Ethics which are harmful to consumers. Business ethics

Ethics
refer to rules and principles that govern what is considered right and wrong in
regard to one’s conduct. Business ethics is a type of professional ethics which
examines ethical principles and problems which arise in a business environment.

Business ethics should
take into consideration the following factors:

1.     
The business should deal fairly with
everyone dealing with it.

2.     
Ethics should be fixed for everyone
working in the organisation and its implementation should be linked with
reward-punishment system.

3.     
Remedial measures, in case of violation of
ethics, should be taken at the earliest.

4.     
The ethics should be based on the
perception of what is right.

Further, importance of business ethics can be
discussed as follows:

1.      To stop business malpractices

Some
dishonest businessmen do business malpractices by indulging in unfair trade
practices which are harmful to consumers. Business ethics help to stop such
practices.

2.      Credibility in the public

Ethical
values of an organisation create credibility in the public. Ethics are needed
to improve consumers’ confidence.

3.      Protect employees & shareholders

Business
ethics are required to protect the interests of employees, shareholders,
dealers, suppliers, etc. It protects them from exploitation through unfair
trade practices.

4.      Consumer satisfaction

Today,
consumer is the king of market. So, the main aim of the business should be
consumer satisfaction. Consumer would be satisfied only if the business follows
all the business ethics.

5.      Healthy competition

The
business must use ethics while dealing with its competitors. They must give
small scale businesses equal opportunity and should avoid monopoly.

The IESBA (International
Ethics Standards Board for Accountants), the ethics committee, issued a
revised code of ethics for professional accountants. It establishes a
conceptual framework for all professional accountants to ensure compliance with
the five fundamental principles of ethics:

1.      INTEGRITY

In
simple words, integrity means honesty. A financial accounting professional
should be straightforward and honest in all professional and business
relationships.

2.      OBJECTIVITY

A
professional accountant should not be biased and should express his opinion
independently without any biasness. He should not allow conflict of interest or
undue influence of others.

3.      PROFESSIONAL COMPETENCE AND DUE CARE

The
accountant should maintain professional knowledge and skill from time to time.
He should act diligently and in accordance with professional standards when
providing professional services.

4.      CONFIDENTIALITY

The
accountant should respect the confidentiality of information and should not
disclose such information to third parties unless there is a legal or
professional duty to disclose. Further, it should not be used for the personal
advantage of the accountant or any third party.

5.      PROFESSIONAL BEHAVIOUR

This
requires the accounting professionals to comply with relevant laws and
regulations and they should avoid any such actions which may result in
discrediting the profession.

 

There are potential
threats which may lead to conflict of interest and lack of independence. These
can be discussed as follows:

1.      Self-interest threats

It
may occur as a result of financial or other interests of a finance and
accounting professional or of an immediate or close family member.

For
instance, there is an accountant holding shares in a client company. This could
possibly affect of his ethical behaviour. A conflict could arise between
wanting a dividend from the shareholding and reporting the financial results of
the company correctly. He may want to hide the liabilities or overstate assets
to improve dividends.

 

2.      Self-review threats

These
types of threats may occur when a previous judgement needs to be re-evaluated
by the finance and accounting professionals responsible for the judgement.

For
example, there is an assurance partner who is serving as an officer on the
board of an assurance client. One of the possible effect on his ethical
behaviour could be that the partner would have a conflict between the producing
information for audit and then reporting on that information. The partner may
miss decide to ignore the errors identified to avoid having to admit to the
mistakes being made.

 

3.      Advocacy threats

These
arise when a professional is given his opinion on a client such that his
objectivity may be compromised.

 

4.      Familiarity threatsFamiliarity
threats arise when a finance & accounting professional has close
relationships in the work environment and such relationships impair his
selfless attitude towards work.Let
us 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 not
want to qualify the audit report and create bad feeling between the partner and
the director. Therefore, the audit report may not be qualified when it should
be. 1.      Intimidation threats

These
types of threats arise when a professional is threatened not to perform his
duties. A suitable example of intimidation threat could be, fee due from a
client 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 to
default on the payment unless more work is carried out by the assurance firm.