A3-Professionalism, Ethical Codes and The Public

Professionalism, Ethical Codes and the Public
SYLLABUS COVERAGE
A. Leadership
3. Professionalism, ethical codes and the public interest

Public interest
1.1 Public interest
the collective well-being of the community of people and institutions

the professional accountant serves
1.2 Social responsibility
individuals and businesses have a duty to act in the best interests of the
environments in which they operate and society as a whole
1.3 Public value
public value describes the value that an organisation contributes to

society.
There is, however, no one formal definition of public value.
Some argue it has at least three dimensions, including economic value,

political value and social value.
The Passenger Rail Agency of South Africa (Prasa) is a wholly owned
government public entity reporting to the minister of transport. Its main
responsibility is to deliver commuter rail services in the metropolitan
areas, long-distance (inter-city) rail and bus services within, to and from
the borders of the Republic of South Africa.
At the core of delivering public value, Prasa is committed to:

Improving accessibility and connectivity to marginalised
communities;
Providing affordable and subsidised transport solutions to
passengers;
Providing demand-responsive services in rural areas, where rail is the
most appropriate mode of transport;
Supporting economic growth and development through the provision
of access to major employment areas;
Supporting the main economic development nodes;
Contributing to emissions reduction and cleaner cities;
Supporting social activities to improve the quality of life for South
African citizens.
1.4 Responsible leadership
responsible leadership is about taking sustainable business decisions

which:
Take into consideration the interests of all stakeholders including

shareholders, employees, suppliers, customers, the community, the
environment and future generations.
Contribute to the triple bottom lines of economic, social and

environmental performance
Common Themes and Aspects of Responsible Leadership
• Ethical judgment
• A force for good
• Long-term and forward-looking
• Effective communication
• Collective action and shared responsibility
1.5 Developments in Financial Reporting-current issues
Traditional financial accounting only reports the direct financial impact

of an entity's performance and, with the rise of CSR, organisations are
increasingly under pressure to report the non-financial impact of their
activities. This is especially the case for listed companies, which face
high levels of public scrutiny.
Possible models for enhancing traditional corporate reporting include:

• the "triple bottom line" (3BL) approach, which reports financial,
social and environmental impacts;
• the "PPP" model, which reports impacts on people, the planet and
profits;
• Integrated Reporting
Codes of Ethics
Briefly explain the main ethical issues that are involved in the following
situations
a. An aggressive advertising campaign
b. Employee redundancies
c. Payments or gifts to officials who have the power to help or hinder

the payees' operations
2.1 Fraud, Bribery and Corruption
Fraud - an act or statement that creates an advantage but requires a

false representation of the facts for it to be accepted. (e.g. manipulation
of financial statement)
Bribery - the offering , giving, receiving or soliciting of any item of

value to influence the actions of an official or other person in charge of
a public or legal duty.
Corruption - deviation from honest behavior. Brides are paid to corrupt

individuals and institutions.
2.2 Ethical decision-making models
Many business decisions have ethical elements to them. This is because

the effects of those decisions are likely to affect stakeholders in different
ways and outcomes will express different ethical values.
The two basic issues in ethical decision-making are :
1. The right motive;
2. The right action.
2.3 Professional codes of ethics
The code clarifies the accountancy profession of their responsibility to

act in the public interest.
The detailed guidance begins with establishment of fundamental

principles of ethics.
The guide supplies a conceptual framework that requires accountants to

identify, evaluate and address threats to compliance, and applying
safeguards to eliminate the threats to reduce them to an acceptable
level.
Fundamental principles
ØProfessional competence and due care

ØIntegrity
ØProfessional behavior
ØConfidentiality
ØObjectivity
Fundamental principles - Professional competence and due care
ØMembers have a continuing duty to maintain professional

knowledge and skill at a level required to ensure that a client or
employer receives competent professional service based on current
developments in practice, legislation and techniques.
ØMembers should act diligently and in accordance with applicable

technical and professional standards when providing professional
services.
Fundamental principles - Integrity
ØMembers should be straightforward and honest in all business and

professional relationship.
Fundamental principles - Professional behavior
ØMembers should comply with relevant laws and regulations and

should avoid any action that discredits the profession.
Fundamental principles - Confidentiality
ØMembers should respect the confidentiality of information acquired

as a result of their professional and business relationships.
ØThey should not disclose any such information to third parties without
proper or specific authority or unless there is a legal or professional
right or duty to disclose.
ØConfidential information acquired as a result of professional and

business relationships should not be used for the personal advantage of
members or third parties.
Fundamental principles - Objectivity
ØMembers should not allow bias, conflicts of interest or undue

influence of others to override professional or business judgements.
Case study- find the fundamental principle which failed
1. A technological failure occurred at Lobo Company last year. A new

computer system which was designed to control Lobo’s complicated
operational facility broke down shortly after it was installed. This
meant that the company was unable to carry out production
processes normally for several days.
2. The cause of the failure was later found to have been a system
specification error made by Frank Bub, the operations director and a
professional engineer. He had seriously miscalculated the capacity
needed for the new system and had ordered a computer system
which was unfit for purpose. Not only had this resulted in the loss
of several days of production and a loss of loyalty and goodwill
from customers and others, it also cost a large amount to repair and
upgrade the system to be able to cope with the actual demands
placed upon it.
Case study
3. Frank Bub acknowledged that he had over-ridden normal

procurement procedures in purchasing the system. But he was
thought by his colleagues to be such a competent engineer, it was
not felt necessary for anybody else in the company to discuss the
purchase with the suppliers. His fellow directors believed that Mr
Bub would exercise the judgement needed to purchase and
implement the new system. Because the system was needed
urgently, there was no time to run it in ‘pilot mode’ or to test it on
site before it was fully installed. When he was asked about the
failure, Frank Bub said that he decided to buy the system in
question because an old friend had recommended it and that he saw
no need to take further advice beyond that.
Conflicts of interest
3.1 Conflict of interest
Conflict of interest has been defined as:

A situation in which a person has a private or personal interest sufficient
to appear to influence the objective exercise of his official duties
A situation which has the potential to undermine a person's impartiality

because of the possibility of divergence between that person's self-
interest and a professional or public interest
3.2 Ethical Threats
Causes of ethical threats and failures include:

Cultural differences, resulting in different expectations and practices.
Opportunities where ethical problems are not reported or discovered.
Lack of opportunities for rectification due to lack of resources.
Failure to recognise the ethical dimensions of situations, lack of
ethical sensitivity.
Lack of understanding of the issues and consequences.
Rationalisation of unethical behaviour as part of the embedded
culture.
Inability to withstand pressures from management, peers or outside
interests.
Absence of leadership in organisations.
Lack of ethical education and knowledge.
Lack of effective corporate governance.
Many threats fall into the following categories:
Self-interest (e.g. as a result of the financial or other interests of
members or of immediate or close family members).
Self-review (e.g. when a previous judgement needs to be re-
evaluated by individuals responsible for that judgement).
Advocacy (i.e. promoting a position or opinion to the point that
subsequent objectivity may be compromised).
Familiarity (i.e. where, because of a close relationship, there is too
much sympathy for the interests of others).
Intimidation (i.e. where actual or perceived, direct or indirect threats
are a deterrent to objective action).
Categorize the following threats:
3.2 Safeguards
Safeguards – actions, individually or in combination, taken by the

professional accountant that effectively eliminate threats to compliance
with the fundamental principles or reduce them to an acceptable level.
Examples of safeguards include:
Having an appropriate reviewer who did not take part in the

professional activity review the work performed;
Informing the threat (i.e. being transparent about it);
Assigning different individuals to a team so team members are not

affected by the threat to the activity (e.g. conflicting responsibilities).
PUBLIC INTEREST
• What is “the Public Interest”?
• Social Responsibility
• Responsible Leadership
• Public Value
• Current Issues
CODES OF ETHICS CONFLICTS OF FRAUD, BRIBERY AND

• Professional Codes INTEREST CORRUPTION
• Meaning
• Ethical Threats
• Ethical Threat
Categories
• Safeguards

A3-Professionalism, Ethical Codes and The Public

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Professionalism, Ethical Codes and the Public

3. Professionalism, ethical codes and the public interest

the collective well-being of the community of people and institutions

public value describes the value that an organisation contributes to

There is, however, no one formal definition of public value.

Some argue it has at least three dimensions, including economic value,

At the core of delivering public value, Prasa is committed to:

responsible leadership is about taking sustainable business decisions

Take into consideration the interests of all stakeholders including

Contribute to the triple bottom lines of economic, social and

Traditional financial accounting only reports the direct financial impact

Possible models for enhancing traditional corporate reporting include:

a. An aggressive advertising campaign

c. Payments or gifts to officials who have the power to help or hinder

Fraud - an act or statement that creates an advantage but requires a

Bribery - the offering , giving, receiving or soliciting of any item of

Corruption - deviation from honest behavior. Brides are paid to corrupt

Many business decisions have ethical elements to them. This is because

The code clarifies the accountancy profession of their responsibility to

The detailed guidance begins with establishment of fundamental

The guide supplies a conceptual framework that requires accountants to

ØProfessional competence and due care

ØMembers have a continuing duty to maintain professional

ØMembers should act diligently and in accordance with applicable

ØMembers should be straightforward and honest in all business and

ØMembers should comply with relevant laws and regulations and

ØMembers should respect the confidentiality of information acquired

ØConfidential information acquired as a result of professional and

ØMembers should not allow bias, conflicts of interest or undue

1. A technological failure occurred at Lobo Company last year. A new

3. Frank Bub acknowledged that he had over-ridden normal

Conflict of interest has been defined as:

A situation which has the potential to undermine a person's impartiality

Causes of ethical threats and failures include:

Safeguards – actions, individually or in combination, taken by the

Examples of safeguards include:

Having an appropriate reviewer who did not take part in the

Informing the threat (i.e. being transparent about it);

Assigning different individuals to a team so team members are not

CODES OF ETHICS CONFLICTS OF FRAUD, BRIBERY AND

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