Ethics for Accountants ^Auditors

Transcription

1 2 nd Edition Ethics for Accountants ^Auditors Deon Rossouw Charl du Plessis Frans Prinsloo Martin Prozesky (Editor) OXTORD UNIVERSITY PRESS SOUTHERN AFRICA

2 Contents Special acknowledgements Contributors Preface x xi xii Part 1: Principles of ethics Introductory case study: A dilemma in- professional and business ethics 2 Outcomes 2 Overview 2 Case study: A dilemma in professional and business ethics 3 Questions for discussion 15 1 Key concepts in business and professional ethics 16 Outcomes 16 Overview 16 Introduction 17 Ethics or morality.7 17 Ethics and values 18 Moral dilemmas 19 Business ethics 20 Personal and organisational ethics ; 22 Ethics and the law f. 23 Professional ethics '. 24 Professional virtues 24 Conclusion 25 Questions for discussion 25 2 Value systems in South Africa,. 27 Outcomes 27 Overview 27 Introduction 28 Case study: The devout CEO 28 Moral convergence and consensus 29 Traditional African ethics 30 Introduction 30 Who are the ancestors in African tradition? 30 The ancestors of guardians of morality in African ethics 31 The general character of African ethics 31 What is ufowzfa? 31 Conclusion

3 Ethics in Christianity and Judaism 33 Introduction 33 Jewish and Christian traditions 33 Four shared features of Jewish and Christian ethics' 34 Ethics in Judaism 35 Christian ethics 36 Jesus of Nazareth 37 Core moral guidelines in Christianity 37 Early developments in Christianity 38 Natural law 38 The modern moral maze 39 Conclusion 40 Islamic ethics.' 40 Introduction 40 The general character of Islamic ethics 41 The three sources of Islamic ethics 41 An ethic of action 42 A modern debate within Islam 43 Summary 44 Conclusion 44 Hindu ethics 44 Introduction 44 Hinduism as a way of life 45 Karma and dharma 46 Sources of Hindu ethics 47 Controversial practices 48 Revitalising Hinduism /. 48 Conclusion, 49 Modern value systems 49 Introduction 49 Human rights and responsibilities 50 Communist ethics 51 Secular humanism 52 Feminist ethics ; 53 Conclusion 55 Questions for discussion 55 3 Philosophical foundations of ethics 57 Outcomes 57 Overview 57 Introduction 57 Case study: Chris 58 Virtue theory 59 Virtues 59 Mean 60 Deontological ethics 62 The categorical imperative 63 Respect for persons 64 Utilitarian ethics 65 The Greatest Happiness principle 65 Criticism one: The theory is degrading to humans 66 Criticism two: Happiness cannot be the rational purpose of life 67

4 Criticism three: Utilitarianism is unattainable 67 Criticism four: Utilitarianism is self-serving 68 Criticism five: The theory is too time-consuming 68 Conclusion 69 Questions for discussion 69 4 Ethical decision-making 71 Outcomes 71 Overview 71 Introduction 72 Case study: Jane Peterson's downsizing assignment 73 Making ethical decision in business or the profession 74 Is it legal? 75 Application to Jane Peterson's assignment 76 Does it meet company standards? 76 Application to Jane Peterson's assignment 78 Is it fair to all stakeholders? 78 Application to Jane Peterson's assignment 79 Can it be disclosed? 81 Application to Jane Peterson's assignment 82 Conclusion 83 Questions for discussion 84 5 Resolving ethical dilemmas 85 Outcomes 85 Overview 85 Introduction 86 Assumptions behind the RIMS strategy 87 Assumption one: Dissensus does not equal defeat 87 Assumption two: Dialogue can produce solutions 87 Assumption three: Focusing on motives is futile 87 Assumption four: Only moral arguments are allowed 88 The RIMS strategy...-:;. 88 Step one: Generate and evaluate all points of view 89 Step two: Identify the implications 89 Step three: Find solutions 89 Case study: The dilemma 89 Resolving the dilemma: RIMS at work 91 Step one: Generate^the moral points of view 91 Step two: Identify the implications 92 Step three: Find solutions 93 Conclusion 96 Questions for discussion 97 6 Case study using ethical skills and insights 98 Outcomes 98 Overview 98 Introduction 99 Case study: Using ethical skills and insights 99 Questions for discussion Ill

5 Part 2: Business ethics 7 Macro-ethics 114 Outcomes 114 Overview 114 Introduction 114 Reasons for the ascendancy of capitalism 116 The marvel of the pricing system 116 The opportunity for personal motivation 116 The link between macro-ethics and the commercial enterprise 117 Example one: Globalisation and the spread of capitalism 117 Example two: South Africa's political legacy 117 Key elements of our economic system 118 Property rights 119 Free markets 119 Competition ' 120 Profit '.'.'.'.'.".'.". ".".".'. 120 The joint-stock, limited liability corporation 121 The productive and distributive elements of capitalism 122 Economic justice under capitalism 123 Utilitarianism 123 Justice as fairness 125 Entitlement theory and the libertarians 125 Conclusion 126 Questions for discussion The modern corporation and its moral obligations 128 Outcomes 128 Overview 128 Introduction ; 129 Corporate social responsibility 130 Milton Friedman, 130 Christopher Stone \ 132 Corporate moral agency 133 Peter French 134 Stakeholder theory 135 Edward Freeman 136 Kenneth Goodpaster 139 Conclusion 140 Questions for discussion Corporate governance 141 Outcomes 141 Overview 141 Introduction 142 What makes governance important? 143 Governance structures 144 The agency problem 145 A recurring crisis in governance practice 147 Shareholder apathy, co-ordination and information 149

6 Institutional investors: saints or sinners? 150 The board: independence and commitment 151 Management: in whose service? 153 Stakeholder management as alternative 154 The King Reports on corporate governance 156 Triple bottom-line reporting 158 Governance role of the auditing profession 160 Role of the audit committee 161 Role of external auditors 161 Role of internal auditors 162 Conclusion 163 Questions for discussion Managing ethics 165 Outcomes _ 165 Overview 165 Introduction 166 Determining ethical risk 167 Ethical risk assessment 168 Codifying ethical standards 169 Directional codes 169 Aspirational codes 170 Institutionalising ethics 170 Strategic level 170 Systems level 173 Reporting and disclosing ethical performance 175 Conclusion :- 176 Questions for discussion Case studies in business ethics 178 Outcomes ] 178 Overview.' 178 Introduction 178 Cheating,. 179 Case study one: Cheating and eating : 179 Qualification fraud 181 Case study two: Credible credentials?.' 181 HIV in the workplace 182 Case study three: Aids anxiety 183 Black economic empowerment 188 Case study four: Black front, white back 188 Gifts and gratuities 189 Case studyfive:tempting tickets 190 Employment equity 192 Case study six: Promotion problems 192 Company expenses 193 Case study seven: Three nights out of town 194 Whistle blowing 196 Case study eight: Suspicious invoices 196

7 Part 3: Professional ethics 12 Accountants and auditors as professionals 200 Outcomes 200 Overview 200 Introduction 201 What is a profession? 202 One: Entrance into the profession requires an extensive period of education and training 204 Two: Professional knowledge and skill are essential to the wellbeing of the larger society 205 Three: Professions usually have a monopoly on the provision of professional services 208 Four: Professionals often have an unusual degree of autonomy when rendering their services 209 Five: Professionals claim to be regulated by ethical standards 209 Types of professionals in society 210 Professional bodies guarding the profession and its ethics 213 South African Institute of Chartered Accountants (SAICA) 214 South African Institute of Professional Accountants (SAIPA) 215 Chartered Institute of Management Accountants (CIMA) 215 Association of Chartered Certified Accountants (ACCA) 215 Institute of Internal Auditors (IIA) 215 Independent Regulatory Board for Auditors (IRBA) 216 The collapse of Enron and Andersen 217 Conclusion 219 Questions for discussion Codes of professional ethics 222 Outcomes 222 Overview 222 Introduction 223 What is a'code of Professional Ethics'?.'. 223 One: Guidance on proper conduct for professionals 224 Two: Adherence to the Code.assists in protecting the public interest 225 Three: Rationale for adherence even when pressured to violate code of ethics or moral conduct 225 Case study: Vanilla Investments (Pty) Ltd 226 Four: Providing a mechanism by which action can be taken against unethical conduct of professionals 226 Five: Achieving the objectives of the profession 227 Six: The Code provides a basis for debate about future changes and improvements to ethical standards 228 Dissemination and enforcement of professional codes of ethics 228 Codes of Professional Ethics in the accounting profession 229 International Federation of Accountants (IFAC) 229 Case Study: Kool Trading (Pty) Ltd 231 SAICA's Code oj'professional Conduct 234 Further analysis of selected fundamental principles of relevance to external auditors 236 Integrity 237 Independence 237 Professional competence and due care 241

8 The future of self-regulation 243 Conclusion 244 Questions for discussion Case studies in accounting ethics 247 Outcomes 247 Overview 247 Introduction 247 Case study one: Business expense dilemma 248 Case study two: A touch of insider trading? 250 Case study three: Harassment and intimidation 251 Case study four: When in Rome? 253 Case studyfive:money laundering 256 Case study six: Temptation beckons 258 Addendum: Learning journal assignment 260 Glossary 261 Index 267