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. 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 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. 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 people’s 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.
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 client’s 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? ’
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? ’ 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 one’s 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 client’s 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.
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 don’t really know how babies or animals want to be treated, for example, so the golden rule can’t 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 don’t 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.
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 you’re 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 client’s 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. Justice and care based approach 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. 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.