Ethicsrefer to rules and principles that govern what is considered right and wrong inregard to one’s conduct. Business ethics is a type of professional ethics whichexamines ethical principles and problems which arise in a business environment.Business ethics shouldtake into consideration the following factors:1. The business should deal fairly witheveryone dealing with it.2. Ethics should be fixed for everyoneworking in the organisation and its implementation should be linked withreward-punishment system.3. Remedial measures, in case of violation ofethics, should be taken at the earliest.
4. The ethics should be based on theperception of what is right.Further, importance of business ethics can bediscussed as follows:1.
To stop business malpracticesSomedishonest businessmen do business malpractices by indulging in unfair tradepractices which are harmful to consumers. Business ethics help to stop suchpractices.2.
Credibility in the publicEthicalvalues of an organisation create credibility in the public. Ethics are neededto improve consumers’ confidence.3. Protect employees & shareholdersBusinessethics are required to protect the interests of employees, shareholders,dealers, suppliers, etc. It protects them from exploitation through unfairtrade practices.4. Consumer satisfaction Today,consumer is the king of market. So, the main aim of the business should beconsumer satisfaction.
Consumer would be satisfied only if the business followsall the business ethics.5. Healthy competitionThebusiness must use ethics while dealing with its competitors. They must givesmall scale businesses equal opportunity and should avoid monopoly.The IESBA (InternationalEthics Standards Board for Accountants), the ethics committee, issued arevised code of ethics for professional accountants. It establishes aconceptual framework for all professional accountants to ensure compliance withthe five fundamental principles of ethics:1. INTEGRITYInsimple words, integrity means honesty.
A financial accounting professionalshould be straightforward and honest in all professional and businessrelationships.2. OBJECTIVITYAprofessional accountant should not be biased and should express his opinionindependently without any biasness. He should not allow conflict of interest orundue influence of others.3. PROFESSIONAL COMPETENCE AND DUE CARETheaccountant should maintain professional knowledge and skill from time to time.He should act diligently and in accordance with professional standards whenproviding professional services.4.
CONFIDENTIALITYTheaccountant should respect the confidentiality of information and should notdisclose such information to third parties unless there is a legal orprofessional duty to disclose. Further, it should not be used for the personaladvantage of the accountant or any third party.5. PROFESSIONAL BEHAVIOURThisrequires the accounting professionals to comply with relevant laws andregulations and they should avoid any such actions which may result indiscrediting the profession. There are potentialthreats which may lead to conflict of interest and lack of independence.
Thesecan be discussed as follows:1. Self-interest threatsItmay occur as a result of financial or other interests of a finance andaccounting professional or of an immediate or close family member.Forinstance, there is an accountant holding shares in a client company. This couldpossibly affect of his ethical behaviour.
A conflict could arise betweenwanting a dividend from the shareholding and reporting the financial results ofthe company correctly. He may want to hide the liabilities or overstate assetsto improve dividends. 2. Self-review threatsThesetypes of threats may occur when a previous judgement needs to be re-evaluatedby the finance and accounting professionals responsible for the judgement.
Forexample, there is an assurance partner who is serving as an officer on theboard of an assurance client. One of the possible effect on his ethicalbehaviour could be that the partner would have a conflict between the producinginformation for audit and then reporting on that information. The partner maymiss decide to ignore the errors identified to avoid having to admit to themistakes being made. 3. Advocacy threats Thesearise when a professional is given his opinion on a client such that hisobjectivity may be compromised. 4.
Familiarity threatsFamiliaritythreats arise when a finance & accounting professional has closerelationships in the work environment and such relationships impair hisselfless attitude towards work.Letus take an example: A close family member is a director of a client company.This could lead to a potential conflict because an assurance partner would notwant to qualify the audit report and create bad feeling between the partner andthe director. Therefore, the audit report may not be qualified when it shouldbe.
1. Intimidation threatsThesetypes of threats arise when a professional is threatened not to perform hisduties. A suitable example of intimidation threat could be, fee due from aclient is old and the assurance firm is concerned about the payment of the fee.The possible effect on ethical behaviour could be the client may threaten todefault on the payment unless more work is carried out by the assurance firm.