Professional Ethics, Revision Kit

PROFESSIONAL ETHICS
A PROFESSIONAL STREAM STUDY TEXT
1ST EDITION
Professional Ethics and Values

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BY
Alex Emmanuel Mulooki(MBA, CPAK,
CPAU)
PART 1
FUNDAMENTAL ETHICAL
ISSUES

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History of Business Ethics

The history of business ethics is very important because it gives us an idea of how far this
discipline has come in such a short time, both ethically and industrially. Recent scandals
in companies such as Enron and utility programmes like Global Fund, affected a wide
range of people, all stakeholders especially the sick in Uganda.
1. Before 1960
Before 1960, ethical questions related to business were often discussed theologically or religious
point of view. Religious leaders raised questions about fair wages, labour practices, and the morality
of capitalism. Catholic Social Ethics, expressed in a series of Papal Encyclicals (the Popes official
pastoral letters), included concern for: 1) morality in business, 2) workers' rights, and 3) living
wages; for 4) humanistic values rather than materialistic ones; and 5) for improving the conditions of
the poor as outlined in Rerum Novarum (On the Condition of Workers) 1891, by Leo XIII. Some
Catholic colleges and universities began to offer courses in Social Ethics.
Protestants also developed ethics courses in their seminaries and schools of theology, and addressed
issues concerning morality and ethics in business. The Protestant Work Ethic encouraged
individuals to be frugal, work hard, and attain success in the capitalistic system. Such religious
traditions provided a foundation for the future field of business ethics. Each religion applied its
moral concepts not only to business but also to government, politics, family, personal life, and all
other aspects of life.
2. The 1960s
The 1960's began the rise of social issues in business. This period saw the rise of consumerism,
activities undertaken by independent individuals, groups, and organizations to protect their rights as
consumers. This period also saw President John F. Kennedy discuss the "Consumer Bill of Rights".
The modern consumer movement is also considered to have begun in 1965 with the publication of
Ralph Nader's Unsafe at Any Speed, which criticized the auto industry in general, and General
Motors Corp. specifically, for focusing on profit and style rather than safety and protection. Naders
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consumer protection organization, known as Nader's Raiders, fought successfully for legislation that
required automobile makers to equip their cars with safety belts, shatterproof windshields, etc.
Activities that could destabilize the economy began to be viewed as unethical and unlawful.
3. The 1970s
In the 1970s, business ethics began to develop as a field of study. Theologians and religious
thinkers had laid the groundwork by suggesting that certain religious principles could be applied to
business activities. From this, business professors began to teach and write about corporate social
responsibility. Philosophers began to apply ethical theory and philosophical analysis to structure
the discipline of business ethics. Businesses became more concerned with their public images, and
as social demands grew, many realized they had to address ethical issues more directly. Centres for
dealing with business ethics issues were established. By the end of 1970s, a number of major ethical
issues had emerged such as bribery, deceptive advertising, price collusion, product safety, and the
environment. Business ethics became a common expression and was no longer considered an
oxymoron.
4. The 1980s
In the 1980s business academics and practitioners acknowledged business ethics as a field of
study. A growing and varied group of institutions with diverse interests promoted the study of
business ethics. Five hundred courses in business ethics were offered at colleges across the country,
with more than forty thousand students enrolled. Centres of business ethics provided publications,
courses, conferences, and seminars. The 1980s ushered in the Reagan/Bush eras with the
accompanying beliefs that competition, not government, should drive the economy. Thus, while
business schools were offering courses in business ethics, the rules of business were changing at a
phenomenal rate because of this new atmosphere. Corporations began operating internationally and
found themselves mired in value structures they did not understand. Accepted U.S. rules of
business behaviour no longer applied in all dealings with businesses and customers in other
countries.
5. The 1990s
In the 1990s, the Reagan/Bush era was replaced by the Clinton era, in which the U.S. government
was applying a consensus style of leadership in attempt to make foreign corporations compete on an
equal basis with U.S. businesses. This led to governments becoming an integral part of the global
competitive strategy for businesses. Business ethics is an evolving field of study that deals with
ethical issues and the morality of business activities. Business ethical issues can be approached
from the perspective of philosophical theory, theological principles, or in a pragmatic spirit, seeking
solutions for specific managerial problems. The study of business ethics does not mean simply
moralizing about what should or should not be done in a particular situation. Rather, it
systematically links the concept or morality, responsibility, and decision making within the
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organization. The process of ethical decision making in business is now represented by the
philosophical, economical, sociological, psychological, and theological perspectives.
6. Myths About Business Ethics
Myth #1: Business ethics is more a matter of religion than management.

The aim of an organizational ethics program is to manage values and conflict among employees
and not to alter people's values or souls.
Myth #2: Our employees are ethical so we don't need attention to business ethics.
The ethical dilemmas faced by most managers are highly complex. No one
knows when they have a significant ethical conflict when there is a presence of
(a) significant value conflicts among differing interests, (b) real alternatives that
are equally justifiable, and (c) significant consequences on "stakeholders" in the
situation. Usually when the topic of business ethics comes up people are quick
to speak about the Golden Rule, honesty and courtesy. However, when
these people are presented with complex ethical dilemmas they realize that
there is a wide "grey area" when trying to apply ethical principles.
Myth #3: Business Ethics is a discipline best led by philosophers, academics and theologians.
Many people believe that business ethics is a fad or movement that has little do with the day-today realities of running an organization because of the lack of involvement of leaders and managers
in business ethics literature and discussions. However, business ethics is a management discipline
with a programmatic approach that includes several practical tools.
Myth #4: Business ethics is superfluous -- it only asserts the obvious: "do good!".
Many people feel that codes of ethics only represent values to which everyone should naturally
aspire. In reality, the value of a code of ethics to an organization is its priority and focus regarding
certain ethical values in that workplace. Note that a code of ethics is an organic instrument that
changes with the needs of society and the organization.
Myth #5: Business ethics is a matter of the good guys preaching to the bad guys.
People well versed in managing organizations realize that good people can take bad actions,
particularly when stressed or confused. (Stress or confusion are not excuses for unethical actions,
they are reasons.) Managing ethics in the workplace requires everyone to work together to help each
other remain ethical and to work through stressful or confusing dilemmas.
Myth #6: Business ethics is the new policeperson on the block.
Many people believe that business ethics is a recent phenomenon because of more press and
exposure in popular and management literature. This is simply not the case, business ethics theories
have been around for probably 2,000 years -- at least since Cicero wrote about the topic in his On
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Duties. Business ethics has gotten more attention because of the social responsibility movement
that started in the 1960s and of course now because of the recent corporate failures of Enron and
WorldCom.
Myth #7: Ethics can't be managed.
Actually, ethics is always "managed" but, too often, indirectly. For
example, the behaviour of the organization's founder or current leader
is a strong moral influence or directive on the behaviour or employees in the
workplace. Laws, regulations, and rules directly influence behaviours to be
more ethical, usually in a manner that improves the general good and/or
minimizes harm to the community.
Myth #8: Business ethics and social responsibility are the same thing.
The social responsibility movement is one aspect of the overall discipline of business ethics.
Madsen and Shafritz refine the definition of business ethics to be: 1) an application of ethics to the
corporate community, 2) a way to determine responsibility in business dealings, 3) the identification
of important business and social issues, and 4) a critique of business. Items 3 and 4 are often matters
of social responsibility. Writings about social responsibility often do not address practical matters of
managing ethics in the workplace, for example, developing codes, updating policies and procedures,
approaches to resolving ethical dilemmas, etc.
Myth #9: Our organization is not in trouble with the law, so we're ethical.
Often one can be unethical and still operate within the limits of the law. Some examples are:
withholding information from superiors, fudging budgets, etc. However, breaking the law often
starts with unethical behaviour that has gone unnoticed. The "boil the frog" phenomena is a useful
parable here: If you put a frog in hot water, it immediately jumps out. If you put a frog in cool water
and slowly heat up the water, you can eventually boil the frog. The frog doesn't seem to notice the
adverse change in its environment.
Myth #10: Managing ethics in the workplace has little practical relevance.
Managing ethics in the workplace involves identifying and prioritising values to guide
behaviours in the organization, and by establishing associated policies and procedures to ensure
those behaviours are conducted. Some might call this "values management". Values management is
also highly important in other management practices, for example, managing diversity, TQM, and
strategic planning.
7. Culture, Motivation, Power, and Business Ethics
Culture
Culture can be defined as everything in our surroundings made by people, both tangible items and
intangible concepts and values. Language, religion, law, politics, technology, education, social
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organization, general values, and ethical standards are all included in this definition. Each nation
has a distinctive culture, hence distinctive beliefs about what business activities are acceptable or
unethical. Thus, with the emergence of international business, individuals encounter values, beliefs,
and ideas that may differ from their own because of cultural differences. Cultural differences
include differences in speech and body language. Problems of translation into another language
often make it difficult for businesspeople to express exactly what they mean to say. Language
differences also create ethical issues in finance. For example, in Germany, a bribe to obtain a
contract in a foreign country can be considered as an expense and be included in a loan application.
Cultural differences in body language also create difficulties in international business. Body
language is nonverbal, usually unconscious, communication through gestures, posture, and facial
expressions. For example, personal space, the distance at which one person feels comfortable when
talking to another, varies from culture to culture. American and British business people prefer a
larger space than do South American, Greek, and Japanese. The difference can cause uncomfortable
feelings when people from different countries negotiate with each other. Other body language like
finger pointing or a nod of the head mean different things as well. Finger pointing is considered rude
in Asia and Africa, and the British use the nod of the head to mean that they hear, not that they
agree. These cultural differences can result in miscommunications and insults and can harm
business negotiations.
Motivation
Leadership is the ability or authority to guide and direct others toward achievement of a goal. It
has a significant impact on ethical decision making because leaders have power to motivate others
and enforce the organization's rules and policies as well as their own viewpoints. A leader's ability to
motivate subordinates is a key consideration in maintaining an ethical organization. Motivation is a
force within the individual that focuses his or her behaviour to achieve a goal. To create motivation,
an organization offers incentives to encourage employees to work toward organizational objectives.
Understanding motivation is important in the management of others, and it helps explain their ethical
behaviour. For example, a person who aspires to higher positions in an organization may sabotage a
co-worker's project to make that person look bad. This unethical behaviour is directly related to the
first employee's motivation to rise in the organization.
From an ethics perspective, needs or goals may change as a person progresses through the ranks of
the company. This shift may cause or help solve problems, depending on the current ethical status of
the person relative to the company or society. It is possible that an individual's hierarchy of needs
may influence motivation and ethical behaviour. After basic needs such as food, working conditions,
and survival are satisfied, resources are available for relatedness needs (social and interpersonal
relationships) and growth needs (creative or productive activities) which may become important.
Examining the role of motivation in ethics is an attempt to relate business ethics with the broader
social context in which workers live and the deeper moral assumptions on which society depends.
Workers are individuals, and they will be motivated by a variety of personal interests. While it is
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emphasized that managers are positioned to exert pressure and obtain compliance on ethically related
issues, it must be acknowledged that an individual's personal ethics and needs will significantly
affect ethical decisions.
Power
Power refers to the influence leaders and managers have over the behaviour and decisions of
subordinates. An individual has power over others when his or her presence causes them to behave
differently. Exerting power is one way to influence the ethical decision-making framework. The
status and power of significant others are directly related to the amount of pressure they can exert on
employees to conform to their expectations. A superior in an authority position can put strong
pressure on employees to comply, even when their personal ethical values conflict with superior's
wishes.
Professors John French and Bertram Ravin have defined five power bases from which one
person may influence another: (1) reward power, (2) coercive power, (3) legitimate power, (4)
expert power, and (5) referent power. These five bases of power can be used to motivate
individuals either ethically or unethically.
Reward Power
Reward power refers to a person's ability to influence the behaviour of others by offering them
something desirable. Typical rewards might be money, status, or promotion. In the short run,
however, reward power is not as effective as coercive power.
Coercive Power
Coercive power is essentially the opposite of reward power. Instead of rewarding a person for doing
something, coercive power penalizes actions or behaviour. Coercive power uses fear to change
behaviour. For this reason, it has been found to be more effective in changing behaviour in the short
run than in the long run. Coercion is often employed in situations of extreme imbalance of power.
In firms that use coercive power, relationships usually break down in long run.
Legitimate Power
Legitimate power stems from the belief that a certain person has the right to exert influence and that
certain others have an obligation to accept it. The titles and positions of authority that organizations
bestow on individuals appeal to this traditional view of power. Many people readily comply to those
who wield legitimate power, sometimes committing acts that are contrary to their beliefs and values.
Such strong loyalty to authority figures can be seen in corporations with strong charismatic leaders
and centralized structures.

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Expert Power
Expert power is derived from a person's knowledge or perception of knowledge. Expert power
usually stems from a superior's credibility with his or her subordinates. Credibility, and thus expert
power, is positively related to the number of years a person has worked in a firm or industry, to the
person's education, or to the honours he or she has received for performance. Expert power can
cause ethical problems when it is used to manipulate others to gain an unfair advantage.
Referent Power
Referent power may exist when one person perceives that his or her goals or objectives are similar to
another's. The second person may attempt to influence the first to take actions that lead both to
achieve their objectives. For this power base to be effective, however, some sort of empathy must
exist between the individuals. Identification with others helps boost the decision maker's confidence
when making a decision, thus providing an increase in referent power.
8. Critique of Business Ethics
In the study of business ethics, there are both strengths and weaknesses.
Strengths
One of the strength of business ethics is that it might open up some
people's eyes on how their decisions in ethical dilemmas can either help or hurt
their company. If people know the possible outcomes of their actions, it may
sway them to do "the right" thing rather then risk a negative outcome to the
situation. Also, the training corporations give to their employees lets people
come together as a group, maybe it gets people together who would normally
not work together.
Another strength of business ethics was that it has helped to shape the world we live in today.
Without the movements of some groups back in the 1960s and 1970s, who knows how we would be
living today, or what kind of practices would be taking place in the business world. Business ethics
activists help put some good laws into place, helped make cars safer, food safer, etc. We cannot take
business ethics for granted, although many people probably do.
Weaknesses
Perhaps too often, business ethics is portrayed as a matter of resolving conflicts in which one
option appears to be the clear choice. For example, case studies are often presented in which an
employee is faced with whether or not to lie, steal, cheat, abuse another, break terms of a contract,
etc. However, ethical dilemmas faced by managers are often more real-to-life and highly complex
with no clear guidelines, whether in law or often in religion. Most people know they are supposed to
do "the right thing", but that is hard to determine what that "right thing" is. What may seem right to
some could mean unethical to others. This "grey" area in business ethics is an area that many have a
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problem with, and is not easily cleared up. It is also a reason that ethics is not adhered more often in
today's society.
Another weakness of business ethics is the amount of different influences that go into it. As I
discussed in another section of this web site, culture and power play a part in ethical decision
making, and that is just to name two of the many factors that go into business ethics. Power is used
on employees in many ways to try to make them act ethically or unethically, and it is up to that
person to decide whether to comply or not. If they don't, they risk losing their jobs so that someone
else can come in who will do what their superior wants regardless of how they feel ethically about
it. The pressures put forth on upper management from shareholders' most likely plays a part in how
ethical dilemmas are dealt with as well. Unfortunately, many fail to realize that one's social
responsibility is to be honest and forthright in the disclosure of company operations. These different
factors make it difficult for people to always act ethically.
In addition to the weaknesses above, business ethics is open to far too much interpretation. After
doing some research, I began to get confused as to what exactly business ethics are. Sure the
definitions of business and ethics are pretty similar, but how they are described after that is when it
gets confusing. People tend to try to adapt the definition to themselves somehow, and may view it
differently than others. However, there are certain ways people of all types and backgrounds can
assess a situation and determine whether their course of action is ethical or not. Below you will find
some helpful methods to determine whether your course of action is an ethical one or not.
9. Philosophical Perspectives & Business Ethics
Philosophers have debated for centuries about the specific criteria that should be used to determine
whether decisions are ethical or unethical. Three models of what determines whether a decision is
ethical are the utilitarian, moral rights, and the justice.
a. Utilitarian Model: An ethical decision is a decision that produces the greatest good for the
greatest number of people.
Managerial Implication: Managers should compare and contrast alternative courses of action
based on the benefits and costs of those alternatives for different organizational stakeholder groups.
They should choose the course of action that provides the most benefits to stakeholders. For
example, managers should locate a new manufacturing plant at the place that will most benefit its
stakeholders.
Problems for Managers: How do managers decide on the relative
importance of each
stakeholder group? How are managers to precisely measure the benefits and harms to each
stakeholder group? For example, how do managers choose between the interests of stockholders,
workers, and customers?

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b. Moral Rights Model: An ethical decision is a decision that best maintains and protects the
fundamental rights and privileges of the people affected by it. For example, ethical decisions protect
people's rights to freedom, life and safety, privacy, free speech, and freedom of conscience.
based on the effect of those alternatives on stakeholders' rights. They should choose the course of
action that best protects stakeholders' rights. For example, decisions that would involve significant
harm to the safety or health of employees or customers are unethical.
Problems for Managers: If a decision will protect the rights of some stakeholders and hurt the
rights of others, how do managers choose which stakeholder rights to protect? For example, in
deciding whether it is ethical to snoop on an employee, does an employee's right to privacy outweigh
an organization's right to protect its property or the safety of other employees?
c. Justice Model: An ethical decision is a decision that distributes benefits and harms among
stakeholders in a fair, equitable, or impartial way.
based on the degree to which the action will promote a fair distribution of outcomes. For example,
employees who are similar in their level of skill, performance, or responsibility should receive the
same kind of pay. The allocation of outcomes should not be based on arbitrary differences such as
gender, race, or religion.
Problems for Managers: Managers must learn not to discriminate between people because of
observable differences in their appearance or behaviour. Managers must also learn how to use fair
procedures to determine how to distribute outcomes to organizational members. For example,
managers must not give people they like bigger raises than they give to people they do not like or
bend the rules to help their favourites.
In theory, each model offers a different and complementary way of determining whether a decision
or behaviour is ethical, and all three models should be used to sort out the ethics of a particular
course of action. Ethical issues, however, are rarely clear cut, and the interests of different
stakeholders often conflict, so frequently it is extremely difficult for a decision maker to use these
models to ascertain the most ethical course of action. For this reason, many experts on ethics
propose the following guide to determine whether a decision or behaviour is ethical. A decision is
probably acceptable on ethical grounds if a manager can answer "yes" to each of these questions:
i)
Does my decision fall within the accepted values or standards that typically apply in the
organization environment
ii)
Am I willing to see the decision communicated to all stakeholders affected by it -- for

example, by having it reported in newspapers or on television?
iii)
Would the people with whom I have a significant personal relationship, such as family
members, friends, or even managers in other organizations approve of the decision?

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Another philosophy that was discussed in class was the theory of interconnectedness, which meant
that everything is some how interconnected with each other. If this is true, then people who face
ethical decisions can really have an impact on their organization and beyond with the decision they
make. I think that the reason that many people make unethical decisions is because a lot of people in
society are selfish, and only look out for themselves. It is this selfish way of thinking that can lead
to an unethical decision, and these unethical decisions will affect everyone and everything around
them in this scientific theory, and can have a profound impact on the life of the organization. Maybe
this new way of thinking should be incorporated into corporate training programs, or infused some
other way, like by making them watch the movie, "Mindwalk". This movie really opens your eyes to
a new way of looking at the world.
10. Current State of Business Ethics
Business ethics has recently come to light again in the wake of corporate scandal and accounting
frauds that led to the demise of corporations like Enron and Worldcom. Can business schools help
curtail this trend by reassessing their approach to educating future business leaders? A recent study
of business-school deans didn't seem to think so.
As technology in general and the Internet in particular become a more important part of how
virtually all companies do business, many are finding themselves faced with new ethical dilemmas.
Take for example when New York-based Internet advertising company DoubleClick, Inc. made plans
to share customer information with an off-line marketing firm. Consumer advocates were irate at
that proposal. The controversy not only tarnished the company's name, but it also raised a host of
Internet privacy issues that e-commerce companies could no longer avoid.
How are companies coping with these ethical issues? They are turning to ethics consultants to
sort out thorny ethical problems that can cause legal and financial disasters later on. Now an
increasing number of companies are seeking the expertise of a new brand of ethicist - one who can
apply abstract principles to quickly changing technologies. E-commerce firms might use an ethicist
to help answer questions such as: Just what limits should there be on how online businesses use the
information they gather about their customers? And what responsibility do companies have to
publicly disclose their data mining practices?
11. Methods of Studying B. Ethics
The methods employed in studying Business Ethics are linked to the historical
development of the discipline.
Business Ethics is broken down into five sectors:
a. Cases of immoral behaviour in business are listed. This prepares the way for
the formulation of norms and solutions. Sometimes structural defects in the
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system or of a company are exposed. Philosophy, theology, economics are

used in this multidisciplinary analysis.
b. A descriptive study of ethics in practice the alternatives available, the
underlying attitudes.
c. Fundamental ethics:
studying
responsibility and discrimination.
issues
like
profit,
private
property,
d. A meta-ethical description of ethical systems and theories.

e. Clarification of particular problems
In the past ethics has largely concentrated on negative aspects: abuses in a
company, lies, and fraud. There is a trend now towards developing a positive aspect
of business ethics, an ethics of virtue that will create a healthy ethos and
company culture. The main focus of this method is to foster a long-term approach
to profits, as a more ethical attitude than the avaricious pursuit of immediate gains.
It is a programme of reflection on social ethics that goes beyond purely private
moral responses. We have to face the question of corporate responsibility for
injustices, inequities and exploitations built into the social and economic
structures, that the modern world has come to regard as natural. But in fact they
are man-made, constructed realities. They can be changed with good will.
We believe that Rational Analysis prepares people to accept grace and act with a
recognition of their duties towards God and their neighbour. Many of these issues
are intrinsically complicated. Condemnations on the basis of stereotypes, or of a
one-dimensional analysis, leads to weak norms. However, consensus behaviour is
not good ethics, although it may appear to be democratic.
The business world today lives on the profit margin; it is the measure of all activity in the
commercial world. It is the overriding consideration of management. A squeeze on
profits means lesser dividends to shareholders, less investment in new plant,
lowering of credit ratings, lower stock prices, vulnerability to take over, flight of
valuable personnel to competitors, a freeze on research and expenditure on new
products. Some writers like Galbraith stress the inability of early economies to
realistically arrive at true values for profit, prices and wages, because of the
prevalence of slavery, which distorted the measurement of human productivity.

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Utilitarianism
2006-7
Introduction
Utilitarianism was developed in 18th and 19th England. It influenced the political and
economic systems of nascent capitalism, far-and wide, for several centuries. This system
put great faith in the individual, who seeks his own well-being within the limits of the utility
principle.
It postulates that the free choice of this individual should be directed in a way that secures
the greatest good or the least evil to oneself, and hence it will produce the same for others.
Therefore, the well-being of the individual agent is the measure or basis of rightness of an
action, yielding a form of moral reasoning that also has social application, because each
ones happiness is linked to that of others.
The consequences of ones action are always judged in the respect shown to others.
Individual happiness is defined in relation to the advancement of human welfare, although
the starting point is, indeed the individual.
Utilitarianism is based on a utopian postulate:
a) That all people are of good will
b) And are reasonable in their demands, that is, when choosing rules for oneself,
every person places other peoples interests on unequal footing. Rules that
favour some in particular would be rejected. This system is called
Utilitarianism because actions and policies receive moral approbation when
they are useful and contribute to happiness.
The Greatest Happiness Criterion
According to Jeremy Bentham (1748-1832), an Englishman who founded this doctrine of
utility claims that the core of this ethical inquiry is found in the pursuit of happiness. This is
what all mankind wants. In his famous work, An Introduction to the Principles of Morals
and Legislation (1780), he opens with a statement that man is motivated by pleasure and
pain, whether he is aware of it or not. He pursues the former and avoids the latter. The
principle of self-preference is the psychological foundation used by the Utilitarian ethical
system in order to define moral good in terms of promoting and augmenting the happiness
of the party whose interests are in question.
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Bentham devised his felicific or hedonistic calculus that provided quantitative and
materially linked criteria for measuring happiness: Intensity, duration, certainty, propinquity,
fecundity and extent.
1.
2.
3.
4.
5.
6.
7.
Intensity:
How intense is the pleasure?
Duration:
How long does it last?
Certainty:
What is the probability that the pleasure will occur?
Propinquity: (Nearness or remoteness) How far off in the future is the pleasure?
Fecundity: What is the probability that the pleasure will lead to other pleasures?
Purity: How unmixed with pain is the pleasure?
Extent:
How many persons are affected?
Because pleasure was reduced to one basic type of happiness, devoid of qualitative
distinctions, the sum of the above variables would estimate the amount of enjoyment
present, or the amount of pain that is averted, in a particular action. Thus this measurement
of the consequences of an act determines its tendency towards good or evil. Furthermore,
each individual is the best judge of what gives him or her personal happiness, and therefore
of what the moral duty or obligation is in the situation.
Even though each person was deemed to be the best judge of his or her own
happiness, and therefore, of what his or her moral duty would be, the utilitarian believed that
there is more than private satisfaction involved, or else the system would be distorted into an
incentive for selfish exploitation. Altruistic and even generous sacrifices were expected, but
the starting principle emphasized that charity begins at home, with individuals motivated by
enlightened self-interest. Hence, it is an ethical system affirming benevolence, a concern for
others that redeems it from egoism.
Bentham believed that there were four types of external pressures that acted as
sanctions to keep human beings from acting selfishly:
1) Laws of the physical world
2) Social condemnation
3) Civil law and
4) Gods punishment.
Briefly summarized, Benthams philosophy yielded two practical norms that were
readily accepted by the young, developing democracies and within the financial community:
Benevolent consequences of individual action

Therefore, the greatest happiness of the greatest number arises from an
individuals action.
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Impartiality
Everybody to count as one: no favouritism.
Adam Smith added the element of competition, which would serve useful and social
ends, by fostering efficiency and placing limits on unrestricted greed. He was convinced
that the Invisible Hand, which guides self-interested behaviour in the market place, would
yield good products, at competitive prices, producing wealth for the producer and the whole
nation. Therefore, he encouraged the government to forego tariffs and other protective
measures, and advocate a Free Market- (laissez faire), which became the most cherished
doctrine of the Utilitarian ethicists.
John Stuart Mill
Mill regarded utilitarianism, as the best social mechanism to solve the social problems
industrialization was creating, viz, the unequal distribution of wealth, and deteriorating
living conditions. Class interests had to be remedied by a more benevolent social atmosphere
than his era offered. However, he rejected the criterion of pleasure for moral judgement,
and introduced more qualitative values. He found a place for justice, virtue, liberty and
character, yet retained the empirical preference for results and consequences of actions to
determine the ethical behaviour of society.
Benthams Four External Pressures

Mill added an inner human voice that he called conscience, which is the product of
refinement and renders people fit for social life. He aimed at turning genuinely selfinterested people into morally sensitive, cultured persons.
Mill remained emphatic that the freedom of individuals must be treasured. Mature
individuals choose the best consequences: legislation is not the most effective means to
improve society. Reacting to the tendency of the English government of his day, to legislate
what social preferences ought to be, he constantly reiterated the laissez faire principle as the
moral ideal.
Modern utilitarians have emphasized preference-satisfaction, recognizing that human
beings have many other preferences or values, besides pleasure.
Important Elements of Utilitarianism
Utilitarianism belongs to the family of ethical theories that give important role to the
consequences of our actions, in evaluating the moral worth of those actions. The
Page 16
consequentialists present teleological arguments to encourage beneficence (doing good) and

non-maleficence (avoiding harm). Proportionalists tend to think in the same way.
In its narrowest interpretation, Utilitarianism would seem to reject moral absolutes or
ethical rules, accepting only the predictable consequences of an action as the standard for its
goodness or evil. However, the more commonly held version is called Rule Utilitarianism as
opposed to Act Utilitarianism.
Act Utilitarianism weighs the consequence of each case, drawing only on some rules
of thumb derived from similar cases in the past.
Rule Utilitarianism version enjoys greater acceptance, because the utility of

particular classes of actions is studied, rather than that of an individual action. The rule is
based on the consequences of such actions in the past, and the assumption that they will
have the same results in the future. (Student reaction to bad food, Fuel scarcity) Therefore,
in applying the rule to a particular action one is not tempted to weigh things in ones own
favour or to diminish the possible harm done to others.
Important to Note:
1) The rules are often those that society has already approved.
2) On the basis of the observation of consequences, one remains open to
reassess prior moral judgements, challenge those that are mistaken
and evaluate actions that are prompted by new circumstances.
This method was crystallized into the popular moral philosophy of John Dewey,
which employed a Scientific Method of arriving at personal moral behaviour, through a
process of:
1) Hypothesis,
2) Observation,
3) Organization,
4) Testing and
5) Value clarification.
The business community was particularly attracted to this principle for the maximization
of happiness. The propositions were pragmatic, devoted to the augmentation of benefits and
their equitable distribution. Each individual is called to increase the collective resources.
Most economists have espoused this form of evaluation of results, and for a while the utility
principle was even the basis for the development of an economic theory of quantitative
efficiency that dealt with supply of commodities, price equilibrium, consumption and
demand functions. Cultivating such should not be confused with what is the best as a moral
norm.
Page 17
An Evaluation
Utilitarianism seems to fit in with intuitive common sense criteria of the pragmatic
businessman. Its laissez faire approach to government intervention accords with modern
ideas that government spending on vast bureaucracies is wasteful causes deficits and is of
far lesser efficacy than private initiative.
---- The appeal of this method lies in the single criterion for determining morality that it
offers the benefits of consequences.
---- From a business point of view the utility principle was ideal in proposing that all costs
and benefits could be measured on a numerical scale. For example, this could be applied to
measuring the effectiveness of the environment at the cheapest cost.
Problems:
1) Whose benefits are to be weighed, those of management, the worker, or that of the
local community?
2) In what order of priority?
Results motivated by self-interest are a valid indicator, only if the real social benefits of
all are considered.
3) It is commonly recognized that the consequences of ones action are like endless
ripples in a pond, and quite impossible to foresee. In the complicated environment of
global trading and anonymous corporations, it is almost impossible to use the
outcome of activity as the moral criterion for choosing between alternatives. An
action is not necessarily right because it produces the most immediate benefits.
4) Even though utilitarianism can aid many common-sense judgements, it does not take
account of the intentions that can motivate a person.
5) Utility would incline a business to bow before consumer sovereignty, yet what the
public demands could be immoral or the result of pathological preferences. These
preferences could also change with time, neither personal nor group feelings; biases
and prejudices should be elevated to the level of normative guides.
6) Even though utilitarianism in business matters applies the processes of pragmatic
economic reasoning to try to arrive at moral decisions, morality transcends this
technique. For while production and marketing costs will indicate certain efficient
and competitive options, cost/benefit analysis is unable to present the rational goals
and values that contribute value to human action. The sum total of benevolent
consequences is not always moral.
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7) The utility principle lacks a norm calling one to desist from immoral actions. One
need not stop an activity that is commonly regarded as morally wrong. If competitors
are also successfully engaged in the same practice because the consequent unbearable
burden, would damage the individuals efforts.
VI. Conclusion
In modern business ethics, the utility principle has given way to a more deontological form
of ethical reasoning. Today, laws and professional codes tend to regulate the dos and donts
of moral behaviour. While it produces social benefits, it does not consider the means by
which these are to be achieved and the rights of individuals may be easily sacrificed. Real
social justice is not achieved, because the principle of self-interest is not adequate when it
comes to ensuring that the burdens of social living are equally distributed. It has propelled
the capitalist economy to rely on the utility of market forces with a view of regulating itself!
Chapter 1
Page 19
FUNDAMENTAL ETHICAL
PRINCIPLES
CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS
CONTENTS:
A GENERAL APPLICATION OF THE CODE
Introduction and Fundamental Principles
Integrity
Objectivity
Professional Competence and Due Care
Confidentiality
Professional Behavior
1.1 Introduction and Fundamental Principles
A distinguishing mark of the accountancy profession is its acceptance
of the responsibility to act in the public interest. Therefore, a
professional accountants*responsibility is not exclusively to satisfy
the needs of an individual client or employer.
In acting in the public interest a professional accountant should
observe and comply with the ethical requirements of the ethical Code.
This Code establishes the fundamental principles of
professional ethics for professional accountants and provides a
conceptual framework for applying those principles. The
conceptual framework provides guidance on fundamental ethical
Fundamental Principles
A professional accountant is required to comply with the following
fundamental principles:
(a) Integrity
A professional accountant should be straightforward and honest in all
professional and business relationships.
(b) Objectivity
A professional accountant should not allow bias, conflict of interest or
undue influence of others to override professional or business
judgments.

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(c) Professional Competence and Due Care

A professional accountant has a continuing duty to maintain
professional knowledge and skill at the level required to ensure that a
client or employer receives competent professional service based on
current developments in practice, legislation and techniques. A
professional accountant should act diligently and in accordance with
applicable technical and professional standards when providing
professional services.
(d) Confidentiality
A professional accountant should respect the confidentiality of
information acquired as a result of professional and business
relationships and should not disclose any such information to third
parties without proper and specific authority unless there is a legal or
professional right or duty to disclose. Confidential information acquired
as a result of professional and business relationships should not be
used for the personal advantage of the professional accountant or third
parties.
(e) Professional Behavior
A professional accountant should comply with relevant laws and
regulations and should avoid any action that discredits the profession.
Each of these fundamental principles is discussed in more detail in
Conceptual Framework Approach

The circumstances in which professional accountants operate may give
rise to specific threats to compliance with the fundamental principles.
It is impossible to define every situation that creates such threats and
specify the appropriate mitigating action. In addition, the nature of
engagements and work assignments may differ and consequently
different threats may exist, requiring the application of different
safeguards. A conceptual framework that requires a professional
accountant to identify, evaluate and address threats to compliance
with the fundamental principles, rather than merely comply with a set
of specific rules which may be arbitrary, is, therefore, in the public
interest. This Code provides a framework to assist a professional
accountant to identify, evaluate and respond to threats to compliance
with the fundamental principles. If identified threats are other than
clearly insignificant, a professional accountant should, where
appropriate, apply safeguards to eliminate the threats or reduce them
to an acceptable level, such that compliance with the fundamental
principles is not compromised.
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A professional accountant has an obligation to evaluate any

threats to compliance with the fundamental principles when
the professional accountant knows, or could reasonably be
expected to know, of circumstances or relationships that may
compromise compliance with the fundamental principles.
A professional accountant should take qualitative as well as
quantitative factors into account when considering the significance of a
threat. If a professional accountant cannot implement appropriate
safeguards, the professional accountant should decline or discontinue
the specific professional service involved, or where necessary resign
from
CODE
OF
ACCOUNTANTS
1.2
ETHICS
FOR
PROFESSIONAL
The client (in the case of a professional accountant in public practice)

or the employing organization (in the case of a professional accountant
in business).
A professional accountant may inadvertently violate a provision of this
Code. Such an inadvertent violation, depending on the nature and
significance of the matter, may not compromise compliance with the
fundamental principles provided, once the violation is discovered, the
violation is corrected promptly and any necessary safeguards are
applied.
Threats and Safeguards
Compliance with the fundamental principles may potentially be
threatened by a broad range of circumstances. Many threats fall into
the following categories:
(a) Self-interest threats, which may occur as a result of the
financial or other interests of a professional accountant or of an
immediate or close family* member;
(b) Self-review threats, which may occur when a previous
judgment needs to be reevaluated by the professional accountant
responsible for that judgment;
(c) Advocacy threats, which may occur when a professional
accountant promotes a position or opinion to the point that subsequent
objectivity may be compromised;
Page 22
(d) Familiarity threats, which may occur when, because of a close

relationship, a professional accountant becomes too sympathetic to
the interests of others; and
(e) Intimidation threats, which may occur when a professional
accountant may be deterred from acting objectively by threats, actual
or perceived.
Safeguards that may eliminate or reduce such threats to an acceptable
level fall into two broad categories:
(a) Safeguards created by the profession, legislation or regulation; and
(b) Safeguards in the work environment.
Safeguards created by the profession, legislation or regulation include,
but are not restricted to:
Educational, training and experience requirements for entry into the
profession.
Continuing professional development requirements.
Corporate governance regulations.
Professional standards.
Professional or regulatory monitoring and disciplinary procedures.
External review by a legally empowered third party of the reports,
returns, communications or information produced by a professional
accountant.
Safeguards in the work environment for professional accountants in
public practice and those in business.
Certain safeguards may increase the likelihood of identifying or
deterring unethical behavior. Such safeguards, which may be created
by the accounting profession, legislation, regulation or an employing
organization, include, but are not restricted to:
Effective, well publicized complaints systems operated by the
employing organization, the profession or a regulator, which enable
colleagues, employers and members of the public to draw attention to
unprofessional or unethical behavior.
An explicitly stated duty to report breaches of ethical requirements.
The nature of the safeguards to be applied will vary depending on the
circumstances. In exercising professional judgment, a professional
accountant should consider what a reasonable and informed third
Page 23
party, having knowledge of all relevant information, including the

significance of the threat and the safeguards applied, would conclude
to be unacceptable.
Ethical Conflict Resolution
In evaluating compliance with the fundamental principles, a
professional accountant may be required to resolve a conflict in the
application of fundamental principles.
When initiating either a formal or informal conflict resolution process, a
professional accountant should consider the following, either
individually or together with others, as part of the resolution process:
(a) Relevant facts;
(b) Ethical issues involved;
(c) Fundamental principles related to the matter in question;
(d) Established internal procedures; and
(e) Alternative courses of action.
Having considered these issues, a professional accountant should
determine the appropriate course of action that is consistent with the
fundamental principles identified. The professional accountant should
also weigh the consequences of each possible course of action. If the
matter remains unresolved, the professional accountant should consult
with other appropriate persons within the firm* or employing
organization for help in obtaining resolution.
Where a matter involves a conflict with, or within, an organization, a
professional accountant should also consider consulting with those
charged with governance of the organization, such as the board of
directors or the audit committee.
It may be in the best interests of the professional accountant to
document the substance of the issue and details of any discussions
held or decisions taken, concerning that issue.
If a significant conflict cannot be resolved, a professional accountant
may wish to obtain professional advice from the relevant professional
body or legal advisors, and thereby obtain guidance on ethical issues
without breaching confidentiality. For example, a professional
accountant may have encountered a fraud, the reporting of which
could breach the professional accountants responsibility to respect
Confidentiality.
Page 24
The professional accountant should consider obtaining legal advice to

determine whether there is a requirement to report.
If, after exhausting all relevant possibilities, the ethical conflict remains
unresolved, a professional accountant should, where possible, refuse to
remain associated with the matter creating the conflict. The
professional accountant may determine that, in the circumstances, it is
appropriate to withdraw from the engagement team or specific
assignment, or to resign altogether from the engagement, the firm or
the employing organization.
Integrity
The principle of integrity imposes an obligation on all professional
accountants to be straightforward and honest in professional and
business relationships. Integrity also implies fair dealing and
truthfulness.
A professional accountant should not be associated with reports,
returns, communications or other information where they believe that
the information:
(a) Contains a materially false or misleading statement;
(b) Contains statements or information furnished recklessly; or
(c) Omits or obscures information required to be included where such
omission or obscurity would be misleading.
A professional accountant will not be considered to be in breach of this
code if the professional accountant provides a modified report in
respect of a matter contained
Objectivity
The principle of objectivity imposes an obligation on all professional
accountants not to compromise their professional or business
judgment because of bias, conflict of interest or the undue influence of
others.
A professional accountant may be exposed to situations that may
impair objectivity. It is impracticable to define and prescribe all such
situations. Relationships that bias or unduly influence the professional
judgment of the professional accountant should be avoided.
Professional Competence and Due Care
The principle of professional competence and due care imposes the
following obligations on professional accountants:
Page 25
(a) To maintain professional knowledge and skill at the level required to

ensure that clients or employers receive competent professional
service; and
(b) To act diligently in accordance with applicable technical and
professional standards when proving professional services. Competent
professional service requires the exercise of sound judgment in
applying professional knowledge and skill in the performance of such
service. Professional competence may be divided into two separate
phases:
(a) Attainment of professional competence; and
(b) Maintenance of professional competence.
The maintenance of professional competence requires a continuing
awareness and an understanding of relevant technical professional and
business developments.
Continuing professional development develops and maintains the
capabilities that enable a professional accountant to perform
competently within the professional environments.
Diligence encompasses the responsibility to act in accordance with the
requirements of an assignment, carefully, thoroughly and on a timely
basis.
A professional accountant should take steps to ensure that those
working under the professional accountants authority in a professional
capacity have appropriate training and supervision.
Where appropriate, a professional accountant should make clients,
employers or other users of the professional services aware of
limitations inherent in the services to avoid the misinterpretation of an
expression of opinion as an assertion of fact.
Confidentiality
The principle of confidentiality imposes an obligation on professional
accountants to refrain from:
(a) Disclosing outside the firm or employing organization confidential
information acquired as a result of professional and business
relationships without proper and specific authority or unless there is a
legal or professional right or duty to disclose; and

Page 26
(b) Using confidential information acquired as a result of professional

and business relationships to their personal advantage or the
advantage of third parties.
A professional accountant should maintain confidentiality
even in a social environment.
The professional accountant should be alert to the possibility of
inadvertent disclosure, particularly in circumstances involving long
association with a business associate or a close or immediate
family member.
A professional accountant should also maintain confidentiality of
information disclosed by a prospective client or employer.
A professional accountant should also consider the need to maintain
confidentiality of information within the firm or employing organization.
A professional accountant should take all reasonable steps to ensure
that staff under the professional accountants control and persons from
whom advice and assistance is obtained respect the professional
accountants duty of confidentiality.
The need to comply with the principle of confidentiality continues even
after the end of relationships between a professional accountant and a
client or employer. When a professional accountant changes
employment or acquires a new client, the professional accountant is
entitled to use prior experience. The professional accountant should
not, however, use or disclose any confidential information either
acquired or received as a result of a professional or business
relationship.
The
following
are
circumstances
where
professional
accountants are or may be required to disclose confidential
information or when such disclosure may be appropriate:
(a)
(b)
(i)
(ii)
Disclosure is permitted by law and is authorized by the client or

the employer;
Disclosure is required by law, for example:
Production of documents or other provision of evidence in the
course of legal proceedings; or
Disclosure to the appropriate public authorities of infringements
of the law that come to light; and

Page 27
(c)
There is a professional duty or right to disclose, when not

prohibited by law:
(i)
(ii)
(iii)
(iv)
To comply with the quality review of a member body or

professional body;
To respond to an inquiry or investigation by a member
body or regulatory body;
To protect the professional interests of a professional
accountant in legal proceedings; or
To comply with technical standards and ethics
requirements.
In deciding whether to disclose confidential information, professional

accountants should consider the following points:
(a) Whether the interests of all parties, including third parties whose
interests may be affected, could be harmed if the client or employer
consents to the disclosure of information by the professional
accountant;
(b) Whether all the relevant information is known and substantiated, to
the extent it is practicable; when the situation involves
unsubstantiated facts, incomplete information or unsubstantiated
conclusions, professional judgment should be used in determining the
type of disclosure to be made, if any; and
(c) The type of communication that is expected and to whom it is
addressed; in particular, professional accountants should be satisfied
that the parties to whom the communication is addressed are
appropriate recipients.
Professional Behavior
The principle of professional behavior imposes an obligation on
professional accountants to comply with relevant laws and regulations
and avoid any action that may bring discredit to the profession. This
includes actions which a reasonable and informed third party, having
knowledge of all relevant information, would conclude negatively
affects the good reputation of the profession.
In marketing and promoting themselves and their work, professional
accountants should not bring the profession into disrepute. Professional
accountants should be honest and truthful and should not:
(a) Make exaggerated claims for the services they are able to offer, the
qualifications they possess, or experience they have gained; or
Page 28
(b) Make disparaging references or unsubstantiated comparisons to the

work of others.
Chapter 2
PROFESSIONAL
ACCOUNTANTS IN PUBLIC
PRACTICE
Introduction
Professional Appointment
Conflicts of Interest
Second Opinions
Fees and Other Types of Remuneration
Marketing Professional Services
Gifts and Hospitality
Custody of Client Assets
ObjectivityAll Services
IndependenceAssurance Engagements

Introduction
This Code illustrates how the conceptual framework to be applied by
professional accountants in public practice. The examples in the
following sections are not intended to be, nor should they be
interpreted as, an exhaustive list of all circumstances experienced by a
professional accountant in public practice that may create threats to
compliance with the principles. Consequently, it is not sufficient for a
professional accountant in public practice merely to comply with the
examples presented; rather, the framework should be applied to the
particular circumstances faced.
A professional accountant in public practice should not engage
in any business, occupation or activity that impairs or might
impair integrity, objectivity or the good reputation of the
profession and as a result would be incompatible with the
rendering of professional services.
Page 29
Threats and Safeguards:

Compliance with the fundamental principles may potentially be
threatened by a broad range of circumstances. Many threats fall into
the following categories:
(a) Self-interest;
(b) Self-review;
(c) Advocacy;
(d) Familiarity; and
(e) Intimidation.
The nature and significance of the threats may differ depending on
whether they arise in relation to the provision of services to a
financial statement audit client*, a non-financial statement audit
assurance client* or a non-assurance client.
200.4 Examples of circumstances that may create self-interest threats
for a professional accountant in public practice include, but are not
limited to:
A financial interest* in a client or jointly holding a financial

interest with a client.
Undue dependence on total fees from a client.
Having a close business relationship with a client.
Concern about the possibility of losing a client.
Potential employment with a client.
Contingent fees* relating to an assurance engagement.
A loan to or from an assurance client or any of its directors or

officers.
Examples of circumstances that may create self-review
threats include, but are not limited to:
The discovery of a significant error during a re-evaluation of the
work of the professional accountant in public practice.
Reporting on the operation of financial systems after being
involved in their design or implementation.
Having prepared the original data used to generate records that
are the subject matter of the engagement.
A member of the assurance team being, or having recently
been, a director or officer* of that client.

Page 30
A member of the assurance team being, or having recently been,

employed by the client in a position to exert direct and
significant influence over the subject matter of the engagement.
Performing a service for a client that directly affects the subject
matter of the assurance engagement.
Examples of circumstances that may create advocacy threats

include, but are not limited to:
Promoting shares in a listed entity* when that entity is a financial
statement audit client.
Acting as an advocate on behalf of an assurance client in litigation or
disputes with third parties.
Examples of circumstances that may create familiarity threats
include, but are not limited to:
A member of the engagement team having a close or immediate
family relationship with a director or officer of the client.
A member of the engagement team having a close or immediate
family relationship with an employee of the client who is in a position
to exert direct and significant influence over the subject matter of the
engagement.
A former partner of the firm being a director or officer of the client or
an employee in a position to exert direct and significant influence over
the subject matter of the engagement.
Accepting gifts or preferential treatment from a client, unless the
value is clearly insignificant.
Long association of senior personnel with the assurance client.
.
Examples of circumstances that may create intimidation
threats include, but are not limited to:
Being threatened with dismissal or replacement in relation to a client
engagement.
Being threatened with litigation.
Being pressured to reduce inappropriately the extent of work
performed in order to reduce fees.
A professional accountant in public practice may also find that
specific circumstances give rise to unique threats to
Page 31
compliance with one or more of the fundamental principles.

Such unique threats obviously cannot be categorized. In either
professional or business relationships, a professional accountant in
public practice should always be on the alert for such circumstances
and threats.
Safeguards that may eliminate or reduce threats to an acceptable level
fall into two broad categories:
(a) Safeguards created by the profession, legislation or regulation; and
(b) Safeguards in the work environment.
Examples of safeguards created by the profession, legislation or
regulation are:
In the work environment, the relevant safeguards will vary
depending on the circumstances. Work environment safeguards
comprise firm-wide safeguards and engagement specific safeguards. A
professional accountant in public practice should exercise judgment to
determine how to best deal with an identified threat. In exercising this
judgment a professional accountant in public practice should consider
what a reasonable and informed third party, having knowledge of all
relevant information, including the significance of the threat and the
safeguards applied, would reasonably conclude to be acceptable. This
consideration will be affected by matters such as the significance of
the threat, the nature of the engagement and the structure of the firm.
Firm-wide safeguards in the work environment may include:
Leadership of the firm that stresses the importance of compliance
with the fundamental principles.
Leadership of the firm that establishes the expectation those
members of an assurance team will act in the public interest.
Policies and procedures to implement and monitor quality control of
engagements.
Documented policies regarding the identification of threats to
compliance with the fundamental principles, the evaluation of the
significance of these threats and the identification and the application
of safeguards to eliminate or reduce the threats, other than those that
are clearly insignificant, to an acceptable level.

Page 32
For firms that perform assurance engagements, documented

independence policies regarding the identification of threats to
independence, the evaluation of the significance of these threats and
the evaluation and application of safeguards to eliminate or reduce the
threats, other than those that are clearly insignificant, to an acceptable
level.
Documented internal policies and procedures requiring compliance
with the fundamental principles.
Policies and procedures that will enable the identification of interests
or relationships between the firm or members of engagement teams
and clients.
Policies and procedures to monitor and, if necessary, manage the
reliance on revenue received from a single client.
Using different partners and engagement teams with separate
reporting lines for the provision of non-assurance services to an
assurance client.
Policies and procedures to prohibit individuals who are not members
of an engagement team from inappropriately influencing the outcome
of the engagement.
Timely communication of a firms policies and procedures, including
any changes to them, to all partners and professional staff, and
appropriate training and education on such policies and procedures.
Designating a member of senior management to be responsible for
overseeing the adequate functioning of the firms quality control
system.
Advising partners and professional staff of those assurance clients
and related entities from which they must be independent.
A disciplinary mechanism to promote compliance with policies and
procedures.
Published policies and procedures to encourage and empower staff to
communicate to senior levels within the firm any issue relating to
compliance with the fundamental principles that concerns them.
Engagement-specific safeguards in the work environment may
include:

Page 33
Involving an additional professional accountant to review the work

done or otherwise advise as necessary.
Consulting an independent third party, such as a committee of
independent directors, a professional regulatory body or another
professional accountant.
Discussing ethical issues with those charged with governance of the
client.
Disclosing to those charged with governance of the client the nature
of services provided and extent of fees charged.
Involving another firm to perform or re-perform part of the
engagement.
Rotating senior assurance team personnel.
Depending on the nature of the engagement, a professional
accountant in public practice may also be able to rely on safeguards
that the client has implemented.
However it is not possible to rely solely on such safeguards to reduce
threats to an acceptable level.
Safeguards within the clients systems and procedures may
include:
When a client appoints a firm in public practice to perform an
engagement, persons other than management ratify or approve the
appointment.
The client has competent employees with experience and seniority to
make managerial decisions.
The client has implemented internal procedures that ensure objective
choices in commissioning non-assurance engagements.
The client has a corporate governance structure that provides
appropriate oversight and communications regarding the firms
services.
Professional Appointment
Page 34
(i) Client Acceptance:

Before accepting a new client relationship, a professional accountant in
public practice should consider whether acceptance would create any
threats to compliance with the fundamental principles. Potential
threats to integrity or professional behavior may be created from, for
example, questionable issues associated with the client (its owners,
management and activities).
Client issues that, if known, could threaten compliance with the
fundamental principles include, for example, client involvement in
illegal activities (such as money laundering), dishonesty or
questionable financial reporting practices.
The significance of any threats should be evaluated. If identified
threats are other than clearly insignificant, safeguards should be
considered and applied as necessary to eliminate them or reduce them
to an acceptable level.
Appropriate safeguards may include obtaining knowledge and
understanding of the client, its owners, managers and those
responsible for its governance and business activities, or securing the
clients commitment to improve corporate governance practices or
internal controls.
Where it is not possible to reduce the threats to an acceptable level, a
professional accountant in public practice should decline to enter
into the client relationship.
Acceptance decisions should be periodically reviewed for recurring
client engagements.
(ii) Engagement Acceptance
A professional accountant in public practice should agree to provide
only those services that the professional accountant in public practice
is competent to perform. Before accepting a specific client
engagement, a professional accountant in public practice should
consider whether acceptance would create any threats to compliance
with the fundamental principles. For example, a self-interest threat to
professional competence and due care is created if the engagement
team does not possess, or cannot acquire, the competencies necessary
to properly carry out the engagement.
A professional accountant in public practice should evaluate the
significance of identified threats and, if they are other than clearly
Page 35
insignificant, safeguards should be applied as necessary to eliminate

them or reduce them to an acceptable level. Such safeguards may
include:
Acquiring an appropriate understanding of the nature of the clients
business, the complexity of its operations, the specific requirements of
the engagement and the purpose, nature and scope of the work to be
performed.
Acquiring knowledge of relevant industries or subject matters.
Possessing or obtaining experience with relevant regulatory or
reporting requirements.
Assigning sufficient staff with the necessary competencies.
Using experts where necessary.
Agreeing on a realistic time frame for the performance of the
engagement.
Complying with quality control policies and procedures designed to
provide reasonable assurance that specific engagements are accepted
only when they can be performed competently.
When a professional accountant in public practice intends to
rely on the advice or work of an expert, the professional
accountant in public practice should evaluate whether such
reliance is warranted. The professional accountant in public practice
should consider factors such as reputation, expertise, resources
available and applicable professional and ethical standards. Such
information may be gained from prior association with the expert or
from consulting others.
Changes in a Professional Appointment

A professional accountant in public practice who is asked to replace
another professional accountant in public practice, or who is
considering tendering for an engagement currently held by another
professional accountant in public practice, should determine whether
there are any reasons, professional or other, for not accepting the
engagement, such as circumstances that threaten compliance with the
fundamental principles. For example, there may be a threat to
professional competence and due care if a professional accountant in
public practice accepts the engagement before knowing all the
pertinent facts.
Page 36
The significance of the threats should be evaluated. Depending on the

nature of the engagement, this may require direct communication with
the existing accountant to establish the facts and circumstances
behind the proposed change so that the professional accountant in
public practice can decide whether it would be appropriate to accept
the engagement. For example, the apparent reasons for the change in
appointment may not fully reflect the facts and may indicate
disagreements with the existing accountant that may influence the
decision as to whether to accept the appointment.
An existing accountant is bound by confidentiality. The extent to
which the professional accountant in public practice can and should
discuss the affairs of a client with a proposed accountant will depend
on the nature of the engagement and on:
(a) Whether the clients permission to do so has been obtained; or
(b) The legal or ethical requirements relating to such communications
and disclosure, which may vary by jurisdiction.
In the absence of specific instructions by the client, an
existing
accountant
should
not
ordinarily
volunteer
information about the clients affairs. However, there
Circumstances where it may be appropriate to disclose
confidential information.
If identified threats are other than clearly insignificant, safeguards
should be considered and applied as necessary to eliminate them or
reduce them to an acceptable level.
Such safeguards may include:
Discussing the clients affairs fully and freely with the existing
accountant;
Asking the existing accountant to provide known information on any
facts or circumstances, that, in the existing accountants opinion, the
proposed accountant should be aware of before deciding whether to
accept the engagement;
When replying to requests to submit tenders, stating in the tender
that, before accepting the engagement, contact with the existing
accountant will be requested so that inquiries may be made as to
whether there are any professional or other reasons why the
appointment should not be accepted.

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A professional accountant in public practice will ordinarily need to

obtain the clients permission, preferably in writing, to initiate
discussion with an existing accountant.
Once that permission is obtained, the existing accountant should
comply with relevant legal and other regulations governing such
requests. Where the existing accountant provides information, it should
be provided honestly and unambiguously. If the proposed accountant is
unable to communicate with the existing accountant, the proposed
accountant should try to obtain information about any possible threats
by other means such as through inquiries of third parties or
background investigations on senior management or those charged
with governance of the client.
Where the threats cannot be eliminated or reduced to an acceptable
level through the application of safeguards, a professional accountant
in public practice should, unless there is satisfaction as to necessary
facts by other means, decline the engagement.
A professional accountant in public practice may be asked to undertake
work that is complementary or additional to the work of the existing
accountant. Such circumstances may give rise to potential threats to
professional competence and due care resulting from, for example, a
lack of or incomplete information. Safeguards against such threats
include notifying the existing accountant of the proposed work, which
would give the existing accountant the opportunity to provide any
relevant information needed for the proper conduct of the work.
Conflicts of Interest
A professional accountant in public practice should take reasonable
steps to identify circumstances that could pose a conflict of interest.
Such circumstances may give rise to threats to compliance with the
fundamental principles. For example, a threat to objectivity may be
created when a professional accountant in public practice competes
directly with a client or has a joint venture or similar arrangement with
a major competitor of a client. A threat to objectivity or confidentiality
may also be created when a professional accountant in public practice
performs services for clients whose interests are in conflict or the
clients are in dispute with each other in relation to the matter or
transaction in question.
significance of any threats. Evaluation includes considering, before
accepting or continuing a client relationship or specific engagement,
whether the professional accountant in public practice has any
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business interests, or relationships with the client or a third party that

could give rise to threats. If threats are other than clearly insignificant,
safeguards should be considered and applied as necessary to eliminate
them or reduce them to an acceptable level.
Depending upon the circumstances giving rise to the conflict,
safeguards should ordinarily include the professional accountant in
public practice:
(a) Notifying the client of the firms business interest or activities that
may represent a conflict of interest, and obtaining their consent to act
in such circumstances; or
(b) Notifying all known relevant parties that the professional
accountant in public practice is acting for two or more parties in
respect of a matter where their respective interests are in conflict, and
obtaining their consent to so act; or
(c) Notifying the client that the professional accountant in public
practice does not act exclusively for any one client in the provision of
proposed services (for example, in a particular market sector or with
respect to a specific service) and obtaining their consent to so act.
The following additional safeguards should also be considered:
(a) The use of separate engagement teams; and
(b) Procedures to prevent access to information (e.g., strict physical
separation of such teams, confidential and secure data filing); and
(c) Clear guidelines for members of the engagement team on issues of
security and confidentiality; and
(d) The use of confidentiality agreements signed by employees and
partners of the firm; and
(e) Regular review of the application of safeguards by a senior
individual not involved with relevant client engagements.
Where a conflict of interest poses a threat to one or more of the
fundamental principles, including objectivity, confidentiality or
professional behavior that cannot be eliminated or reduced to an
acceptable level through the application of safeguards, the
professional Accountant in public practice should conclude that it is not
Page 39
appropriate to accept a specific engagement or that resignation from

one or more conflicting engagements is required.
Where a professional accountant in public practice has requested
consent from a client to act for another party (which may or may not
be an existing client) in respect of a matter where the respective
interests are in conflict and that consent has been refused by the
client, then they must not continue to act for one of the parties in the
matter giving rise to the conflict of interest.
Second Opinions:
Situations where a professional accountant in public practice is asked
to provide a second opinion on the application of accounting, auditing,
reporting or other standards or principles to specific circumstances or
transactions by or on behalf of a company or an entity that is not an
existing client may give rise to threats to compliance with the
fundamental principles. For example, there may be a threat to
professional competence and due care in circumstances where the
second opinion is not based on the same set of facts that were made
available to the existing accountant, or is based on inadequate
evidence. The significance of the threat will depend on the
circumstances of the request and all the other available facts and
assumptions relevant to the expression of a professional judgment.
When asked to provide such an opinion, a professional accountant in
public practice should evaluate the significance of the threats and, if
they are other than clearly insignificant, safeguards should be
considered and applied as necessary to eliminate them or reduce them
to an acceptable level. Such safeguards may include seeking client
permission to contact the existing accountant, describing the
limitations surrounding any opinion in communications with the client
and providing the existing accountant with a copy of the opinion.
If the company or entity seeking the opinion will not permit
communication with the existing accountant, a professional accountant
in public practice should consider whether, taking all the circumstances
into account, it is appropriate to provide the opinion sought.
Fees and Other Types of Remuneration:
When entering into negotiations regarding professional services, a
professional accountant in public practice may quote whatever fee
deemed to be appropriate. The fact that one professional accountant in
public practice may quote a fee lower than another is not in itself
Page 40
unethical. Nevertheless, there may be threats to compliance with the

fundamental principles arising from the level of fees quoted. For
example, a self-interest threat to professional competence and due
care is created if the fee quoted is so low that it may be difficult to
perform the engagement in accordance with applicable technical and
professional standards for that price.
The significance of such threats will depend on factors such as the
level of fee quoted and the services to which it applies. In view of these
potential threats, safeguards should be considered and applied as
necessary to eliminate them or reduce them to an acceptable level.
Safeguards which may be adopted include:
Making the client aware of the terms of the engagement and, in
particular, the basis on which fees are charged and which services are
covered by the quoted fee.
Assigning appropriate time and qualified staff to the task.
Contingent fees are widely used for certain types of nonassurance engagements.2They may, however, give rise to threats
to compliance with the fundamental principles in certain
circumstances. They may give rise to a self-interest threat to
objectivity. The significance of such threats will depend on factors
including:
The nature of the engagement.
The range of possible fee amounts.
The basis for determining the fee.
Whether the outcome or result of the transaction is to be reviewed by
an independent third party.
Significance of such threats should be evaluated and, if they are other
than clearly insignificant, safeguards should be considered and applied
as necessary to eliminate or reduce them to an acceptable level. Such
safeguards may include:
An advance written agreement with the client as to the basis of

remuneration.
Disclosure to intended users of the work performed by the

Professional accountant in public practice and the basis of
remuneration.
Quality control policies and procedures.

Page 41
Review by an objective third party of the work performed by

the professional accountant in public practice:
In certain circumstances, a professional accountant in public practice
may receive a referral fee or commission relating to a client. For
example, where the professional accountant in public practice does not
provide the specific service required, a fee may be received for
referring a continuing client to another professional accountant in
public practice or other expert. A professional accountant in public
practice may receive a commission from a third party (e.g., a software
vendor) in connection with the sale of goods or services to a client.
Accepting such a referral fee or commission may give rise to selfinterest threats to objectivity and professional competence and due
care.
A professional accountant in public practice may also pay a referral fee
to obtain a client, for example, where the client continues as a client of
another professional accountant in public practice but requires
specialist services not offered by the existing accountant. The payment
of such a referral fee may also create a self-interest threat to
objectivity and professional competence and due care.
A professional accountant in public practice should not pay or
receive a referral fee or commission, unless the professional
accountant in public practice has established safeguards to
eliminate the threats or reduce them to an acceptable level.
Disclosing to the client any arrangements to pay a referral fee to
another professional accountant for the work referred.
Disclosing to the client any arrangements to receive a referral fee for
referring the client to another professional accountant in public
practice.
Obtaining advance agreement from the client for commission
arrangements in connection with the sale by a third party of goods or
services to the client.
A professional accountant in public practice may purchase all or part
of another firm on the basis that payments will be made to individuals
formerly owning the firm or to their heirs or estates. Such payments
are not regarded as commissions or referral fees for the purpose.
Marketing Professional Services:

Page 42
When a professional accountant in public practice solicits new work

through advertising or other forms of marketing, there may be
potential threats to compliance with the fundamental principles. For
example, a self-interest threat to compliance with the principle of
professional behavior is created if services, achievements or products
are marketed in a way that is inconsistent with that principle.
A professional accountant in public practice should not bring the
profession into disrepute when marketing professional services. The
professional accountant in public practice should be honest and
truthful and should not:
Make exaggerated claims for services offers, qualifications possessed
or experience gained; or
Make disparaging references to unsubstantiated comparisons to the
work of another.
If the professional accountant in public practice is in doubt whether a
proposed form of advertising or marketing is appropriate, the
professional accountant in public practice should consult with the
relevant professional body.
Gifts and Hospitality:
A professional accountant in public practice, or an immediate or close
family member, may be offered gifts and hospitality from a client. Such
an offer ordinarily gives rise to threats to compliance with the
fundamental principles. For example, self-interest threats to objectivity
may be created if a gift from a client is accepted; intimidation threats
to objectivity may result from the possibility of such offers being made
public.
The significance of such threats will depend on the nature,
value and intent behind the offer. Where gifts or hospitality which
a reasonable and informed third party, having knowledge of all
relevant information, would consider clearly insignificant are made a
professional accountant in public practice may conclude that the offer
is made in the normal course of business without the specific intent to
influence decision making or to obtain information. In such cases, the
professional accountant in public practice may generally conclude that
there is no significant threat to compliance with the fundamental
principles.
If evaluated threats are other than clearly insignificant, safeguards
should be considered and applied as necessary to eliminate them or
reduce them to an acceptable level. When the threats cannot be
Page 43
eliminated or reduced to an acceptable level through the application of

safeguards, a professional accountant in public practice should not
accept such an offer.
Custody of Client Assets:
A professional accountant in public practice should not assume custody
of client monies or other assets unless permitted to do so by law and, if
so, in compliance with any additional legal duties imposed on a
professional accountant in public practice holding such assets.
The holding of client assets creates threats to compliance with the
fundamental principles; for example, there is a self-interest threat to
professional behavior and may be a self interest threat to objectivity
arising from holding client assets. To safeguard against such threats, a
professional accountant in public practice entrusted with money (Or
other assets) belonging to others should:
(a) Keep such assets separately from personal or firm assets;
(b) Use such assets only for the purpose for which they are intended;
(C) At all times, be ready to account for those assets, and any income,
dividends or gains generated, to any persons entitled to such
accounting; and
(d) Comply with all relevant laws and regulations relevant to the
holding of and accounting for such assets.
In addition, professional accountants in public practice should be aware
of threats to compliance with the fundamental principles through
association with such assets, for example, if the assets were found to
derive from illegal activities, such as money laundering. As part
of client and engagement acceptance procedures for such services,
professional accountants in public practice should make appropriate
inquiries about the source of such assets and should consider their
legal and regulatory obligations. They may also consider seeking legal
advice.
ObjectivityAll Services:
A professional accountant in public practice should consider when
providing any professional service whether there are threats to
compliance with the fundamental principle of objectivity resulting from
having interests in, or relationships with, a client or directors, officers
Page 44
or employees. For example, a familiarity threat to objectivity may be

created from a family or close personal or business relationship.
A professional accountant in public practice who provides an assurance
service is required to be independent of the assurance client.
Independence of mind and in appearance is necessary to enable the
professional accountant in public practice to express a conclusion, and
be seen to express a conclusion, without bias, conflict of interest or
undue influence of others.
The existence of threats to objectivity when providing any professional
service will depend upon the particular circumstances of the
engagement and the nature of the work that the professional
accountant in public practice is performing.
significance of identified threats and, if they are other than clearly
insignificant, safeguards should be considered and applied as
necessary to eliminate them or reduce them to an acceptable level.
Withdrawing from the engagement team.
Supervisory procedures.
Terminating the financial or business relationship giving rise
to the threat.
Discussing the issue with higher levels of management
within the firm.
Discussing the issue with those charged with governance of
the client.
IndependenceAssurance Engagements:
In the case of an assurance engagement it is in the public interest and,
therefore, required by this Code of Ethics, that members of assurance
teams,* firms and, when applicable, network firms be independent
of assurance clients.
Assurance engagements are designed to enhance intended users
degree of confidence about the outcome of the evaluation or
measurement of a subject matter against criteria.
The International Framework for Assurance Engagements (the
Assurance Framework) issued by the International Auditing and
Assurance Standards Board describes the elements and objectives of
an assurance engagement, and identifies engagements to which
International Standards on Auditing (ISAs), International Standards on
Review Engagements (ISREs) and International Standards on
Assurance Engagements (ISAEs) apply. For a description of the
Page 45
elements and objectives of an assurance engagement reference should

be made to the Assurance Framework.
As further explained in the Assurance Framework, in an assurance
engagement the professional accountant in public practice expresses a
conclusion designed to enhance the degree of confidence of the
intended users other than the responsible party about the outcome of
the evaluation or measurement of a subject matter against criteria.
The outcome of the evaluation or measurement of a subject matter is
the information that results from applying the criteria to the subject
matter. The term subject matter information is used to mean the
outcome of the evaluation or measurement of subject matter. For
example:
The recognition, measurement, presentation and disclosure
represented in the financial statements* (subject matter
information) result from applying a financial reporting framework for
recognition, measurement, presentation and disclosure, such as
International Financial Reporting Standards, (criteria) to an entitys
financial position, financial performance and cash flows (subject
matter).
An assertion about the effectiveness of internal control (subject
matter information) results from applying a framework for evaluating
the effectiveness of internal control, such as COSO or Coco, (criteria) to
internal control, a process (subject matter).
Assurance engagements may be assertion-based or direct reporting. In
either case they involve three separate parties: a public accountant in
public practice, a responsible party and intended users.
In an assertion-based assurance engagement, which includes a
financial statement audit engagement*, the evaluation or
measurement of the subject matter is performed by the responsible
party, and the subject matter information is in the form of an assertion
by the responsible party that is made available to the intended users.
In a direct reporting assurance engagement the professional
accountant in public practice either directly performs the evaluation or
measurement of the subject matter, or obtains a representation from
the responsible party that has performed the evaluation or
measurement that is not available to the intended users. The subject
matter information is provided to the intended users in the assurance
report.
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Independence requires:
(i) Independence of Mind:
The state of mind that permits the expression of a conclusion without
being affected by influences that compromise professional judgment,
allowing an individual to act with integrity, and exercise objectivity and
professional skepticism.
(ii) Independence in Appearance:
The avoidance of facts and circumstances that are so significant that a
reasonable and informed third party, having knowledge of all relevant
information, including safeguards applied, would reasonably conclude
a firms, or a member of the assurance teams, integrity, objectivity or
professional skepticism had been compromised.
The use of the word independence on its own may create
misunderstandings. Standing alone, the word may lead observers to
suppose that a person exercising professional judgment ought to be
free from all economic, financial and other relationships. This is
impossible, as every member of society has relationships with others.
Therefore, the significance of economic, financial and other
relationships should also be evaluated in the light of what a reasonable
and informed third party having knowledge of all relevant information
would reasonably conclude to be unacceptable.
Many different circumstances, or combination of circumstances, may
be relevant and accordingly it is impossible to define every situation
that creates threats to independence and specify the appropriate
mitigating action that should be taken. In addition, the nature of
assurance engagements may differ and consequently different threats
may exist, requiring the application of different safeguards. A
conceptual framework that requires firms and members of assurance
teams to identify, evaluate and address threats to independence,
rather than merely comply with a set of specific rules which may be
arbitrary, is, therefore, in the public interest.
A Conceptual Approach to Independence

Members of assurance teams, firms and network firms are required to
apply the conceptual framework to the particular circumstances under
consideration. In addition to identifying relationships between the firm,
network firms, members of the assurance team and the assurance
client, consideration should be given to whether relationships between
Page 47
individuals outside of the assurance team and the assurance client

create threats to independence.
The examples presented here are intended to illustrate the application
of the conceptual framework and are not intended to be, nor should
they be interpreted as, an exhaustive list of all circumstances that may
create threats to independence.
Consequently, it is not sufficient for a member of an assurance team, a
firm or a network firm merely to comply with the examples presented,
rather they should apply the framework to the particular circumstances
they face.
The nature of the threats to independence and the applicable
safeguards necessary to eliminate the threats or reduce them to an
acceptable level differ depending on the characteristics of the
individual assurance engagement: whether it is a financial statement
audit engagement or another type of assurance engagement; and in
the latter case, the purpose, subject matter information and intended
users of the report. A firm should, therefore, evaluate the relevant
circumstances, the nature of the assurance engagement and the
threats to independence in deciding whether it is appropriate to accept
or continue an engagement, as well as the nature of the safeguards
required and whether a particular individual should be a member of the
assurance team.
Assertion-based Assurance Engagements:

Financial Statement Audit Engagements
Financial statement audit engagements are relevant to a wide range of
potential users; consequently, in addition to independence of mind,
independence in appearance is of particular significance. Accordingly,
for financial statement audit clients, the members of the assurance
team, the firm and network firms are required to be independent of the
financial statement audit client. Such independence requirements
include prohibitions regarding certain relationships between members
of the assurance team and directors, officers and employees of the
client in a position to exert direct and significant influence over the
subject matter information (the financial statements). Also,
consideration should be given to whether threats to independence are
created by relationships with employees of the client in a position to
exert direct and significant influence over the subject matter (the
financial position, financial performance and cash flows).
Page 48
Other Assertion-based Assurance Engagements

In an assertion-based assurance engagement where the client is not a
financial
statement audit client, the members of the assurance team and the
firm are required to be independent of the assurance client (the
responsible party, which is responsible for the subject matter
information and may be responsible for the subject matter). Such
independence requirements include prohibitions regarding certain
relationships between members of the assurance team and directors,
officers and employees of the client in a position to exert direct and
significant influence over the subject matter information.
Also, consideration should be given to whether threats to
independence are created by relationships with employees of the client
in a position to exert direct and significant influence over the subject
matter of the engagement. Consideration should also be given to any
threats that the firm has reason to believe may be created by network
firm interests and relationships.
In the majority of assertion-based assurance engagements, that are
not financial statement audit engagements, the responsible party is
responsible for the subject matter information and the subject matter.
However, in some engagements the responsible party may not be
responsible for the subject matter. For example, when a professional
accountant in public practice is engaged to perform an assurance
engagement regarding a report that an environmental consultant has
prepared about a companys sustainability practices, for distribution to
intended users, the environmental consultant is the responsible party
for the subject matter information but the company is responsible for
the subject matter (the sustainability practices).
In those assertion-based assurance engagements that are not financial
statement audit engagements, where the responsible party is
responsible for the subject matter information but not the subject
matter the members of the assurance team and the firm are required
to be independent of the party responsible for the subject matter
information (the assurance client). In addition, consideration should be
given to any threats the firm has reason to believe may be created by
interests and relationships between a member of the assurance team,
the firm, a network firm and the party responsible for the subject
matter.
Direct Reporting Assurance Engagements

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In a direct reporting assurance engagement the members of the

assurance team and the firm are required to be independent of the
assurance client (the party responsible for the subject matter).
Restricted Use Reports
In the case of an assurance report in respect of a non-financial
statement audit client expressly restricted for use by identified users,
the users of the report are considered to be knowledgeable as to the
purpose, subject matter information and limitations of the report
through their participation in establishing the nature and scope of the
firms instructions to deliver the services, including the criteria against
which the subject matter are to be evaluated or measured. This
knowledge and the enhanced ability of the firm to communicate about
safeguards with all users of the report increase the effectiveness of
safeguards to independence in appearance. These circumstances may
be taken into account by the firm in evaluating the threats to
independence and considering the applicable safeguards necessary to
eliminate the threats or reduce them to an acceptable level. At a
minimum, it will be necessary to apply the provisions of this section in
evaluating the independence of members of the assurance team and
their immediate and close family. Further, if the firm had a material
financial interest, whether direct or indirect, in the assurance client,
the self-interest threat created would be so significant no safeguard
could reduce the threat to an acceptable level. Limited consideration of
any threats created by network firm interests and relationships may be
sufficient.
Multiple Responsible Parties
In some assurance engagements, whether assertion-based or direct
reporting, that are not financial statement audit engagements, there
might be several responsible parties. In such engagements, in
determining whether it is necessary to apply the provisions in this
section to each responsible party, the firm may take into account
whether an interest or relationship between the firm, or a member of
the assurance team, and a particular responsible party would create a
threat to independence that is other than clearly insignificant in the
context of the subject matter information. This will take into account
factors such as:
The materiality of the subject matter information (or the subject
matter) for which the particular responsible party is responsible; and
The degree of public interest associated with the engagement.

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If the firm determines that the threat to independence created by any

such interest or relationship with a particular responsible party would
be clearly insignificant it may not be necessary to apply all of the
provisions of this section to that responsible party.
Other Considerations
The threats and safeguards identified in this section are generally
discussed in the context of interests or relationships between the firm,
network firms, members of the assurance team and the assurance
client. In the case of a financial statement audit client that is a listed
entity, the firm and any network firms are required to consider the
interests and relationships that involve that clients related entities.
Ideally those entities and the interests and relationships should be
identified in advance. For all other assurance clients, when the
assurance team has reason to believe that a related entity of such
an assurance client is relevant to the evaluation of the firms
independence of the client, the assurance team should consider that
related entity when evaluating independence and applying appropriate
safeguards.
The evaluation of threats to independence and subsequent
action should be supported by evidence obtained before
accepting the engagement and while it is being performed.
The obligation to make such an evaluation and take action arises when
a firm, a network firm or a member of the assurance team knows, or
could reasonably be expected to know, of circumstances or
relationships that might compromise independence. There may be
occasions when the firm, a network firm or an individual inadvertently
violates this section. If such an inadvertent violation occurs, it would
generally not compromise independence with respect to an assurance
client provided the firm has appropriate quality control policies and
procedures in place to promote independence and, once discovered,
the violation is corrected promptly and any necessary safeguards are
applied.
Throughout this section, reference is made to significant and clearly
insignificant threats in the evaluation of independence. In considering
the significance of any particular matter, qualitative as well as
quantitative factors should be taken into account. A matter should be
considered clearly insignificant only if it is deemed to be both trivial
and inconsequential.

Page 51
Objective and Structure of This Section

The objective of this section is to assist firms and members of
assurance teams in:
(a) Identifying threats to independence;
(b) Evaluating whether these threats are clearly insignificant; and
(c) In cases when the threats are not clearly insignificant, identifying
and applying appropriate safeguards to eliminate or reduce the threats
to an acceptable level.
Consideration should always be given to what a reasonable
and informed third party having knowledge of all relevant
information;
including safeguards applied,
and would
reasonably conclude to be unacceptable. In situations when no
safeguards are available to reduce the threat to an acceptable level,
the only possible actions are to eliminate the activities or interest
creating the threat, or to refuse to accept or continue the assurance
engagement.
This section concludes with some examples of how this conceptual
approach to independence is to be applied to specific circumstances
and relationships. The examples discuss threats to independence that
may be created by specific circumstances and Relationships.
Professional judgment is used to determine the appropriate safeguards
to eliminate threats to independence or to reduce them to an
acceptable level. In certain examples, the threats to independence are
so significant the only possible actions are to eliminate the activities or
interest creating the threat, or to refuse to accept or continue the
assurance engagement. In other examples, the threat can be
eliminated or reduced to an acceptable level by the application of
safeguards. The examples are not intended to be all-inclusive.
Certain examples in this section indicate how the framework is to be
applied to a financial statements audit engagement for a listed entity.
When a member body chooses not to differentiate between listed
entities and other entities, the examples that relate to financial
statement audit engagements for listed entities should be considered
to apply to all financial statement audit engagements.
When threats to independence that are not clearly
insignificant are identified, and the firm decides to accept or
continue the assurance engagement, the decision should be
documented. The documentation should include a description of the
Page 52
threats identified and the safeguards applied to eliminate or reduce the

threats to an acceptable level.
The evaluation of the significance of any threats to independence and
the safeguards necessary to reduce any threats to an acceptable level,
takes into account the public interest. Certain entities may be of
significant public interest because, as a result of their business, their
size or their corporate status they have a wide range of stakeholders.
Examples of such entities may include listed companies, credit
institutions, insurance companies, and pension funds. Because of the
strong public interest in the financial statements of listed entities, to
the financial statement audit of listed entities to other financial
statement audit clients that may be of significant public interest.
Audit committees can have an important corporate governance
role when they are independent of client management and can
assist the Board of Directors in satisfying themselves that a
firm is independent in carrying out its audit role. There should be
regular communications between the firm and the audit committee (or
other governance body if there is no audit committee) of listed entities
regarding relationships and other matters that might, in the firms
opinion, reasonably be thought to bear on independence.
Firms should establish policies and procedures relating to
independence communications with audit committees, or others
charged with governance of the client. In the case of the financial
statement audit of listed entities, the firm should communicate orally
and in writing at least annually, all relationships and other matters
between the firm, network firms and the financial statement audit
client that in the firms professional judgment may reasonably be
thought to bear on independence.
Matters to be communicated will vary in each circumstance and should
be decided by the firm, but should generally address the relevant
matters.
Engagement Period
The members of the assurance team and the firm should be
independent of the assurance client during the period of the assurance
engagement. The period of the engagement starts when the assurance
team begins to perform assurance services and ends when the
assurance report is issued, except when the assurance engagement is
of a recurring nature. If the assurance engagement is expected to
recur, the period of the assurance engagement ends with the
Page 53
notification by either party that the professional relationship has

terminated or the issuance of the final assurance report, whichever is
later.
In the case of a financial statement audit engagement, the
engagement period includes the period covered by the financial
statements reported on by the firm. When an entity becomes a
financial statement audit client during or after the period covered by
the financial statements that the firm will report on, the firm should
consider whether any threats to independence may be created by:
Financial or business relationships with the audit client during or after
the period covered by the financial statements, but prior to the
acceptance of the financial statement audit engagement; or
Previous services provided to the audit client. Similarly, in the case of
an assurance engagement that is not a financial statement audit
engagement, the firm should consider whether any financial or
business relationships or previous services may create threats to
independence.
If a non-assurance service was provided to the financial statement
audit client during or after the period covered by the financial
statements but before the commencement of professional services in
connection with the financial statement audit and the service would be
prohibited during the period of the audit engagement, consideration
should be given to the threats to independence, if any, arising from the
service. If the threat is other than clearly insignificant, safeguards
should be considered and applied as necessary to reduce the threat to
an acceptable level. Such safeguards may include:
Discussing independence issues related to the provision of the nonassurance service with those charged with governance of the client,
such as the audit committee;
Obtaining the clients acknowledgement of responsibility for the
results of the non-assurance service;
Precluding personnel who provided the non-assurance service from
participating in the financial statement audit engagement; and
Engaging another firm to review the results of the non-assurance
service or having another firm re-perform the non-assurance service to
the extent necessary to enable it to take responsibility for the service.
Page 54
A non-assurance service provided to a non-listed financial statement

audit client will not impair the firms independence when the client
becomes a listed entity provided:
(a) The previous non-assurance service was permissible under this
section for nonlisted financial statement audit clients;
(b) The service will be terminated within a reasonable period of time of
the client becoming a listed entity, if they are impermissible under this
section for financial statement audit clients that are listed entities; and
(c) The firm has implemented appropriate safeguards to eliminate any
threats to independence arising from the previous service or reduce
them to an acceptable level.
Financial Interests
A financial interest in an assurance client may create a self-interest
threat. In evaluating the significance of the threat, and the appropriate
safeguards to be applied to eliminate the threat or reduce it to an
acceptable level, it is necessary to examine the nature of the financial
interest. This includes an evaluation of the role of the person holding
the financial interest, the materiality of the financial interest
and the type of financial interest (direct or indirect).
When evaluating the type of financial interest, consideration should be
given to the fact that financial interests range from those where the
individual has no control over the investment vehicle or the financial
interest held (e.g., a mutual fund, unit trust or similar intermediary
vehicle) to those where the individual has control over the financial
interest (e.g., as a trustee) or is able to influence investment decisions.
In evaluating the significance of any threat to independence, it is
important to consider the degree of control or influence that can be
exercised over the intermediary, the financial interest held, or its
investment strategy. When control exists, the financial interest should
be considered direct. Conversely, when the holder of the financial
interest has no ability to exercise such control the financial interest
should be considered indirect.
Provisions Applicable to All Assurance Clients:
If a member of the assurance team, or their immediate family member,
has a direct financial interest, or a material indirect financial
interest*, in the assurance client, the self-interest threat created
Page 55
would be so significant the only safeguards available to eliminate the

threat or reduce it to an acceptable level would be to:
(a) Dispose of the direct financial interest prior to the individual
becoming a member of the assurance team;
(b) Dispose of the indirect financial interest in total or dispose of a
sufficient amount of it so that the remaining interest is no longer
material prior to the individual becoming a member of the assurance
team; or
(c) Remove the member of the assurance team from the assurance
engagement.
If a member of the assurance team or their immediate family member
receives, by way of, for example, an inheritance, gift or, as a result of a
merger, a direct financial interest or a material indirect financial
interest in the assurance client, a self-interest threat would be created.
The following safeguards should be applied to eliminate the threat or
reduce it to an acceptable level:
(a) Disposing of the financial interest at the earliest practical date; or
(b) Removing the member of the assurance team from the assurance
engagement.
During the period prior to disposal of the financial interest or the
removal of the individual from the assurance team, consideration
should be given to whether additional safeguards are necessary to
reduce the threat to an acceptable level. Such safeguards might
include:
Discussing the matter with those charged with governance, such as
the audit committee; or
Involving an additional professional accountant to review the work
done, or otherwise advise as necessary.
When a member of the assurance team knows that his or her close
family member has a direct financial interest or a material indirect
financial interest in the assurance client, a self-interest threat may be
created. In evaluating the significance of any threat, consideration
should be given to the nature of the relationship between the member
of the assurance team and the close family member and the
materiality of the financial interest. Once the significance of the threat
has been evaluated, safeguards should be considered and applied as
necessary. Such safeguards might include:
The close family member disposing of all or a sufficient portion of the
financial interest at the earliest practical date;
Page 56

the audit committee;
Involving an additional professional accountant who did not take part
in the assurance engagement to review the work done by the member
of the assurance team with the close family relationship or otherwise
advise as necessary; or
Removing the individual from the assurance engagement.
When a firm or a member of the assurance team holds a direct
financial interest or a material indirect financial interest in the
assurance client as a trustee, a self-interest threat may be created by
the possible influence of the trust over the assurance client.
Accordingly, such an interest should only be held when:
(a) The member of the assurance team, an immediate family member
of the member of the assurance team, and the firm are not
beneficiaries of the trust;
(b) The interest held by the trust in the assurance client is not material
to the trust;
(c) The trust is not able to exercise significant influence over the
assurance client; and
(d) The member of the assurance team or the firm does not have
significant influence over any investment decision involving a financial
interest in the assurance client.
Consideration should be given to whether a self-interest threat may be
created by the financial interests of individuals outside of the
assurance team and their immediate and close family members. Such
individuals would include:
Partners, and their immediate family members, who are not
members of the assurance team;
Partners and managerial employees who provide non-assurance
services to the assurance client; and
Individuals who have a close personal relationship with a member of
the assurance team.
Whether the interests held by such individuals may create a selfinterest threat will depend upon factors such as:
The firms organizational, operating and reporting structure; and
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The nature of the relationship between the individual and the

member of the assurance team.
The significance of the threat should be evaluated and, if the threat is
other than clearly insignificant, safeguards should be considered and
applied as necessary to reduce the threat to an acceptable level. Such
safeguards might include:
Where appropriate, policies to restrict people from holding such
interests;
the audit committee; or
in the assurance engagement to review the work done or otherwise
advise as necessary.
An inadvertent violation of this as it relates to a financial interest in an
assurance client would not impair the independence of the firm, the
network firm or a member of the assurance team when:
(a) The firm, and the network firm, have established policies and
procedures that require all professionals to report promptly to the firm
any breaches resulting from the purchase, inheritance or other
acquisition of a financial interest in the assurance client;
(b) The firm, and the network firm, promptly notify the professional
that the financial interest should be disposed of; and
(c) The disposal occurs at the earliest practical date after identification
of the issue, or the professional is removed from the assurance team.
When an inadvertent violation of this section relating to a financial
interest in an assurance client has occurred, the firm should consider
whether any safeguards should be applied. Such safeguards might
include:
in the assurance engagement to review the work done by the member
of the assurance team; or
Excluding the individual from any substantive decision-making
concerning the assurance engagement.
Provisions Applicable to Financial Statement Audit Clients:

If a firm, or a network firm, has a direct financial interest in a financial
statement audit client of the firm the self-interest threat created would
be so significant no safeguard could reduce the threat to an acceptable
Page 58
level. Consequently, disposal of the financial interest would be the only

action appropriate to permit the firm to perform the engagement.
If a firm, or a network firm, has a material indirect financial interest in a
financial

Page 59
PART 2
ETHICS IN BUSINESS
Chapter 3
Page 60
ETHICAL PRINCIPLES
2.0: Introduction
Institute of Public accountants of Uganda (ICPAU) publishes guidance
for its members in the form of code of ethics- which is a set of
guidelines which members are required to follow. Another example is
the IFAC.
2.1
Contents of the professional codes.
The IFAC code of ethics is a good illustration of how codes are

constructed;
2.2
The detailed guidance begins with establishment of fundamental

principles of ethics.
The guide then supplies a conceptual framework that requires
accountants to identify, evaluate and address threats to
compliance, applying safeguards to eliminate the threats to
reduce them to an acceptable level.
Elements of the code.
The elements of the code are:

(i)
Introduction.
The introduction provides the background to the code, stating who it
affects, how the code is enforced and outlines disciplinary
proceedings which will occur should the code be breached.
(ii)
Fundamental Principles
These are key principles that must be followed by all members and
students of the institute (ICPAU). For the case of ICPAU the code of
ethics is based on five fundamental principles. They are known as
the bedrock on which all the members actions are based.
These are:
Integrity.
Objectivity.

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Professional competence and due care.
Confidentiality.
Professional behavior.
(iii)
Conceptual framework.
The framework explains how the principles are actually applied

recognizing that the principles cannot cover all situations.
The framework also helps to identify threats to compliance with the
principles and then applies safeguards to eliminate or reduce those
threats to acceptable levels.
FIVE FUNDAMENTAL PRINCIPLES.
(I)
Integrity.
Integrity means that members should be straight forward and

honest in all their business relationship.. It implies not only honest
but fair dealing and truthfulness.
Members are required not to be associated with any form of
communication or report where the information is considered to be;
Materially false or to contain misleading statements.
Incomplete such that the report or communication becomes

misleading by his omission.
A member should not knowingly mislead or misrepresent facts to

others and should use due care to avoid doing so unintentionally. A
member should therefore behave with integrity in all professional and
business relationship.
(ii) Objectivity.
Accountants need to ensure that their business / professional
judgments are not compromised because of bias or conflict of interest.
The principle of objectivity imposes an obligation on all professional
accountants not to compromise their professional or business
judgments because of bias, conflict of interest or the undue influence
of others
Accountants should always ensure that their objectivity is intact in any
business/ professional relationship.
(iii) Professional competence and due care.
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There are two main considerations under this heading:
Accountants are required to have the necessary professional

knowledge and skill to carry out work for clients.
Accountants must follow applicable technical and professional

standards when providing professional services.
Competent professional service requires the exercise of sound

judgment in applying professional knowledge and skill in the
performance of such service. Professional competence may be divided
into two separate phases;
Attainment of professional competence and
Maintenance of professional competence.
The maintenance of professional competence requires a continuing

awareness and an understanding or relevant technical professional
and business developments. Continuing professional development
develops and maintains the capabilities that enable a professional
accountant to perform competently within the professional
environments.
Diligence encompasses the responsibility to act in accordance with
the requirements of an assignment, carefully, thoroughly and on a
timely basis.
A professional accountant should take steps to ensure that those
working under the professional accountants authority in a
professional capacity have appropriate training and supervision.
Appropriate levels of professional competence must first be attained
and then maintained. Maintenance implies keeping up to date with
business and professional developments, and in many institutes
including ICPAU, completion of an annual return confirming that the
continued professional development (CPD) requirements have been
met.
(iv)
Confidentiality

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The principle of confidentiality implies two key considerations for

accountants.
Information obtained in a business relationship is not disclosed
outside the firm unless there is proper and specific authority to
do so, or unless there is legal or professional right or duty to
disclose.
Confidential information acquired during the provision

professional services is not used to personal advantage.
of
The principle of confidentiality imposes an obligation on professional

accountants to refrain from:
(a) Disclosing outside the firm or employing organisation
confidential information acquired as a result of professional
and business relationships without proper and specific
authority or unless there is a legal or professional right or
duty to disclose ; and
(b)Using confidential information acquired as a result of
professional and business relationships to their personal
advantage or the advantage of the third parties.
The need to comply with the principle of confidentiality continues even
after the end of relationships between a professional accountant and
the client or employer. When a professional accountant changes
employment or acquires a new client, the professional accountant
should not, however, use or disclose any confidential information either
acquired or received as a result of a professional or business
relationship.
The following are the circumstances where professional accountants
are or may be required to disclose confidential information or when
such disclosure may be appropriate. (Exceptions to the rule)
(a) Disclosure is permitted by law and is authorized by the client.
(b)Disclosure is required by the law, for example:
Production of documents or other provision of evidence in the

course of legal proceedings; or

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Disclosure to the appropriate public authorities regarding

infringement of the law.
(c) There is a professional duty or right to disclose, when not

prohibited by law. For example;
To comply with the quality review of a member body or

professional body
To respond to an inquiry or investigation by a member body or

regulatory body.
To protect the professional interests

accountant in a legal proceedings ; or
To comply with technical standards and ethics requirements.
of
professional
In deciding whether to disclose confidential information, professional

accountants should consider the following points:
Whether the interests of all parties, including third parties whose

interests may be affected, could be harmed if the client or
employer consents to the disclosure of information by the
Whether all the relevant information is known and

substantiated , to the extent it is practicable ; when the situation
involves unsubstantiated facts, incomplete information or
unsubstantiated conclusions, professional judgment should be
used in determining the type of disclosure to be made , if any ;
and
The need to ensure that disclosure is made to the right recipient

or persons.
(v)
Professional behaviour.
A professional accountant should comply with the relevant laws
and regulations and should avoid any action that discredits the
professional.

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The principle of professional behaviour imposes an obligation on

professional accountants to comply with the relevant laws and
regulations and avoid any action that may bring discredit to the
profession. This includes actions which a reasonable and
informed third party, having knowledge of all relevant
information would conclude negatively affects the good
reputation of the profession.
In marketing and promoting themselves and their work,

professional accountants should be honest and truthful and
should not:
(a) Make exaggerated claims for the services they are able to offer,
the qualifications they possess, or experience they have gained;
or
(b)Make disparaging references or unsubstantiated comparisons to
the work of others.
Both the IFAC and the ICPAU identify certain threats to compliance
with the fundamental principles. The threats manifest themselves in
the following ways.
(i)
Self interest threat; i.e. having a financial interest in a client

generally means a self interest threat.
(ii)
Self Review threat: i.e. auditing financial statements prepared

by the firm, it becomes difficult to maintain objectivity.
(iii)
Advocacy threat: i.e. where a member becomes an advocate

for or against his client position in any proceedings or
situations.
(iv)
Familiarity/trust threat; where a member is too sympathetic

with the client because he is over influenced by the client for
example an Audit team member having a family member on
the clients team.
(v)
Intimidation threat: for example threats of replacement due to

disagreement. A member may become intimidated by threat
or by other pressures by those on whose affairs he is
commenting.

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Safe guards
The following are some of the safeguards against the threats;
Compliance with the code of the ethics.
The ethical support provided by the institute (ICPAU) .
Education training and experience requirements for entry into

the profession.
Continuing profession development requirements(CPD)
Corporate governance requirements.
Professional
procedures.
Training of the staff within the firms.
Rotation of staff involved in the assignment over a period of

time.
Assessing the integrity of the clients management.
External review by a legally empowered third party of the

reports, returns , communication or information produced by a
or
regulatory
monitoring
and
disciplinary
Chapter 4
FUNCTIONAL AREA ETHICS

4.0 Ethics in Accounting
Page 67
This is one of the functional areas of an organisation which should

handle its duties in a transparent manner. It covers ethics in the
following areas;
(i)
Management of cash transactions.
Management of goods
Management of accounts payable and receivables
Budgeting
Management of cash
Misappropriation of cash is easier in a big organisation when owner or

top management have no time to keep close watch on persons
handling cash. The misappropriation can happen in both receipt and
payment level as follows;
Non-recording of cash sales proceeds and embezzling the money
so far received.
Non recording of cash received against unusual sales such as

sale of old furniture, sub standard goods, junk scrap etc.
Misappropriation of cash received on miscellaneous accounts

such as recovery of bad debts , discounts etc
Under recording of cash sales or recording only a part of the cash

sales proceeds and pocketing the balance of the cash sales
proceeds
Omitting to record a credit sale and pocketing the money

received after sometime from the customer or debtor
By teaming and lading; this is where the cashier utilises wrongly

the money received from the first customer and the money
received from the second customer is credited to the first
customer, the money received from the third customer is
credited to the second customer and so on. This process is
continued until the cashier finds it possible to pay back the
money so misappropriated.
Recording false or fictitious cash purchases and pocketing that

amount.

Page 68
Recording a cash purchase at a higher figure than the actual

purchase amount and pocketing the difference amount.
(ii)
Management of goods
Misappropriation of goods is common, particularly when the goods are

small but of are of a high value such as watches, jewellery etc
Different ways of misappropriation of goods:
Goods can be misappropriated by actual theft.
Recording of sales of larger quantity than what is actually

supplied and misappropriating the balance quantity.
Recording purchase of larger quantity than what is actually

supplied by the suppliers and misappropriating the balance.
Supplying more goods than stated in the invoice and secretly

receiving the difference quantity from the buyers.
Safe guards to deter frauds in respect of goods:
Proper methods of keeping the accounts of purchases and sales.
Periodical stock-checking and stock taking.
Strict internal check and control
Rotation of staff from one department to another
(iii)
Management of accounts payable and receivables.
Manipulation of accounts is a fraud and this is done by deliberate false

entries in books of accounts, altering, erasing the entries, not entering
some true factual income/ expenses etc.
Different ways of manipulating accounts:

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Creative accounting / window dressing- to show more or less

profits than the actual.
By not providing for any depreciation on fixed assets.
By providing more or less depreciation than what is desirable.
By over-valuation or under-valuation of liabilities/ assets.
By recording fictitious sales and return outwards to show less

profits.
By not recording some items of expenses to show more profits.
By not providing for outstanding liabilities or prepaid expenses in

order to show more profit.
(iv)
Budgeting
Window dressing may be done in any of the following ways:

By recording the sales / income of the next year in the current
years profit and loss account.
By recording incomes of the previous years as those of the

current year.
By showing purchases of the current year as those of next year.
By not providing for depreciation or providing less depreciation of

fixed assets.
By over-valuation of assets and liabilities. Etc
4.1 Ethics in Human Resource management.

The employees function plays a very important role in the success of
any organisation. However great the facilities, a firm provides, it is
ultimately the people who have to make them work and achieve the
organisation success. Employers/ employees involve in fair and unfair
means to achieve the objectives of an organisation. Their behaviour
and actions are aimed to achieve the organisational objectives which
arte ethical and fair.
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However, unethical or unfair kind of behaviour and action can happen

in different categories as follows:
(i)
Employers. They sometimes indulge in unfair practices like

one or more of the following;
Corrupt selection process of employees.
Corrupt training selection methods not based on merit.
Failure to observe safety at work
Not concerned about well being of employees i.e. unfair

remuneration.
Discrimination of
promotions etc
Child labour
Favours based on sexual advances
(ii)
employees
when
it
comes
to
transfer,
Employees: Some unethical issues employees get involved

in are the following:
False claim of age, qualifications and experience
Making personal work in official hours
Bad language, immoral behaviour, no mutual respect , backbiting

etc
4.2 Ethics in marketing and sales

Marketing is the link of the organisation with the customers. It is the
process through which goods and services are brought to the attention
of the public.. However marketing has become a field for both fair and
unfair practices and hence needs careful watch. It is important that a
business takes care of all the stakeholders by doing what is fair and
right to them.
The main stakeholders of a business are: customers, employees,
suppliers, shareholders, government etc. Each stakeholder has their
own role and share in the business.
The various stakeholders are interested in the following:
Page 71
(i)
Customers; interested in the following;
(ii)
Quality /reliable products, fair treatment, honest information,

right to compensation.
Suppliers/ distributors:
Timely payment, fairness, truthfulness, mutual respect
(iii )Environment- a business should protect and respect

environment, prevent waste and improve and sustain
environment.
(iii)
(iv)
the
the
Government: government is interested in the following:

Payment of taxes, law abiding, maintenance of fair standard and
procedures, promote societal issues and community safety and
health.
Community and society.
Respect laws rights and values of people, cultures etc
Support and promote health and human development.
If fair business practices are not followed (see above) there could be
many situations of law suits in courts of law, poor sales, damage to
company reputation, loss of market share and survival of the company
will be threatened.
4.3 Unethical practices in marketing
Pricing: price fixing, price discrimination , price skimming etc
Unethical sales practices i.e. use of similar coloured packages,

print and looks of popular brands, marketing false claims i.e.
pure honey, pure ghee.
Specific marketing strategies to act as bait.
Wrong advertisement and labeling.

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Collusion with competitors.
Mixing of low quality product with high quality product. i.e. rice ,
posho , coffee etc
Selling the locally manufactured inferior product in the names of

imported products.
Child marketing
Use of unethical adverts
4.4 CONSUMER RIGHTS

Businesses have responsibilities towards the consumers and they
should explain various facilities, services and advantages and warranty
for their products through their catalogues, advertisements and
explanations. Such claims then become the consumer rights once they
buy the said product.
Some of the standard consumer rights are as follows;
Right to safety: Consumer needs to be protected from harm or

injury to their body and environment during and after use.
Right to choose: the consumer should be free to choose any

alternative product of their liking.
Right to know how: the consumer has a right to know the truthful
details of a product to be able to select a product of his choice.
Right to be heard; the manufacturer must hear the complaints

about any inconvenience or injustice taken place due to the
business transaction with them.
Right to Compensation in case of any harm done due to faulty

product.
Ethics in production
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This area of business ethics deals with the duties of a company to

ensure that products and production processes do not cause harm.
Production takes care materials, processing and making the finished
good/ product therefore quality should be emphasised.
Unethical practices in production
Producing substandard products/goods and passing them as OK
goods
Violating patent rights or copy rights
Copying others products which arte a secret process/ product

piracy
CHAPTER
REVIEW QUESTIONS
Delayed
deliveries.
1. Bring
out various
unethical issues involved in accounting, and finance, sales
and marketing, HRM and production.
2. June 2008 question 3- Critically analyze the various ethical danger points in
organisations generally, and in their marketing operations specifically.

Page 74
Chapter 5
CORPORATE GOVERNANCE
5.0 INTRODUCTION
Corporate Governance refers to how Companies are governed and
managed in light of the way business is conducted vis a vis the various
stakeholders. Is covers the relationship between the Board of directors,
shareholders and other stakeholders. It spells out the rules and
practices that govern the relationship between managers and
shareholders of the corporation.
In business different parties contribute capital, expertise and labour to
carryout an activity or mutual benefit. Stakeholders include suppliers,
creditors, employees and investors, each of the which has various
interests which out to be safeguarded, hence the role of Corporate
Governance.
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Corporate Governance therefore refers to the framework in which the

Shareholders (represented by the BOD), and management ensure that
the business is run in a morally upright manner.
The shareholders elect the Board of directors, which appoints senior
management. The senior management then appoints employees who
run the operational aspects of business.
Responsibilities of the BOD
Sets the corporate strategy. ie the vision, mission etc

Hiring and firing the CEO and Top management
Controlling and monitoring top management
Reviewing and approving use of resource
Key reasons for the emergence of Corporate Governance

During the 1980s a number of large public companies failed,
some of them as a result of large scale fraud by directors and
therefore, there was concern in the way in which Organizations
were run with particular focus on those corporate corporate
scandals i.e Polly Peck , Maxwell,Enron and Worldcom case. For
example the accounts of Polly Peck showed that the company
was in a health position while infact it was on the verge of
collapse. Directors were putting pressure on Auditors to accept
the use of creative accounting.
The need to provide some form of enforcement mechanism to try
to stop company failure such as those noted above occurring
again in future.
The need to raise standard of corporate reporting and avoid
window dressing of financial statements.
Due to lack of accountability by companies run by dominant
characters.
Due to excessive directors pay, the rates of which seem to be
fixed by the recipients themselves.
Some notable frauds and incidents of insider trading .
5.1 A business and Its Stake holders

Business has complex relationships with many segments of society.
The existence and power of these segments require careful
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management attention and action. A companys success can be

affected negatively or positively by it stake holders.
Some of the complex involvements with other people, groups and
organizations are intended and desired, others are unintentional and
not desired. The people and organizations with which a business is
involved have an interest in the decisions, actions and practices of the
firm. Business interacts with society in a variety of ways and a
companys relations differ with different stakeholders
Types of stakeholders
(a) Primary Stakeholders
These affect the firms ability to carry out its primary purpose of
providing society with goods and services
They include
Shareholders and Creditors: these provide financial capital to the
company
Employees: Contribute their work, skills and knowledge
Suppliers who provide raw materials, energy and other supplies
Wholesalers, distributors and retailers: These help regarding the
distribution of the product
Customers: These are needed by all businesses. They are willing
to pay for the products or services being produced
Competitors: Other firms compete by offering similar products
and services in the market place
(b) Secondary Stakeholders

Business secondary stakeholder involvements are a result of the
impacts caused by business primary activities. Secondary stakeholders
are those groups in society who are affected directly or indirectly by
the Companys secondary impacts and involvements
They include
The General Public

Business support groups for advice or research
Media
Social activists

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Government and local authorities

Local communities
Who are the stakeholders that have vested interests in
business firms?
A stakeholder is any person, group or organization that has a claim on
the organizations attention, resources, or output or is affected by that
output.
The advocates of social responsibility of business firms specify their
responsibilities towards the different sections in different terms. The
specific responsibilities of businessmen towards shareholders,
employees, consumers, the government and the society as a whole are
as given below.
What are the interests of different stakeholders in business
firms?
Shareholders
1.
2.
3.
Expect a reasonable rate of return overtime.

Want the survival and growth of the company.
Building reputation and good will of the company.
Employees.
i.
ii.
iii.
iv.
v.
vi.
vii.
Expect fair wages and its regular payment.

Good working conditions and safety.
Reasonable work standards and norms.
Labour welfare services health, education, recreation and
accommodation.
Training and promotion.
Recognition of and respect for hard work, honesty, sincerity and
loyalty.
Efficiency of redressing their grievances.
Consumers
i.
ii.
iii.
iv.
Providing goods and services at a reasonable price.

Supplying goods and services of promised quality, durability and
service.
Supplying socially harmless products.
Offering an efficient customer redressal mechanism.

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v.
vi.
vii.
Warding off middlemen as far as possible.

Resisting profiteering and black marketing.
Improving products quality through research and development,
inventions and innovations, improved efficiently.
Government
i.
ii.
iii.
iv.
v.
vi.
vii.
Regular payment of taxes.

Abiding by laws and regulations.
Resisting bribing bureaucrats and ministers.
Avoiding taking advantage of loopholes in business laws.
Cooperating with government in research and development.
Cooperating with government in upgrading of environment.
Cooperating with government in promoting social values.
Society as whole
i.
ii.
iii.
iv.
v.
Prevention of environmental pollution by the business firms.

Preservation of ethical and moral values.
Making provision of health, education and cultural services.
Minimizing ecological imbalance.
Choice of appropriate technology.
Directors and Managers

Directors and managers should attempt to promote and balance the
interests of shareholders/stakeholders groups. In most cases they
promote their own individual interests causing conflict of interest . This
is due to the divorce between ownership and control.
Directors are interested in own remuneration package , building
empires, exercising greater control E.t.c which objectives sometimes
conflict with the objectives of stakeholders.
Lenders
Lenders are concerned to receive payments of interests and eventually
repayment of capital at maturity. They are normally risk averse and
prefer lending to companies with high liquidity, strong cashflows, low
gearing levels, high interest cover e.t.c
Types of Institutional Investors
Institutional Investors channel funds invested by individuals and are
becoming the biggest Investors on the stock market, so they wield
great power with the potential to exert influence over the various
companies in they invest.
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Examples
Pension funds
Insurance companies
Unit trusts
Venture capital Organisations
Etc
Potential Sources of Conflict.
The day today running of a company is the responsibility of the
Directors and other management staff to whom shareholders delegate.
For these reasons therefore, there is potential for conflicts of interest
between management and shareholders.
Although ordinary shareholders are the owners of the company to
whom the Directors are accountable, the actual power of shareholders
is restricted. They have no right to inspect the books except through
the annual reports and accounts.
Good Corporate Governance is partly about the resolution of such
conflict.
5.2 Corporate Governance Reports.

There were three significant corporate governance reports in the UK
during the 1990s . These were the Cardbury, Greenbury and the
Hampel reports. The committee reports were named after the
chairpersons of the committees.
The Cardbury report(1992)
The Cardbury report defines Corporate Governance as the system by
which companies are directed and controlled.
The Cardbury committee was set up because of lack confidence which
was perceived in financial reporting and in the inability of Auditors to
provide the assurances required by the users of financial statements.
The Cardbury report described the roles of those concerned with the
financial statements as follows
The Directors are responsible for the corporate governance of the
company.
The shareholders are linked to the Directors via the financial
reporting system.
The Auditors provide the shareholders with an external objective
check on the Directors financial statements.
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Other concerned users particularly employees are indirectly

addressed by the financial statements.
Main recommendations of the Cardbury Report
All listed companies should adopt the code of best practice.
Directors should state in the annual report and accounts whether
they comply with the code and give reasons for any non
compliance.
The statement of compliance should be reviewed by the Auditors
before publication.
Directors contracts should not exceed three years without
approval of the shareholders.
Fees paid to the Auditors should be fully disclosed.
The accountancy professional should draw up guidelines on the
rotation of audit partners.
Directors should report on the effectiveness of their system of
internal controls.
Directors should state in their report and accounts that the
business is going concern.
5.3 Code of Best Practice.

The cardbury committee issued a Code of Best practice where all the
directors of the listed companies were encouraged to use the code of
best practice. The Code covered the Board of Directors, Non-Executive
Directors, Executive Directors and Audit Committees.
Content of the Code of Best Practice
(i)
Board of Directors
The Board should meet regularly and retain full and
effective control over the company and monitor the
executive management.
There should be clear division of responsibility, separation
of the posts of the chairman and chief executive.
The Board should have a formal schedule of matters
specifically reserved to it to ensure it has full direction and
control of the company i.e. investment issues, acquisition
and disposal of assets, bank borrowings, loans, foreign
currency transactions.
Key roles and responsibilities of Directors.

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Provide entrepreneurial leadership of the company

Decide on a formal schedule of matters to be reserved for
board decision.
Determine the companys mission, and purpose.
Select and appoint the CEO, chairman and other board
members.
Set the companies values and standards.
Establish appropriate internal controls that enable risk to
be assessed and managed ,
Put necessary human resource in place .
Meet regularly to discharge its duties effectively.
(ii)
Executive Directors
They run the company on day today basis.

Directors service contracts should not exceed three years.
Directors should report on the effectiveness of the companys
system of internal controls.
Directors should state in their report and accounts that the
Directors emoluments should be fully disclosed.
(iii) Non -executive Directors
These do not run the day today operations of the business. They can
be Directors of other companies or former civil servants or people of
outstanding character in society.
They should bring independent judgments to bear on important
issues.ie key appointments and standard of conduct.
They should be free of any business with the company apart
from fees and shareholdings.
The fees they get should attract the time they spend on the
business of the company.
They should be appointed on for specified periods without
automatic renewal.
They should not take part in share option schemes so as to
remain independent.
To be effective they should be well informed about the company and
the external environment in which they operate. Have a strong
command of issues relevant to the business
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(iv)
Audit Committees
These are committees of Board of Directors of mainly listed

companies and usually composed of 3-5 Non- executive directors.
All listed companies must establish effective Audit Committees,
consisting entirely of Non-Executive Directors.
The Committee must have the resources and means of access to
investigate anything within the terms of reference.
Work done by Audit committees
Review of the financial statements before submission to the
board focusing particularly on;
o Any changes in accounting policies.
o Significant adjustments arising from the Audit.
o Going concern assumptions.
o Compliance with the accounting standards-IAS and IFRS
o Compliance with the stock exchange and legal
requirements.
Consider the appointment, remuneration, resignation of external
auditor.
Discuss with the External Auditor the nature and scope of audit.
Monitor and review the independence, objectivity and
effectiveness of the external auditors.
Review the external Auditors management letter and
management response.
Review major findings of internal investigations.
Monitor the integrity of financial statements of the company.
Review the companys internal financial control systems.
Review the companys risk management systems
The Greenbury Code /report
The 1995 Greenbury committee arose due to high remunerations for
the Directors. It recommended the setting up in each listed company a
remuneration committee composed of Non-executive directors. The
Greenbury committee went beyond the Cardbury report.
The Remuneration committee is responsible for;
Determining the executive directors remuneration including
bonuses, pension entitlements etc .
The committee should have a clear policy on remuneration that
is well understood and has the support of shareholders.
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Recommend and monitor the level and structure of the

remuneration of senior managers.
Demonstrate to the shareholders that the remuneration of the
executive directors and key management is set by individuals
with no personal interest in the outcome of the decisions of the
committee.
The Hampel Report
The hampel committee on corporate Governance final report came out
in 1998.It followed up matters /issues raised in the cardbury and
Greenbury reports. Whereas Cardbury and Greenbury concentrated on
the prevention of abuses in managing companies, Hampel was more
concerned with the positive contribution good corporate can bring.
Major recommendations of the Hampel Report.
It talked about the roles of
Directors
Non Executive Directors
Directors remunerations
Shareholders and the AGM
Accountability and Audit.
COMBINED CODE.
The London Stock Exchange issued a combined corporate Governance
code, which was derived from the recommendations of the Cardbury,
Greenbury and the Hampel reports.
Provisions of the Combined Code
Directors Responsibilities
(i) The Board of Directors
Should met regularly
Should have a formal schedule of matters reserved to it for its
decision.
Clear division of responsibility between the chairman and the
chief Executive officer.
Directors to be elected after every three years.
(ii)The AGM
Notice of AGM should be 20 working days before the meeting.
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Members of the Audit remuneration committee should be

available at the GM to answer questions
(iii)Accountability and Audit
Directors to report in their report and accounts that the
Directors should report their responsibility of preparing accounts.
(iv)Remunerations
Remuneration
committee
composed
of
Non
Executive
Committees who will set Directors pay.(refer to earlier notes on
remuneration committee0
(v)
Audit committee(refer to earlier notes)
The Board should establish the Audit committee.

(vi) Internal Control
Directors should renew the effectiveness of the internal control
systems at least annually.
5.4 ROLES
OFFICERS
AND
RESPONSIBILITIES
OF
COMPANY
Responsibilities of the chairman

Provide leadership to the board, supply vision and direction to
the company.
Take a leading role in determining the composition and structure
of the board which will involve regular assessment of the :
Size of the board
Interaction, harmony and effectiveness of the
directors.
Set the boards agenda and plan board meetings.
Chair the board meetings, directing debate towards consensus
Ensure the board receives appropriate, accurate, timely and clear
information.
Chair the AGM and other shareholders meetings, using these to
provide effective dialogue with the shareholders.
Ensure that the views of shareholders are communicated to the
board as a whole.
Responsibilities of CEO
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Develop and implement policies to execute the strategy

established by the board.
Assume full accountability to the board for all aspects of the
company operations, controls and performance.
Manage financial and physical resources.
Build and maintain an effective management team.
Put adequate operational, financial , planning , risk and internal
controls systems in place
Closely monitor operations and financial results in accordance
with plans and budgets
Interface between the board and employees.
Represent the company to major suppliers, customers,
professional associations.
Responsibilities of Company Secretary.
Ensure compliance with the company legislation and regulations
and keep board members informed of their legal responsibilities.
Advice the board on corporate governance.
Compliance with the code of best practice in Corporate
Governance
The London stock Exchange now has a rule that listed companies
must state in the annual reports and accounts whether or not it
has complied with the code of best practice. You must specify
whether you have complied with only part of the code.
Uganda case
Institute of corporate governance has issued a manual on
corporate governance
Capital market authority issued out guidelines on corporate
governance in 2003 which apply to all public companies.
The financial institution bill 2002-to guide banks on corporate
governance issues.
Reasons for developing the codes( why corporate governance)
To protect the shareholders rights.

Promotes transparency and accountability
Enhance disclosure and compliance.
Facilitate effective functioning of the Board.

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Provide an efficient legal and regulatory enforcement

frameworks.
Reduces instances of fraud and corruption.
There is statistical evidence that poor governance equates to
poor performance.
Global Investors are always willing to pay a significant premium
for companies that are well governed.
It reduces risk and huge potential losses to shareholders.
Gives ground for separation of powers in the corporation
CHAPTER REVIEW QUESTIONS

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Chapter 6
AN ACCOUNTANTS PUBLIC
IMAGE
1.1 WHISTLE BLOWING
Is an attempt by a member or a former member of an organization to
disclose wrong doing in an organization. The whistle blowing is a term
used for a wide range of activities that are dissimilar from a moral
point of view. Sometimes the term refers to disclosures made by the
employees to executives in a firm, perhaps on concerning improper
conduct of fellow employees or superiors who are cheating on expense
accounts or are engaging in pretty or grand theft. E.g. students who
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said to blow the whistle on fellow students whom they see

cheating on exams. In these cases whistle blowing amounts to
reporting improper activities to an appropriate person.
Kinds of whistle blowing:
1. Internal whistle blowing:
Where disclosures or allegations of inappropriate conduct is made to
someone within the organization or system. Internal whistle blowing is
frequently not an act of either corporate disloyalty or disobedience.
It is more often than not a form of corporate loyalty. If done from moral
motives, the intent of such whistle blowing is to stop dishonesty or
some immoral practice or act to protect the company or to increase
the companys profits.
2.
Personal whistle blowing:
Is where the potential or actual injury is to oneself other than to others

or the organization e.g. sexual harassment.
3.
Government whistle blowing:
Refers to government employees who divulge to a government

regulatory or investigative bureau un ethical practices in their
division or office. It refers to reporting such things as cost overruns,
wastage, and illegal corrupt activity on government activity, leaks
by government employees to the media, such as those revelations
of classified material.
ANALYSIS OF WHISTLE BLOWING:

Non governmental, interpersonal and external whistle blowing:
The conditions that justify whistle blowing:
1) In the first place whistle blowing vary according to the type of
case at issue
2) Financial harm can be considerably different from bodily harm.
E.g. an immoral practice that increases the cost of the product
may do serious harm to no individual even if the total amount
when summed even if the total amount or profit. Such cases can
be handled differently from those that cause bodily harm.
3) Both internal and external personal whistle blowing cause
problems for a firm. External whistle blowing is of concern to the
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general public because it is the general public rather than the

firm that is threatened with harm.
4) Motivation for whistle blowing-Moral motivation as opposed to
blowing the whistle for revenge
Whistle blowing is morally permissible if:
The firm through its products or policy will do harm serious

and considerable harm to public whether in the person of the
user of its products, an innocent bystander or general public.
Once the employee identifies a serious threat to the user of a

product he or she should report it to his or her immediate
superior and make his /her moral concern known. Un-less
he/she does so, the act of whistle blowing is not clearly
justifiable.
If ones immediate superior does nothing effective about the

concern or complaint, the employee should exhaust the
internal procedures and possibilities within the firm. This
usually will involve taking the matter up the managerial
ladder, and if necessary and possible to the Board of directors.
The whistle blower must have or have accessible documented

evidence that would convince a reasonable, impartial
observer that ones view of the situation is correct and that
the companys product or practice posses a serious or likely
danger to the public or the user of the product.
The employee must have good reason to believe that going
public the necessary changes will be brought about. The
chance of being successful must be worth the risk one takes
and the danger to which it is exposed.
These five conditions outlined can be used by an individual

to help decide; whether he/she is morally permitted or
required to blow the whistle.
Chapter 7

Page 90
APPROPRIATE WORKING
ENVIRONMENT
7.1 Harassment-Free Workplace
Introduction:
Maintaining a harassment-free workplace is designed to assist
agencies in their continuing responsibility to develop policies and
programs aimed at preventing workplace harassment. Developing
these policies and ensuring that they are understood by employees will
contribute to a fair, flexible, safe and rewarding workplace, consistent
with the Values. In addition, this will assist employees to understand
their obligations under the Code of Conduct, which requires them to
treat everyone with respect and courtesy and without harassment
Ignoring workplace harassment, or what some might regard as
bullying, can have serious consequences. A harassment-free work
place is essential if we are to attract and retain talented employees
from all backgrounds and if we are to maintain and enhance workplace
morale.
What is workplace harassment?

Workplace harassment is offensive, belittling or threatening behavior
directed at an individual worker or group of workers. Harassment is
often focused on the sex, cultural or racial background or disability of
the individual or group.
Harassment is behavior that is unwelcome, unsolicited, usually
unreciprocated and usually (but not always) repeated. It makes the
workplace or association with work unpleasant, humiliating or
intimidating for the individual or group targeted by this behavior. It can
make it difficult for effective work to be done.
Workplace harassment should not be confused with advice or
counseling on the work performance or work-related behaviour of an
individual or group which might include critical comments indicating
performance deficiencies. Feedback or counseling on work
performance or work-related behaviour differs from harassment, in that
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feedback or counseling is intended to assist employees to improve

work performance or the standard of their behaviour. Feedback or
counseling should always be carried out in a constructive way that is
not humiliating or threatening.
The maintenance of courteous workplace behaviour is not
intended to impose unnecessary rigidities on individual
workplace
styles
or
on
workplace
and
work-related
relationships and social activities. Rather, it is a recognition that
people with different backgrounds, interests and friendship groups
need to get along with each other in the workplace if an organisation is
to be effective.
For harassment to occur there does not have to be an intention to
offend or harass. Moreover, harassing behaviour may be of a minor
nature. Individual incidents may seem too trivial to warrant attention,
or the person subjected to harassment may seem unaffected. Where
the behaviour continues over a period and it is not addressed,
however, such behaviour can undermine the standard of conduct
within a work area.
Examples of harassing behaviour include:
offensive physical contact, derogatory language or intimidating

actions;
insulting or threatening gestures or language (overt or implied)
or continual and unwarranted shouting in the workplace;
unjustified and unnecessary comments about a person's work or
capacity for work;
openly displayed pictures, posters, graffiti or written materials
which might be offensive to some;
phone calls or messages on electronic mail or computer networks
which are threatening, abusive or offensive to employees;
persistent following or stalking within the workplace, or to and
from work or elsewhere; and
Disparaging remarks about malingering to employees who have
made a claim for compensation.
Legal framework
Workplace harassment runs counter to the Commonwealth antidiscrimination laws.

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Commonwealth anti-discrimination legislation

In addition to being a breach of the Code of Conduct, workplace
harassment on the basis of race, sex or disability may also breach both
the anti-harassment and the anti-discrimination provisions of
Commonwealth anti-discrimination legislation.
This includes sexual harassment and discrimination under the Sex
Discrimination Act 1984, disability harassment and discrimination
under the Disability Discrimination Act 1992 and racial discrimination
under the Racial Discrimination Act 1975. While the Racial
Discrimination Act does not use the term 'racial harassment', some
types of workplace harassment could be unlawful discrimination under
this Act.
In addition to an employee's personal liability for harassing
behaviour under the anti-discrimination legislation, agencies
are vicariously liable for the acts or omissions of their
employees, unless they can demonstrate they have taken all
reasonable steps to prevent the acts from occurring. An agency
may therefore be liable for damages awarded for harassment by one of
its employees even though the employer is not directly involved in the
harassing behaviour. The employer can seek to recover damages from
the harasser.
Workplace harassment may also constitute discrimination under the
Human Rights and Equal Opportunity Commission Act 1986.
Other Commonwealth legislation

The Workplace Relations Act 1996 aims to help prevent and eliminate
discrimination in the making of awards and agreements and in the
termination of employment. Aspects of this Act may be relevant to a
workplace harassment allegation.
Under the Occupational Health and Safety (Commonwealth
Employment) Act 1991, employers must also take all reasonably
practicable steps to protect the health and safety of
employees at work
Criminal law
There may be instances where harassment amounts to a criminal
offence. Sexual harassment involving physical or indecent assault,
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stalking, sending offensive emails, sending obscene material through

the mail and making nuisance phone calls, for example, may be
criminal offences. The police should be contacted for advice and
assistance on what matters should be reported and appropriate action
in these circumstances.
Whistle blowing
Whistleblowers should be protected against victimization or
discrimination. This protection applies when people report a
suspected breach of the Code of Conduct to the Agency Head, the
Public Service Commissioner or the Merit Protection Commissioner, or
to a person authorized by any one of them. Allegations of such
breaches may include reports made by employees who believe that
harassment is occurring, even where there is no formal complaint from
the person(s) being harassed.
What harassment costs:

Costs to individuals
For individuals, workplace harassment can take its toll in the form of
mental and emotional stress. Their work performance could deteriorate
and this could have a serious impact on their career prospects. The
harasser may also face the cost of damage to their reputation and
termination of employment (or other sanction).
Costs to agencies
Failing to educate employees and put in place adequate policies and
programs to eliminate harassment and discrimination in the workplace
can have serious consequences for agencies. Agencies which tolerate
workplace harassment may have difficulty attracting and retaining high
performing employees and the ideas and talents these people bring
with them. This is the cost of lost opportunities.
Moreover, workplace harassment can affect an organizations
effectiveness through increased employee turnover, frequent sick
leave, increases in workers' compensation claims, and reduced
performance and morale. Workplace harassment prevents the
achievement of an effective and high performing workplace.
There are also considerable costs in dealing with informal and formal
complaints and handling litigation, which may include payment of
damages.
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Good practice:
Agencies are responsible for ensuring they have systems in place to
prevent and address workplace harassment.
Under anti-discrimination legislation the Commonwealth will generally
be liable for the conduct of its employees unless it can establish that it
has taken all reasonable steps to prevent the discriminatory conduct.
To avoid liability, generally the Commonwealth will need to show that it
had an effective system for preventing discrimination and that the
system was monitored to ensure that it was achieving its purpose.
An agency's strategy for preventing workplace harassment should
comprise the five elements discussed below.
1. Policy statement
A written policy statement on the organizations commitment to
positive working relationships and practices in the workplace, including
refusal to tolerate any form of workplace harassment should include:
(1)
Endorsement by the Agency Head;
(2)
A clear definition of harassment, including unfair discrimination

on the basis of gender, disability, cultural background, race etc.,
and noting that behaviour can be considered as harassment
even if no harassment was intended;
(3)
A statement that
harassment are:
an
agency's
objectives
in
eliminating
to have a workplace that upholds the Values;

to ensure all employees are treated with courtesy and
respect and without harassment;
to promote appropriate standards of conduct; and
to help everyone to perform to their full potential;
(4)
(5)
(6)
(7)
A commitment to prompt action when harassment is alleged;

A clear statement that suspected harassment may be dealt with
under the misconduct procedures;
A statement that all employees have a responsibility to ensure
that their own behaviour cannot be seen as harassment; and
Encouragement for staff to take action when confronted with
behaviour which breaches the harassment policy.

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Procedures
Effective procedures for dealing with incidents of alleged workplace
harassment include:
Involvement of senior management
Accountability for people management, including the prevention of
harassment, lies with Agency Heads, managers, and supervisors. They
share the legal and managerial responsibilities for detecting and
dealing with behaviour which constitutes harassment or has the
potential to develop into harassment.
When workplace harassment does occur, it has a serious and sustained
impact on both the complainant and the agency. It is important for all
managers and supervisors to be familiar with, and to actively promote
and support, the agency's policy and strategies for dealing with
harassment. Managers and supervisors should advocate and explain
the standards of behavior expected of employees and be mindful of
the need to model these standards in their own behaviour. Managers
should also provide support for their staff when they seek advice about
dealing with workplace harassment, including providing information
about review and complaint mechanisms.
Managers and supervisors must take action when they become aware
of harassment (even without a complaint necessarily being lodged).
Failure by managers and supervisors to act, when they become aware
of harassment, to investigate complaints or to take prompt and
effective remedial action to deal with such complaints may be
perceived as condoning or tolerating such behaviour. Where no such
action is taken, the agency may be vicariously liable.
Involvement of individual employees
Individual employees also have responsibilities for preventing
workplace harassment and contributing to a productive work
environment, and should ensure that their behaviour meets acceptable
standards.
Employees should be encouraged to speak out against harassment
when they are witness to it. An assertive and critical response to
harassment by witnesses ensures that 'victims' are not isolated and
harassers are not left with the impression that their behaviour will be
approved or condoned by others.
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Workplace harassment contact officers

Agencies need to establish mechanisms to allow workplace
harassment to be reported and addressed. This can be done through a
network of workplace harassment contact officers (WHCOs) who can
provide advice and support for staff as an alternative to reporting the
matter direct to management.
WHCOs have a role in providing information to managers, supervisors
and employees on:
processes available to resolve complaints, including through

external bodies such as the HREOC; and
types of behaviour which are inappropriate at work, in line with the
Code of Conduct.
It is not the role of WHCOs to resolve harassment complaints. Their

role is to provide information and support to anyone who may be
involved in a harassment case. In most circumstances it would be
inappropriate for a contact officer to advise both the alleged harasser
and the complainant in the same case.
It is the responsibility of management to address complaints involving
harassment or workplace conduct that may amount to harassment.
It is important that WHCOs have the skills and qualities to carry out the
role successfully. Desirable attributes for contact officers are:
approachability and ability to communicate with a wide range
of people at all levels;
an understanding and acceptance of the need for
confidentiality;
an understanding of the basic principles and processes of the
agency's policy and procedures relating to the elimination of
harassment;
objectivity in approach to harassment cases; and
appreciation of the sensitivity and complexity of harassment
issues.
WHCOs and employees with relevant human resources
management responsibilities should receive training in
counseling and handling conflict to support their role in
advising on workplace harassment issues and alleged
incidents. They should also receive information and training in the
provisions of the policy and legislation, e.g. they must be advised of
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their general responsibilities under the Privacy Act to treat personal

information they are given as confidential as far as possible.
In general, information provided to WHCOs should not be passed on
without the person's consent. There may be occasions, however, where
WHCOs have a responsibility to advise management when they
become aware of harassment occurring, if the agency is to avoid
vicarious liability. Situations may arise where the safety and well-being
of other employees is at risk, e.g. where staff have been physically
threatened or assaulted or where a number of people have complained
about one person. It would be appropriate for it to be made generally
known that a WHCO could be considered negligent if such incidents are
not referred appropriately, and that an absolute guarantee of
confidentiality cannot be made by WHCOs when dealing with
harassment. The behaviour in question may be part of a broader
pattern. Whenever it becomes apparent that a person is discussing a
matter that may require being referred, the WHCO should raise with
the person the issue of confidentiality and the possibility of being
obliged to pass on the information. Taking into account the relevant
Information Privacy Principles, the WHCO should advise how
information is passed on in such circumstances, who may have access
to it, and the extent to which the staff member will be identified.
Management should assist WHCOs by:
clearly articulating the role of WHCOs;

ensuring that they have access to, and the support of,
management;
allowing adequate time for them to undertake their role;
nominating a senior executive responsible for supporting contact
officers as well as providing strategic direction;
providing them with appropriate training;
giving them access to a telephone and a private interview space
for use in connection with this role;
giving them secure storage space for confidential papers; and
maintaining confidentiality, subject to other obligations to
disclose.
Harassment of employees by non-employees

If a person who is not an employee and not on official business in the
agency harasses an employee on Commonwealth premises, the matter
should be reported to a supervisor or manager. The supervisor or
manager may, if considered appropriate, ask this person to leave the
premises. If this person remains (especially if they continue to harass
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employees), the matter should be reported to a person authorized to

give directions in accordance with section 12 of the Public Order
(Protection of Persons and Property) Act 1971 (the Public Order Act).
In such circumstances a person authorized for the purposes of the
Public Order Act will:
produce evidence that they are duly authorized to make a

direction that the person leave the premises;
direct the person to leave;
advise the person that they will be liable to prosecution if they
refuse to comply with the direction; and, if necessary,
contact the police.
The authorized officer should, where necessary, contact the police as

well as discuss the matter at the appropriate level within the agency.
Directions to staff
As in any situation where an employee is causing concern either for
work performance or personal conduct, and informal discussions with
the supervisor have not rectified the problem, the employee's manager
can give the person a written direction about the standards expected
and the possible consequences if those standards are not reached.
Where an agency gives such written direction and this direction is not
complied with, the issue could be dealt with under the agency's
misconduct procedures.
This could apply in cases of harassment, including where one
employee is harassing another outside the workplace and
outside working hours. A Federal Court judgment of October 1996 2
held that it was reasonable and appropriate to direct an employee not
to make contact with a another employee, apart from in the course of
official duties, at any time, inside or outside working hours. In that
case, after-hours harassment was having an adverse effect on working
relationships and on the work performance of the officer being
harassed. Managers and employees generally should be aware of the
legal ramifications of ignoring workplace harassment as well as the
costs to performance.
Complaint handling procedures
It is strongly recommended that agencies develop practical
guidelines on complaint handling procedures. Often the internal
handling of a complaint has been poor due to the lack of written
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procedural guidance on issues such as who to contact, how complaints

are investigated, gathering and assessing relevant evidence, applying
the principles of procedural fairness and the correct standard of proof
and record keeping.
It is important to identify both the workplace-based processes and the
formal reporting mechanisms available for dealing with complaints and
to advise the complainant of these as well as other possible avenues of
review.
Employees should be aware that if they experience harassment they
should:
seek advice and support through agency procedures established

to deal with work-related concerns and complaints; and
ask the person concerned to stop the offending behaviour. (The
employee might wish to seek support before taking this step.)
Resolution in the work area

In the first instance, both the person alleging harassment and
management are encouraged, where possible, to seek to resolve the
matter in the immediate work area through discussion, possibly
involving mediation and an apology, or at least the cessation of the
unacceptable behaviour.
In many instances, such direct measures are a desirable way to resolve
cases.
They allow the case to be addressed without an employee

necessarily being labeled a troublemaker (the complainant) or as
a harasser (the person against whom harassment has been
alleged). This is particularly important where the behaviour was
unintentional or misguided.
They allow for positive action to be taken to correct or alter
behaviour.
They allow management to develop preventive measures
throughout a work area without attributing blame to one person
or another. This can be important when the harassment is the
result of group behaviour or when what has been regarded as
'normal' behaviour in the work area is perceived as harassment
by someone new to the area.
They focus effort on putting future working relationships onto a
proper basis by clarifying what is regarded as acceptable
behaviour and what is not.

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Complaints must be taken seriously and mutually agreed outcomes

sought. The complaint should be discussed only with those who are
involved in the resolution of the case. If an employee alleges
harassment by a supervisor, another senior manager should seek to
resolve the issue.
Supervisors should take care not to resolve the situation in such a way
as to leave employees with no option other than to accept continuing
offensive behaviour.
At the same time, the supervisor should ensure that the person
alleging harassment is acting in good faith and not out of malice. It is
important that any investigation complies with principles of procedural
fairness, which include informing the alleged harasser(s) of the
substance of the allegations made and giving them an opportunity to
put their case. It should be noted that procedural fairness does not
necessarily require the identification of the person alleging
harassment.
The outcome sought through discussion should be the cessation of any
offensive behaviour and, if appropriate, an apology from the
harasser(s). Nevertheless, management may take misconduct action
against the harasser as a means of reinforcing the principle that
harassment in the workplace will not be tolerated. This action is open
to management at any time, regardless of whether or not the
complainant is satisfied with the outcome of the discussions in the
immediate work area.
If the employee who has complained of harassment is satisfied with
the outcome of the informal process, he or she should inform their
supervisor promptly so that normal working relationships can resume.
Where allegations of harassment are found to be unsubstantiated, the
person alleging harassment should be advised of other possible
avenues to follow, should she or he wish to pursue the matter further.
Reporting outside the work area
In some instances, an individual may choose to lodge a
complaint outside the immediate work area, by reporting the
situation to a person authorised to receive such complaints.
This would be appropriate where lodging a complaint within the
immediate work area is not considered to be appropriate, or where
resolution in the workplace has not been achieved.
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Possible outcomes of an investigation could include:
the cessation of offensive behaviour;

an apology from the perpetrator;
counseling or education on discrimination and harassment for
the perpetrator and, if appropriate, the work group or whole
organisation;
professional counseling for the person subject to harassment;
determining/recommending that the matter should be the
subject of a misconduct process (note: if misconduct action is
taken and it is determined that the alleged harassment is a
breach of the Code of Conduct, a sanction under section 15 of
the PS Act may be imposed on the perpetrator);
transfer to an alternative work site for the perpetrator or the
complainant (only if this is the complainant's preference and if
this is not seen to further discriminate against the complainant);
or
compensation for the person subject to harassment.
Complainants should be made aware, as soon as they notify the

appropriate person in their agency of their request for review, that
where the alleged harassment is based on attributes including sex,
race or ethnic origin, disability, marital status, sexual preference or
age.
In addition to Commonwealth laws, States and Territories have laws
that prohibit discrimination, including harassment. In situations which
are covered by both Commonwealth and State or Territory laws, a
complainant can generally select the body they wish to deal with their
complaint.
It is important to remember that, whether or not an individual
complains about harassment, it is possible for management to
commence misconduct action in response to any reports or
observation of harassment.
Information and training

A policy statement by management supporting positive working
relationships and committing the agency to measures to combat
workplace harassment should be distributed to all employees. Other
materials, such as posters or pamphlets, could be used to reinforce the
message. The following actions may be helpful:

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Information about workplace harassment and agency policy and

procedures should be provided in:
material supplied to all new employees;

orientation training programs;
general staff training in workplace harassment issues;
training related to occupational health and safety; and
training in the application of the Values and Code of Conduct,
recognizing that good practice in this area will enhance
workplace performance.
Training for supervisors should include:
awareness raising and discussion of their responsibility for

maintaining a workplace free of harassment;
information about management liability and the performance
and financial costs of workplace harassment; and
Material on conflict resolution and case studies on dealing with
incidents of harassment.
Record keeping and confidentiality

It is important to document any action taken to address complaints.
Records enable recurring patterns of behavior or continuing problems
in a particular work area to be identified and corrective action to be
taken. In addition, adequate records will be essential if the matter
leads to formal misconduct action, i.e. to determine whether the
behavior is a breach of the Code of Conduct and a sanction is
subsequently imposed. Should there be questions as to whether a
harassment claim was properly handled, adequately maintained
records may be vital in any later review of the processes undertaken.
It is important that investigations of allegations of workplace
harassment maintain confidentiality with information provided only on
a 'need to know' basis. Because of the sensitivity of material relating
to workplace harassment, special care should be taken to protect the
confidentiality of any records relating to complaint processes.
Requirements in this regard should be communicated within agencies.
Information held by an agency. Employees who wish to make a
Freedom of Information request should be advised of who to contact for
Freedom of Information enquiries. Since records relating to alleged
harassment are likely to contain personal information about the
complainant and the alleged harasser, consideration of the exemptions
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concerning personal information will be an important step in any

decision relating to access. Other exemptions may also be relevant.
When access is granted under the Act, there are protections for those
who grant access as well as for authors and suppliers of documents.
Monitoring and evaluation

Monitoring the incidence of workplace harassment, including
complaints which are resolved informally, will also assist in evaluation
of agency strategies, policies and procedures. Agencies may wish to
consider developing a standard form to be used by WHCOs and other
officers responsible for dealing with cases of workplace harassment to
enable them to gather general information on complaints. The data
could cover the type of complaint, number of employees involved,
relevant dates, information and advice provided and resolution
outcome. The names of parties involved in the complaint process or
other information which could identify them should not be used on the
form.
The 1997-98 Australian National Audit Office Performance Audit
Report: Equity in Employment in the Australian Public Service suggests
that in preparing their annual reports, agencies could consider
including statements on the level of discrimination and harassment in
the workplace, the level of formal and informal complaints and the
results of any investigations. Although this is not a requirement of the
guidelines on annual reporting approved by the Joint Committee of
Public Accounts and Audit and issued by the Department of the Prime
Minister and Cabinet, agencies may wish to consider such reporting as
a matter of good practice.
Conclusion
The above elements should be in place to enable a Commonwealth
agency to demonstrate that it had taken all reasonable steps to
prevent harassment occurring and therefore avoid vicarious liability.
Good practice indicates that agencies need to demonstrate a genuine
commitment to preventing harassment above and beyond
documenting policies and providing training.
Involving both employees and managers in developing a workplace
harassment strategy helps to gain commitment to the process. Such
an approach also assists in tailoring strategies to meet agency and
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employee needs. In addition, consultation with members of EEO groups

allows special needs to be identified and accommodated.
The 'Frequently Asked Questions' which follow gives further guidance
on implementing procedures designed to minimize harassment in the
workplace.
Frequently asked questions
The following questions and answers seek to address some of the most
common issues raised by supervisors and WHCOs.
Questions from supervisors
I've warned one of my employees a number of times about
harassing a colleague in the work group. The employee
persists in this behaviour, and the colleague has now
asked to be transferred out of the area. What do I do?
Transferring the colleague to another area may bring a short-term
remedy, but it does not solve the problem. Management must make its
standards known and take action against those who engage in
harassment, and not just 'rescue the victim'. Where the harasser has
not followed instructions, the supervisor should initiate action to
determine whether there has been a breach of the Code of Conduct, in
accordance with the agency's procedures under section 15 of the Act.
It may be appropriate to assign the alleged harasser to other duties
while determining the outcome of the investigation.
One of my employees seems to be having trouble with
excessive attention from a colleague in the next work
area. The employee has not made any type of
complaint. Should I interfere?
As a supervisor, you are to ensure your employees have a safe
workplace where they can work effectively and efficiently. There are
various reasons why people do not complain about harassment: fear of
retaliation, lack of confidence, fear of ridicule, embarrassment or belief
that it is normal behaviour in the agency. When talking to your
employee, you might express your concern about ensuring that
everyone has a harmonious work environment and ask if there are any
difficulties with the work colleague. The colleague's supervisor should
be made aware of the possibility of harassing behaviour. If you sense
that there is a problem and do nothing at all, the situation may develop
to the point where there are regular absences, work-related stress and
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lowered work output. There is also the

organisation will be liable if no action is taken.
possibility
that
your
Our long established workgroup has a new employee who

seems unable to cope with teasing from the other
members of the team, who have all worked together
very harmoniously for over a year. Should the new
employee seek a transfer?
The members of the workgroup are required by the Code of Conduct to
treat colleagues with respect and courtesy and without harassment.
Where behaviour causes offence or humiliation, or is a threat to the
employee, it may constitute harassment. If the behaviour includes
unwelcome conduct of a sexual nature, it may constitute harassment
under the Sex Discrimination Act 1984.
Members of the workgroup should be informed about the effect of their
behaviour on their new colleague. If the offensive behaviour persists,
there may be grounds for taking action against individuals within the
group, to determine whether there has been a breach of the Code of
Conduct. Moving the new employee out of the area may appear to be
condoning the group's behaviour. Such action might encourage
repetition of the behaviour and would be likely to cause distress to the
new employee as they would appear to have been moved because
they could not 'fit' the workplace culture.
How do I know when a harassment situation requires police
action?
Some forms of workplace harassment may be criminal offences, e.g.
actual or attempted assault (including indecent assault). Sending
obscene items through the mail and making nuisance phone calls may
also be criminal offences. The police should be contacted for advice
and assistance on appropriate action in these circumstances.
When a harassment problem in my work group seems to have
been resolved through discussion and the behaviour
has stopped and there has been an apology, do I need
to keep any written record of the incident and the
ensuing discussions?
When a harassment problem has been resolved within the work area, it
is appropriate to keep only limited records such as brief diary notes.
Comprehensive notes are not necessary. However, where the matter is
dealt with outside the work area, a greater degree of documentation is
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likely to be required. All notes and records must be stored in a

confidential manner, in accordance with the Privacy Act and the
Administrative Functions Disposal Authority of the National Archives of
Australia.
A contractor engaged to install a new software system is
harassing a female employee in my work group. What
can I do about it?
Sexual harassment by a contractor or an employee of a contractor is
unlawful under the Sex Discrimination Act 1984. You should remind the
contractor of this. If the harassment recurs, then you may wish to seek
legal advice with a view to termination of the contract. Legal advice
should be sought before taking action as the contractor's behaviour
may not be a breach of the contract or there may be a requirement for
notice. It would also be open to the employee to make a complaint to
the HREOC.
Perhaps the most effective way of ensuring that contractors are aware
that they are under an obligation not to engage in harassing behaviour
is to include a clause in the contract which requires contractors to
observe agency and policies in relation to workplace harassment and
acceptable behaviour. This would address situations where contractors
harass employees as well as situations where harassment of their own
employees has an adverse impact upon others around them if they are
working in workplaces.
An employee in my team is concerned about some of the
material she has been receiving by email which she
finds offensive. Is this harassment?
Yes. If email is used in an offensive, humiliating or threatening manner,
whether on a sexual, racial, or other basis, for example sending
unacceptable jokes or graphics, it could constitute harassment and
should be dealt with as such.
Agencies should ensure that employees are aware of the Code of
Conduct requirements about use of Commonwealth resources as well
as agency policies on accessing and using email and information from
the internet in an acceptable manner. In some circumstances, sending
offensive emails could also constitute an offence under the Crimes Act.

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Questions from workplace harassment contact officers

I am a Workplace Harassment Contact Officer. Am I expected to
solve rather serious conflict situations? What exactly is
my level of responsibility?
Your main function is to provide information and support to individuals
who believe they are being harassed. Employees can approach you
even if they do not want to make a formal complaint. WHCOs have a
role in providing information to managers, supervisors and employees
on the processes available to resolve complaints, clarifying what types
of behaviour are acceptable at work in line with the Code of Conduct
and raising awareness that views on acceptable behaviour can differ
between individuals. It is not your role to resolve harassment
complaints, only to provide information and support, ensures that
confidentiality is maintained as appropriate. Management has a
responsibility to resolve workplace problems, and WHCOs should
encourage people to seek solutions to harassment problems by
reporting the matter to the appropriate person. In some circumstances
it will be appropriate for the WHCO to inform management.
A person working as an Executive Assistant to one of our SES
employees has complained of being under pressure to
work long hours. What do I suggest?
It is important here to be able to distinguish between an industrial
issue and a harassment issue. The SES employee may well believe
that, so long as the arrangements in the agency's Certified Agreement
have not been breached and the work needs to be done, and then it is
justifiable to request the EA to work long hours. You might, with the
EA's agreement, approach the SES employee, or the issue might be
more effectively dealt with by bringing it to the attention of
management
through
the
agency's
workplace
consultative
arrangements. You may wish to put the EA in touch with workplace
representatives or raise the matter with them yourself. The long-term
solution may be the implementation of workplace policies that
recognize family responsibilities.
If, on the other hand, the requests to work long hours are accompanied
by threats or bullying, then the SES employee may be breaching the
Code of Conduct. While you could offer the EA advice on the processes
that are available to combat this type of harassment, for example
requesting a review of actions, it may be useful to consider other
strategies, including raising the matter with a senior manager
responsible for supporting contact officers.
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Is it really harassment if an employee makes no personal

contact but sends regular gifts, flowers or letters to
another employee?
Behaviour which is unwelcome and/or unreciprocated could be
considered harassment if it has reached the point of being offensive. If
the person receiving the gifts finds them unwelcome, they must make
this clear and request the person to stop. Ignoring the matter may not
terminate it and it is possible the person sending the items may take
silence as a positive response.
The legal framework
Commonwealth anti-discrimination legislation
Workplace harassment on the basis of a number of attributes including
race, sex or disability may be a breach of both the anti-harassment or
anti-discrimination provisions of Commonwealth anti-discrimination
legislation.
Sexual harassment
The Sex Discrimination Act 1984 provides that:
A
person
sexually
harasses
another
person
if:
The person makes an unwelcome sexual advance, or an
unwelcome request for sexual favors, to the person harassed, or
engages in other unwelcome conduct of a sexual nature in
relation to the person harassed; and
In circumstances in which a reasonable person, having regard to
all the circumstances, would have anticipated that the person
harassed would be offended, humiliated or intimidated.
Workplace sexual harassment includes a wide range of

behaviour of a sexual nature, from subtle suggestions about,
to explicit demands for, sexual activator even indecent assault.
Such behaviour includes making a statement of a sexual nature either
to the harassed person or in his or her presence. It applies to verbal,
non-verbal and written statements. Behaviour that may be acceptable
or even welcome in other situations, for example between friends in a
social context, may be inappropriate at work.
Sexual harassment may be an isolated incident or a series of incidents.
Both men and women can be subjected to sexual harassment from
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persons of the same or the opposite sex. A person need not actually
intend to offend for conduct to amount to sexual harassment.
Disability discrimination
The Disability Discrimination Act 1992 outlaws any discrimination or
harassment in employment due to disability. A person discriminates
against another person on the ground of disability if, because of the
aggrieved person's disability, the discriminator treats or proposes to
treat the aggrieved person less favorably than the discriminator would
treat a person without the disability. This Act makes harassment in
employment unlawful and describes harassment as a form of
discrimination. Harassment that is based upon a person's relative or
associate having a disability is also unlawful.
Harassment on disability grounds may occur when a person is treated
less favorably than others because he/she uses a palliative or
therapeutic device or aid, uses a wheelchair or needs a loud speaker
telephone, or uses a guide dog, a hearing dog, or other trained animal.
Another form of harassment on disability grounds is overbearing or
abusive behaviour towards employees with intellectual disabilities, or
disparaging remarks about malingering to employees who have made
a claim for compensation.
Racial discrimination
While the Racial Discrimination Act 1975 does not use the term 'racial
harassment', that Act defines as unlawful any act involving a
distinction, exclusion, restriction or preference based on race, colour,
descent or national or ethnic origin of a person which has the purpose
of nullifying or impairing the recognition, enjoyment or exercise, on an
equal footing, of any human right or fundamental freedom in the
political, economic, social, cultural or any other field of public life.
Clearly some types of workplace harassment could be seen as unlawful
behaviour under the Act.
Human Rights and Equal Opportunity Commission Act
Workplace harassment may constitute discrimination under the
Human Rights and Equal Opportunity Commission Act 1986.
This Act defines discrimination to mean any distinction, exclusion or
preference that has the effect of nullifying or impairing equality of
opportunity or treatment in employment or occupation made on the
basis of race, colour sex, religion, political opinion, national extraction,
social origin, age, medical record, criminal record, impairment, marital
Page 110
status, mental, intellectual or psychiatric disability, nationality,

physical disability, sexual preference, or trade union activity.
Commonwealth workplace relations legislation
The Workplace Relations Act 1996 aims to help prevent and eliminate
discrimination in the making of awards and agreements and in the
termination of employment. The Act makes it unlawful to terminate the
employment of an employee on certain grounds including race, colour,
sex, sexual preference, age, physical or mental disability, marital
status, family responsibilities, pregnancy, religion, political opinion,
national extraction or social origin.
In addition, the Freedom of Association provisions in section 298A
describe one of the objects of Part XA of that Act as to ensure that
employers, employees and independent contractors are not
discriminated against or victimized because they are, or are not,
members or officers of industrial associations.
Commonwealth occupational health and safety legislation
Employers have to take all reasonably practicable steps to protect the
health and safety of employees at work under the Occupational Health
and Safety (Commonwealth Employment) Act 1991. An employer who
fails to take reasonably practicable precautions to prevent workplace
harassment from occurring, or who fails to deal promptly and
effectively with any complaint of harassment, may be in breach of an
employer's duty of care to employees.
Criminal law
There may be instances where harassment amounts to an offence
under criminal law. Incidents involving physical or indecent assault,
stalking, sending obscene material through the mail and making
nuisance phone calls or sending offensive emails, for example, may be
offences under criminal law and should be reported to the police.
PROTECTION OF
ENVIRONMENT):
b)
c)
THE
ENVIRONMENT
(ETHICS
&
THE
What are the two main sources of threats to the

environment?
What ethical issues are raised by pollution from
commercial and industrial enterprises?

Page 111
d)
What obligations, if any, do we have to conserve our

resources?
Modern industry has provided us with material prosperity unequaled in

our history but it has also created unparallel environmental threats to
our selves and to future generations.
Chapter 7
MONEY
LAUNDERING
THE AUDITOR
&
Money laundering is the generation of illegal proceeds and disguising

them as legitimate into the financial system. It may not only refer to
illegal proceeds, but all king of illicit behavior that involves the disguise
of true sources of funds. Money laundering can involve any of the
following activities:
Drug trafficking
Weapons trafficking
Extortion
Political corruption
Smuggling

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Human trafficking
Animal trafficking
Money laundering normally involves the following:
Setting up of off shore investments (also called special purpose
entities) such investments are usually owned by trusts:
The above is normally followed by a critical study of the relevant
jurisdiction i.e. normally the launderer looks for areas where for
example there exist corporate secrecy laws.
Money deposits are made in the companys name
Lawyers are appointed to run the companies
Several other investments are made in other countries :on behalf
of the trust but through the special purpose entity such entities
can then run unethical/illicit/fraudulent businesses
E.g. Property purchased at Shs 50 million a price that is lower than its
actual market value of Shs 100 million and a bribe paid to the seller.
Then the same property is sold to the market at the actual market
price.
The Ugandan perspective: Money laundering is conducted through;
Friends and relatives
Gambling in casinos
Money transfers from abroad..the kyeyo people
Other fraudulent telegraphic transfers popularly known as
bicuppuli
The process of money laundering
Placement
:
The crime generates cash, which is placed into the financial system
through smaller transactions like postal orders and telegraphic
transfers. Small deposits can also be made into different accounts.
Layering:
The ownership of the proceeds is concealed to distort the audit trail.
Several complex transactions follow the placement of the money into
the financial system e.g. several transfers made in foreign exchange,
different currencies purchased etc.
Integration:
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Later the funds are reintroduced as legitimate e.g. though the

purchase of stocks, property, real estate etc.
Effects of money laundering

If looked at from a basic perspective, one may argue that money
laundering is good for an economy like ours. However, its got several
adverse effects as seen below. That is why even in Uganda money
laundering is soon becoming a crime. Effects include:
Inflationary tendencies; Money laundering creates inflationary
tendencies since there can be inflow of money without corresponding
real growth e.g. growth in production capacity or goods and services,
this distorts government planning
Unfair business practices: Money laundering creates extra resources
for unjust competition. a competing business will use its illegally
generated proceeds to reduce its operating costs and therefore end up
charging lower prices that reality should suggest. This is unfair
competition.
Corruption and bribery: Money laundering facilitates corruption e.g. in
attempt not to pay tax, bribes to judicial and law enforcement officers.
Political instabilities: Money laundering promotes political instabilities
i.e. it can fianc wars, campaigns and hostile government takeovers
e.g. Peru and Ecuador
Auditors responsibility for money laundering

1. Legislation responsibilities
The anti money laundering bill:
This is a law in the process of being enacted. It has got some
provisions, which we are going to see alter
2. Regulation of Auditees:
These are the several regulations which govern companies as far as
money laundering is concerned e.g. the Bank of Uganda guidelines
seen alter
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3. Professional conduct and ethical behaviour

parties
4. International standards on auditing 250
for all concerned
The anti laundering bill:
IT criminalizes money laundering

IT criminalizes any assistance given to a money launderer
Provides for the establishments of
financial information
authority. this will deal with suspicious information on ML
ISA 240 fraud and error.
Provisions of the financial institutions Act:

It is the duty of the external auditor to warn the broad of
directors on any foreign exchange and operational risk S. 68 (a)
(iii)
S. 68 (a) (IV) makes it a duty of the auditor to warn the board of
directors about any going concern issues and violation of
principles of sound financial management and internal control
e.g. if money is laundered, the business faces a threat increase
withdrawal which puts the going concern status into question.
remember the going concern responsibility of the auditor
Bank of Uganda guidelines
These apply to all banks and financial institutions
Internal control policies and procedures
Designation of money laundering reporting officer in t he
company organogram
Rules on Know your Customer
Records to be kept for over 10 years???
Education and training of employees in Money laundering
External auditors must report any deviations in internal controls
The international auditing and assurance standards board:
All audits must be done in line with ISAs

All local standards overrule the ISAs
Never report on ISAs if they have not been followed in
auditing

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ISA 250 Consideration of rules and regulations I the audit of financial

statements:
It is management duty to observe and comply with requirements

Auditors must consider and evaluate compliance with local laws
and regulations. They must evaluate whether a client complies
and has mechanisms for monitoring legal issues.
For large organizations, talk to internal auditors as well as the
audit committees to determine compliance
The auditor should obtain a general understanding of the legal
and regulatory framework , inquire from management about
compliance,
The auditor can inspect correspondences with regulators
Theca also refine board minutes
The auditors should evaluate his findings and come up with an opinion.
Management should be informed of any cases of non-compliance. If
management is involved, the matter should be reported to the audit
committee. If the non-compliance is material, the auditor should
consider issuing an adverse / qualified opinion.
ISA 240: consideration for fraud and error:
These are misstatements and errors that are intentional e.g. forgery,
manipulations of accounting information, misrepresentation of facts
and intentional misapplication of accounting policies.
Indicators of fraudulent transactions include:
Incomplete records
Missing documents
Un usual relationships, inconsistent and vague management
responses
Fewer responses to confirmations that expected
In considering money laundering the auditor can also look at provisions

in the following ISAs:
ISA 300: planning the audit

ISA 315: understanding the entity and its business risk
ISA 610, relying on the work of internal audit
Fate (Financial action task force on money laundering)

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The financial action task force on money laundering (FATF) is an intergovernment body which sets standards, and develops and promotes
policies to combat money laundering and terrorist financing.
Forty recommendations:
In 1990 FATF drew up forty recommendations as an initiative to combat
the misuse of financial systems to launder drug money. The
recommendations have since been endorsed by more than 130
countries and is the international anti-money laundering standards
against which national anti-money laundering systems are assessed.
The recommendations cover:
Legal systems including the scope of the criminal offence of

money laundering
Measures to be taken by financial institutions and non-financial
businesses and professions to prevent money laundering and
terrorist financing including:
customer due diligence (CDD) and record-keeping
reporting of suspicious transactions and compliance to a financial
intelligence unit (FIU)
international co-operation including mutual legal assistance and
extradition
UK example
Legal systems
With regard to FATF recommendation 1, that money laundering be
criminalized, money laundering has been an offence in the UK for more
than a decade. Relevant legislation includes
the criminal justice act 1993

the terrorism act 2000 (TA 2000)
the proceeds of crime act 2002 (effective February 2003)
the money laundering regulations 2003 the regulations
(effective March 2004)
Offences under TA 2000 and the proceeds of crime act 2002 apply to
all members.
Offences under the 2003 regulations apply to:
all members in practice and/or acting as insolvency practitioners

Page 117
members in business (depending on the type of work they carry

out)
Accountants working wholly or mainly outside the UK must pay heed to

the UK legislation which applies to any professional work carried out in
the UK (including limited assignments and occasional client meetings)
Principal offences
Failure to
appoint a money laundering reporting officer (MLRO)

implement internal procedures to comply with the legislation
undertake CDD procedures
make a suspicion report
comply with a direction not to proceed with a transaction or
business relationship
maintain recorded in accordance with legislative requirements
obtaining concealing or investing funds or property if knowing or
suspecting that they are proceeds of criminal conduct or terrorist
funding
doing or disclosing anything that might prejudice an
investigating into such activities
Proceeding with a transaction without the consent of the relevant
authority following the submission of a suspicion transaction
report (STR).
Knowledge is likely to include:
actual knowledge
shutting ones mind to the obvious
deliberately refraining from making inquiries
deliberated deterring a person from making disclosures
Suspicious is not defined in existing legislation. However, case law and

other sources indicate that it is more than speculation but it falls short
of proof or knowledge> Offences may be tried in a magistrates court
or in a crown court. On conviction, offences are punishable by
imprisonment, a fine or both.
All partners within a practice (and directors in a firm) are potentially
liable on a joint and several basis for breaches of the firms
obligations> all individuals are liable in respect of breaches of their
individual obligations.
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Money laundering:
AS discussed already, money laundering is the process by which
criminals attempt to conceal the true origin and ownership of the
proceeds of their criminal activity, allowing them to maintain control
over the proceeds and ultimately providing a legitimate cover for their
sources of income. The term is widely defined to include: possessing in
any way dealing with, or concealing the proceeds of any crime
(criminal property). It also includes:
an attempt or conspiracy or incitement to commit such as
offence
aiding abetting counseling or procuring the commission of such
an offence
an act which would constitute any of these offences if done in
the UK.
Further, includes failure by an individual in the regulated sector to
inform the national criminal intelligence service (NCIS) or MLRO as
soon as practicable, of knowledge or suspicion that another person is
engaged in money laundering. (the NCIS is an example of a FIU that
serves as a national center for receiving (and as permitted,
requesting), analyzing and disseminating STRs).
Criminal property
This includes;
proceeds of tax evasion

a benefit obtained through bribery and corruption
benefits obtained, or income received through the operation of a
criminal cartel
benefits (i.e. saved costs) arising from a failure to comply with a
regulatory requirement that is a criminal offence
Tipping off
The offence of tipping off occurs when the MLRO (or an individual)
makes a disclosure which is likely to prejudice an investigation. This
does not prevent businesses and individuals discussing with clients,
and advising on, issues regarding prevention of money laundering or
other related matters, on a non-specific basis.
Fiscal offences:
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Tax-related offences are not in a special category. Ta\x evasion is a

crime, the proceeds of which can be laundered I the same way as
those from drug trafficking terrorist activity, theft etc. Offences may
relate to direct or indirect tax. Tax evasion offences which fall within
the definition of money laundering include under declaring income and
over claiming expenses.
An action carried out aboard is relevant if it would have been an
offence had it taken place in the UK. However, innocent errors which
constitute criminal offences do not need to be reported.
General defenses
Defenses to money laundering offences include;
a report being made to NCIS or the MLRO

that it was the intention to make a report but there was a
reasonable excuse for not having den so
acquiring or using property for adequate considerations in good
faith
Reasonable excuse is likely to encompass the fear of physical
violence or other menaces.
Legal privilege may provide a defense for a professional legal adviser

to a charge of failing to report suspicious of money laundering. it only
applied where information
is received in privileged circumstances

is snot communicated to or by the lawyer with the intention of
furthering a criminal purpose.
The same protection does not extend to accountants, or others who

provide legal advice, who are not legally qualified.
Professional duty of confidence
Accounting professionals will not be in breach of any professional duty
of confidence if they report, in good any money laundering knowledge
or suspicions to the appropriate authority.
Statutory provisions give protection against criminal action for
members in respect of their confidentiality requirements. This
protection applies even if the suspicions later prove to be groundless,
provided that the reports were originally made in good faith.
Client confidentiality override provisions are available when;
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There is knowledge or suspicion that a person has committed a

money laundering offence.
A prohibited act will be or has been committed.
Disclosure without reasonable grounds will increase the risk of a

business or an individual being sued for breach of confidentiality
2003 regulations
The 2003 regulations implement FATFs recommendations on customer
due diligence and record keeping and reporting of suspicions
transactions and compliance.
Requirements
It is an offence not of comply with the following obligations, designed
to assist members in detecting and preventing their organizations
being used for money laundering purposes
These obligations are:
To put in place internal controls and policies to ensure continuing

compliance with the legislation
To appoint a MLRO (money laundering officer)
To establish /enhance record keeping systems for
all transactions
the verification of clients identities
to establish internal suspicion reporting procedures
to educate and train all staff I the main requirements of the
legislation
Internal controls and policies:

Internal controls and policies should be established and recorded in
order to:
ensure that anyone who suspects money laundering knows how

to report this information to their MLRO
provide the MLROP with the means by which the reasonableness
of the suspicion can be judged, and thereby assess which
suspicions should be reported to the economic crime unit of the
national criminal intelligence service (NCIS).
Client acceptance procedures should include:
identification procedures
gathering know your client (KYC) information , including
the clients expected patterns of business

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its business model

its source of funds
Controls over client money, and transactions passing through the client
account. Should pay particular attention to:
the identity of the cling

the commercial purpose of the transaction
the source and destination of the funds
MLRO
The MLRO should have a suitable level of seniority and experience.
Alternative arrangements must be made whenever the MLRO is
unavailable for a period of time. The MLRO is responsible for:
receiving and assessing money laundering reports

colleagues
making reports to the NCIS on a standard disclosure form.
from
The report should include the following where known;

suspects full name, address, date of birth, nationality ,
occupation and employer
any identification or references seen or recorded
details of transactions of activities giving rise to knowledge or
suspicion
any other information that may be relevant (e.g. persons
associated with the suspect) sole practitioners with no
employees or associates are exempt from MLRO requirements.
Record keeping:
All client identification records, together with a full audit trail of all
transactions must be maintained. Records of transactions must be kept
in a readily retrievable from for a period of at least five years. With
controls to ensure that they are not inadvertently destroyed. Clint
verification records must be retained throughout the period of the
relationship and for five years after termination of the relationship.
ACCAs rules professional conduct retention of books, files, working
papers and other documents; also apply
Client identification

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The requirement to verify the identities of all clients is mandatory.

Verification must be documented before any work is undertaken.
Sufficient knowledge of a client must be maintained to be able to
identify that which is unusual and/or suspicions. Members are required
to obtain evidence of identity for all clients where:
an ongoing business relationship is to be established

the total value of any transactions is not known at the outset
a one-off transaction or a series of transactions in excess of (the
equivalent of) Euro 15,000 is to be undertaken,.
Typical identification procedures:
For an individual obtaining official documents with a

photograph which establish the clients full name and permanent
address (e.g. driving license or passport supported by a recent
utility bill).
For an entity obtaining from the registrar of companies a
certificate of incorporation the registered address and a list of
shareholders and directors.
For a trust ascertaining its nature and purpose, its original
source of funding and the identities of trustees and beneficiaries.
Banking and client money

The charter for the European professional associations in support of
the fight against organized crime (1999) required practicing firms to
verify client identify when handling client money.
Services that involve handling clients, money may be considered to
represent a higher than normal risk and so required a higher level of
KYC and identification procedures. Handling a clients money may also
give rise to constructive trust issues.
Politically exposed persons (PEPs)
PEPs are individuals who are, or have been entrusted with prominent
public functions in a foreign country (e.g. heads of state and senior
politicians and officials) Business relationships with family members or
close associates of PEPs involve reputational risks similar to those with
PEPs themselves. In addition to performing normal due diligence
measures, financial institutions should:
Have appropriate risk management systems to determine

whether a customer is a PEP

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Obtain senior management approval for establishing business

relationships with PEPs
take reasonable measures to establish the source of wealth and
source of funds
Conduct enhanced ongoing monitoring of such business
relationships
Suspicion
Recognition
It is impossible to define suspicion. A suspicions transaction or
situation will often be one which is inconsistent with the clients known
legitimate business or personal activities. Examples of potentially
suspicions transactions can include:
Unusually large cash deposits

Frequent exchange of cash into other currencies
Unknown counter party activities inconsistent with normal
business activity
Off-shore business arrangements with no clear business purpose.
Reporting
Members are legally required to report knowledge or suspicions of
money laundering to the appropriate authority (i.e. their MLRO, police,
or customs officer). It is a criminal offence not to do so. There are no de
minimis concessions. The obligation to report is irrespective of the
amount involved or the seriousness o f the offence. NCIS has designed
standard disclosure forms for full and abbreviated disclosures.
If a client asks that an action be taken that would be a money
laundering offence, a written request for consent must be made to
NCIS. If no response is received within seven working days, NCIS is
deemed to have provided the consent requested, and the client is
entitled to proceed.
Educating and training all staff
Relevant individuals must be providing with training on:
The provisions of the 2003 regulations

The main money laundering offences
The businesss procedures to forestall and prevent money
laundering

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Training should enable businesses to establish a culture of complying

with money laundering requirements. The provision of training should
be documented to demonstrate compliance. It does not need to be
performed in-house, effective methods of training may include:
Attending conferences, seminars and course run by external

organizations
Participation in computer-based training course.
Tipping-off and prejudicing investigations

Tipping-off by word or action or by a failure to speak or act is a criminal
offence.
Members must guard against:
Making any disclosure which may tip-off suspected money

launders that they are under investigation
Otherwise prejudicing an investigation
What business are not required to do

Business are not required to carry out any additional procedures to
seek out money laundering, but only to be in a position to recognize
and report potential money laundering encountered in the course of
their normal work. Investigations into possible money laundering
should be left to low enforcement agencies.
There is no automatic need to cease working for a particular client
where a report ha been field. However, a business is not obliged to
continue to act for a client where it:
Does not believe that it is in its commercial interests to do so

Would be incompatible with professional or ethical requirements
Global dimension
Ireland
Ireland has legislation on money laundering equivalent to that I n the
UK. It is found in:
The criminal justice act 1994, as amended

The disclosure of certain information for taxation and other
purposes act 1996
The proceeds of crime act 1996
The criminal assets bureau act 1996
The criminal justice (miscellaneous provisions) act 1997

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The criminal justice (theft and fraud offences) act 2001

The money launderings regulations 2003.
All reports of suspected money laundering are required to be directed

to the Garda bureau of fraud investigation, financial intelligence unit.
Other territories
Money laundering is a global activity that affects all territories in
varying degrees the UK legislation applies to businesses operation in
the UK including those working from a UK office for a client who is
based abroad. The UK legislation defines money laundering ass
including proceeds of an act which takes place abroad but which would
have been an offences if it had taken place in the UK. A number of
territories have legislation equivalent to the UK (e.g. Australia,
Singapore and US) Businesses are not obliged under UK legislation to
acquaint themselves with money laundering legislation in other
countries.
United States
Legislation includes:
The bank secrecy act

The money laundering control act of 1986
The uniting and strengthening America by providing appropriate
tools required to intercept and obstruct terrorism (USA PATRIOT)
Act of 2001
The PATRIOT act requires all financial institutions to establish antimoney laundering programmes to include, at a minimum:
The development of integral policies, procedures and controls

The designation of a compliance officer
An ongoing employee training programme an independent audit
function
Interaction of reporting duties

Other reporting duties
Accounting firms (and others) may have other reporting duties of fulfill,
after reporting suspicion to NCIS, to which different reporting standards
may apply. For example:
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Reports to regulators understatement of auditing standards (SAS

6201)
Auditors s reports on financial statements (SAS 6002)
Reports to those charged with governance (SAS 6103)
Statement of circumnutates on resignation as an auditor (section
394 companies act 1985)
Reports on directors conduct *under the company directors
disqualification act 1986)
In some case, it will not be necessary to refer to the substance of the

matter reported to NCIS in other reports. (Consider, for example that
an auditor report refers only to material maters, whereas there is no de
minimis limit for repotting matters to NCIS)
Professional clearance; letters
If suspicion has been (or may be) reported, businesses and individuals
need to be cautious in responding to professional clearance letters. It
is recommended that businesses and individuals do not respond to
question in professional clearance letters concerning.
Their satisfaction as to the identity of an entity or individual

Whether any report of suspicion has been made,
contemplated.
or
Anti-money laundering programme

Basic elements
The basic elements to be considered when designing an anti-money
laundering programme include:
Dedicated resources
Written policies and procedures
Comprehensive coverage
Timely escalation and resolution of matters
Explicit management support
Sufficient training and education
Regular review/audit of the programme.
Dedicated resources:

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A person should be identified and charged with the responsibility for

overseeing the entire anti-money laundering programme. The MLRO
must be:
Competent and knowledgeable about money laundering

Empowered with full responsibility and authority to make and
enforce policies and procedures.
Written policies and procedures and risk factors:
Written reviewed and approved policies and procedures are the
foundation of any programme. Procedures should use technology
where available and identify risk factors, the presence of which may
suggest money laundering activity. Risk factors include:
When an account holder wishes to:

associate secrecy with a transaction
route transactions via a jurisdiction or financial institution with
inadequate CDD practices (e.g. shell bank)
route transactions through several jurisdictions or financial
institutions to disguise the nature, source, ownership or control
of the funds
use accounts at a central bank or other government owned bank
or use government accounts as the source of funds of a
transaction
a rapid increase/decrease in the balance in an account that is not
attributable to fluctuations in the underlying market value of
investments held
frequent or excessive use of funds/wire transfers, and wire
transfers that do not provide information about the beneficial
owner of an account or the originator of the information when
such information is expected or required.
Large currency or bearer instrument t5ransacitons.
Repeated deposits or withdrawals just below the monitoring and
reporting threshold on or around the dame day.
High valued deposits or withdrawals not commensurate with the
type of account
A pattern that after a deposit or wire transfer the same (or nearly
the same) amount is wired to another financial institution
(especially one that is offshore).
Comprehensive coverage:

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All aspects of a companys business, particularly those that have

contact with customers should be covered. KYC guidelines are crucial
and at minimum should include an examination of:
The account holders identify when compared to government lists

of known or suspected terrorists or terrorist organizations
All affiliated and other relationships that may result in franchise
risk
Timely escalation and resolution of maters

Timely escalation, reporting and resolution of these matters are crucial.
Reports identifying suspicious activity should:
Be produced in a timely manner
Be subject to appropriate levels of review explicit management support

Management at the most senior level should set the tone at the top; by
demonstrating explicit support for the firms anti-money laundering
efforts. This support needs to be clearly articulated to all employees.
Sufficient training and education
This should be an integral part of any anti-money laundering
programme. Relevant employees should be trained to:
Recognize possible sings of money laundering that could arise

during the course of their duties.
Know what to do once the risk is identified
Regular review/audit of the programme
A regular review of the programme should be undertaken to ensure

that it is functioning as designed. Such a review could be performed by
external or internal resources, and should be accompanied by a formal
assessment or written report.
Clearly identify the resolution of identified issues.

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Chapter 8
THE GOLDEN RULE
8.0: INTRODUCTION
The golden rule requires that we treat others only as we consent to
being treated in the same situation. GR can be derived from the moral
consistency requirements of our previous chapter -- and requires for its
completion some further elements, like knowledge and imagination,
that we'll discuss in the following chapter.
These questions are about Chapter 8 of Harry Gensler's Ethics: A
Contemporary Introduction (Routledge: 1998). These materials are
copyrighted (c) 1998 by Harry J. Gensler; but they may be distributed
freely.
8.1: A golden rule theorem

Our golden rule theorem says: "Treat others only as you consent to
being treated in the same situation." To apply GR, I'd imagine myself in
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the other person's place on the receiving end of the action. GR forbids
this combination:
*
I
do
something
to
another.
* I'm unwilling that this be done to me in the same
situation.
GR doesn't tell us what specific act to do. And it doesn't replace regular
moral norms. It only prescribes consistency -- that we not have our
actions (toward another) be out of harmony with our desires (about a
reversed-situation action). To apply GR adequately, we need
knowledge and imagination.
If we're conscientious and impartial, then we'll follow GR -- since then
we won't do something to another unless we believe it would be all
right -- and thus believe it would be all right to do to us in the same
situation -- and thus are willing that it be done to us in the same
situation.
8.2 Our formulation

The literal GR says: "If you want X to do something to you, then do this
same thing to X." This can lead to absurdities if we are in different
circumstances from X or if we have defective desires about how we are
to be treated. To avoid these, our GR uses a same-situation clause, a
present attitude toward a hypothetical situation, and a don't-combine
form.
The golden rule is close to being a global principle -- a norm common
to all peoples of all times. It makes a good summary of morality and a
good way to operationalize the idea of "loving your neighbor." Closely
related to GR are the self-regard and future-regard principles, and the
formula of universal law: "Act only as you're willing for anyone to act in
the same situation -- regardless of imagined variations of time or
person."
8.3 Why follow GR?

We could base the golden rule on practically any approach to ethics.
For example, we might base GR on social conventions, personal
feelings, self-interest, God's will, or self-evident truths.
THERE IS ONE UNDERLYING RULE FOR ALL RIGHT AND WRONG:

"TREAT OTHERS AS YOU WOULD LIKE TO BE TREATED."
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This rule is known as "The Golden Rule." It is found in most religions,

yet it establishes no particular religion; it leads to harmony among all
people; it is the foundation of Democracy; and it leads to the political
goal of "Greatest Good For The Greatest Number, With Basic Rights For
All."
To apply the Golden Rule, simply ask yourself "How would you like to
be treated in similar circumstances?" Then treat the other person that
way. Also consider the impact of your actions on all other people, not
only those immediately before you.
If you need help in applying the Golden Rule to your particular
situation, please visit Golden Rule Solutions.
Some Version Of the Golden Rule Is Found In Most

Religions
These versions can be categorized as "inclusive" vs. "selective," and
"complete" vs. "partial."
Inclusive vs. Selective The inclusive versions of the Golden Rule
apply to all people everywhere. The selective versions apply only to
some people, such as your neighbors or your countrymen or your
religious brothers.
Complete vs. Partial The complete versions of the Golden Rule call
for you to treat the other person as if he were yourself: to do the good
things to him you would like done to you; and to not do the bad things
you would not like to done to you. So you would not steal from him,
and you would try to help him if he needed help. The partial versions of
the Golden Rule call for you merely to not do the bad things you would
not like done to you. So you would not steal from him, but you would
not be required to help him if he needed help.
Versions Of The Golden Rule In Different Religions

_________________________________________________________________
HINDU: This is the sum of duty; do naught unto others which if done
to thee would cause thee pain. (inclusive, partial)
ZOROASTRIAN: That nature alone is good which refrains from doing
unto
another whatsoever is not good for itself. (inclusive, partial)
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TAOIST: Regard your neighbour's gain as your own gain, and your
neighbour's loss as your own loss. (selective, complete)
BUDDHIST: Hurt not others in ways that you would find hurtful.
(inclusive, partial)
CONFUCIAN: Do not unto others what you would not have them do
unto
you. (inclusive, partial)
JAIN: In happiness and suffering, in joy and grief, we should regard
all creatures as we regard our own self. (inclusive, complete)
JEWISH: Whatever thou hatest thyself, that do not to another.
(inclusive, partial)
CHRISTIAN: All things whatsoever ye would that men should do to
you,
do ye even so to them. (inclusive, complete)
ISLAMIC: No one of you is a believer until he desires for his brother
that which he desires for himself. (selective, complete)
SIKH: As thou deemest thyself, so deem others. (inclusive, complete)
Source: http://theosophy.org/tlodocs/GoldnRul.htm - (Link not working.)
(Categorizations added.)
The Clearest Expressions Of The Golden Rule

The Golden Rule is expressed twice in the Bible, and these are its
clearest expressions, in the words of Jesus, translated. Both of the Bible
expressions are inclusinve and complete.
"So whatever you wish that men would do to you, do so to them;
for this is the law and the prophets." (Matthew 7:12 RSV)
"And as you wish that men would do to you, do so to them."
(Luke 6:31 RSV)
And here are some of the best expressions of The Golden Rule in
modern English.
Page 133
1. "Do unto others as you would have them do unto you."

2. "Treat others as you would like to be treated."
3. "Treat other people the way you would like to be treated."
4. "Treat other people the way you want to be treated."
5. "Whatever you want people to do to you, do that to them."
The expression we use here is, "Treat others as you would like
to be treated." It is inclusive and complete; it avoids using the exact
language used by any particular religion; and it uses modern English,
easy to understand. Also, it uses the subjunctive form "would," which
helps to emphasize that you should treat the other person as you
would like to be treated, if you were in similar circumstances. So to
follow the Golden Rule, you must constantly be imagining yourself in
the position of other people: the hungry beggar, the injured pedestrian,
the captured prisoner.
The Golden Rule Does Not Establish Any Religion
Christians, Jews, Muslims, Buddhists, Atheists and all other people can
accept The Golden Rule without compromising their other true beliefs.
Promoting The Golden Rule is not "establishing religion" in any
Constitutional sense, because it is held in common by religions which
are otherwise in competition. So which religion does it establish?
Judaism? Islam? Buddhism? Atheism? Christianity? None of the above!
I, myself, am a Christian minister, but I am not "establishing"
Christianity by promoting The Golden Rule. Simply because most
Christians support The Golden Rule does not mean that it "establishes"
Christianity, because The Golden Rule is found in the other major
religions, also. It is not exclusive to Christianity.
Therefore, all governments everywhere can actively promote The
Golden Rule without fear of establishing or favoring any particular
religion.
Harmony Among All People
If everybody would treat everybody else according to the Golden Rule,
we would find a harmony among all people that has never been seen
before.
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Some People Believe That The Golden Rule Embodies All Of

God's Law For Mankind, And If We Follow The Golden
Rule, We Have Done Everything God Requires Of Us.
I, myself, am a "Bible Christian." I believe that the Bible is the inspired
Word of God, sufficient to guide all human action. And according to the
Bible, as the Holy Spirit leads me to understand it, The Golden Rule
embodies all of God's Law for mankind. The Biblical reasons I believe
this are found here => http://patriot.net/users/bmcgin/pearlgoldenruleembodies.html
also see patriot.net/users/bmcgin/pearl-goldenruleembodies.txt
Other people do not believe that the Golden Rule embodies all of God's
law. (Some don't even believe in God.) But they can support the
Golden Rule nevertheless, because of the good it obviously
accomplishes. It is truly the worldwide standard for human behavior.
The Golden Rule Is The Foundation Of Democracy.
DEMOCRACY: literally, rule by the people (from the Greek d
"people,"
and
kratos,
"rule").
Source: Britannica.com
The Golden Rule, "Treat Others As You Would Like To Be Treated," is the
foundation of Democracy, because the Golden Rule directs us to give
the same power to others as we would like to have for ourselves,
namely, the power to make decisions in matters affecting our lives.
How much power? The same as we have ourselves, and this leads
immediately to the idea of "one person, one vote," with all votes being
of equal weight. So, Democracy is the natural result of applying the
Golden Rule to the question: "What kind of government should we
have?" Similarly, the Golden Rule leads directly to the idea of equality
of all people under the law.
The Golden Rule Leads To "The Greatest Good For The Greatest
Number, With Basic Rights For All."
When it is applied to Politics, the Golden Rule leads to policies which
create "The Greatest Good For The Greatest Number, With Basic Rights
For All." Thus, total good is maximized and none are denied the basic
Page 135
needs of life. This is a perfect formula for happiness and social stability
anywhere!
Ways To Apply The Golden Rule
The easiest way to apply the Golden Rule to real life is to ask yourself
the question "How would you like to be treated in similar
circumstances?" Then treat the other person that way. Also consider
the impact of your actions on all other people, not only those
immediately before you.
We have a website devoted to applying the Golden Rule:
Golden Rule Solutions

Page 136
Chapter 9
ETHICAL CODE OF
CONDUCT
1. Supplier Relationships
HSBC recognises that our dealings with suppliers often take place in
cultures with different norms and values. Certain standards, however,
as set out in this Code, are universally applicable and we expect
everyone with whom HSBC has commercial dealings to meet such
standards.
HSBC expects its suppliers to have a natural respect for our ethical
standards in the context of their own particular culture. The
relationships with our suppliers are based on the principle of fair and
honest dealings at all times and in all ways. HSBC specifically expects
its suppliers to extend the same principle of fair and honest dealings to
all others with whom they do business, including employees, subcontractors and other third parties.
2. Environmental
HSBC expects its suppliers:
To have an effective environmental policy, to endeavour always

to achieve this policy using the best available techniques, to
implement the policy at all levels throughout the company and to
include
a
commitment
to
continual
improvement
in
environmental performance and waste reduction.
To adhere to all environmental legislation, regulations and all
local laws to facilitate the protection of the environment.
To have a process that ensures conformity to local regulations,
including those relating to the handling, recycling, and the
elimination and disposal of dangerous materials.

Page 137
To identify a person within its business who has responsibility for

environmental compliance issues and to be able to demonstrate
that responsible personnel are adequately trained in
environmental matters.
To work actively to improve the environment and proactively to
pursue any initiatives that bring about that improvement.
3. Employment Conditions
HSBC expects suppliers to respect the rights of their employees and to
comply with all relevant legislation, regulations and directives in the
country in which they operate.
3.1. Child Labour

Exploitation of child labour or of any other vulnerable group (e.g. illegal
immigrants) is totally unacceptable to HSBC.
3.2. Health & Safety

Suppliers must ensure that they or their suppliers abide by all local
laws, directives and regulations relating to health and safety in the
workplace or in any other location other than the workplace where
production or work is undertaken and that they implement any
amendments to these laws, directives or regulations.
3.3. Working Conditions

HSBC expects its suppliers to provide adequate working facilities for all
of its employees. Specifically, and as a minimum:
access to sanitation, drinking water and fire escapes;

provision of meal breaks;
safe working conditions;
adequate ventilation and temperature controls.
3.4. Discrimination
HSBC expects its suppliers to treat everyone fairly when selecting and
dealing with their employees and should not treat any person less
favourably because of their race, colour, religion, sexuality, age,
gender, nationality or disability.

Page 138
4. Monitoring
HSBC expects that suppliers will actively audit and monitor their day to
day management process to ensure compliance with this Code of
Conduct.
5. Development of the Code of Conduct

HSBC will review this Code of Conduct on a regular basis and will
introduce revisions where necessary. Suppliers are invited to
contribute towards the further development of this Code of Conduct.
just the golden rule?
Is it business ethics or
The golden rule holds a universal theme. Treat others the way you
would want to be treated. Do it at work, at home, in life and in Hong
Kong. It is a bedrock principle of any good company. Keep focus on
transparency and emphasis on doing the right thing. This will become
your primary reason for superior performance and success.
Every reputable profession needs to hold a special position of trust
within society. That is to recognize that continued public trust is based
on the commitment to high ethical standards within the company and
that speaks to the equally high standards of the individuals within the
company. This all begins at the top. If integrity is not there it will not
exist long at the lower levels. It is the responsibility of the person at
the top to make it known by example and character that nothing less
will be tolerated.
It is important that all the people in the company believe that is critical
that all its employees act at all times in an honest and ethical manner
in connection with their service to the company. The principles of
integrity and accountability are the cornerstone of success.
Each employee should deal fairly with all counter-parties, vendors,
competitors, and other employees at all times. It all goes back to the
golden rule. There are no ethics that apply here sometimes but not
there sometimes. There are no business ethics. Around the world
religious and cultural differences may vary but the golden rule stands
solid.
As an individual in the company making these correct decisions is
imperative. In raw everyday life it all comes done to the decisions
Page 139
made with that simple but basic golden rule, do unto others, as you
would have them do unto you. By definition deception is out or any
attempt to mislead.
And lastly and just as importantly pay prompt attention to and act on
all complaints. This includes but is not limited to customers, suppliers
and employees. They will do their part in keeping you honest!
Psychologists develop a valid and reliable body of knowledge based on

research and apply that knowledge to psychological processes and
human behaviour in a variety of contexts. In doing so they perform
many roles, within such fields as research, education, assessment,
therapy, consultancy, and as expert witness to name a few.
They also strive to help the public in developing informed judgements
and choices regarding human behaviour, and aspire to use their
privileged knowledge to improve the condition of both the individual
and society.
The European Federation of Psychologists Associations has a
responsibility to ensure that the ethical codes of its member
associations are in accord with the following fundamental principles
which are intended to provide a general philosophy and guidance to
cover all situations encountered by professional psychologists.
National Associations should require their members to continue to
develop their awareness of ethical issues, and promote training to
ensure this occurs. National Associations should provide consultation
and
support
to
members
on
ethical
issues.
The EFPA provides the following guidance for the content
Codes of its member Associations. An Association's
should cover all aspects of the professional behaviour of
The guidance on Content of Ethical Codes should
conjunction with the Ethical Principles.
of the Ethical
ethical code
its members.
be read in
The Ethical Codes of member Associations should be based upon - and

certainly not in conflict with - the Ethical Principles specified below.
National Associations should have procedures to investigate and
decide upon complaints against members, and mediation, corrective
and disciplinary procedures to determine the action necessary taking
into account the nature and seriousness of the complaint.
Page 140
Respect for a Person's Rights and Dignity

Psychologists accord appropriate respect to and promote the
development of the fundamental rights, dignity and worth of all
people.
They respect the rights of individuals to privacy,
confidentiality, self-determination and autonomy, consistent with the
psychologist's other professional obligations and with the law.
Competence
Psychologists strive to ensure and maintain high standards of
competence in their work. They recognise the boundaries of their
particular competencies and the limitations of their expertise. They
provide only those services and use only those techniques for which
they are qualified by education, training or experience.
Responsibility
Psychologists are aware of the professional and scientific
responsibilities to their clients, to the community, and to the society in
which they work and live. Psychologists avoid doing harm and are
responsible for their own actions, and assure themselves, as far as
possible, that their services are not misused.
Integrity
Psychologists seek to promote integrity in the science, teaching and
practice of psychology. In these activities psychologists are honest,
fair and respectful of others. They attempt to clarify for relevant
parties the roles they are performing and to function appropriately in
accordance with those roles.
In the following Meta-Code the term 'client' refers to any person,
patients, persons in interdependence or organisations with whom
psychologists have a professional relationship, including indirect
relationships.

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Professional psychologists' ethical codes must take the following into

account:
Psychologists' professional behaviour must be considered within

a professional role, characterised by the professional
relationship.
Inequalities of knowledge and power always influence
psychologists' professional relationships with clients and
colleagues.
The larger the inequality in the professional relationship and the
greater the dependency of clients, the heavier is the
responsibility of the professional psychologist.
The responsibilities of psychologists must be considered within
the context of the stage of the professional relationship.
Interdependence of the Four Principles

It should be recognised that there will always be strong
interdependencies between the four main ethical principles with their
specifications.
This means for psychologists that resolving an ethical question or
dilemma will require reflection and often dialogue with clients and
colleagues, weighing different ethical principles. Making decisions and
taking actions are necessary even if there are still conflicting issues.
3.1
3.1.1
3.1.2
Respect for Person's Rights and Dignity

General Respect
Awareness of and respect for the knowledge, insight, experience
and areas of expertise of clients, relevant third parties,
colleagues, students and the general public.
Awareness of individual, cultural and role differences including
those due to disability, gender, sexual orientation, race,
ethnicity, national origin, age, religion, language and socioeconomic status.
Avoidance of practices which are the result of unfair bias and
may lead to unjust discrimination.
Privacy and Confidentiality
Restriction of seeking and giving out information to only that
required for the professional purpose.

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3.1.3
3.1.4
Adequate storage and handling of information and records, in

any form, to ensure confidentiality, including taking reasonable
safeguards to make data anonymous when appropriate, and
restricting access to reports and records to those who have a
legitimate need to know.
Obligation that clients and others that have a professional
relationship are aware of the limitations under the law of the
maintenance of confidentiality.
Obligation when the legal system requires disclosure to provide
only that information relevant to the issue in question, and
otherwise to maintain confidentiality.
Recognition of the tension that can arise between confidentiality
and the protection of a client or other significant third parties.
Recognition of the rights of clients to have access to records and
reports about themselves, and to get necessary assistance and
consultation, thus providing adequate and comprehensive
information and serving their best interests and that this right to
appropriate information be extended to those engaged in other
professional relationships e.g. research participants.
Maintenance of records, and writing of reports, to enable access
by a client which safeguards the confidentiality of information
relating to others.
Informed Consent and Freedom of Consent
Clarification and continued discussion of the professional actions,
procedures and probable consequences of the psychologist's
actions to ensure that a client provides informed consent before
and during psychological intervention.
Clarification for clients of procedures on record-keeping and
reporting.
Recognition that there may be more than one client, and that
these may be first and second order clients having differing
professional
relationships
with
the
psychologist,
who
consequently has a range of responsibilities.
Self-determination
Maximisation of the autonomy of and self-determination by a
client, including the general right to engage in, and to end the
professional relationship with a psychologist while recognising
the need to balance autonomy with dependency and collective
actions.

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3.2
Specification of the limits of such self-determination taking into

account such factors as the client's developmental age, mental
health and restrictions set by the legal process.
Competence
3.2.1
Ethical Awareness
Obligation to have a good knowledge of ethics, including the Ethical

Code, and the integration of ethical issues with professional practice.
3.2.2
Limits of Competence
Obligation to practise within the limits of competence derived from

education, training and experience.
3.2.3
Limits of Procedures
Obligation to be aware of the limits of procedures for particular tasks,

and the limits of conclusions that can be derived in different
circumstances and for different purposes.
Obligation to practise within, and to be aware of the psychological
community's critical development of theories and methods.
Obligation to balance the need for caution when using new methods
with a recognition that new areas of practice and methods will continue
to emerge and that this is a positive development.
3.2.4
Continuing Development
Obligation to continue professional development.

3.2.5
Incapability
Obligation not to practise when ability or judgement is adversely

affected, including temporary problems.
3.3
3.3.1
Responsibility
General Responsibility
For the quality and consequences of the psychologist's professional

actions.
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Not to bring the profession into disrepute

3.3.2
Promotion of High Standards
Promotion and maintenance of high standards of scientific and

professional activity, and requirement on psychologists to organise
their activities in accord with the Ethical Code.
3.3.3
Avoidance of Harm
Avoidance of the misuse of psychological knowledge or practice, and

the minimisation of harm which is foreseeable and unavoidable.
Recognition of the need for particular care to be taken when
undertaking research or making professional judgements of persons
who have not given consent.
Continuity of Care
Responsibility for the necessary continuity of professional care of
clients, including collaboration with other professionals and appropriate
action when a psychologist must suspend or terminate involvement.
Responsibility towards a client which exists after the formal termination
of the professional relationship.
3.3.5
Extended Responsibility
Assumption of general responsibility for the scientific and professional

activities, including ethical standards, of employees, assistants,
supervisees and students.
3.3.6
Resolving Dilemmas
Recognition that ethical dilemmas occur and responsibility is placed

upon the psychologist to clarify such dilemmas and consult colleagues
and/or the national Association, and inform relevant others of the
demands of the Ethical Code.
3.4
3.4.1
Integrity
Recognition of Professional Limitations

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Obligation to be self-reflective and open about personal and

professional limitations and a recommendation to seek professional
advice and support in difficult situations.
3.4.2
Honesty and Accuracy

Accuracy in representing relevant qualifications, education,
experience, competence and affiliations.
Accuracy in representing information, and responsibility to
acknowledge and not to suppress alternative hypotheses,
evidence or explanations.
Honesty and accuracy with regard to any financial implications of
the professional relationship.
Recognition of the need for accuracy and the limitations of
conclusions and opinions expressed in professional reports and
statements.
3.4.3
3.4.4
3.4.5
Straightforwardness and Openness
General obligation to provide information and avoid deception in

research and professional practice.
Obligation not to withhold information or to engage in temporary
deception if there are alternative procedures available. If
deception has occurred, there is an obligation to inform and reestablish trust.
Conflict of Interests and Exploitation
Awareness of the problems which may result from dual
relationships and an obligation to avoid such dual relationships
which reduce the necessary professional distance or may lead to
conflict of interests, or exploitation of a client.
Obligation not to exploit a professional relationship to further
personal, religious, political or other ideological interests.
Awareness that conflict of interest and inequality of power in a
relationship may still reside after the professional relationship is
formally terminated, and that professional responsibilities may
still apply.
Actions of Colleagues
Obligation to give a reasonable critique of the professional actions of

colleagues, and to take action to inform colleagues and, if appropriate,
the relevant professional associations and authorities, if there is a
question of unethical action.
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2.1 The European Federation of Psychologists Associations (EFPA)

adopted its European Meta-code on Ethics at its General Assembly,
Athens, July 1995, as guidance for the content of the Ethical Codes on
its Member Associations. This should provide in the common interest
of clients, psychologists and the profession of psychology all over
Europe one ethical frame of reference for Psychological Associations
to develop their ethical codes and to provide assistance in the
evaluation of their members conduct.
2.2 In accepting the Meta-code, EFPA Member Associations ensure the
national codes are not in conflict with the Meta-code. As a result the
ethical code of each member Association will be based on the same
principles and have comparable content.
2.3 According to the Meta-code, Member Associations can contribute in
several ways to the appropriate ethical level of their members
professional conduct. One of these ways is by instituting evaluative
and disciplinary procedures in case of complaints about alleged
unethical
conduct
of
their
members.
2.4 Individual members are expected to comply with their
Associations code. Consequently the ethical behaviour of individual
members of any EFPA Member Association can be evaluated against a
common framework.
2.5 There are four main means whereby Member Associations may
seek to ensure their members act appropriately and ethically:
The formulation and publicising of the ethical code.

The regulation of initial training
Requirements for members to maintain and develop their ability
to
practise
competently and ethically
The provision of evaluative and disciplinary procedures in cases
of complaint
2.6 The present guidance addresses the fourth of these functions,

namely the responsibility of Member Associations to have procedures
for the evaluation of members practice in cases where a complaint is
made, and to have the disciplinary procedures which may follow
therefrom.
Page 147
3.1 Psychologists may behave in ways which are considered unethical

and may be subject of complaint for several different reasons
including:
ignorance of the national associations ethical code and/or other

relevant
ethical
guidance;
carelessness in interpretation of the code during professional
practice;
deliberate flaunting of the relevant code, whether for
inappropriate personal benefit, or because of disagreeing with
the code;
as a result of dilemmas arising in practice whereby ethical
principles
are
in
tension
or
even conflict;
as a result of reduced physical or mental competence.
3.2 Psychologists will inevitably meet situations in which professional

ethical principles will be in conflict with one another or with the law.
Then, it is impossible to act in accordance to all ethical principles
equally. Thus psychologists are faced with ethical conflicts which bring
them into dilemmas concerning how to balance the relative
significance
of
relevant
ethical
principles in the given situation.
3.3 Ethical conflicts not only may arise if professional ethical principles
are incompatible with one another in a given context, but also if
personal values or generic ethical principles would be violated by
acting in accordance with specific principles of professional ethics.
Although these cases could not strictly be seen as professional ethics
dilemmas,
they
can
still be powerful and may influence substantially the psychologists
ethical decision-making.
4.1
Access
to
information
The psychologist should be informed of the details of the complaint
and the possible violation of the ethical code. Members of the public
and psychologists should have easy access to information explaining
the procedures concerning the making of a complaint; the process of
evaluating the complaint and the psychologists behaviour; and the
decisions and range of sanctions that are available. During any
Page 148
evaluation and disciplinary procedure, both psychologist and

complainant should have easy and equal access to all information and
evidence.
4.2
Equity
All aspects of the process of evaluation and discipline should be open,
transparent, fair and equitable for any complainant or psychologist.
Comparable cases should lead to similar outcomes in evaluation and in
corrective actions.
4.3
Equal
arms
A complaint should not be pursued unless the complainant accepts
that evidence necessary for the evaluation of the complaint will be
required and therefore must be made available.
4.4
Avoidance
of
trivial
or
inappropriate
actions
There should be a facility to reject complaints that are not related to
the ethical code, are trivial or are mischievous.
4.5
Expert
evaluation
The evaluation of complaints about a psychologists professional
behaviour and its alleged contravention of the Associations ethical
code will require experienced psychologists to contribute to the
evaluation of the complaint. Associations should incorporate into their
evaluative procedures the possible use of psychologists expert in the
domain of practice of which the complaint is made. Such experts
should provide evaluations of the psychologists behaviour about which
a complaint has been made, and in particular should advise on the
degree to which it is acceptable or not acceptable psychological
practice.
4.6
Integrity
All who are involved in the evaluation and discipline procedures should
act with integrity, honesty and fairness. They should not take on any
role if there is conflict of interest. If a conflict of interest should occur
during the process, then this should be brought to the attention of
those with a need to know and the person concerned should withdraw
from further involvement.
4.7
Confidentiality
Complaints and evidence should be treated as confidential during the
Page 149
process of investigation. Where a complaint is dismissed or not upheld,

the matter should remain confidential. The psychologist who is the
subject of a complaint may use information which is confidential for the
purposes of defending him or herself, but must limit any release of
such information with discretion and expressly for this purpose.
4.8
Public
confidence
The Associations procedures should inspire public confidence. This will
be achieved by the thoroughness and efficiency of the procedures, the
integrity of all those concerned with operating the evaluative and
disciplinary procedures, and necessary transparency in the procedures.
All procedures should be carried out as quickly and expeditiously as
possible. Confidence may also be enhanced if a hearing (Tribunal) is
held in public, and if the outcomes of evaluated complaints are
published.
4.9
Involvement
of
non-psychologists
(lay
persons)
Public confidence may be enhanced if non-psychologists are involved
in the judgement of the complaint and the decisions regarding whether
the complaint should be dismissed or upheld, and in decisions
regarding
corrective
action
if
a
complaint
is
upheld.
4.10 Separation of investigation, evaluation and corrective
procedures
Associations should determine whether and how the three stages of
investigation, evaluation and disciplinary action should be related.
a)
Investigation
There should be a stage of investigation. This will involve the gathering
evidence from the complainant, the psychologist who is the subject of
the complaint, and any other source which will provide assistance.
b)
Evaluation
The evidence is assessed to reach an evaluation of whether the
complaint, and the alleged infringement(s) of the Associations ethical
code
are
upheld.
c)
Actions
If a complaint is upheld, decisions are required regarding what, if any,
action(s)
should follow.
4.11 Disciplinary and corrective action
Disciplinary actions should take into account the nature of the
infringement of the ethical code, including the degree of harm resulting
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from the unethical behaviour, together with information presented in

mitigation. Even where disciplinary actions are determined, the need
for corrective actions in addition (e.g. further education or supervision)
should
be
considered. Member Associations should develop and state publicly
their
tariff
of
sanctions.
4.12 Appeal
There should be an appeal procedure.
4.13 Monitoring
The investigation evaluation and disciplinary procedure should be
monitored and considered by the appropriate body within the
Association
on
a
regular
basis.
4.14 Publicity
Publication of the outcomes of evaluated complaints may be helpful in
promoting the content of and the adherence to the ethical code.
Statistics regarding investigations, evaluations, and corrective actions
should be reported to the Associations members annually.
4.15 Interface between the Association and the State
Where another body has a legal responsibility for the regulation of
psychologists, that body would normally be expected to hear
complaints about unethical behaviour. The nature of such relationships
differs across Europe from there being no statutory body, in which case
the Association must take full responsibility for acting on complaints, to
a statutory body with full powers to judge such complaints and make
decision which are legally binding on the psychologist. Even in the
latter case, the Association should maintain and promote its ethical
code and ensure that the whole range of ethical questions is open to
complaints and evaluation. Irrespective of the particular legal
circumstances in any country, the Association has a responsibility to
ensure the public are aware of the system(s) for dealing with
complaints.
4.16 Models of practice

The Appendix provides a more detailed exposition of the principles
Page 151
outlined in the main part of this Guidance. It sets out a model for a
system
of
investigation,
evaluation
and
discipline.
Trustworthiness is being honest, telling the truth, keeping promises,
and
Being loyal so people can trust you. Trustworthy people don't lie, cheat
or steal. They have integrity and the moral courage to do the right
thing and to stand up for their beliefs even when it is difficult to do so.
What Parents Can Do To Promote Trustworthiness:

1. Teach children the importance of trustworthiness by word and
example. Ask yourself "what message am I sending?" Avoid
dishonesty, especially in front of your child.: ("A child's ticket,
please, he is only 11.") Never ask your child to lie for you: ("Tell
Grandma I'm in the shower.")
2. Encourage honesty even when it may cause your child to get into
trouble. Praise efforts to be honest and point out good examples
whenever you see them. Express disappointment for dishonesty.
3. Keep your commitments, be on time and do what you say you
will do, especially when your child is involved.
4. Teach that people need the courage to say "no" when friends ask
them to do something that seems wrong. Explain that it is
disloyal to ask a friend to be untrustworthy.
Model Past Paper

Page 152
Question 1
Absence of an ethical code of conduct
What are the ethical issues arising out of the Problem:
Ethical issues are such issues that affect ones behavior. Anything that
leads to unethical behaviors is what should be outlined here.
Ethics is basically distinguishing between what is good and bad, right
and wrong.
Lack of Integrity
Honesty
Objectivity
Respect for others
What, then, is ethics? Ethics is two things. First, ethics refers to well
based standards of right and wrong that prescribe what humans ought
to do, usually in terms of rights, obligations, benefits to society,
fairness, or specific virtues. Ethics, for example, refers to those
standards that impose the reasonable obligations to refrain from rape,
stealing, murder, assault, slander, and fraud. Ethical standards also
include those that enjoin virtues of honesty, compassion, and loyalty.
And, ethical standards include standards relating to rights, such as the
right to life, the right to freedom from injury, and the right to privacy.
Such standards are adequate standards of ethics because they are
supported by consistent and well founded reasons.
Secondly, ethics refers to the study and development of one's ethical
standards. As mentioned above, feelings, laws, and social norms can
deviate from what is ethical. So it is necessary to constantly examine
one's standards to ensure that they are reasonable and well-founded.
Ethics also means, then, the continuous effort of studying our own
moral beliefs and our moral conduct, and striving to ensure that we,
and the institutions we help to shape, live up to standards that are
reasonable and solidly-based.
Question 2
Business Ethics ask what is right or wrong, good or bad, and harmful
or beneficial regarding decisions and actions in and round
organizational activities?
Explain the arguments for and against ethics in business:
Arguments For:
Ethics refers to well based standards of right and wrong that prescribe
what humans ought to do, usually in terms of rights, obligations,
benefits to society, fairness, or specific virtues. Ethics, for example,
refers to those standards that impose the reasonable obligations to
refrain from rape, stealing, murder, assault, slander, and fraud. Ethical
Page 153
standards also include those that enjoin virtues of honesty,

compassion, and loyalty.
Ethics therefore applies to humanity and human activities.

It is uncertain that most unethical businesses survive for long. Ethics is
therefore important in business in that businesses may not survive
without ethics. This may be ethics in production, sales and marketing,
Human resource etc.
A number of employees would prefer working for an entity that values
them. This implies that for an employer to value an employee, there is
need for the employer embracing ethics. Some un ethical behavior
here would include issues like sexual harassment, discrimination in any
form, Poor pay and failure to observe working hours. Etc
All business entities aim at maximizing profits. In order to achieve their
goal, they must run them ethically.
Customers value ethics in a business entity and so they will support
someone doing his business ethically. Eg advertising the right product,
do not cheat customers; involve yourself in corporate responsibility
etc.
Having ethics in business will act as a tool for your public relations.
This will bring in more customers and thus boosting your business
Arguments against
Individualism. Bring individuals to act in societal settings

Denial of politics
Ethics requires you to get involved in issues like corporate social
responsibility which involves spending from the would be profits.
Business ethics in some or most cases is about obeying the law and
what it stipulates. As a business entity, obeying the law may not be in
line with my profit motives. This comes in as an argument a against
business ethics.
Business ethics at times fails to take in the reality of the situation. Take
the case where by the society is rotten and yet one needs to get
contacts for supply of materials. To get this one must return something
to the staff involved.
As a manager, your obligation is more to company and not other stake
holders like the public etc.
Question Three
Recommendation 1:
Require the originator of any securitized assets or cash flows to retain
a sizeable fraction of the equity tranche or first-loss tranche of the
securitized instrument.
Page 154
Recommendation 2a:
Take the rating agencies out of the regulatory process by eliminating
the role of external
ratings in the Basel II capital risk-weightings.
Recommendation 2b:
Restrict firms providing ratings to engage in no other commercial
activities.
Recommendation 2c:
Establish a global regulator (or a uniform standard for national
regulators) for eligible
rating agencies. Require that parties requiring ratings for their
securities pay the regulator. The regulator then assigns the rating
decision to one of the eligible rating agencies, using a competitive
process.
Recommendation 3:
Establish a positive list of Gold-Standard ABS that are acceptable as
collateral at the
discount window of the central bank and in repos.
Recommendation 4:
The introduction and marketing of new financial products and
instruments should be
regulated and be subject to testing in ways similar to those used for
the regulation and testing of new medical and pharmacological drugs.
Recommendation 5:
Any incorporated entity above a certain threshold size (de minimis non
curat lex) and with
narrow leverage in excess of X (15, say) will be subject to the same
capital requirements
regime, liquidity requirements regime, reporting regime and
governance regime.
Recommendation 6:
Establish a single EU-wide regulator for border-crossing banks.
Establish a single EU-wide regulator for other systemically important
border-crossing
financial activities or institutions.
Recommendation 7:
Where a multinational College of regulators is necessary, the host
country regulator should
Page 155
have the final say.

Recommendation 8:
A supranational EU fiscal authority is required to provide proper fiscal
backup for the
ECB.
Failing that, an EU fund from which the ECB can be recapitalised should
be created.
Recommendation 9:
All new board members should take a written test, set by the regulator
and marked by
independent experts, on the products, services and instruments traded
and managed by their
financial institutions. Existing board members should be tested every
other year. Unless a
passing grade is achieved, the would-be board member cannot serve.
The graded test will be
in the public domain.
Recommendation 10:
Stick to (or return to) strict fair value accounting, including mark-tomarket whenever
possible. Do not permit reclassification of assets between liquidity
categories. Use
regulatory forbearance as regards capital ratios, leverage ratios or
liquidity ratios to address the undesirable pro-cyclical side effects of
mark-to-market
Recommendation 11:
Mitigate the pro-cyclical effect through regulatory capital requirements
of external credit
ratings by eliminating the role of the rating agencies in Basel II.
Mitigate the pro-cyclical effect through regulatory capital requirements
of the use of
internal bank models by precluding the use of information based on
internal bank models
when calculating regulatory capital requirements.
Mitigate the pro-cyclical effect of constant regulatory capital ratios by
having countercyclical regulatory capital requirements.
Recommendation 12:
Don't regulate on the basis of information that is private to the
regulated entity. Only use independently verifiable information.
Page 156
Nature of Markets:
The Financial markets have very complicated transactions. This

implies that one needs to have strong monitoring tools as well as
internal controls
In terms of regulation, the financial markets have become a
regulatory problem globally. There is no single regulatory body to
these financial markets. It depends on the way that such
countries do regulate their financial markets. Give examples here
in the case of money laundering.
Very high competition in markets leading to the players doing
such un ethical marketing practices. Look at the loan systems in
the country today. Thank God there is a credit bureau now in
place. But you may find that some banks may not follow this.
Failure to adhere to corporate governance issues by the players.
Industry Practices:
There has been a practice of giving out big bonuses to

the executives leading to crisis where the executives
declare exorbitant profits that may not even exist so as
to get bonuses.
Mortgages were being given out without any collateral.
i.e People were using same properties revalued to get
additional or top up motgages. Time came when the
assets were almost at zero or negative value and could
not regain their value.
Fraudulent reporting in the financial sector has been
occurring so as to boost the profits and earn bonuses.
MODEL PAST PAPER

Question
Respect is...
Respect is...listening with out interrupting
Respect is...taking your partner's feelings into consideration
Respect is...keeping an open mind

Page 157
Respect is...agreeing to disagree

Respect is...trying to understand your partner's viewpoint
Respect is...loving yourself
Respect is...trust and honesty
Respect is...giving each other space
Respect is...nonviolence
Respect is...direct communication
Respect is...building a person up instead of tearing them down
Respect is...friendship
Respect isnot pressuring the other person
Trustworthiness is being honest, telling the truth, keeping promises,

and being loyal so people can trust you. Trustworthy people don't lie,
cheat or steal. They have integrity and the moral courage to do the
right thing and to stand up for their beliefs even when it is difficult to
do so.
What Parents Can Do To Promote Trustworthiness:

1. Teach children the importance of trustworthiness by word and
example. Ask yourself "what message am I sending?" Avoid
dishonesty, especially in front of your child.: ("A child's ticket,
please, he is only 11.") Never ask your child to lie for you: ("Tell
Grandma I'm in the shower.")
2. Encourage honesty even when it may cause your child to get into
trouble. Praise efforts to be honest and point out good examples
whenever you see them. Express disappointment for dishonesty.
3. Keep your commitments, be on time and do what you say you
will do, especially when your child is involved.
4. Teach that people need the courage to say "no" when friends ask
them to do something that seems wrong. Explain that it is
disloyal to ask a friend to be untrustworthy.

Page 158
Responsibility
The worst part was I had to admit to my boss that I couldn't do the
project on my own!"
Whether you are the boss or follow someone else's lead, responsibility
is a concept that many of us misinterpret as performing a task.
Growing up all I ever wanted was responsibility. My mom loves to tell
people about my "terrible-2's" age when I went around slamming doors
saying "My DOOR!" and putting my shoes on the wrong feet because
they were "MY SHOES!". Like most kids at that age I wanted to control
my surroundings and have direct influence over my achievements.
But does that fully describe being responsible? The actions of most
people I have worked with seem to agree with this definition because
they strive to be the person who actually does the work to fulfill their
responsibility. I disagree with that definition.
To be responsible in my company means that you will do everything
you can to ensure a goal is achieved regardless of the "how", "who",
"what", "where" or "when". Responsibility is as simple as agreeing to
follow something through to completion. Unfortunately many people
complicate this concept by fusing it with their ego, their own personal
desire to perform the actual work and to be recognized for the work,
not the achievement of the goal.
We all want to be recognized for doing a job well, but achieving a
collective goal requires recognizing every person's talents and
contributions, not just the person responsible. When I was in my 20's I
thought that I could do everything myself and I wanted to be
recognized for my talents. And then I was given a deadline to finish a
job that couldn't be done by my efforts alone. To complete my job I
would have to get help, support from my boss and possibly spend
money on tools that would save my overall project time and money. I
was terrified because I knew I was destined to fail. The worst part was I
had to admit to my boss that I couldn't do the project on my own! NOW
what is the definition of responsibility?
Being responsible means to:
Make use of all your resources, not just yourself

Ask for help from your boss and peers
Work smarter, not harder

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Most important of all, responsibility means that you will give your boss
a chance to help you when your project is at risk for failing or not being
done on time.
As a manager I want my team to tell me when a project is at risk. Since
my responsibility is for the entire company's success I want to be given
the opportunity to help keep a project on track so I can live up to MY
responsibility. Yeah, that's right - bosses have responsibility too!
A key difference between being a good boss and a bad boss is how one
deals with this concept of responsibility. A bad boss will make someone
feel bad for asking for help to fulfill their responsibility. A good boss will
reward someone for seeking help and exposing project risks in order to
ensure the team's collective success. Whether you are the leader of a
team or a leader of one (yourself), what kind of boss do you want to
be?
Caring
Concern about other people. How they feel and what they do.
Ethics in research
Honesty
Strive for honesty in all scientific communications. Honestly report
data, results, methods and procedures, and publication status. Do not
fabricate, falsify, or misrepresent data. Do not deceive colleagues,
granting agencies, or the public.
Objectivity
Strive to avoid bias in experimental design, data analysis, data
interpretation, peer review, personnel decisions, grant writing, expert
testimony, and other aspects of research where objectivity is expected
or required. Avoid or minimize bias or self-deception. Disclose personal
or financial interests that may affect research.
Integrity
Keep your promises and agreements; act with sincerity; strive for
consistency of thought and action.
Carefulness
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Avoid careless errors and negligence; carefully and critically examine

your own work and the work of your peers. Keep good records of
research activities, such as data collection, research design, and
correspondence with agencies or journals.
Openness
Share data, results, ideas, tools, resources. Be open to criticism and
new ideas.
Respect for Intellectual Property
Honor patents, copyrights, and other forms of intellectual property. Do
not use unpublished data, methods, or results without permission. Give
credit where credit is due. Give proper acknowledgement or credit for
all contributions to research. Never plagiarize.
Confidentiality
Protect confidential communications, such as papers or grants
submitted for publication, personnel records, trade or military secrets,
and patient records.
Responsible Publication
Publish in order to advance research and scholarship, not to advance
just your own career. Avoid wasteful and duplicative publication.
Responsible Mentoring
Help to educate, mentor, and advise students. Promote their welfare
and allow them to make their own decisions.
Respect for colleagues
Respect your colleagues and treat them fairly.
Social Responsibility
Strive to promote social good and prevent or mitigate social harms
through research, public education, and advocacy.
Non-Discrimination

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PROFESSIONAL ETHICS

A PROFESSIONAL STREAM STUDY TEXT

Professional Ethics and Values

Professional Ethics and Values

History of Business Ethics

6. Myths About Business Ethics

Myth #1: Business ethics is more a matter of religion than management.

Professional Ethics and Values

Professional Ethics and Values

Am I willing to see the decision communicated to all stakeholders affected by it -- for

Professional Ethics and Values

system or of a company are exposed. Philosophy, theology, economics are

d. A meta-ethical description of ethical systems and theories.

Professional Ethics and Values

Benevolent consequences of individual action

Benthams Four External Pressures

consequentialists present teleological arguments to encourage beneficence (doing good) and

Rule Utilitarianism version enjoys greater acceptance, because the utility of

Professional Ethics and Values

(c) Professional Competence and Due Care

Conceptual Framework Approach

A professional accountant has an obligation to evaluate any

The client (in the case of a professional accountant in public practice)

(d) Familiarity threats, which may occur when, because of a close

party, having knowledge of all relevant information, including the

The professional accountant should consider obtaining legal advice to

(a) To maintain professional knowledge and skill at the level required to

Professional Ethics and Values

(b) Using confidential information acquired as a result of professional

Disclosure is permitted by law and is authorized by the client or

Professional Ethics and Values

There is a professional duty or right to disclose, when not

To comply with the quality review of a member body or

In deciding whether to disclose confidential information, professional

(b) Make disparaging references or unsubstantiated comparisons to the

Fees and Other Types of Remuneration

Marketing Professional Services

Gifts and Hospitality

Custody of Client Assets

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS

Threats and Safeguards:

A financial interest* in a client or jointly holding a financial

CODE OF ETHICS FOR PROFESSIONAL ACCOUNTANTS

A loan to or from an assurance client or any of its directors or

Professional Ethics and Values

A member of the assurance team being, or having recently been,

Examples of circumstances that may create advocacy threats

compliance with one or more of the fundamental principles.

Professional Ethics and Values

For firms that perform assurance engagements, documented

Professional Ethics and Values

Involving an additional professional accountant to review the work

(i) Client Acceptance:

insignificant, safeguards should be applied as necessary to eliminate

Changes in a Professional Appointment

The significance of the threats should be evaluated. Depending on the

Professional Ethics and Values

A professional accountant in public practice will ordinarily need to

business interests, or relationships with the client or a third party that

appropriate to accept a specific engagement or that resignation from

unethical. Nevertheless, there may be threats to compliance with the

An advance written agreement with the client as to the basis of

Disclosure to intended users of the work performed by the