Reading 2.

2 Normative ethical theories Normative theories can be classified into two groups teleological and deontological theories. Ethics comes from the Greek word ethicos meaning relating to rightness-that is whether behavior is right or wrong. A. Teleological Theories establish principles for determining whether behavior is right or wrong based on the consequences of behavior behavior is ethical! if it results in desirable consequences to the behavior. "he word teleological! comes from the Greek telos meaning end!. "eleological theories has two issues #. "o agree on what is a good or desirable consequences and $. "o agree on whose point of view should be adopted in %udging behavior Four groups of teleological theories of ethical behavior: a& Ethical egoism ' & ( "his class of teleological theories is based on a belief that people should act in a wa) that ma*imi+es the net benefits of the person making the decision. i. ii. iii. ,entham -odern .tilitarian philosoph) defines good! as utilit)!/ which is an) source of pleasure/ happiness and benefit etc. Adam 0mith the pursuit of ma*imum self-interest and it would lead to the ma*imi+ation of societ)!s interests. 1estricted egoism suggests the behavior of individuals seeking to ma*imi+e their self-interest should be constrained b) the law and the conventions of competition and 23air 4la). b& Ethical elitism '( c& Ethical parochialism '( it assumes that ethical behavior should protect the interests of the individual!s 2in-group. "he in-group could be the individual!s famil)/ friends/ professional associates or cultural group. e. g. 4rofessional codes of ethics are based on implicit assumption of ethical parochialism. d& Ethical universalism suggests that ethical behavior should be concerned with the good of all human kind and that individual are all equal value. An) behavior that pursues the interests of an individual or a particular group of individuals at the e*penses of others would be unethical. 5ohn 0tart -ill 6is happiness principle meant that an individual should not act to ma*imi+e personal utilit) but the utilit) of the communit) as a whole. -ill!s utilitarianism is probabl) regarded as the most acceptable of the teleological

theories with more attuned to communit) standards. B. Deontological Theories Deontological Theories are based on dut) and rights and these duties are set down as rules that must be followed regardless of the circumstances or the consequences. "he word 27eontological 2 comes from the Greek 27eon meaning dut)!. Duties and rights are central to deontological theories. 7ut) and right are two side of a coin. 3or e*ample/ an accountant has a duty to look after the client!s interest/ while the client has a right to the accountant!s best efforts. 7eontological theories can be classified into several t)pes. 8e ma) consider three in this article. a. "heological ethics 9lassical theor) rel) on religion. "he rules were established b) God and the rules must be followed are set down in ,ible. b. 1ationalism :ant!s 5udaeo-9hristian view of deontolog) has a ma%or influence on the development of western moral thinking. "he rule requires that people should not be 2used to achieve an end no matter how worth) that end ma) appear to be. c. 0ocial contract theor) "homas 6obbes A social contract is an unwritten agreement based on custom and accepted without dissent. "he essential result of a social contract is that individuals give up certain rights in e*change for benefits received from other parties to the contract.

The nature of ethical behavior

;n the simplest terms/ ethical behavior is that which is acceptable to the communit). ;t is the wa) in which the communit) believes/ for e*ample/ the accountants are business people ought to behave. Ethical behavior is/ therefore/ determined b) communit) standards/ beliefs and e*pectations. ;t means that ethical behavior ma) var) among communities if the standards/ belief and e*pectations of those communities differ. 0ituational ethics '1ussell(< ;n a communit) where famil) lo)alt) of paramount importance/ reporting a relative to the police for theft would be unethical. ;n a communit) where famil) lo)alt) is less important/ failing to report a relative for theft ma) be unethical. "here ma) be difference between sub communities. !udgment for the behavior of accountants 8e must identif) the 2communit) b) whose standards that behavior is assessed. "here are at least three communities the courts/ the profession and the general public. #. "he first communit)! to assess the behavior of accountant s is legal s)stem. "he behavior of accountants is assessed against the statute and common law of the =and. ;f accountants are found guilt) of illegal behavior/ the) are generall) also %udged b) their profession and b) the public at large to be unethical. Although the courts ma) fail to convict the accountants of illegal behavior/ the public ma) still convict them of unethical behavior. $. "he second communit)! that %udges the behavior of accountants is the accounting profession/ which assesses behavior against a set of rules called a code of ethics!. "his code sets down the behavior e*pected of members of the profession. >. "he third communit)! that %udges the behavior of accountants is the societ) in which the accountant works. ;t includes clients/ emplo)ers/ emplo)ees/

investors and the public at large.

D.

"rofessional codes of ethics

4rofessional codes of ethics can be classified into two t)pes< first/ disciplinar) codes/ which set down behavior that will not be tolerated and that results in disciplinar) action? second/ aspirational codes/ which set down high ideals to which all members of the profession should aspire. ode of ethics are favored b) professions for two reasons 3irst/ the) can be used to pre-empt e*ternall) developed regulations usuall) imposed b) a government agenc). 9odes of ethics developed b) professionals ma) result in rules whose application benefits members of the profession. "his sort of ethical parochialism is evident in the Australian 9ode of 4rofessional 9onduct< -embers must conduct themselves in a manner consistent with the good reputation of their profession and refrain from an) conduct which might bring discredit to their profession. 0econd/ as the profession can control the disciplining of those who breach the rules/ it can e*ercise discretion about who is charged and the penalties/ if an)/ that are imposed. ode of ethics of the ## "rofession B $ Fundamental principles of professional conduct ,# "he 4ublic ;nterest ;t is the core of the 9ode. ;t contains the basic requirement for ethical behavior. ,$ to ,@ requires 2- to safeguard the interests of their clients and emplo)ers. ,$ ;ntegrit) ,> Ab%ectivit) ,B ;ndependence ,C "echnical and 4rofessional standards ,D 9ompetence and 7ue care ,@ Ethical ,ehavior

B % Fundamental principles of professional conduct & ont'd( B) The "ublic *nterest Member must at all times safeguard the interests of their clients and employers provided that they do not conflict with the duties and loyalties owed to the community and its laws. ;t has the following implication< #. it is not an e*ample of restricted egoism as it does not put the welfare of the accountant as the main ob%ective. ;t does restrict the pursuit of welfare of clients and emplo)ees with some notion of the public interest in the same wa) that restricted egoism is constrained b) the public interest. $. it provides no guidance about what an accountant should do when there is conflict between the interests of the client or emplo)er and the public. >. "herefore ,# is uncompromising. ;t is a breach of the code for an accountant to continue to look after a client!s or emplo)er!s interest if that behavior is in conflict with the duties and lo)alties owed to the communit) and its law. B2 *ntegrit) 1ule ,$ requires that members must be straightforward/ honest and sincere in their approach to professional work. "he 9odes does not indicate what is meant b) the phrase. ;t is probabl) intended that these qualities should be %udged b) reference to contemporar) communit) standards. B+ ,b-ectivity 1ule ,> requires members to be fair andE not allow pre%udice/ conflict of interest or bias to override their ob%ectivit). "he e*act meaning of the words ob%ective! and impartial! in this conte*t is unclear. 4resumabl)/ these words mean that accountants should not be influenced b) factors other than the facts of the case. "he) should not give one set of advice to one client and a different set to another client in the same circumstances. "heir work should not be influenced b) the identit) of the client or the consequents of that advice to themselves or their clients or emplo)er. They should do .hat is /right or correct' in all circumstances.

B % fundamental principles of professional conduct & ont'd( B+ ,b-ectivity % onflict of interest A conflict of interest arises for an accountant in public practice if< #. 0afeguarding the interests of one client ma) cause harm to another client? e.g. A conflict ma) arise if two clients are negotiating a contract or are in dispute. or $. 0afeguarding the interests of a client ma) cause harm to the accountant. e.g. "he accountant ma) believe that the merger is in the best interests of the client/ but ma) be reluctant to give that advice cause the accountant ma) lose the client if the merger occurs. B0 *ndependence ;t requires that members must be and should be seen to be free of an) interest which might be regarded/ whatever its actual effect/ as being incompatible with integrit) and ob%ectivit). B1 onfidentiality -embers must respect the confidentialit) of information acquired in the course of their work and must not disclose an) such information to a third part) without specific authorit) or unless there is a legal or professional dut) to disclose it. B2 ompliance .ith accounting and auditing standards B3 ompetence and Due care A member has a continuing dut) to maintain professional knowledge and skill at a level required to ensure that a client or emplo)er receives the advantage of competent professional service based on up-to-date developments in practice/ legislation and techniques.

"rescriptive models of ethical choice #. "he =angenderfer and 1ockness -odel Anal)sica model a. 3acts of the case b. Ethical issues in the case c. Nomrs/ principles and values relates d. Alternative course of action e. ,est course of action consistent with c above f. 9onsequences of each possible course of action g. 7ecide the course of action . $. "he 1ion -odel it is more of an ethical checklist for decision maker to work through and it is a practical approach. >. "he 1oss -odel firml) grounded in duties and obligations and deontological framework. B. "he Garrett -odel should consider ethical dimensions of the intentions/ and the means and the ends. Granrett believes the anal)sis should be concerned onl) with foreseen harm and risks. C. "he Gavin and klinefelter -odel separate the environmental influences from the decision-making processes. "he) recommend a consideration of aims/ obligations and outcomes of each possible decision.

Benefit and cost of unethical behavior 9ost of unethical behavior is not usuall) defined as the benefits. "hree t)pes of cost< #. 9onscience-driven costs feelings of guilt and remorse at having failed to uphold the ethical standards? $. 0ociet)-imposed cost penalt) from three sources a. court ma) impose penalt)? b. breach of professional code of ethics and

c. break of social standard? and >. =oss of freedom of choice the loss of freedom of choice in future decision about whether or not to behave unethicall).