Ethics Questions How do you approach issues of ethics and
values? Are your approaches different in your personal and
professional lives? What are the ethical issues resulted from the
current crisis? Have policymakers, regulators, businesses,
educators and even our society lost their value base? What is an
ethical behavior? Are our ethical standards of public trust,
honesty, sensitivity, fairness and values absolute or do they
change depending on the context?
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Chapter Objectives: Present the definition of ethics in general
and business ethics in particular. Recognize the need for a code of
ethics that is upheld especially by setting the right tone at the
top. Become familiar with the SEC rules and regulations related to
ethics. Provide an overview of listing standards and suggestions
relating to ethics. Understand the boards role in setting the
companys ethical codes. Recognize the benefits of and need for an
ethical workplace. Identify incentive programs and their roles in
promoting an ethical workplace. Illustrate that actions speak
louder than words in promoting an ethical workplace. Discuss the
integration of business ethics into the business curriculum.
Provide an example of proficient implementation of an ethical code
by examining the Defense Industry Initiatives on Business Ethics
and Conduct. Video Video ( Video)
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Key Terms Business ethics Code of Ethics Committee of
Sponsoring Organizations Of the Treadway Committee (COSO)
Conference board Defense Industry Initiatives on Business Ethics
and Conduct Ethical Behavior Ethical Incentives Ethical
Sensitivity
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Ethical Theories There are several broadly accepted ethical
theories. - Consequentialist Theory - Nonconsequentialist Theory -
The Individualist Dimension of Ethical Decision - Collectivist
Theory - Metaethics - Normative Ethics - Business Ethics
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Definitions Business Ethics: The moral principles and ethical
standards that guide business behavior. Professional Ethics: A
learning process of professional values, ethics, codes of conduct
and accountability to act in the best interest of the profession,
the public and the global society. Corporate Governance: An ongoing
process of managing, controlling, and assessing business affairs to
create shareholder value and protect the interests of other
stakeholders. Forensic Accounting: the practice of rigorous data
collection and analysis in the areas of litigation support
consulting, expert witnessing, and fraud examination.
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8 Ethics Triangle Business Ethics Ethical Behavior Ethics
Incentives Ethics Sensitivity Ethics sensitivity: Moral principles,
workplace environment, gamesmanship, loyalty, peer pressure, and
job security that influence ones ethical decisions. Ethics
incentives: Rewards, punishments, and requirements for ethical
behavior (e.g., tone at the top, AICPA code of professional
ethics). Ethics behavior: Doing the right thing rises above a
rules-based mindset that asks, is this legal, and adopts a more
principles-based approach that asks, is this right? VIDEO
(VIDEO)
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9 An Ethical Decision Process Define all facts and
circumstances. Identify stakeholders. Identify stakeholders rights
and obligations in general and to each other. Identify alternatives
and consequences. Choose superior alternative with respect to
consequences and/or rules. Ethical Oath (VIDEO)Ethical
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10 Code of Professional Conduct Ideal standards of ethical
conduct Minimum standards of ethical conduct stated as specific
rules Interpretations of the rules by the AICPA division of
professional ethics Published explanations and answers to questions
about rules of conduct Principles Rules of Conduct Interpretations
Ethical Rulings
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11 Principles Basic tenets of ethical conduct:
ResponsibilitiesExercise sensitive professional and moral judgment.
Public interestHonor the public trust. IntegrityPerform
responsibilities with the highest sense of integrity.
ObjectivityImpartial, unbiased, and independent. Free of conflicts
of interest and independent in fact and appearance. Due
careDiligent, competent, thorough, prompt. Scope and nature of
servicesObserve the principles when considering the scope and
nature of services provided.
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12 Professional Conduct AICPA Code of Professional Conduct
State CPA Society Codes of Professional Conduct State Boards of
Accountancy Individual CPA firm Codes of Conduct
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13 The SEC rule describes the term code of ethics as written
standards designed to deter wrongdoing and to promote: 1.Full,
fair, accurate, timely, and transparent disclosures in reports and
documents filed or submitted to the SEC and in other public
communications. 2.Honest and ethical conduct throughout the company
including the ethical handling of apparent or actual conflicts of
interest between personal and professional activities and
relationships. 3.Accountability for compliance with the established
code of ethics. 4.Compliance with applicable regulations and
professional standards. 5.The timely and effective internal
reporting of noncompliance and any violations of the established
code of ethics to an appropriate person or persons designated in
the code. SEC. 2003. Disclosure Required by Sections 406 and 407 of
the Sarbanes-Oxley Act of 2002 (January). Available at:
www.sec.gov/rules/final/33-8177.htm.
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The established codes of conduct and ethics programs address
the following: Avoidance and resolution of conflicts of interest
between the company and employee. Compliance with all applicable
regulations. Emphasis on customer relations to enhance the companys
reputation. Avoidance of improper use of the companys confidential
information. Encouragement of whistleblowers to reveal dishonesty,
wrongdoings, and improper behavior.
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Ethics In Workplace There is increased interaction among the
board of directors, audit committees, internal auditors, external
auditors, executives, and employees in general regarding ethical
conduct in the workplace.. IS THIS A RESULT OF SOX IMPLEMENTATION?
SOX is reported to have a positive impact on business codes of
ethics; however, OTHER elements are required to promote competency
and integrity among all participants.
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Findings of Deloitte&Touche 2007 Survey on Ethics and
Workplace
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THUS: All organizations, regardless of their mission (e.g.,
profit oriented, nonprofit) and size (large vs. small), should
establish an organizational ethical culture. The phrase
organizational ethical culture consists of three words: (1)
organization, which is defined as a group of individuals or
entities bound to achieve a shared goal; (2) ethics, which is
honorable behavior conforming to the norm of the group; and (3)
culture, which is a pattern of shared beliefs adopted by the group
in dealing with its internal and external affairs.
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Business Ethics Four different levels of business ethics have
been identified based on what type of business and how their
actions are evaluated. 1. The society level, which defines ethical
behavior and assesses the effect of business on society 2. The
industry level, which suggests that different industries have their
own set of ethical standards (e.g., chemical industry vs.
pharmaceutical industry) 3. The company level, under which
different companies have their own set of ethical standards 4. The
individual manager level, at which each manager and other corporate
participants are responsible for their own ethical behavior
CONSEQUENTLY, one feasible way to judge ethical behavior is to
focus on determinants of business ethics and behavior such as
corporate culture, incentives, opportunities, and choices.
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Business Ethics (Cont.)
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SEC Rules on Corporate Code of Ethics (Cont.) The SEC extended
code of ethics requirements are geared toward both the companys
principal financial officers (SOXs Section 406) and principal
executive officers (SOXs Section 407). The SEC rules in
implementing Section 406 of SOX require public companies to
disclose whether they have adopted a code of ethics for their
principal officers, including principal executive officers,
principal financial officers, principal accounting officers,
controller, or other personnel performing similar functions in the
annual report filed with the SEC. If the company has not adopted
such a code of ethics, it must disclose the reason for not doing
so.
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Listing Standards The listing standards of the NYSE further
expanded on the SEC rules by requiring listed companies to:
(1)adopt and disclose a code of business conduct and ethics for
directors, officers, and employees (2) promptly disclose any
waivers of the adopted code for directors and executive officers.
Example: The NYSE listing standards recommend that each company
determine its own business conduct and ethics policies, but provide
an extensive list of matters that should be addressed by the
companys code. NASD ethics rules for Nasdaq-listed companies are
similar to those of the NYSE and further require the companys
adopted code to provide for an enforcement mechanism and any
waivers of the code for directors or executive officers to be
approved by the board and disclosed no later than the next periodic
report.
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Ethics Teaching in Business School The emerging corporate
governance reforms have had a positive impact on academic programs.
The goal of corporate governance and business ethics education is
to teach students their responsibilities and accountability to
their profession and society. Almost all states require CPA
candidates to pass an ethics exam before licensing and report the
ethics component in their continuing education requirements. Almost
all states require a minimum amount of ethics education for their
practicing CPAs.
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Ethics in Institutions of Higher Education Academic integrity
and ethical conduct by students and faculty are important to the
sustainable well-being and reputation of institutions of higher
education. This academic integrity can be achieved when: (1) there
is an effective and fairly enforceable academic honor code; (2)
faculty are willing to take proper action against suspected
cheaters; (3) adequate research is conducted to identify factors
that affect academic integrity, including fundamental ethical
values; and (4) ethics are integrated into the business curriculum,
and pedagogies are developed to teach and encourage adherence to
ethical values and conducts.
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Personal Ethics In June 2005, the International Ethics
Standards Board for Accountants (IESBA), part of the International
Federation of Accountants (IFAC), issued its revised Code of Ethics
for use by professional accountants worldwide. The key principles
of the IESBAs code of ethics are: (1)integrity (2)objectivity
(3)professional competence and due care (4)confidentiality
(5)professional behavior
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Reporting Business Ethics and Conduct Section 406 of SOX
requires public companies to disclose in their annual financial
statements the establishment (or lack of) a corporate code of
conduct. Nevertheless, public companies may choose to report their
business ethics and conduct as a separate report to their
shareholders or as part of their regular filings with the SEC..
Hint: Look for the survey conducted by the Ethics and Compliance
Officer Association (ECOA) and salary.com (2006).
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FINANCIAL REPORTING INTEGRITY Framework for Reporting with
Integrity
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Conclusion Ethics are broadly described in the literature as
moral principles about right and wrong, honorable behavior
reflecting values, or standards of conduct. Honesty, openness,
responsiveness, accountability, due diligence, and fairness are the
core ethical principles. Business ethics are a specialized study of
moral right and wrong. An appropriate code of ethics that sets the
right tone at the top of promoting ethical and professional conduct
and establishing the moral structure for the entire organization is
the backbone of effective corporate governance. SEC rules require
public companies to report significant amendments or any waiver
affecting specified officers pursuant to the filing of their first
annual report on their code of ethics.
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Conclusion Corporate culture and compliance rules should
provide incentives and opportunities for the majority of ethical
individuals to maintain their honesty and integrity and provide
measures for the minority of unethical individuals to be monitored,
punished, and corrected for their unethical conduct. Attributes of
an ethical corporate culture or an integrity- based culture are a
sense of employee responsibility, freedom to raise concerns,
managers modeling ethical behavior and expressing the importance of
integrity. The companys directors and executives should
demonstrate, through their actions as well as their policies, a
firm commitment to ethical behavior throughout the company and a
culture of trust within the company. Although a right tone at the
top is very important in promoting an ethical culture, actions
often speak louder than words.