126890519-professional-module.docx

8/17/2019 126890519-Professional-Module.docx

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5.1 INTRODUCTION

Having been introduced in the previous section to professional ethics and the fundamental principles of ethical behaviour, you will now be familiar with the principles of professional

competence and due care. The professional accountant should endeavour to carry out their

professional duties effectively, to meet deadlines, and to meet minimum expectations.

The professional accountant in the corporate sector will be required to meet the expectations set

by their employer. These expectations will undoubtedly be higher than will be achieved by

simply complying with the fundamental principles.

Therefore, it can be seen that the professional accountant is usually expected to have regard to

levels of behaviour and performance that extend beyond basic professional competence and due

care. This may be described as ‘best practice’. The professional accountant must comply with the

fundamental principles of ethical behaviour, but should also aspire to best practice.

An employee either in practice or in business! should understand and comply with the

procedures established by their employer. "n addition, they have a personal responsibility with

regard to their effectiveness within the organisation. These responsibilities include managing

themselves and their own wor#load effectively, communicating and reporting appropriately andin some cases handling potential areas of conflict. The remainder of this section considers these

various factors in order to maximise personal effectiveness.

5.2 CHARACTERISTICS OF PERSONAL EFFECTIVENESS

At wor#, the main characteristics of personal effectiveness are as follows$

• Timeliness

• Accuracy %iteracy and numeracy!

• &lexibility

• 'ooperativeness


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5.2.1 TIMELINESS

Accounting and boo##eeping wor# is usually dependent on tight deadlines, particularly when

there are requirements to file accounts by set dates to comply with law see (ection ).*!.

"n an organisation, boo##eeping must be #ept up+to+date in order to provide meaningful data, and

management accounts need to be available in time to provide information for decision+ma#ing.

"n order to consistently meet deadlines, a professional needs to have effective time management

s#ills.

This will involve$

Objectives o ti!e !"#"$e!e#t

The overarching obective of time management may be said to be the reduction or elimination!

of wasted time, by reducing errors and inefficiencies. This will involve$

• -lanning each tas# to the extent necessary

• or#ing at a reasonable pace but not rushing!

• Avoiding errors getting it right first time!

• /eviewing your wor#, or as#ing someone else to review it, when no other chec#s are

available in other words avoiding unnecessary duplication of effort!

• 0nsuring that all wor# is underta#en by the appropriate person, and delegated as

appropriate

"n order to achieve this, you will need to$

• -lan the use of your time over a given period a day, wee# or month!

• 0nsure the necessary resources will be available to you over that period

• 1nderstand the lin#s and dependencies between tas#s can some things be done at thesame time as each other, or is one dependent on the other2!

5.2.1 TIMELINESS

P%"##i#$ ove& " $ive# 'e&io(


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-lanning the effective use of your time may involve the use of any of the following$

• 'alendars and diaries to log meetings, other activities and deadlines!

• (chedules showing tas#s to be achieved each day or each wee#

• Tas# lists to identify tas#s outstanding and the order in which they are to be completed!

• Activity logs to record what has been completed and how long it has ta#en 3 learning

from experience!

• -roect plans to ensure larger proects are completed expeditiously!

Reso)&ces

The tas#s you set yourself to complete on a given day or in a given wee# will usually require

resources. &or example, these may ta#e the form of$

• (upporting staff

• %ine manager support

• Access to "T facilities

• 'lient contact time

"t will often be advisable to discuss your planning with a manager, and those with whom you will

need to interact during the course of each assignment.

U#(e&st"#(i#$ "ctivit* %i#+s "#( (e'e#(e#cies

This forms part of the detailed planning of an assignment, and specifically requires the

following$

• (etting out a timeframe for the whole assignment

• "dentifying precisely which tas#s need to be completed

• "dentifying who should be assigned to each tas#

• Assessing how long each tas# should ta#e

• "dentifying those tas#s that must be completed sequentially and the preferred order in

which they should be performed!

• Assigning a deadline to each tas#

• "dentifying those tas#s in respect of which timing is unimportant, and scheduling them in

accordance with resources available

• 4rawing up a schedule or proect plan! for the completion of all the tas#s

• "dentifying the critical path


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5.2.1 TIMELINESS

Example:

The accounts team in a small wholesale company has to produce quarterly draft financial

accounts within one week of the period end. The period end is 30 June; the planning is

taking place in the middle of June; and the final accounts must be available for a Board

meeting on July. The following tasks are to be carried out !listed in a random order"#

Table A

Activity Estimated time

$ount and value closing inventories %.0 hours!supervising& warehouse staff"

'repare and review the final accounts (.) hours

$alculate and account for depreciation charge 0.* hours

'rocess final ad+ustments 3.0 hours

'repare draft financial accounts ,.) hours-iscuss draft financial accounts with the responsible officer (.) hours

dentify and account for the movement in accruals andprepayments

3.) hours

/econcile the bank statement with the cash book and thegeneral ledger

(.0 hours

1tract the trial balance ,.) hours

$onsider the recoverability of receivables2 and account forthe movement in provision

(.) hours

By preparing the above table the following steps have been completed2 in other words#

,. dentifying which tasks that must be completed

(. dentifying how long each task is estimated to take


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The ne1t step is to identify which tasks must be done in sequential order2 and which

may be performed alongside each other.

5.2.1 TIMELINESS

n order to be able to prepare draft accounts2 all the accounting entries must have been proc

need to have been completed before e1tracting the trial balance and producing the first draft#

Table B

Activity Duati!"

$alculate and account for depreciation charge 0.* hoursdentify and account for the movement in accruals andprepayments

3.) hours

/econcile the bank statement with cash book and the generalledger

(.0 hours

$onsider the recoverability of receivables2 and account for themovement in provision

(.) hours

These tasks may be performed in any order or at the same time although it would be

advisable to carry out the bank reconciliation first2 to gain confidence in postings made to

the nominal ledger. The trial balance may then be e1tracted2 and the draft financial accounts

prepared.

Before the final accounts can be produced2 the draft accounts need to be reviewed with the

responsible officer such as the finance director2 and final ad+ustments agreed. The sequence

of events at this stage is critical2 and so the table below sets out the final sequence of

activities in order#

Table #

Activity Duati!"

1tract the trial balance ,.) hours

'repare draft financial accounts ,.) hours


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-iscuss draft financial accounts with the responsible officer (.) hours

'rocess final ad+ustments 3.0 hours

'repare and review the final accounts (.) hours

ote2 however2 that before any of the tasks in Tables 4 and B are addressed2 the countingand valuing of inventories must take place. $learly2 this must occur on 30 June2 and thistask itself will require careful planning.

The previous lists of tasks can be shown as a network diagram. n the diagram that follows2

the critical path is identified by the shaded bo1es. This indicates the minimum amount of

time in which the whole series of tasks may be completed. ach bo1 represens an activity2

and - represents the duration of the activity.Net$!% dia&am '! t(e pepaati!" !' 'i"al acc!u"ts

5.2.2 A##)*A#+ ,LITE*A#+ AND N)ME*A#+-

4 key aspect of competence in accounting is the ability to work and communicate effectively

accurately and in the appropriate way2 both verbally and numerically.

4 professional accountant must be accurate in their work and must seek to minimise errors5ome of the tools available to accountants to help them include email2 presentation software

accounting packages2 spreadsheets and databases. 4ccountants should make the most o

these tools to effectively retrieve2 prepare2 analyse2 present and report information.

ffective communication is very important to the work of an accountant. 4n accountant mus

develop skills to use relevant media to convey information to users and to communicat

internally with colleagues and managers.

ffective and accurate communication can involve the use of the following#

• mails

• /eports

• 6emos

• Telephone or face to face


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• 6eetings and presentations

• 5preadsheets

• -atabases

7

The competent accountant will understand which of the above media to use in differensituations and for different purposes.

5.2.2 A##)*A#+ ,LITE*A#+ AND N)ME*A#+-

Email

mail is the most popular medium of communication. t is fast; it can reach a large number o

people !over a wide geographical area"; and2 if used properly2 it provides a useful trail o

evidence.

The organised accountant will create electronic folders2 under various sub+ect headings2 fo

easy retrieval of emails if necessary. The use of a scanner and appropriate software means tha

almost any business document may be attached to an email. mail retrieval is also made easie

by sorting the emails within a folder by sender2 date sent or sub+ect matter.

8owever2 emails should be used with caution. 9rganisations should document protocols and

procedures for use of email. The language used in email should be clear and unambiguous.

mails need to be carefully composed2 in order to avoid confusion or offence to the reader.

mail security may also be an issue. $omputer security and T systems will have an impact

on confidentiality. T systems should be in place to ensure that emails can be securely stored

and retrieved.

*ep!ts

The professional accountant will sometimes be required to write reports2 either to colleagues

or to e1ternal users. ach report should be produced for a specific ob+ective and audience.

/eports are effective in providing information to support decision:making.

/eports should include the following#


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7 addressee!s"

7 writer!s"

7 sub+ect matter

7 date on which it was written

/eports of a certain length or comple1ity might also include#

7 4 clear statement of the ob+ectives of the report $oncise conclusions

7 4n e1ecutive summary

hen considering the style of the report2 consider the following#

'ay attention to the structure2 using a hierarchy of headings2 and labeling them as

appropriate !,2 a"2 !i"2 etc."


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interaction is required and where a face:to:face meeting is not possible for any reason.

9ther occasions when telephone conversations are preferable to written

communications or meetings include the following#

• hen time is short2 and an instant feedback is required

• hen it is necessary to clarify issues where misunderstandings have occurred2

or might occur

• hen politically sensitive or subtle messages need to be conveyed with tact

• henever it is desirable to establish a dialogue !or an informal atmosphere"

Meeti"&s a"d pese"tati!"s

f a face to face meeting is not possible2 internet based teleconferencing might be the

solution. These may involve several participants and the use of the internet. $omputer

workstation connectivity between participants can allow presentations to be given in the

form of a virtual =face to face> meeting.

?ormal presentations are usually used in meetings when imparting detailed information

to a group of people. 'resentations may also be delivered through teleconferencing or

via the internet.

'resentations usually benefit from the support of visual aids2 such as flip charts2 whiteboards2 or software packages. deas and concepts are clearly e1plained with the use of visuals2 such as graphs2 diagrams2 quotes and bullet points. These are an effective way tohighlight important points and assist the audience in retaining key information.

Speads(eets 5preadsheets are versatile and powerful software tools. They can allow

easy and accurate storage and processing of detailed numerical information2 including a

wide range of formulae2 financial functions and chart functions which are most useful tofinancial and cost accountants. The applications for which spreadsheets are useful for

accountants include the following e1amples#

Bud&ets a"d cas( 'l!$ '!ecasts using @5


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5.2.2 A##)*A#+ ,LITE*A#+ AND N)ME*A#+-

Databases

-atabases are powerful software tools for storing2 processing2 updating and retrieving

large amounts of data2 such as customer lists2 stock items2 price lists2 non:current asset

registers2 and customer A supplier accounts.

-atabases allow information to be stored by field2 record and file. These can be

searched2 updated2 retrieved and manipulated quickly and easily. 4n e1ample could be

a customer database which is divided into the following two main files#

/#ust!mes !$i"& 0 13444

/#ust!mes !$i"& 6 13444

4 file is a collection of records !in other words : customer names". /ecords contain

single pieces of data known as fields.

5uch a file structure is shown below.

7ile: =$ustomers owing @ C,2000>

*ec!d: $ustomer name

7ield A: 4ddress

7ield B: Telephone number

7ield #: 4mount owing

n this database the accountant can retrieve from the relevant customer file2 a particular

customer record and update fields 42 B or $ at any time2 or these fields can be updated

automatically from another linked programme D this is known as an integrated

database.

/ules can be set within the database to move records from one file to another. ?or

e1ample2 if the customer balance field $ were to fall below C,20002 the record could be


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automatically transferred to the file called =$ustomers owing E C,2000>.

The accountant can use databases to work more effectively by allowing large amounts of data to be easily and logically stored2 constantly kept up:to:date and instantly retrieved.

5.2.8 7LE9IBILIT+

4 professional accountant should be able to work fle1ibly. This is important because

many tasks are interdependent2 or demanding deadlines have to be met2 and may arise

at short notice.

4ccountants must be fle1ible either to meet their employers> needs2 or to satisfy clients.

They must be responsive to the demands of others2 and could be required to carry out a

wide range of tasks. Time management skills and clear communication are essential.

This is in order to fully convey and understand the ob+ectives and scope of each task2

and to satisfy the clientAemployer. hen accepting a task or pro+ect2 you must be able to

deliver the results on time !managing the other demands on your time also"2 and

remember to make it clear if you need more time or additional resources.

'lan each task or assignment undertaken. 4s a task progresses2 you should be

prepared to fle1 the plan according to new information that is discovered. There will be

occasions when2 due to circumstances beyond the accountant>s control2 a deadline

cannot reasonably be met. This will not only mean a change to the assignment plan2 but

also the change will need to be communicated !and the reasons for it" to the client !or

your line manager". There will also be occasions when the accountant will be required

to work additional hours to ensure that deadlines are met or meetings take place when

convenient for the ma+ority.

?le1ibility also means being able to work with a variety of people2 in different situations2

and accepting that things cannot always be easy. ?le1ibility is not simply having the abilityto perform many different tasks2 but also having the attitude that enables you to adapt todifferent situations.

5.2. #;ENESS


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Finked to fle1ibility2 professionals need to cooperate and liaise courteously and

effectively with colleagues2 managers2 clients and e1ternal parties2 such as potential

investors2 ta1ation authorities and regulatory bodies etc. They should also be able to

manage2 resolve or refer conflicts when they arise.4ccountants are part of a team

who produce2 communicate and report financial information. t is essential to cooperate

both internally and e1ternally of the organisation2 with managers2 colleagues2 clients and

other authorities.

The professional accountant is employed to provide finance related services2 and is

e1pected to be responsive to the needs of others. The accountant must be mindful of

the time and resources available2 and manage the e1pectations of others !in other

words2 not take on work that they will be unable to perform competently".

n order to work effectively2 you will need to obtain information from a variety of sources.This will require cooperation between you and those that provide the information2 toensure that the relevant information is received2 accurately and on time. 4t times2 theaccountant may also be required to cooperate with third parties such as auditors or ta1authorities2 in order to enable their employing organisations to comply with legalobligations. 4ccountants also need to know when and to whom they must report or submitinformation. This was covered to some e1tent under legal obligations in 5ection 3.% onreporting and filing requirements. They may also2 as part of their professional duties2 berequired to report certain matters to higher authorities under particular circumstances.

5.2. #;ENESS

4ccountants like other professionals should always be aware of their reporting

responsibilities within an organisation. This means knowing the following#

• ho you immediately report to !your line manager" and your reporting

responsibilities

• ho reports to you !if applicable" and their reporting responsibilities

• ho else to keep informed of activities2 problems or performance issues as they

arise

• ho to refer situations of conflict or disagreement to2 in the event of a conflict

arising and remaining unresolved through the usual channels


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#!"'licts a"d t(ei es!luti!"

n many organisations where resources are scarce2 deadlines are tight and demands

placed on human resources are pressurised2 conflicts can often arise.The professional

is e1pected to deal with these situations in a manner which is consistent with the fivefundamental principles2 particularly ob+ectivity and professional behaviour.

$onflict can be defined as an incompatibility of goals or values between two or moreparties in a relationship. The common sources of conflict will now be e1amined.

5.2. #;ENESS

Ec!"!mic c!"'lict involves competing for scarce resources such as can happen when

budgets are being negotiated and set.

>alue c!"'lict involves disagreements caused by differing personal values2

perceptions2 attitudes and beliefs. This will be covered in more detail in 5ection %.

=!$e c!"'lict occurs when each party wishes to increase or ma1imiGe the amount of

influence that they can e1ert in a relationship. n business conflicts this can arise

between people of different levels within a management structure or between those of

equivalent official status2 but usually occurs because one party wishes to impose their

will over colleagues2 to gain or increase control.

6ost conflicts involve a mi1ture of sources. ?or e1ample2 budgetary negotiations

typically involve economic competition2 but may also take the form of a power struggle

between managers or subordinates.

neffective communication can create unnecessary conflict. Fack of skills in communicating

in a clear2 respectful and sensitive fashion often results in confusion2 hurt and anger2 all of which can create or escalate conflict. 5ometimes conflict or resentment can arise due to alack of2 or perceived lack of2 communication. n addition2 parties may have differentperceptions about the facts of a situation. t is only when they properly share informationand clarify their perceptions that the conflict can begin to be resolved.


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5.2. #;ENESS

Types !' c!"'lict

• nterpersonal

• /ole

• ntergroup

I"tepes!"al c!"'lict occurs when two individuals have incompatible needs2 goals2 or

approaches in their relationship. $ommunication breakdown is often an important

source of interpersonal conflict and learning effective communication skills is invaluable

in preventing and resolving such difficulties. 'ersonality or value based conflicts are

caused by differences in approach or style in working with people that are not

resolvable. ?or e1ample2 if both parties in a relationship have a high need for power and

both want to be dominant in the relationship2 a power struggle can occur.

*!le c!"'lict involves differences or amibiguities in role definitions2 e1pectations or

responsibilities between individuals who are interdependent in an organisation. f there

is lack of clarity in +ob roles in an organisation or unclear boundaries of responsibilities2

then conflict can occur2 which can bring about negativity or unwillingness to co:operate.

This type of conflict can often be confused with interpersonal conflict2 and resolution istherefore more complicated. This type of conflict is avoided if specific roles and

responsibilities are very clearly laid out and understood by all.

I"te&!up c!"'lict occurs between departments or teams in the same organisation andbetween management groups. This type of conflict is often the result of departmentsbecoming isolated from each other or competing with each other. $ompetition for scarceresources or comparisons between working conditions and perceived inequalities areoften common sources of intergroup conflict. The costs of intergroup conflict can be high inboth economic and social terms for individuals2 and destructive for the organisation as awhole.

Met(!ds !' #!"'lict *es!luti!"

/egardless of the source of conflict2 it can result in alternative outcomes depending on

the approach taken. f conflict can be managed creatively2 solutions can be found that

are mutually satisfactory to both parties. 5ometimes this will involve a re:distribution of


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resources or power that is perceived as being fairer2 or it may be resolved by increasing

the available resources. $reative outcomes are more likely when the parties are

interdependent2 and where both are open to see the benefit from a given solution.

There are three general strategies which have been identified to resolve conflict; win:lose2 lose:lose2 and win:win !originally from Blake2 5hepard H 6outon2 ,I%&".

T(e $i"


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?.1 INT*;D)#TI;N

hen facing a difficult dilemma at work is it enough for a professional accountant to

obey the law and adhere to fundamental principles of professional ethicsK

8aving a good knowledge of the law and applying fundamental principles of professionalethics may not in every instance provide sufficient guidance on what e1actly to do.'ersonal values and personal integrity play a part in the process.


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,.2 RULES V PRINCIPLES

(hould conduct and behaviour be guided by rules or by principles2 This is an important debate in

accounting regulation and in financial reporting.&or clarity, we need to define what is meant by

these terms$

A rule externally compels someone, through force, threat or punishment, to do the things

someone else has deemed good or right. People obey or break rules.

A principle internally motivates people to do the things that seem good and right. People

develop principles by working and living with people with similar principles and seeing the

positive consequences and real benefits of appropriate conduct.

Having detailed rules is simpler and more effective as it ensures that accountants comply with

requirements precisely and behave appropriately.

However, if a set of overriding principles are agreed upon and believed in, then such detailed

rules aren’t always necessary. -rofessionals would #now how to behave in a given situation by

applying their personal values and integrity to interpret the principles to the specific

circumstances that they face and by arriving at the right decision naturally.

Although rules can be detailed, they cannot cover every situation + they could not be fully


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applicable or clear. "t may be necessary to rely on a set of general principles for guidance in

addition to the rules which are prescribed.

There are laws and professional codes of conduct that must be complied with, but a

professional’s behaviour and actions should also be determined by the broader consequences and

what is morally right, derived from accepted principles.

&ailures in accounting and financial reporting in the cases of 0nron, orldcom, -armalat and

the global ban#ing crisis were not necessarily due to accountants brea#ing rules and regulations,

but to a lac# of consideration of the broader consequences.

-ractices such as ‘creative accounting’ are based on a belief that as long as the ‘letter’ of the law

and accounting regulations are complied with, then all is well. This demonstrates a

fundamentally immature attitude to ethics and business. This attitude perceives rules as barriers

or obstacles to be overcome and fails to recognise that wider principles are usually involved.

This is not a view which is morally or ethically acceptable.

?.2 *)LES > =*IN#I=LES

Example:

An accounting rule states that inventory must be shown on the statement of financial

position at the lower of cost or net realisable value (NRV). This rule tells the accountant

(for example, in a manufacturing company) that if the selling price of an item is less

than its full cost, then a loss must be written own immeiately through reucing the

value of the inventory an reucing gross profit. The rule also gives specific guiance

on how the respective valuations of the full cost an the net realisable value of the

inventory shoul be arrive at.

4 ules focused accountant facing a self:interest or intimidation threat might bemotivated to avoid an inventory write:down and to maintain gross profit in the

company>s2 and possibly in the shareholders>2 short:term interests. Their attitude might

be to try and +ustify2 through a particular interpretation of the rule2 possibly relating to the

calculation of conversion costs2 that the cost of the inventory itself is lower than it really

is. They might also e1amine ways in which the application of different cost formulae


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could be used to achieve this end or may look further for supporting evidence to +ustify

that /L is higher than it really is. ?rom a legal and professional perspective some

people may be of the view that taking this approach would be acceptable.

4 pi"ciples based accountant is more likely to adopt a different perspective. They woulddemonstrate integrity2 ob+ectivity and professional competence in assessing the =economicsubstance> of the situation rather than merely the =legal form>. They would apply theaccounting concept of pruence which would guide them not to e1plore ways to overstate/L or understate costs and they would write off the loss2 unless it was economically

+ustified to do otherwise. 5uch an accountant would therefore adopt a =principle> to guidethem to the right decision rather than use or hide behind any comple1ity or e1ploit=loopholes> within particular rules to +ustify a decision that in principle might otherwise bewrong.

6.3 THE MAIN ETHICAL THEORIES

As already explained in this module, professional behaviour is mainly restricted to what

complies with the law and with fundamental principles. However at the third level of the decision

filter explained in the introduction to this module, there is further scope to make choices of

behaviour as guided by your own personal values.

Personal values relate to standards of behaviour that human beings should uphold in the many

situations in which they find themselves, as friends, parents, children, citizens, teachers, professionals, etc.here are two fundamental questions in identifying which ethical standards to

uphold!

". #hat should personal values be based on$ %. How should these values be applied in specific

situations$

&any philosophers and ethicists have tried to answer these critical questions. hey have

suggested different sources of ethical standards!

Consequentialism

A popular way of viewing personal ethics is to consider the consequences of decisions or your

actions for other people and yourself. 'sing this theory it is necessary to consider the effect

decisions will have and attempt to evaluate these effects. (enerally, this way of thinking

determines that an action is right if it leads to the most benefit or )pleasure* and the least )pain*


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for the greatest number of people. his is sometimes known as )utilitarianism*

As an accounting example, a trainee accountant processing accounting entries should strive to

work as accurately as possible and minimise errors, because inaccuracy and errors cause

negative consequences through creating extra work for themselves and colleagues. +rrors and

inaccuracies need to be detected and corrected and can lead to unreliability and delay. t is

therefore beneficial for all to minimise errors even if it takes more time and effort to do so.

Dut to ot!ers

Another view of personal ethics is based on duty to others. t determines what is right by

examining the behaviour or act itself, rather than the consequences of the behaviour as in

consequentialism above. n this approach to ethics people are expected to behave out of a duty to

act according to the rules and obligations as generally expected by society or by the profession

to which someone may belong.

'sing the above accounting example, the trainee accountant is expected to process accounting

entries accurately because a professional accounting trainee is simply expected to do so by his

employers, by the professional body to which they belong and by society at large, regardless of

the actual consequences of this behaviour.

A simple way to understand the difference between these two ethical perspectives is to think of

lying as an act. -onsequentialists might consider a lie to be ethical in certain situations, but only

if by doing so more benefits than harm would come to all those involved. 'nder the duty to

others perspective, lying would always be thought of as being wrong within most societies.

Mirror test

nce you have ensured that your behaviour complies with legal requirements and professional

standards, you can use a reflective approach or a )mirror test* to apply these ethical perspectives

in quite a practical way.

magine you are looking in a mirror and asking yourself these questions!

/ f take this course of action what will happen$ n other words what implications will my

decision have on people who are affected by my decisions such as clients, customers and

investors$


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/ #hat will others think if take this course of action 0 )others* including friends, family,

my manager, my professional association or the media, etc$

/ s my decision right personally, or do have a moral obligation to do this$ 1 #hat does

my conscience or my instinct tell me$

he mirror test reinforces the idea that you are responsible for your own behaviour and you must

therefore consider both the consequences of your actions and their moral acceptability before

you act.

?. A==L+IN@ =E*S;NAL AND ETI#AL >AL)ES T;

DE#ISI;N


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The prouction manager has been as$e to prepare next year%s buget urgently for the

&rouction 'irector, so that the overall bugetary targets for the company may be

finalise.

As he has not hear officially about the price reuction at the time of submitting the

buget, the prouction manager inclues the current year%s material cost price as the

bugete cost an bases his total costs on this, $nowing that this will buil some slac$%

into his buget when the price reuction eventually comes through.

-iscuss the reasons for and against2 from one of the two main ethical perspectives

aboveK

=espective:ConsequentialismDuty to Others

*eas!"s:

I"t!ducti!"

?irst of all2 from a legal or even professional conduct perspective it could be argued that

the production manager is within his rights to submit the budget incorporating the

current prices rather than the e1pected lower prices. 8e has not been told in any official

capacity that these prices will be reduced. The decision has not yet been formally

announced and in theory there is an argument for not revising the budget until more is

known or until anything is finally confirmed. This might be described as a =rules based>

approach.

But what if this decision were analysed from either of the two main personal ethics

perspectives discussed aboveK

,. Consequentialism:

This approach focuses on outcomes or consequences2 and specifically2 ma1imising the

good and minimising any harm resulting to most people. t is likely that keeping the

original material costs within the budget will benefit a relatively small number of people2


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namely the production manager2 who is more likely to receive a profit:related bonus by

coming in under budget when the prices are reduced. 8owever2 the budget for

production costs will be less accurate than it would be if it were to include the

anticipated2 lower material costs. f the original figures are submitted2 other stakeholders

including more senior managers and directors2 will have inaccurate information on

which to base resource allocation and pricing decisions. 5hareholders would also prefer

the budgets to be more accurate2 so that the company can be run more effectively.

naccurate information in the budget about material costs may also lead to higher costs

to customers2 who will presumably have to pay higher prices for longer2 than might have

been the case if the correct2 lower2 materials costs had been included in the original

budget.

(. Duty to others:

5omeone thinking of their duty to others2 including their profession2 would consider howthe manager should act 2 without focusing on the effects. f the manager has been issuedwith rules to follow when preparing the budget2 then these should be followed. n theabsence of such rules2 it could be argued that most people would consider that themanager has a duty to those relying on information in the budget2 and therefore2 thebudget should be as accurate as possible. Therefore2 the right thing to do would be toinclude the most likely !lower" cost of materials in the budget2 adding a note to e1plain anydoubts the manager has about this. Mnowingly concealing relevant information aboutfuture material prices when preparing a production cost budget would be perceived by

others2 including the accounting profession2 as being morally wrong.

,.5 MA-IN ETHICAL DECISIONS

5a#ing ethical decisions requires the legal aspects and professional ethics to be considered first,

to eliminate any options which are either illegal or unprofessional. The remaining options require

interpretation through personal values. This process can benefit from exploring the ethical

aspects of a decision in a structured method and weighing up the considerations of ta#ing each

course of action.

The more difficult and unusual the ethical choices faced, the more helpful it is to discuss the

dilemma as long as the fundamental principle of confidentiality is not breached. 6y careful

exploration of the problem, aided by the insights and different perspectives of others, it is

possible to ma#e better ethical choices.


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The following framewor# for ethical decisions is a useful method for exploring ethical dilemmas

and identifying ethical courses of action.

,., FRAME/OR- FOR ETHICAL DECISION0MA-IN

"n (ection 7.8 a framewor# for ethical decision+ma#ing was introduced which can help someone

identify alternative courses of action in specific circumstances or when facing ethical dilemmas$

The framewor# contained the following five questions$

• hat are the relevant facts2

• hat are the ethical issues involved2

•

hich fundamental principles are being threatened2• 4o internal procedures exist that mitigate the threats2

• hat are the alternative courses of action2

This framewor# will now be used to analyse a case study introduced in (ection 9. The case study

will require you to put yourself in the role of an accountant wor#ing in a small organisation who

faces some difficult choices and has to decide what to do next. The accountant will have to ta#e intoaccount legal, professional and personal factors when coming to their decisions and will have to

reflect on their actions once they have finished.

126890519-professional-module.docx

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