THINKING ABOUT ETHICAL DECISIONS

The objective of this unit is to encourage you to think about the kinds of arguments that might influence you when you make decisions. In the next unit you will be studying different branches of ethics, to help you better identify your personal values. Then in the units that follow, you will see why you must use the professional ethics of an accountant when making professional decisions. But for now, we start with a story of an accountant with a dilemma. Whatever she decides to do, it will conflict with some rules of conduct. So the reason for her decision becomes more important than the decision itself. First you will be asked to rate the rightness or wrongness of her decision. Then you will be asked to judge arguments for and against the decision. 2. THINKING ABOUT ETHICAL DECISIONS ACCOUNTANT'S DILEMMA

As a professional accountant, Jane faces a difficult situation. She has found out that her highly regarded manager, who had always supported her and has consistently acted with integrity, has been involved in suspicious activity. Jane discovered that he had created a series of small fictitious payables accounts within the purchase ledger, all of which remain wholly unsettled. She knows that she ought to report any irregularities. Yet, this could lead to the dismissal of her manager, ending a very promising accounting career. When checking the accounts again, she discovers that the fictitious accounts have suddenly disappeared. After thinking it over, she decides to keep all this information to herself. Top of Form Would you agree with Janes decision? I strongly disagree I strongly agree

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2. THINKING ABOUT ETHICAL DECISIONS ACCOUNTANT'S DILEMMA

How acceptable do you find the following arguments against Jane's decision? Suppose someone said that she acted wrongly . . .

Top of Form 1. because most of her colleagues expect her to report her observation.

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2. 3. because if one always makes exceptions, ethical principles become meaningless.

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4. 5. because accountants must report such observations.

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6. 7. because if someone discovers that she knew about the fictitious accounts, she may be disciplined or dismissed.

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8. 9. because she has no right to anticipate the outcome of an investigation.

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11.because if someone finds out that she ever withheld such knowledge, it could damage her reputation and may affect her future career prospects.

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2. THINKING ABOUT ETHICAL DECISIONS SOME FEEDBACK

How did that feel? Did some of the arguments make more of an impression on you than others? Were all different, and people can behave well for a number of different reasons. For many people, it makes a big difference whether somebody behaves well because they feel in the mood to do so, or expect to get a reward, or are compelled to do so by outer forces, or because they want to comply with their moral conscience. The questionnaire that you have just completed was developed especially for this Professional Ethics module by Prof. Lind and his team from the University of Konstanz in Germany. Prof. Lind is known for developing a standard test called the Moral Judgment Test (MJT) which is a rigorous and scientifically validated psychological test that has been taken by thousands of people around the world. This is a new test for accounting students which is still in development. Over time, as thousands of students complete this test, the data will be evaluated and standard ranges of scores will become available so you can compare yourself with other students. For now, you can think of it as a warm-up exercise to get you thinking about the way you make difficult decisions. 2. THINKING ABOUT ETHICAL DECISIONS SOME THEORY ABOUT MORAL REASONING

The MJT is based on the works of the psychologists Jean Piaget and Lawrence Kohlberg. In the 1930s, Piaget studied moral development by observing children playing games. He argued that morality is not only about good moral intentions but involves the development of fundamental cognitive capacities, or schemata of action, by individuals as they grow. Inspired by the work of Piaget, Lawrence Kohlberg elaborated the notion of moral judgment competence beginning in the 1950s. Kohlberg argued that moral reasoning developed through stages of different moral orientations. You will read about these stages in the next unit. Building on Piagets work and the earlier theoretical developments proposed by Kohlberg, Prof. Lind from the University of Konstanz developed a Dual Aspect

Theory of moral reasoning. You can read more about the resulting test at www.unikonstanz.de/ag-moral/home-e.html. 2. THINKING ABOUT ETHICAL DECISIONS ACADEMIC REFERENCES

Kohlberg, L. (1981). Essays in moral development: The philosophy of moral development (Vol. 1). San Francisco: Harper & Row. Kohlberg, L., & Candee, D. (1984). On the relationship of moral judgment to moral action. In W. M. Kurtines & J. L. Gewirtz (Eds.), Morality, moral behavior, and moral development (pp. 5273). New York: Wiley. Lind, G., in press. The meaning and measurement of moral judgment competence revisited - A dual-aspect model. In: D. Fasko & W. Willis, Eds., Contemporary Philosophical and Psychological Perspectives on Moral Development and Education. Cresskill. NJ: Hampton Press. Piaget, J. (1965). The moral judgment of the child. New York: The Free Press. (Original work published 1932) 3. WHAT IS ETHICS? WHAT IS ETHICS?

Ethics is a branch of philosophy that studies the difference between right and wrong. As professional accountants, you will have many opportunities to choose between right and wrong. And as you have seen in the business press, making the wrong choice can lead to serious consequences including corporate failure, loss of reputation, fines, and even jail sentences. The objective of this unit is to introduce you to different branches of ethics, in order to help you understand that people approach the topic with different points of view. You will learn about different ways of thinking through an ethical question. This will help you identify the way that you make decisions so that you can recognise your own personal ethics in any professional ethical problem that you may be faced with. In this way, you can mitigate any detrimental impact of your own personal ethics, with a view to a more objective approach. Ethics has been applied to different fields like biology, for example, resulting in new fields of study like bioethics and environmental ethics; to social sciences, resulting in fields of study like feminism; to war, for pacifism; to criminology, for criminal justice; and to business and the field of business ethics. What you will be studying in this module generally falls into the area of professional ethics.

3. WHAT IS ETHICS?

PERSPECTIVES ON ETHICS

In very broad terms, there are three ways of looking at ethics that have developed over time: rules conformance, good intentions, and competence. One way of thinking about ethics is in terms of conformity to rules. From this perspective, ethics is understood as a list of things to do and to not do. Sometimes the list gets very long and complicated and needs to be interpreted by a whole institution of people. The ethical person, from this perspective, is the one who conforms to the rules. A second way of thinking about ethics is in terms of good intentions. From this perspective, a behaviour is considered ethical if it is based on good intentions. Good behaviour then follows from good thinking. The third perspective thinks of ethics in terms of competence. From this perspective, the ethical person is one who can make decisions based on principles and then act on them. This perspective is thought of as looking at competence, because ethics is thought of in terms of an ability rather than an attitude. 3. WHAT IS ETHICS? BRANCHES OF ETHICS

As a subject of scholarly study, ethics sits among other branches of philosophy like metaphysics (the study of the nature of reality), epistemology (the study of what can be known and how we know about it), aesthetics (the study of concepts like art, music and beauty) and logic (the study of reasoning and methods of arguing). Over centuries of philosophical debate, ethics has developed several schools of thought. In other words, philosophers and others have developed different ethical theories, different ways of thinking about doing the right thing. These theories reflect scholarly differences between professional philosophers, but they also reflect differences in style of moral reasoning that can be observed in everyday moral reflection. As a professional accountant working with people, it will be important for you to become aware of your own ethical way of thinking, and to understand that other people may think about doing the right thing in a different way from you. Some of the better known ways of thinking about ethics follow, in no particular order. The accounting examples included here are only used to illustrate new concepts for you using familiar terms. When making any decision as a professional accountant, you must be sure that you are following the laws of your country, the particular rules that govern you, and the ACCA fundamental principles. 3. WHAT IS ETHICS?

OUR DUTY TO OTHERS

One way to think about ethics is to acknowledge that there are things that someone just does not do, as part of a duty to others. A limitation of this principle is that you have to decide what those things are that someone should not do. At least one philosopher (Immanuel Kant) has defined those duties by saying act according to principles that everyone could follow. For example, if you disobey traffic lights, you should consider what would happen if everyone did so. The point is that we should recognise everyone as equals, and not assume that the rules are any different for ourselves than they are for other people. As an accounting example, a professional accountant would not deliberately issue false or inaccurate financial statements. If everyone did so, no statements could be trusted and as a consequence not only would the profession be brought into disrepute, but all financial statements would have no value to their users. Ultimately the need for accountants and for financial reports would be called into question. 3. WHAT IS ETHICS? CONSEQUENCES

Another way of thinking about ethics is based on thinking about the consequences to different people. Briefly, consequentialism encourages you to make decisions based on the consequences both positive and negative for those involved. This category of thinking is the branch of ethics known as utilitarianism. This states that an action is right if it leads to the most good outcomes and the least bad outcomes for the greatest number of people. One limitation of thinking about ethics in terms of consequences is that you have to agree on what sorts of consequences matter: for example, should you be trying to promote pleasure and avoid causing pain, or should you instead focus on promoting peoples actual well-being, regardless of whether doing so makes them happy? A modern application of this point of view is the cost-benefit analysis, which involves assigning monetary values to the costs and benefits of an action and seeing how they add up. This practice is often used in evaluating new projects. As an accounting example, an accountant thinking in terms of consequences would prepare true and fair financial statements because doing so would bring the most benefit to the greatest number of people. In other words, stakeholders inside and outside the organisation would be able to make more informed decisions as a result. 3. WHAT IS ETHICS? VIRTUE THEORY

In virtue theory, the emphasis is on deciding what sort of person one should try to be, and to define the virtues such a person would embody. You decide what makes a good person, instead of what makes a good action, and act accordingly. One limitation of this way of thinking is that what constitutes a virtue must be agreed upon, and it can vary by culture and over time. For example, the qualities of good financial reports were once considered to be completeness, historical accuracy, reliability and strict adherence to the legal form in disclosing business transactions. More recently, the qualities of good financial reports have come to be relevance for decision-making, reference to a wider conceptual framework, and presenting the economic substance of business transactions. As an accounting example of the use of virtue theory, in deciding whether to agree to a clients request to use a questionable method for valuing inventory, an accountant would ask, What would a conscientious accountant do in such a situation? What would one of my respected mentors do? 3. WHAT IS ETHICS? SOCIAL CONTRACT THEORY

The social contract theory of ethics advises you to think about ethics as embodying a set of rules agreed upon by reasonable people to bring order to social living. So when making an ethical decision you ask yourself, What rule would reasonable, unbiased people agree to? You then follow such rules, regardless of whether they benefit you in particular situations. One criticism of this theory points out that the agreement referred to by social contract theory is entirely imaginary. Why consider yourself bound by an agreement that never happened? An accounting example of social contract thinking might be seen in a situation where an accountant has to decide between loyalty to a client and candid assessment of financial statements. Both of those options involve important social values. Thinking in social contract terms, the accountant might ask, What sort of rule for balancing these values would unbiased people agree to? 3. WHAT IS ETHICS? CONFUCIAN ETHICS

Confucian ethics seeks to provide harmonious relationships within society, the family, and the individual. Looking within yourself and learning from experienced people are seen as the main roads to wisdom and self-harmony. The emphasis on experience leads to respect and reverence for the past, the aged, and for ones ancestors. One of the criticisms of this model is that in a society where relationships are considered more important than the laws themselves, corruption and nepotism may

be tolerated. As an accounting example, in deciding whether to agree to a clients request to use a questionable method for valuing inventory, an accountant thinking in Confucian terms might consider agreeing to it because doing so would cause harmony with the client. 3. WHAT IS ETHICS? RULES OF THUMB

In addition to scholarly branches of philosophy, some other ways of looking at right and wrong have developed. The golden rule The classic golden rule is to do unto others as you would have them do unto you. In other words, I will not cheat that person because I do not want them to cheat me. The golden rule is a simple and useful tool, but it does have some limitations. We dont really know how babies or animals want to be treated, for example, so the golden rule cant tell us much about how to treat them. Also, the whole rule is based on your own feelings of how you yourself would want to be treated. But your own needs and preferences might not be typical. For example, the fact that you personally do not value privacy does not mean that you dont owe others an obligation to respect their privacy. As an accounting example, this rule of thumb could be applied to mean that you disclose all information that may be relevant in financial reports because, if you were the reader of those financial statements, you would expect to receive all the information, and disregard any that is not relevant to you. 3. WHAT IS ETHICS? MIRROR TEST

Another rule of thumb is the mirror test. This is a quick way to evaluate a decision that you are about to make, and reinforces the notion that you are responsible for your own actions. Imagine youre looking in a mirror and ask yourself: Is it legal? If it is not legal, don't do it. What will others think? Others meaning a friend, a parent, a spouse, a child, a manager, the media, or someone else whose opinion is particularly important to you.

As an accounting example, in deciding whether to agree to a clients request to use a questionable method for valuing inventory, an accountant thinking in terms of this rule of thumb would consider how a story about this action would look on the front page of the local newspaper. 3. WHAT IS ETHICS? ETHICS AND MORALITY

It is worth noting that two different words ethics and morality tend to arise when ethical issues are discussed. Morality, like ethics, is about the principles we use to judge the right and wrong of our actions. The technical difference is that while morality consists of the various principles that guide our decisions, ethics is the careful, methodical, and scholarly study of which principles should guide our actions. For most purposes, the words can be used interchangeably so we can speak of having either ethical obligations or moral obligations. 3. WHAT IS ETHICS? ETHICS AND RELIGION

For some people, religion plays an important role in their moral beliefs and moral reasoning. If you belong to a faith-based community, you may have learned ethical behaviour from the religious leader in your church, temple, mosque, synagogue, or other place of worship. That experience provides you with another point of view to approach decision-making at work. Even if you do not belong to a faith-based community, you should be aware that some people do, and may bring their religious beliefs to a business discussion of ethics. It is important to remember that secular ethical perspectives such as those discussed in this unit need not always conflict with religious beliefs. Most, if not all, religions contain some direction about treating other people fairly, and that is also the premise of most ethical models. It is also seen as good business practice. 3. WHAT IS ETHICS? Top of Form

Ethical style questionnaire: your scores are... Justice Score : 8 Care Score : 2 What this quiz actually does is help you identify whether you lean towards a justice and rule-based approach or whether you lean towards a care-based approach. The justice and rules-based approach says that the rules should be applied equally to everyone and that justice and fairness are most important. Some researchers have suggested that this is a more masculine approach to the world. The care-based approach says that care, rather than justice, is most important and that we should act responsibly to people in need. Some researchers have suggested that this is a more feminine approach to the world. You can see why this research is controversial, and why you may disagree with the results. However it is interesting to consider whether gender could influence ethical positions. Bottom of Form It may also help you when discussing issues with colleagues from other countries. Generally, in North American and European groups, men have been found to have, on average, higher justice scores and women have been found to have, on average, higher care scores. The significance of these statistical findings is a topic of ongoing debate among scholars. It is important to know how you approach an ethical question, and to recognise that other people may approach it a different way, irrespective of gender. 3. WHAT IS ETHICS? ETHICS AND MATURITY

There is a theory of moral development which says that people move through six stages. This theory was popularised by Lawrence Kohlberg based on his research studies conducted at Harvards Center for Moral Education. His theory of moral development was dependent on the thinking of the Swiss psychologist Jean Piaget and the American philosopher John Dewey. These men said that human beings develop philosophically and psychologically in a progressive fashion as they grow up. In stage one, people are concerned with obedience and punishment and the immediate results to themselves. The question they ask themselves is, Will I be punished if I do this?. In stage two, people are still concerned about the consequences, but have moved on to thinking about what else is in it for them. They think, You do a favour for me and Ill do a favour for you. In stage three, people begin thinking about their social relationships. They want to be a good person so that they can seek approval from others. In stage four, a functioning society is paramount, and people seek to obey laws and social conventions. If one person violates a law, perhaps everyone would, so there is an obligation to uphold the law. In stage five, people think in terms of inalienable rights and liberties. Laws are seen as embodying social contracts, and such contracts are open to criticism. People at this level are interested not just in what societys rules are, but in what makes a good society. The theory says that people rarely reach stage six. If they did, they would show respect for universal principles and the demands of individual conscience, acting because it is right, not because it was legal or expected of them. Although this theory of moral development has been criticised for being overly concerned with abstract principles such as justice, and not enough with care, it is still a useful framework for investigating your personal ethics. Bottom of Form Bottom of Form 3. WHAT IS ETHICS? ETHICS AND THE PROFESSIONS

Historically, most professions like medicine and law had codes of ethics and members were required to swear an oath to uphold those codes, thereby professing to a higher standard of responsibility. In modern times, membership of a profession is usually restricted and regulated by one or more professional associations, and rigorous training and additional schooling is required. Professionals typically proclaim an obligation to society beyond their client relationship, and point to a code of ethics that they follow. So as a professional accountant with a code of ethics, you will form part of a long tradition of people who profess to a higher standard of accountability. You will also enjoy a position of trust and responsibility. This is perhaps most obvious in the role accountants play in auditing publicly traded companies. Although the client company pays the bills, your highest obligation is to the public good, and in particular to the investing public that will be relying on the accuracy and integrity of your work. 3. WHAT IS ETHICS? SUMMARY

Morality is a set of rules concerning right and wrong behaviour. Ethics is the branch of philosophy that attempts to provide clear arguments about which moral rules are best and how those rules ought to be interpreted. There are several different ethical theories or frameworks for ethical decisionmaking, each of which has been advocated by prominent moral philosophers. Some philosophers, for example, advocate thinking about ethics entirely in terms of consequences: what action will produce the best outcomes overall? Others have argued in favour of thinking solely in terms of duties, and absolute principles of behaviour such as Always tell the truth that could be adhered to by all. Still others have advocated thinking about ethics in terms of hypothetical contracts, asking us to imagine what rules of behaviour reasonable, unbiased people would agree society should live by. And finally, some have argued that we ought not to think about ethics in terms of rules, but rather to think about what kinds of virtues good people embody, and what kinds of people we think it best to emulate. Many different factors affect ethical reasoning, including age, sex, religion, and professional affiliations. It is preferable that your ethical decisions be based on good reasoning and careful consideration of the relevant laws and principles, but it is also necessary to be

aware of the various personal factors affecting your own decision-making, and those of other people. 3. WHAT IS ETHICS? Top of Form IN REVIEW

1. 'Do unto others as you would have them do unto you' is often called 'The Golden Rule'. Tru e Fals e

2. Social contract theory is a branch of contract law. Tru e Fals e

3. Ethics is a branch of science. Tru e Fals e

4. In the Confucian model of ethics, the emphasis is on maintaining harmony. Tru e Fals e

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