this school of thought is based on our own feelings of how we’d want to be treated. The two aren’t 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’d expect to receive all that information. However, another user of the financial statements might prefer the information to be restricted to what’s 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 people just don’t 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 people shouldn’t 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 traffic lights. What would happen if everyone so ignored them?

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

  • Utilitarianism (Consequentialism)

    Another way of thinking about ethics is based on considering the consequences for different people. Briefly, you assess who the consequences are likely to be positive or negative for — 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 you have 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 you’re about to make. Imagine you’re looking in a mirror and asking yourself three questions:

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

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

  • Virtue theory

    In Virtue theory, the emphasis is on deciding what sort of person you should try to be, and defining that person’s virtues. 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 20th 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 people need to agree on what constitutes a virtue, and this can vary by culture and over time. A virtuous female, for example, was once thought to be quiet and servile. That’s no longer the case in many cultures.

    As an accounting example, you might try to consistently under-spend on your departmental budget because that’s what you think a good person would do. However, this 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 wouldn’t be met.

  • Social Contract theory

    This school of thought is relevant where there’s 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 an entire 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 isn’t always possible, for example, if you’re 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 your ancestors.

    The emphasis is on relationships, rather than people or rules. 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. Morality though considers religious beliefs as well as the philosophical concepts we've 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 don't 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's important to remember that business ethics don't need to conflict with religious beliefs. Most, if not all, religions contain some direction about treating other people 'fairly', and that's 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, and there’s considerable debate on the subject. 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. To explore your own ethical style, try the LMU quiz in the ‘Related links’ section of this page.

    Those leaning towards a justice approach to ethics measure their actions against an abstract principle like justice or ‘fairness’. That sounds compatible with both Deontology and Virtue theory, which we’ve 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’s important to know how you tend to approach ethical questions, and to recognise that other people may approach them differently, irrespective of gender.

  • Ethics and maturity

    There’s 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 people 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’s 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’d show respect for universal principles and the demands of individual conscience, acting because it’s 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’s still a useful framework for exploring your personal ethics.