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M1 LEC01 INTRO TO ETHICS AND ETHICAL SCHOOLS OF THOUGHT 2

ETHICAL APPROACH 2
1. Ethics 2
2. Normative Ethics (what is right and wrong conduct) (decision) 2
3. Metaethics (What is meant by good?) (definition) 2
ETHICAL THEORIES 2

M1 LEC02 ETHICS AND ACCOUNTING 4

Introduction to Professional Values, Ethics, and Attitude (Part 2) 4
ACCOUNTING AS A PROFESSION 4
Mastery of a Highly Technical Skill 4
Adherence to Code of Ethics 4
Accountability to Society 4
ACCOUNTING METAPHORS OF THE ACCOUNTING PROFESSION 4
ACCOUNTANTS AND ETHICS 5
FROM: DRIVERS OF CHANGE OF FUTURE SKILLS (ACCA) 6
LESSON SUMMARY 6

M1 LEC03 CONTEMPORARY ETHICAL ISSUES PART 1 6

M1 LEC04 CONTEMPORARY ETHICAL ISSUES IN ACCOUNTING AND BUSINESS PART 2 7

SUSTAINABILITY PRESENTATION AND ACCOUNTANT 7
DEFINING SUSTAINABILITY 7
SUSTAINABILITY CHALLENGES 7
ACCOUNTING METAPHORS 8
ROLES OF ACCOUNTANT 8
CSRA 8

M1 LEC05 CONTEMPORARY ETHICAL ISSUES IN ACCOUNTING AND BUSINESS PART 3 9

Issue 1: Sustainable Development and Growth 9
Issue 2: Ethics of Digital Finance 9
Issue 3: Self versus Public Interest 9
Issue 4: Bright (Rules-Based) versus Gray (Principles-Based Lines) 10
Issue 5: Governance Mechanism Reforms 10

M1 LEC06 REFLECTIVE PRACTICE AND ROLFE’S MODEL 11

What is the theoretical underpinning? 11
Why do we need to be reflective practitioners? 11
Three Levels of Reflective of Practice 11
Application of the Reflection Practice Model 12

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● Second order
● It is the foundation of the rules
M1 LEC01 INTRO TO ETHICS AND ETHICAL ● Euthyphro dilemma: Is the pious loved by the gods
SCHOOLS OF THOUGHT because it is pious, or is it pious because it is loved by
https://vimeo.com/446695930/1f91fa8982 the gods?
○ Is it good because the state tells you it’s
good or it is itself really good that’s why the
Introduction to Professional Values, Ethics, and Attitude
state tells you it’s good?
(Part 1)
○ One is inherent and one is referent/relational
Accounting Scandals: Then and Now
● What is the rule of reason/gender?
● Most known accounting scandal ENRON: grand
● “What do you mean by good?”
scheme of fraudulent financial reporting
● Wirecard
4. Applied Ethics (How to resolve controversial issues?
(Application)
ETHICAL APPROACH ● focuses on controversial issues
○ Issue on Computer Ethics - Artificial
1. Ethics intelligence (Do you really have to program
● What? Ethics is a branch of philosophy together with the order of safety?)
epistemology, aesthetics, and metaethics
● It involves defining, developing, defending and ○ Issue of sustainability - focuses on the planet
commending of what we mean what is right and and people (is it ethical for you to have
wrong contractual workers?)
● A lot of inquiries ● Bioethics, business ethics, computer ethics,
● Notions of right and wrong accounting ethics
● From the greek word: ethos meaning custom or
character ETHICAL THEORIES
● Latin: moralis means customs
● Root word: it talks about our custom/character/how
1. Utilitarianism
we behave as an individual
● Ethical = most benefit, most number
● We behave in conformity with what we think is right
● Util means use
and avoid those wrong behaviors
● Outcome: benefit for more people
● Personal ethics: Can also pertain to your own notion
● Teleology because it focuses on outcome
of what is right or wrong
● Straightforward approach
● Two versions utilitarianism
2. Normative Ethics (what is right and wrong conduct)
○ Rule: we must choose the action
(decision)
that conform to the general rule that
● Norm: is what should be right or wrong conduct
would have the best consequences
(decision)
■ Lying - as a general rule
● Will you close the segment or shut down the
lying will result to more
operation or continue the operation?
harm than to more benefit
● Normative: What is the right decision, right conduct,
for the most number of
ethical decision?
people that’s why it's
● Three approaches:
unethical to lie
○ Focus on the outcome - shutting down is
■ Paying taxes - in the long
more beneficial than continuing the operation
run it’s more beneficial to
○ Focus on the agent - as a business owner
the most number of
and one of your values is a common good;
stakeholders if we pay
shutting down is more beneficial but the
correct taxes
employees will be unemployed; focusing the
○ Act: it examines the specific action
characters and virtues you need to prioritize
itself rather than the general rule
○ Focus on the relationship - relationship that
governing the action (case to case
he has to your stakeholders especially the
basis)
duties rather than the agent itself
■ Trolly problem - saving
● What good action should you take?
more vs. 1 person
● Difficult to apply
3. Metaethics (What is meant by good?) (definition)
● Meta means high order
2. Deontology
● What do we mean by right?
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● Ethical = in line with duty/obligation
● Duty and rights are correlative
● Ethical benchmark - what is more in line with
my duty that is more ethical
● Example: what costing method/technique will
you use for inventory?
○ FIFO profit is 8M
○ Weighted average profit is 6M
■ Utilitarianism: FIFO
■ Deontology: choose what
will 1) faithfully represent
the company 2) more
relevant
● Two versions of deontology
○ Rule deontology: duty as a general
rule
■ Categorical imperative by
Immanuel Kant -
○ Act deontology: duty for particular
action only

3. Virtue Ethics
● Ethical = in line with good character
● In line with personal virtues
○ Virtues (traits or characters that
make a person ethical)
● Cardinal virtues - wisdom (prudence),
courage, temperance, and justice
○ Wisdom - nagko-control sa ibang
virtue
○ Temperance - trying to weigh what
is the appropriate action for a
particular situation
○ Justice - how you relate to other
people
● Focus on moral agent especially what are
the virtue of that particular person treasures -
virtue ethics

● If your focus are those factors before the

moral agent particularly the duties -
deontology
● If your focus is the outcome as benefit -
utilitarianism

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● Accountability to Society
○ We are professional because we profess our
M1 LEC02 ETHICS AND ACCOUNTING acceptance of accountability to society as a
https://vimeo.com/447489073/1f1aa23f09 whole.
○ This is where we distinguish self interest vs
Introduction to Professional Values, Ethics, and Attitude public interest
(Part 2) ○ When you decided to enter a profession you
Accountants are good at math(s)? also decided to object your preferences and
- Advance knowledge of mathematics is not a happiness secondary to the common
requirement to be a good professional accountants good/interest of the general public
- What are the key areas we must be good at? ○ Accept the responsibility to the
society/common good
ACCOUNTING AS A PROFESSION

Accounting as a Profession ACCOUNTING METAPHORS OF THE ACCOUNTING

PROFESSION
- sometimes people will dictate profession for
being paid of what they do
- some says being a professional is when you Accounting Metaphors of the Accounting Profession
get paid for your skill (in macroeconomic - metaphors as devices used to understand
view of profession, it’s not accurate) certain complex reality — we will use these
metaphor to capture our conceptual system
● Mastery of a Highly Technical Skill of the accounting profession
○ This is the reason why you are studying for - These metaphors are not exclusive - they
your BS degree are equally present in our daily lives as
○ It usually culminates in the passing of the accountants
licensure and certification examination such - The goal is for us to be cognizant that these
as local licensure examination for CPAs, metaphors exist and both metaphors are
CMA exams/certifications for management important in our understanding of the
accountants, and CISA exam for accounting accounting profession.
information professionals.
○ Will we stop with the mastery of a highly 1.As applied finance view
technical skill for a certain discipline to be ● Called the master metaphor - because most
called a profession? No, this is just the of the accountants would implicitly subscribe
starting point. After mastering a highly to this.
technical skill, we need to adhere to a ● Accounting as applied finance - when we
common code of ethics. look at our job as accountants as normally
■ This distinguishes professionals driven by value (financial value) -> the use
from nonprofessionals -> there is a of tools (relevant costing; cost benefit
certain code of ethics you need to analysis, incremental analysis)
follow ○ This view is evident in Ball and
Brown, 1968; Beaver, 1968; 1992
● Adherence to Code of Ethics Lev
○ certain code of ethics that you need to follow ■ Lev argues that
normally when you are dealing with a accounting disclosure just
professional engagements like any other activity is
■ General Code of Ethics for driven by cost benefit
professional accountants analysis
■ Code of Ethics for management ○ Act utilitarian approach
accountants and ○ Compute profit (2 ways -
■ Ethics Guidance for the Accounting transactional and net approach)
Information System Professionals ■ Net approach - anchored
○ The mastery of a certain highly technical skill on the marginal theory in
and adherence to code of ethics culminates economics and finance
with your accountability to society ■ Net worth approach -
anchored on marginal
theory in accounting and
finance

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Pava - these metaphors are not normally ○ After passing: PA: professional accountants
being discussed in accounting circles
whether in the academe or in the profession What should you be good at?
but this will have implicit evidence /indirect 1. Technical skills - covered by IES 2 (brain)
evidence in practice. a. This is where you should be good at PFRS
Pava - says that the cracks of this metaphor (techniques, theories)
are very obvious. 2. Professional Competence (hand)
a. Normally refer to soft skills
2. Accounting as applied ethics b. Communication skills (oral or written)
● the primary supporting documents are i. People skills (managing teams)
provided by ii. Bargaining skills
○ Bowie, 1991 iii. Negotiation skills
○ Dolfsma, 2005 3. Professional Value, Ethics, and Attitude (soul and
○ Pava, 2010 heart)
● Pava - argues that this metaphor views a. As supported by Pava and Dolfsma, the
ethics as a foundation of accounting and not foundation of professional life
only accounting ethics as an afterthought b. Particular of professional skill that will
● This is where we apply the concept of self integrate technical skills and professional
interest vs public interest. This where we competence
give weight more to public interest and
subject our interest secondary only. Where is Ethics in our practice as accountants
● Dolfsma - argues that accounting as applied 1. Whether initial or continuing, there must be
ethics resembles a very deontological professional value, ethics and attitude
approach towards the profession and 2. It would serve as foundation of our practice
communitarian approach
○ Another author: One of the reasons Where is your ethical development in your life cycle as a
why we keep our book of accounts professional accountant?
is a moral one because we want to - Both in initial and continuing development
know what we owe to whom and
how much we owe to whom.
ACCOUNTANTS AND ETHICS
○ Dolfsma: One of the foundational
reasons why we account for things
is because we want to track our
Compete Proficiency Learning Outcomes
duty to the other party (duty to the nce Area Level
suppliers)
○ Dolfsma: There are communitarian Professio Intermediat Apply a questioning mindset
undertones to this view, that’s why nal e (moderate critically to assess financial
we adhere to GAAP (in philippines skepticis level of information and other relevant
-> PFRS) m and ambiguity, data
professio complexity,
nal and Identify and evaluate reasonable
These metaphors are not exclusive. They would go judgment uncertainty) alternatives to reach well
hand in hand as you become professional reasoned conclusions based on
accountants in the future. all the relevant facts and
circumstances
Accountants and Ethics
● When, where, how do we integrate professional ethics - professional skepticism: combination of critical
in our professional lives as accountants? assessment of evidential matter and questioning mind
● Life cycle: Study -> Pass the licensure examination-> - professional judgment: application of training,
Practice knowledge, and experience in context of making
● When would professional development come in as an decisions in accounting and auditing
accountant? Starts when you prepare for your
bachelors degree
○ Before passing the licensure: Initial
professional development and
○ After passing: continuing professional
development
○ Before passing: APA: aspiring professional
accountants
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4. Digital quotient: knowledge of emerging digital
Compete Proficiency Learning Outcomes
nce Area Level platforms and technology — Auditing cloud computing
system
Ethical Intermediate Explain the nature of ethics 5. Emotional intelligence: ability to identify emotions and
principles (moderate harness those emotions whether your personal
level of Explain the advantages and emotions or the emotions of others
ambiguity, disadvantage of rules based and 6. Vision: ability to anticipate future trends by
complexity, principles-based approaches to extrapolation — participation in vision planning. It is
and ethics
important when you try to look at the future direction
uncertainty) Identify ethical issues and
determine when ethical principles of the trend.
apply 7. Experience: ability to understand the client/customer,
provide them the desired outcomes and manage their
Analyze alternative courses of expectation
action and determine the ethical
consequences of these

Apply the fundamental ethical LESSON SUMMARY

principles of integrity, objectivity,
professional competence and
due care, confidentiality, and ● Macro Level view of accounting
professional behavior to ethical ○ Why do we say that accounting is really a
dilemmas and determine an profession?
appropriate approach ■ Mastery highly technical skill
■ Common code of ethics
Apply the relevant ethical
requirements to professional ■ Accountability to the general public
behavior in compliance with ○ Metaphors
standards ■ Accounting as applied finance
● Applies the rules of
Commitm Intermediate Explain the role of ethics within economic and finance of
ent to the (moderate the profession and in relation to accounting (marginal, cost
public level of the concept of social
benefit analysis)
interest ambiguity, responsibility
complexity, ■ Accounting as applied ethics
and Explain the role of ethics in ● Complementary
uncertainty) relation to business and good metaphors— two equally
governance important views
● Look at the international
Analyze the interrelationship of education standards- what
ethics and law, including the
particular areas of
relationship between law,
regulations, and the public professional value, ethics
interest and attitude you must be
good at and what
Analyze the consequences of an particular level
ethical behavior to the individual (intermediate level) and be
the profession and the public able to perform the
outcomes
● Look at the ACCA report -
at the heart of the
FROM: DRIVERS OF CHANGE OF FUTURE SKILLS professional quotient is
(ACCA) technical and ethical
quotient - they are taken
From: Drivers of Change of Future Skills ACCA together
- professional quotient framework
1. Technical and ethical: they go hand in hand;
techniques must be always partnered with ethics;
treated as one
2. Intelligence: thinking and reasoning skills (apply
certain accounting standards critically)
3. Creative: ability to use existing knowledge in new
situation therefore generating new ideas
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Comparative graph of the electricity needed by the whole world
M1 LEC03 CONTEMPORARY ETHICAL ● it takes more electricity to power the collective bitcoin
ISSUES PART 1 transactions in switzerland, greece, israel and ireland
https://vimeo.com/590616371/080894148b ○ in an environmental perspective, the power
needed by bitcoin is larger than switzerland
Module 1.3: Issues in Business and Accounting Part 1 and ireland
1. Sustainable Development and Growth ○ Bitcoin can further the profit and the people
2. Ethics of Digital Finance agenda when you look at a planet agenda
3. Self versus Public Interest there seems to be a problem because it’s
4. Bright versus Gray Lines energy intensive -> which has an effect on
5. Enhanced Governance Mechanisms our greenhouse gases so environmental
-these issues are considered systematic because they permit concerns will arise
the levels — micro, meso, macro — levels of decision making ● When we look at it at our perspective (one
in business perspective only) it becomes a little bit myopic or
shortsighted
Sustainable Development and Growth ○ So what sustainability gave us is the fuller
- sustainability came about when organizational view of our collective experiences as
stakeholders started to demand more from humans living in this planet
organization over economic and financial returns
- encompass our notion of performance — from profit
DEFINING SUSTAINABILITY
we include performance related to people and the
planet
● A way of doing business in an interdependent world…
(Savitz and Weber)
○ Notion that sustainability is not a silo
M1 LEC04 CONTEMPORARY ETHICAL ISSUES IN framework — it does not treat one aspect
ACCOUNTING AND BUSINESS PART 2 individually, it looks at the business as an
https://vimeo.com/549159710/6d3880d53d organic entity with interdependencies
○ Sustainability is a way of living in an
interdependent world
SUSTAINABILITY PRESENTATION AND ACCOUNTANT ○ Whether we are looking at the people or the
businesses our, actions are predicted to
Professional Development Outcomes some more actions and our actions can
1. Appreciate sustainability as a business paradigm and trigger some more actions in our
a worldview environment whether directly or indirectly
2. Recognize the role of accountants in the sustainability ● …through profit creation, environmental protection,
agenda and improving stakeholders affairs (Savitz and
3. Develop a working consciousness about sustainability Weber)
is a worldview ○ It is contrary of what has been the prevailing
business model in the past
BTCUSD Crypto Chart ● Corporate sustainability agenda should pursue the
● Bitcoin: digital finance trend, it works on the triple bottom line (Elkington)
assumptions of the distributive ledger, primarily it ○ People, profit and planet
should deliver the selection of a finance with the
distribution of wealth SUSTAINABILITY CHALLENGES
○ Bitcoins price grows astronomically
throughout the years
○ Current price of bitcoin in Philippine peso is - Laininen (2019) identified sustainability as the
2.38M to 2.4M greatest challenge that the collective world faces right
○ So, on a profit perspective it gives us a little now
hope that normal investors can benefit from - We can consider consider sustainability not as a
this redistribution of wealth challenge but an adaptive challenge
○ From a people perspective, there is a - Adaptive challenge: the way to solve
tendency up wealth redistribution through adaptive problems and challenges it’s just
capital gains through technical solutions, we need to dig
deeper
1. Entails a great amount of unlearning on personal and
cultural levels (Laininen)

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2. Entails transformational learning in organizations point is only quantitative, we need
(Laininen) factor qualitative factors as well
a. For us to appreciate the sustainability d. Do we construct a dam that will benefit the
challenge it’s not enough to educate people people but will destroy the planet and will
in just the head, it has to be some effective displace some indigenous people?
aspects and some sorts of psycho motors 2. Accounting as applied ethics
3. Triple bottom line framework as paradox (Walker, Yu, a. Requirements of ethics: Critical thinking,
& Zhang) knowledge of moral codes, and action
a. Paradox - logically contradicting conjecture b. More related on the people and planet
that runs contrary towards normal
understanding of things
b. Triple bottom line for organizations is like a
ROLES OF ACCOUNTANT
three-leg stool and cut one leg and it will not
stand
c. When we pursue the triple bottom line ● Accountants as Preparers of Sustainability Reports
framework in business organization we ○ Sustainability reports are just subject matter
should be able to pursue at least three of information — form of the sustainability
them within the considerable amount of time ○ Sustainability is the substance
d. They are not separated, segregated, ○ Sustainability reports - form that will capture
individual. They are interactive. You cannot the substance of sustainability efforts
pursue one bottom line only, you should be ○ If the report cannot capture the sustainability
able to pursue all of them at the same time. efforts of the entity or the reports try to
window dress the sustainability efforts of the
- Sustainability, whether worldview or business entity then the report is not serving its
paradigm, is a challenge and this challenge is not one purpose.
of those technical challenges that we can solve by ● Accountants as Assurers of Sustainability Reports
simply passing laws or by simply regulation. This is
something that entails unlearning the relearning and
learning both in personal and cultural levels with the
CSRA
aim of transforming our vision in the world.

Certified Sustainability Reporting Assurer (CSRA) are

individuals who will be able to assure the companies
ACCOUNTING METAPHORS sustainability reports according to the AA1000AS standards set
by AccountAbility. Graduates must be able to verify
- metaphors: not direct comparison but sustainability performance and processes in the company and
(_______?) of the things you compared to be able provide assurance to the sustainability reports.
through this metaphors
1. Accounting as applied finance Final Note:
a. Decision making: cost benefit, relevant ● Adapting a sustainability worldview entails
costing, materiality (pervasive notion across transcendence, of ourselves, our reference groups,
our practice as accountants) and our time horizons
b. However undertaking a purely finance and ○ Transcendence - starts of you being
economic concept can give us a myomic sensitive to what is happening around you.
view of what accounting is For you to appreciate your role and how it
c. How do we integrate this with the notion of relates to the larger picture. For you to be
sustainability? It talks about profit however able to sacrifice yourself towards your
that’s also the danger. If as an accountant passion you need to understand what you
we will focus only on the profit side it blind us are sacrificing.
— it does not give as full picture of the
phenomena or the context we are trying to
understand
i. When we teach accounting using
purely finance it sounds incomplete
ii. So when we teach relevant costing
— do we shut down the plant -
emphasize that our analysis for this

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embedded in the system (poverty
and development)
M1 LEC05 CONTEMPORARY ETHICAL ISSUES IN - People/Social
ACCOUNTING AND BUSINESS PART 3 - Contractualization
https://vimeo.com/590829957/24f9f5569e - Living wage vs. minimum wage

Sustainable- both a worldview and a business model Issue 2: Ethics of Digital Finance
Backgr Disruptions in digital finance have created several
Issue 1: Sustainable Development and Growth ound opportunities and threats in the context of the
Backgr Clamor for sustainable growth for business and global economy. Trends such as cryptocurrencies
ound governments alike due to environmental and social and cashless payments are seen to shape how we
concerns on top of economic motivations do business and accounting in the future.
- we are facing the consequences of
climate change - erratic weather pattern, Issue How should digital transactions be regulated (e.g.,
melting polar caps -> if that will continue taxed) to ensure that they serve legitimate
there would be a rise in water level for low purposes?
lying countries - cryptocurrency is a double edge
- some will argue that it is an
Issue Are organizations able to promote a (e.g., investment facility
triple-bottom line) balanced growth or not? Can - means to facilitate illegal
organizations promote a balanced triple bottom line transactions/illegal trade set
growth or not? because of the anonymity
- we are coming from that big pure afforded by cryptocurrency such
capitalistic motivation that the only job of as bitcoins
corporation is be profitable - the question is anchored to a larger
- we are now shifting to a more equitable question ensuring the trends in digital
and more sustainable corporate finance would serve the legitimate needs
development and corporate growth model of human beings
to include all aspects triple-bottom line
such as people and planet Examp Bitcoin being used for money laundering and other
- we have to accept that corporations are le illegal transactions
structured in a way reminiscence of that - trends like technological trends,
original corporate view which is the technological updates and upgrades are
capitalistic view of organization actually amoral but it depends how people
- when we compare side by side how would use these trends
corporations are structured, is that
particular structure align with the triple
Issue 3: Self versus Public Interest
bottom line framework or a sustainable
development model Backg Across accounting, business, and public
- Some will argue that cooperatives are round governance, conflicts of interest (COI) are a
aligned with sustainable development paramount concern. COI can manifest in many ways
growth including multiple competing stakes of the same
- With the structural limitations that the public and business leaders.
organizations and corporations have right - specific issue not just in accounting
now, can we really foster sustainable - dilemma between the self and public
growth by looking at the organization? interest
- Two issues: (1) positive — what is - can be taken individually and collectively
happening right now? (2) normative — - for the collective version of the self
can it really happen? vs. public interest, let look at the
self as a reference group
Examp Plastics sachets are the preferred packages for (profession) -> the profession
le developing countries interest vs. the public interest
- unintended (oligopoly?)
- Environmental part -> do we break the big
- if you look at the volume of solid accounting firms or do we
waste that was collected in our let them stand?
rivers most of them are plastic
sachets Issue What mechanisms must be put in place in order to
- you cannot separate this issue assure that public interest is protected?
from poverty - when we become professionals, business
- poverty is a systematic leaders, or public servants -> we are
issue that needs subjecting our self interest secondarily to
systematic solution the interest of the general public
- Reflection of phenomena more
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- when you become a professional, you and very strict
already chosen to subject your personal - Gray lines: it opens the application of
happiness to the common good -> prioritize some regulations to certain interpretations
common good - How do we prevent some accountants and
- This issue is structural, other issue here is even some auditors in abusing gray lines
something personal/subjective -> what do
we do?
- birds theory of moral development -> Issue 5: Governance Mechanism Reforms
transformative stage Backgr With the changes brought about by 1,2,3, & 4,
- Why are we selecting government leaders ound regulators and governance mechanisms must be
and business leaders who are prone to updated in order to address these issues. For
prioritizing their self interest towards public example, a similar (hard) regulation to the US
interest? Sarbanes-Oxley Act of 2002 is yet to be passed in
the country.
Exam Exposure draft for Public Accountants related to the - The US Sarbanes-Oxley Act is a resulting
ple non-provision of NAS to PIE audit clients. legal regulation because of the ENRON
- public accountants should not provide scandal. It solidifies what we mean by
non-assurance services to their public good corporate governance (what are the
interest entity audit clients -> to safeguard mechanisms that we have to put in place
the public interest to ensure good corporate governance)
- We don’t have hard regulation related to
corporate governance in the Philippines.
Issue 4: Bright (Rules-Based) versus Gray
We only have soft regulation.
(Principles-Based Lines)
- soft regulation: it is a issuance by
Backgr Previously, accounting standards are said to be the SEC
ound anchored on a rule-based system. However, the
current version of the IFRS is considered Issue What are the governance reforms that must be put
principles-based which is meant to capture the in place in order to respond to the other issues?
economic substance of business transactions.
However, principles-based regulations result to gray Exampl GME stock issue in the US.
lines as opposed to bright lines. e - GME stock - a stock with very low
- rule-based system: the rules are very clear fundamentals already -> profit are so
-> when this happen, you have to this small, the growth potential is very low, but
(algorithm) some traders (particularly traders in a
- not very compatible with a free reddit form) pump the GME stock price
market - Question: Do we need to regulate those
- principles-based: the regulations or the types of activities?
rules of how we apply accounting became - There is very little regulation that has
gray been done to address the GME issue
because corporations in America are
Issue How can accountants ensure that principles-based leaning towards individualism.
standards effectively capture the economic - Why do we need to regulate that particular
substance of the transaction? What are the activity when in fact it’s actually a result of
mechanisms that should be in place to prevent the consenting contractual parties?
abuse of gray-line regulations?

Exampl Goodwill in the current IFRS is not amortized but - Do we have enough governance mechanisms to
e tested for impairment annually compared to the answer this issue?
previous rules where Goodwill is amortized. - Those are the five issues that are shaping, have been
- Previously, goodwill was amortized. shaping, and definitely shape how we do business
Goodwill is an intangible asset with and accounting in an ethical way in the future.
indefinite useful life.
- However when we shifted to
principles-based accounting standards ->
the rule of amortization was change
- substance: the asset is for
indefinite useful life so, why do
we have to amortize this for 10
years? What tells us that 10 years
is the appropriate year?
- not amortize goodwill but test for
impairment -> testing goodwill for
impairment will have some gray
lines
- Bright lines: the regulations are very clear

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M1 LEC06 REFLECTIVE PRACTICE AND Why do we need to be reflective practitioners?

ROLFE’S MODEL
● Wicked problems - complex multifaceted situations
Module 1.1 and 1.2 (they entail different level of analysis)
- being an ethical accountants starts from being an ○ How do I deal with a problematic client?
ethical person ○ Ethical problems
- not all good human beings can be good accountants ○ How do I address intimidation from my team
but good accountants first and foremost good human members?
beings ● Tame problems - can be solved by technical
knowledge
Reflective Practice ○ How do we account for cash and cash
● Reflective practice is anchored on educational equivalents? (solved by accounting
philosophy called progressivism standards)

- We need to be reflective practitioners because most

of the problems we will face in the future are not tame
What is the theoretical underpinning? or technical problems but wicked problems that
necessitate reflection because these are so complex,
● Progressivism so multifaceted that no standard solution from the
○ Progressivism is the educational philosophy textbook will enlighten you. It requires more reflection,
of a larger philosophy which is pragmatism. an iterative reflection.
○ Progressivism - progress of human being
particularly a progress centered on How do we apply these?
experience - Borton theory: The Rolfe and colleagues and Borton’s
○ It came about because of empiricism, the Model of Critical Reflection - also borrowed from the
belief that we can also acquire knowledge health allied fields
from sense experience rather than pure
idealism or rationalism that we can approach
Three Levels of Reflective of Practice
reality through our senses

● Centrality of experience ● Descriptive level - What?

○ part of progressivism is the centrality of ○ Describe the artifact (e.g., experience, text)
experience and the utility of any educational in appropriate detail.
activity - reflecting on experience ->
○ we say that in this particular philosophy, it is reflection on actually; something is
inductive happening right now and you are
■ How do we learn from our reflecting about it as you
experience? experience this
■ How do we make sense of the - not past oriented
experience? - explain in appropriate level: what,
○ Progressivism: very practical philosophy when, where and why
because we put in the center our - when you are asked to reflect on an
experiences as a vehicle for us to progress ethical experience/ethical moral
as human beings issue -> you have to defend if the
issue is really ethical issue
● Learning because of, from and on experience - the issue will result to guilt
○ Learning because of experience — we learn or shame when a certain
because certain life experiences create this standard is violated
juncture that will call for more learnings ● Analytical level - So what?
○ We learn from our experiences as we are ○ Align the experience with theory (e.g.,
deployed on the job, as we experience course content)
things we learn from them - state the theory or the course
○ Learn on experience - is learning right there contents that you want to apply, for
and then. As you experience the example:
phenomenon you learn from it. - apply virtue ethics

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- compare and contrast your
experience (virtue ethics,
deontology and
utilitarianism)
- discuss your experience/artifact
with theories
● Reflexive level - Now what?
○ How will this learning inform your
decision-making (current and future)?
- How will these (analysis,
description) things affect your
decision making?

Application of the Reflection Practice Model

● What?
○ My experience when I was first bullied into
giving my answers to my classmates during
an exam. (4W, 1H)
- personal experience
- need to discuss the 4W and 1H
- defend why this is really an ethical
moral issue
● So what?
○ Looking back, I may have approached the
matter using a virtue ethics frame.
○ Virtue ethics state…..
○ Its aspects that I applied in this situation
are….
- analyze the experience
- state what you are applying
- state what are these theories (in a
gist what is virtue ethics?)
- How would these apply to your
experience?
- Example: I was able to
resolve by being a firm,
not giving in to peer
pressure because I believe
that honesty is the virtue
that I have to work for.
● Now what?
○ This learning will help me in approaching
intimidation issues as I become an
accountant.
○ For example…
○ Virtue ethics has taught me that….which will
allow me to approach the issue in….because

- give examples (discuss the particular issue)

- discuss how will your learning from the description
and analysis will help you resolve that particular issue

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Module 2 LEC01 Kohlberg’s Stages of Moral Development 2

Kohlberg’s Cognitive Moral Development 2
Kohlberg’s Theory of Moral Development (Levels) 2
Level 1: Stage 1 3
Level 1: Stage 2 3
Level 2: Stage 3 3
Level 2: Stage 4 4
Level 3: Stage 5 4
Level 3: Stage 6 4

M2 LEC02 Gilligan’s Ethics of Care 6

Ethic of care versus ethic of justice 7
Intelligence and Empathy 7
Is ethic of care of feminist ethics? 7
Summary: 8

M2 LEC03 REST’S FOUR COMPONENT OF MODEL OF ETHICAL DECISION MAKING 9

Moral Sensitivity (Recognition) 9
Moral Judgment 10
Moral Focus (Motivation) 11
Moral Commitment 11

M2 LEC04 VOCATION OF A BUSINESS LEADER PART 1 13

Who wrote the VOCATION OF THE BUSINESS LEADER (VBL)? 13
Role of Businesses and Governments in Promoting the Common Good 13
Social justice has several components: 13
The Business Stakeholders 14
Practical Ethical Principles for Business 14
Three interdependent activities which businesses should take up: 14
GOOD GOODS 14
GOOD WORK 14
GOOD WEALTH (VBL par. 51, 52, 53) 15

M2 LEC05 VOCATION OF A BUSINESS LEADER PART 2 16

Obstacle of the Christian Business Leader 16
Faith based servant leadership: Balancing Act Follows 3 Stages 16
Is faith-based leadership practicable? 17

M2 LEC06 ETHICAL DECISION MAKING MODEL 18

Combined Ethical Decision Making 18
Detailed Script 19
Teaching Case: Charge to Experience 20
Seeing 20
Judging 21
Acting 22

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Module 2 LEC01 Kohlberg’s Stages of Moral Development

https://vimeo.com/448058083/1f4420a6c1

Kohlberg’s Cognitive Moral Development

- Pertains to moral reasoning
- Human beings will progress from one stage to another stage as he goes throughout his
development as a human being
- The stages and levels are sequential and hierarchical (Because it’s developmental it gives stages
and levels)
- Stages about what? About moral reasoning
- The focus of the model is not what decision to make but how decisions are made
- Normally called as descriptive ethics
- What decisions to make? -> Normative theories
- The focus of this model is not the what but the how
- But those hows they are also linked to the normative theories
- It's a development theory about moral reasoning that an individual will have to undergo to achieve
a decision. The final end is the decision.
- The moral agent arrives at a decision and the reasons why the moral agent arrive at that decision
- Kohlberg argued that higher order reasoning is not available to those persons in the lower level
- the reasoning of a person in the level 3 is not available to the person in level 1

Summary
- it is a developmental theory
- the brain -> it’s about moral reasoning
- two paths -> choose a decision
- it’s a developmental theory about moral reasoning in arriving at a decision
- focus on how the decisions are made and not on what decisions are to be made
- descriptive and normative

Kohlberg’s Theory of Moral Development (Levels)

- Convention - many people inside the conference
- Point of reference: ability to reason ethically based on convention
1. Preconventional
- to associate one thing about this level: imagine your selfie
- the focus of the decision is the self (yourself)
- the self: the pain that you will receive, the benefit that you will receive to satisfy
your own need
- reason: how to decide -> refer to yourself
- What's convenient for you?
- What makes you happy?
- What satisfies your needs?
- What removes you from a very dangerous situation?
2. Conventional
- From self interest to others’ interest
- Focus on others
- This is where you factor in the needs of the society and the existing loss and your need to
belong
- Moral reasoning is anchored on large number of people

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3. Postconventional
- most advance
- beyond convention/ beyond people
- normally called principled morality
- focus on principles
- deontological
- virtue ethics
- rule utilitarian
- ability to decide based on principles that would normally transcends self interest and the
need of the society at large
- very few people will transcend to postconventional especially stage 6

- 2 stages per level

- at the higher stage you are morally level
- stage 5-7 -> you are able to exercise justice and rights theory

Summary:
- convention: moral reasoning is attached to other people to the society at large
- selfie: before/pre - the self
- solar system: focus is something beyond our self, our time tested principles

Level 1: Stage 1
- focus is the self when you decide
● Obedience to rules
● Avoidance of punishment
- focus is the immediate self
- short run
● Peter Pettigrew is a good example of someone in L1S1. His decisions are motivated by fear of
punishment from Tom Riddle.

Level 1: Stage 2
● Satisfy personal needs
● Instrumental-relativist
● Rewards

- focus is the strategic self

- the interest in the long run
- you are motivated by the satisfaction of personal needs
- people also realize that things can be an instrument for the satisfaction of their personal
needs
- the decision is relative is to the satisfaction of personal needs
- not motivated by fear and punishment but motivated by your intrinsic needs

Level 2: Stage 3
- focus: the others especially the immediate circle
● Good boy/nice girl
● Immediate circle
● Fairness to others

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- analyzing things by viewing things and yourself as compared to the other

- focus of analysis: immediate circle
- you do things because you want to subscribe to the notion of good boy/nice girl
- we are driven by fairness to others
- If you're a student, what does it mean to become a student?
- example: mean girls -> Cady, a person being detached from our normal view of society/
high school environment -> she comes to a particular school -> she realizes that the
easiest way to belong/fit it by looking for role models (her immediate circle)
- follow the rules
- act in that way because you want to belong, you want to subscribe the notion of a
good boy
- you will filed the expenses because you want to be fair to your immediate circle
- you don’t want them to look bad

Level 2: Stage 4
- focus: the others, the society at large
● Morality of law
● Duty to social order
● Larger society

- following the rules because you want to protect the society

- normally called the law and order
- accountants: protects the tax law
- Example: Les Miserables - Javert

Level 3: Stage 5
- focus: values (universal principles)
● Social contract
● Own interpretations of societal values
● Law is respected but subject to exceptions

- focus is the spirit of the law that is anchored on societal values

- we factor in our own interpretation of societal values
- example: hamilton

Level 3: Stage 6
- focus: universal ethical principles
● Universal Ethical Principles
● Justice, Equity, Rights

- your guiding compass is not your self, not the other, not only the law with exception, but
rather universal ethical principles
- there exist these set of principles such as justice, equity, and rights that you will use as
your point of analysis for your decision making
- you can use either deontological ethics (categorical imperative, virtues)
- example: jean valjean
- As he went along the way and develop these particular universal ethical
principles particularly justice, rights and respect for the human person

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- One of the pivotal section in Les Miserables is when Bishop Myriel actually gave
Jean Valjean the candlesticks
- Jean Valjean stole from the bishop so some officers of the law found him with the
stolen items
- Instead of saying that yes he really stole them. The Bishop told the
officers that he gave the items to Jean Valjean and said he actually forgot
another item that he gave to him. Then, he hands him the candelabra

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M2 LEC02 Gilligan’s Ethics of Care

https://drive.google.com/file/d/1rT81oT0IJODqzsm8pJM3Q-e9jP3gj_UO/view

● Emotion matters, and duties, rights, and obligations are just one way of thinking about ethics
○ It is a family of beliefs about the way values should be manifested in character and in
behavior.
○ Unified my shared concerns and commitments and by the rejection of the traditional
philosophical be that ethics can be adequately represented by rules and principles
○ Kohlberg: Should a man steal an expensive drug to save the life of his wife?

Kohlberg’s Theory of Development

● Pre conventional
○ Obedience and punishment orientation - avoiding the punishment stage
○ Self interest orientation - what is it for me stage
● Conventional
○ Interpersonal accord and conformity - good person attitude stage
○ Authority and social order maintaining orientation - law and order morality stage
● Postconventional
○ Social contract orientation
○ Universal ethical principles - principle of conscience stage

Heinz dilemma
- Girls approach dilemma in a lower stage
- Kohlberg concluded that boys reason more effectively than girls
- young western boys tend to develop higher and higher moral reasoning from absolute self
interest to realization of rights and justice for everyone equally

Liberalism
● which states that man is rational liberal equal unencumbered autonomous and right sparing
individual
● Her own research suggests that women tend to struggle with moral dilemmas in a different way.
That the little voice that they hear is a different voice than the one men tend to hear.

Carol Gilligan notes that Kohlberg’s results indicate male bias and that there is no reason to assume the
stereotypical male method of reasoning is superior to the stereotypical female method of reasoning

According to Gilligan women tend to:

● value social relationships before individual freedoms
● emphasize connection more than detachment
● consider social responsibility and obligation before individual rights
● emphasize the particular before universal and
● consider lived experience to be a more important guy to future behavior than philosophical
abstractions

Reason through an ethics of care as opposed to an ethic of justice

● socialized morality or the justice view of morality is male centered
● Gilligan‘s claims about the differences between the moral reasoning of women and men do not
stand up to the challenge of more recent data however these claims are not crucial to care ethics

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● it is enough to demonstrate the importance of values that belong to the ethics of care by showing
how they play a role in the moral life of individuals and society

Gilligan’s Reinterpretation
● Women have traditionally been taught a different kind of moral outlook for emphasizes solidarity,
community, and caring about one special relationships
● The “care view” of morality has been ignored or trivialize because women were traditionally in
positions of limited power and influence
● It would instead say that we can and should put the interest of those who are close to us above
the interest of complete strangers.
● Ethics of care contrasts with more well-known ethical views, such as utilitarianism and deontology
or Kantian ethics. The traditional outlook is what feminist critics calls a “justice view” mc of
morality

- A morality of care rests on the understanding of relationships as a response to another in their

terms

care ethics can be seen as a part of the traditional enterprise of philosophical ethics
● act so as to promote the good of others if this is so then care ethics is a part of the enterprise of
ethics it is not necessarily an alternative to a moral theory

Ethic of care versus ethic of justice

● Gilligan does not consider this a perfect correlation between the genders
● Ideally, moral agent should employ both approaches in moral decision making
● There is room and a need for both and Gilligan recognize this

So what does this mean it means that rules are inappropriate and unnecessary where certain human
relationships are concerned the abstract principles can capture everything relevant to making moral
decisions we can’t just slap the rule onto every situation instead have an understanding of the
complexities of the particular situation in which a moral problem has occurred and we need a deep and
detailed understanding of the people their interests and feelings and only with this is it possible to
sensitively respond to their problem

Intelligence and Empathy

In considering both care and justice intelligence and empathy is required
● Intelligence to grasp relationships and details about the people circumstances and the problem
● Empathy to understand the concerns and feelings of the people involved (must identify them)
○ we must realize what they consider to be at stake ascertain that worries and concerns to
find out who is wrong and right but find a way out of the conflict with the concerns and
feelings of all those involved

Is ethic of care of feminist ethics?

● The ethics of care was developed as part of a feminist movement
● Some modern feminist have criticized care-based ethics for reinforcing traditional stereotypes of a
good woman
● nevertheless the ethics of care illustrates that there may be gender differences in moral reasoning
● The ethics of case meshes with our belief that different rules of conduct apply in our personal and
public lives

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Summary:
● Kohlberg suggested that women simply could not engage in moral reasoning, because in his
experiments, they were attentive to what he believed to be irrelevant factors like context in
relationships, and did not frequently cite relevant principles.
● While Gilligan reinterpreted these results in light of gender studies and feminist ethics and
concluded that women typically do reason in a morally acceptable manner, simply that they find
different kinds of factors to be relevant.

● The ethics of care is an ethics promoted by Gilligan and Nel Noddings, who believe that
we behave morally and in as much as we care for those with whom we have personal
relationships.
● They assert that emotive factors are relevant factors. Making the emotive admissible to moral
deliberation interferes with our desire to be objective but satisfies our understanding that we have
different moral rules concerning people close to us.
● Ethics of care is further criticized by contemporary feminist on the grounds that it reinforces
stereotypical female roles.
○ traditional values placed emphasis on disinterested, detachment, and dispassionate
objective judging
○ Gilligan says this is inappropriate and mistaken. Why? because it excludes the very
values that are most relevant to a moral situation and most important to the people
involved
○ this means that we must make an effort to develop individuals who respond appropriately
to moral situation or recognize importance of personal relationships respect others and
accept responsibility

A moral reasoning quote to live by would be

● we exist
● we’re connected
● we’re obligated
● we ought to care

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M2 LEC03 REST’S FOUR COMPONENT OF MODEL OF ETHICAL DECISION MAKING

https://drive.google.com/file/d/1J_XxiEeb97IHByvEBLDj0II4ACQmB6Qp/view

The four component model of morality was developed by James Rest in 1983 and further developed and
applied by Rest and Darcia Narvaez in 1995 and by Muriel Bebeau in 2006.

Rest’s Model
It addresses the ways that moral behavior occurs, and allows for conceptualization of successful moral
functioning and the capacities it requires.
● The model is not linear and its components are interactive. Furthermore, Rest notes in contrast to
other models of moral function the four component model of morality assumes co-occurrence in
all areas of moral functioning of cognition and effect. Thus, moral behavior is not the result of
separate processes rather each of the four components involves both affective and cognitive
processes.

Ethical Decision Making: A Dual Process Approach

● Ethical thinking activates both cognitive and emotional areas of the brain.
● The dual process perspective is based on the premise that both logic and emotion are essential
to making good ethical choices.
● As neuroscientist have discovered, we can’t make good ethical choices without employing our
feelings

Business ethics educators Charles Powers and David Vogel identified six factors or elements that
underline moral reasoning and behavior that are particularly relevant in organizational settings, these
factors include:
● moral imagination
● moral identification and ordering
● moral evaluation
● tolerating moral disagreement and ambiguity
● integrate managerial competence with moral competence
● moral obligation

James Rest of the University of Minnesota developed the most widely used model of moral behavior
● He started with the end product—the moral action—and then determined the steps that produce
such behavior.
● He concluded that ethical action is the result of four psychological sub processes which includes:
○ moral sensitivity (recognition)
○ moral judgment
○ moral focus (motivation)
○ moral commitment
● This model is not a linear, time down-sequence. There may be complicated interactions between
the various components.
○ For example, a person’s way of defining what is morally right (component 2) may affect
the person's interpretation of the situation (component 1) the model should be thought of
as depicting a logical order for the development of a moral behavior to occur

Moral Sensitivity (Recognition)

Focuses on the ability to identify and discern problematic situations with ethical dimensions

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● It is the first step in ethical decision making because we can’t solve the moral problem unless we
first know that one exists.
● Empathy and perspectives skills are essential to this component of moral action
○ paying attention to our emotions can be an important clue that we are faced with an
ethical dilemma
○ sympathy and compassion or other suffering emotions
○ gratitude and elevation or other praising or positive emotions that open us up to new
opportunities and relationships
● We may even deceive ourselves into thinking that we are acting morally when we are clearly not,
a process called ethical fading.
○ anger, disgust and contempt or other condemning emotions
○ shame, embarrassment, and guilt or self-conscious emotions that encourage us to obey
the rules and uphold the social order
● we can take steps to enhance our ethical sensitivity

In interpreting moral situations individuals should answer three questions

● What courses of actions are possible?
● Who (including yourself) would be affected by each course of action?
● How would the involved parties regard such effects on the welfare and interests?

Moral Judgment
The next component, moral judgment, requires the person to move beyond recognizing the ethical
dimensions present in a given situation to explore which line of action is morally justified.
● Moral judgment has generated more research than the other components of Rest’s model.
○ Harvard psychologist, Lawrence Kohlberg, argued that individuals progress through a
series of moral stages just as they do physical ones
○ Kohlberg identified three levels of moral development each divided in 2 stages
● Rest developed the defining issues test (DIT) to measure moral development.
○ hundreds of studies using the DIT revealed at moral reasoning generally increases with
age and education
● Principled leaders can boost the moral judgment of a group by encouraging members to adopt
more sophisticated ethical schemas.
○ the purpose of this component is deciding which one of these courses of action is morally
right

The question to pose at this point is:

● How do people define what is right and wrong?
○ the work of Kohlberg, Gilligan and Kitchener can assist in answering this
question
● Models of cognitive development provide important insights into the process of
ethical decision making.

1. contextual variables play an important role in shaping ethical behavior

2. education fosters moral reasoning and
3. A broader perspective is better. Consider the needs and viewpoints of others outside your
immediate group or organization.

Ethical blind spots of moral judgment includes

1. overestimating our ethicality

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2. forgiving our own unethical behavior

3. In-group favoritism
4. implicit prejudice
5. judging based on outcomes, not the process

- taking moral judgment seem to come naturally to people it almost seems that humans are either
genetically built to make moral judgments or quickly conditioned by social experience to make
them

People’s intuitions are drastically different regarding what is right and wrong and individuals have great
certainty about their moral convictions
- sometimes individuals want to do the right thing but their integrity can be overpowered
- others never intend to follow an ethical course of action but engage in moral hypocrisy instead

Moral Focus (Motivation)

● Psychologists report that self interest and hypocrisy undermine moral motivation
○ both self interest and hypocrisy encourage leaders to set their moral principles aside
○ People are more likely to give ethical values top priority when rewards through raises,
promotions, public recognition, and other means for doing so.
● emotions also play a part in moral motivation
○ sympathy, disgust, guilt and other moral emotions prompt us to take action
○ positive emotion such as joy and happiness make people more optimistic and more likely
to live out their moral choices and to help others
○ moral values are not the only values that people have — people value advancement in a
career, money, power and many things beside fairness and morality
■ these other values can conflict with moral values, it is not unusual for non-moral
values to be so strong and attractive that a person will choose a course of action
that preempts or compromises the moral ideal
● The difference between what individuals think ought to be done and what they actually do can be
significant.
○ Given that two person are aware of various possible courses of action in a situation each
leading to a different kind of outcome or goal, why would one ever choose the moral
alternative especially if it involves sacrificing some personal value or suffering some
hardship?

Moral Commitment
Moral character and competence acknowledges that sensitivity, judgment, and prioritization of moral
values must lead to moral character and competence or moral behavior will fail

According to Nucci and Narvaez, a nervous moral character and competence is

● “Having the strength of your convictions, having courage, persisting, overcoming, distractions and
obstacles, having implementing skills and having ego strength”
○ executing the plan of action takes character
○ executing and implementing a plan of action involves determining a sequence of concrete
actions
■ working around obstacles and unexpected difficulties
■ overcoming fatigue and frustration
■ resisting distractions and allurements and
■ keeping side of the eventual goal

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● It has also been found that having a positive affective state any focusing on the expectation of
success can determine the amount of effort that will be expended and how long it will be
sustained in the face of adversity
○ assertiveness, perseverance, resoluteness, competence, courage, and character are
attributes that lead to success
○ the positive character traits include courage, prudence, integrity, humility, reverence,
optimism, and compassion
● in addition to virtues other personal characteristics contribute to moral action
○ those with a strong will or internal locus of control and lastly
● Successful implementation also requires competence

The interaction among the four components can have a decided impact on morals behavior
● if an overlap exist between two potentially moral situation
○ being concerned about one moral situation can cause insensitivity to another one which
begins before the first is completed
○ sometimes the attention and effort needed to carry out one task are so great that the
subject can attend to little else
○ as the cost of moral action comes to be recognized a person made a store to feelings of
obligation, denying personal responsibility or reappraising the situation, so as to make
alternative actions more appropriate
○ as people realize the implications of component 2 and 3 processes, they may defensively
re-appraise their interpretation of the situation so, they can still feel honorable but at less
cost to themselves

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M2 LEC04 VOCATION OF A BUSINESS LEADER PART 1

https://www.youtube.com/watch?v=Psjknbg6foo

Who wrote the VOCATION OF THE BUSINESS LEADER (VBL)?

● This was written by the Pontifical Council for Justice and Peace in coordination or in partnership
with John A. Ryan Institute for Catholic Social Thought of the Center for Catholic Studies of the
University of St. Thomas.

The VBL is a product of a series of reflection

● Done by church leaders, business executives and academicians

What made them come together? the market failures is the very context

VBL: Context of the series of reflections in an attempt to help address the global challenges that have
adversely affected people and communities
● In paragraph one of the VBL, it says
“Unfortunately, this century has also brought business scandals and serious economic
disturbances and an erosion of trust in business organizations and in free market institutions. For
business leaders this is a time that calls for witness of faith, the confidence of hope and the
practice of love.”

The document emphasizes the crucial role of businesses and governments in promoting social justice
and the common good

Role of Businesses and Governments in Promoting the Common Good

● In paragraph 2 it says
“When businesses and markets as a whole are functioning properly and are regulated in an
effective manner by governments, they make an irreplaceable contributions to the material and
even the spiritual well-being of humankind. When business activity is carried out justly and
effectively, customers receive goods and services at fair prices, employees engage in good work
and earn a livelihood for themselves and their families, and investors earn a reasonable return on
their investment. Communities will see their common resources put to good use and the overall
common good is increased.
● Common good essentially requires social justice

Social justice has several components:

1. Commutative justice - this is a justice that happens at the level of the individual exchanges. For
example, the just wage for services rendered or a fair price for products and services
2. Legal justice - this pertains to the payment of proper taxes as our contributions to finance, basic
social services. So, tax evasion kills or destroys legal justice
3. Distributive justice - pertains to the crucial role of government in flowing back our tax contributions
to society in the form of social services (housing, basic education, health care, food security,
infrastructure peace and order, and other basic social services). Meaning to say that corruption in
government is killing distributive justice
4. Ecological justice - which consists in caring for the natural environment, and recognizing its
limitations to support our developmental undertakings. Destruction of the environment kills
ecological justice.

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- All of these four components make social justice so, social justice happens only
when all four components are present in societies and communities
- The absence of just one component would mean the obliteration or annihilation
or destruction of social justice
- common good is never possible without social justice

The Business Stakeholders

● The conduct of businesses greatly affects the well-being of people and their families and
communities. Hence, responsible business is very crucial in bringing about social justice as well
as the common good.

Practical Ethical Principles for Business

“Respect for human dignity and the common good are foundational principles which should inform the
way we organize labor and capital employed and the processes of innovation, in a market system.” (VBL
par. 38)

Because enterprises affect persons and persons are in communities, the VBL emphasizes respect for human dignity
and the common good as the foundational principles which should inform the way we organize labor and capital
employed as well as the processes of innovation in a market system.

VBL par 38
“The deep and abiding purposes of individual businesses and commercial systems is to address real
human needs.”

Three interdependent activities which businesses should take up:

1. Businesses should address genuine human needs through the creation, development and
production of goods and services (GOOD GOODS)
2. Businesses should organize good and productive work (GOOD WORK)
3. Businesses should reuse resources to create and to share wealth and prosperity in sustainable
ways (GOOD WEALTH)

GOOD GOODS
● Businesses should produce goods and services that should meet authentic human needs such as
life-saving medical services, education, health care, affordable housing, but also goods and
services that genuinely contribute to human development and fulfillment. Good entrepreneur
gives first thought to service then second to gain second
● Meet the needs of the vulnerable members in society such as the poor, the elderly, the
handicapped and life.
○ Developments in the field of the bottom of the pyramid products and services such as
micro enterprises, micro credit, social enterprises, and social investment funds will help
lift people from extreme poverty and this could spark their own creativity and
entrepreneurship, contributing to their own development.

GOOD WORK
● Good and effective, efficient and engaging
○ it means that the enterprise must organize work in order for business processes to be
effective, efficient and engaging
● Autonomous

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○ In organizing work, a certain autonomy must also be given to the workers or an

enterprises employees
○ the people should be given at appropriate levels, a certain level of autonomy to be able to
participate in the creative process and contribute to the mission of the organization
● Collaborative
○ work must also be organized in a way that it becomes a venue for collaboration because
essentially work would bring people together
● Fosters dignified work
○ Lastly, work must foster human dignity. Work is central to a person's calling to
development and dignity of labor is very important. Work has multiple dimensions and the
most obvious is the economic dimension of work because it is through work that the
person earns and is able to provide for his and his family's needs

GOOD WEALTH (VBL par. 51, 52, 53)

● Good stewardship
○ Good stewards are creative and productive with the resources placed in their care. They
do not merely take from the creation's abundance. They use their talents and skills to
produce more from what has been given to them.
● Sustainable: Company. Natural Environment
○ The enterprise must make profit to sustain the business but not at the expense of the
common good. It should not create poverty for other members of society and it should not
destroy the environment
● Justly distributed third is the creation of good wealth
○ A profitable enterprise by creating wealth and promoting shared prosperity through
wages, fair exchange with suppliers, fair price of goods and services to customers and
paying the right taxes. This promotes the common good and helps individuals excel

Hence, from this standpoint an enterprise that practices the ethical principles of business produces good
goods, organizes good work and creates good wealth.

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M2 LEC05 VOCATION OF A BUSINESS LEADER PART 2

https://www.youtube.com/watch?v=pW8jqV1T3fw

In paragraph 59 of the vocation of the business leader

● Ethical social principles, illumined for Christians by the Gospel, provide direction for good
business but the navigation (of the business) falls to the seasoned and intelligent judgments of
virtuous business leaders who can wisely manage the complexity and tensions arising in
particular cases.”

To attain or achieve the delivery of good goods, the organization of good work and the creation of good
wealth
● is the vocation of the business leader

Obstacle of the Christian Business Leader

● divided life: Faith vs. daily life (VBL par. 10)
○ trying to respond to the call to holiness in one's life as a christian is completely separated
from one's life as a professional or a businessman because at the workplace different
rules apply
○ the second vatican council saw this split as one of the more serious errors of our age
○ this split between faith and the daily business practice can lead to imbalances and
misplaced devotion to worldly success
○ the many pressures business leaders face lead them to forget the gospel call in their
daily professional activities, it may seduce them to believe that their professional lives are
incompatible with their spiritual lives
○ it places excessive confidence in material resources and or worldly success and when
this happens, business leaders risk valuing status and fame, over lasting
accomplishment, and consequently, risk losing good judgment
○ business leaders may even be tempted whether from self-centeredness, pride, greed or
anxiety to reduce the purpose of this business solely to profit maximization or growing
market share or any other solely economic good
■ this is in paragraph 12 of the VBL
● The alternative path: faith-based “servant leadership”
○ this provides business leaders with a larger perspective and helps them to balance the
demands of the business world with those of ethical social principles and be a good
christian or a good muslim or a good buddhist in all facets of life whether personal, family,
spiritual, including professional and business life

Faith based servant leadership: Balancing Act Follows 3 Stages

under the faith-based servant leadership the exploration of situations and alternatives
are explored under three stages
● to see
○ It means to see the challenges and opportunities and study and gather factual
information
● to judge
○ in the light of the social principles of human dignity and the common good where
businesses should produce and deliver good goods, organize good work, and create
good wealth
○ one should evaluate the challenges and opportunities and make a judgment
● to act

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○ business leaders can put their aspirations into practice when they pursue their vocation
motivated by much more than financial success
○ when they integrate the gifts of spiritual life, the virtues and ethical principles into their life
and work they may overcome the divided life and receive the grace to foster the integral
development of all business stakeholders
○ the church calls upon the business leader to receive and to give entering into communion
with others to make the world a better place

Is faith-based leadership practicable?

● Mr. Frank

An enterprise that delivers good goods, organizes good work and creates good wealth becomes our
medium for the promotion of the common good. It likewise serves as our organized way of caring for our
social body or our communities and because when enterprises heed the call of the principles of ethical
business, they won't overlook responding to the needs of the less privileged in society it can also very
well become our organized exercise of the option for the poor. All institutions, business enterprises,
governments, universities, even non-profit organizations, have the potential to become our medium for
love of neighbor.

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M2 LEC06 ETHICAL DECISION MAKING MODEL

https://vimeo.com/593592027/69378b56cd

- Ethics is the operationalization of morals.

Ethical Decision Making

- CMD MODELS - talks about how do we progress, how do we develop morally, how do we
transform morally/ethically
- Kohlberg’s Model (3 levels and 6 stages)
- Gilligan’s Ethic of Care - response to Kohlberg’s model
- Rest’s Model
- some would say that we are what we repeatedly do
- Normative Guides
- Deontology
- Utilitarianism
- VBL
- how we promote our vocation as business leader as accountants
- see, judge, and act model
- Act is related to motivation and character

Combined Ethical Decision Making

- The result of aligning the propositions of the vocations of business leaders, the ethical
decision making of Mintz and Morris and the tools of ethical decision making by Palma
Angeles in 2020.

Seeing, Judging, and Acting

- Seeing: talks about the issue, being sensitive about the issue, and the nuances and context about
the issue
1. What is the issue and its nuances?
a. What are the facts of the issue?
b. Who are the people primarily and secondarily affected by the issue?
i. Stakeholders

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c. What are the preliminary pertinent accounting, auditing , and business issues?
i. Is this about sustainability as a business issue?
ii. Is this about accounting ethics?
iii. Is this about auditing value for example professional skepticism?
d. What is the ethical dilemma?

2. What are the options and their impact?

a. What are the options/alternatives?
- ethical dilemmas are not yes/no statements
- ethical dilemmas are a result of competing values— so what are your options for
that particular issue and…
b. How will these options/alternatives impact the stakeholders?

3. How will you resolve the issue?

a. Which is the most alternative course of action?
b. How will you execute your selected course of action?
c. Which values did you give weight to? Why?
i. If you give way to certain values you are in the process of subjecting the other
values secondary to the primary values so, why did you do that?
ii. The best ethical decisions are those backup with the best reasons

Detailed Script
1. See: Being Sensitive to the Issue and its Nuances
1.1. Gather the facts (Mintz & Morris, 2013; Angeles, 2020)
- be very careful in gathering the facts
- don’t add what is not patently obvious
- don’t make several assumptions
- gather the facts as they are
1.2. Identify the stakeholders and their stakes (obligations and rights)(Mintz & Morris, 2013;
Angeles, 2020)
1.3. Identify the preliminary issues and guidance concerning (Mintz & Morris, 2013):
1.3.1. Accounting and Auditing (e.g., code of ethics, financial reporting standards,
auditing standards)
1.3.2. Business (e.g., strategy and operations)
- is there a corresponding business issue
- if you have a tentative guide
1.4. Articulate the ethical dilemma based on facts, stakes, and preliminary issues (Angeles,
2020)

2. Judge: Evaluation with a clear motivation

2.1. Identify the alternatives (two extremes and a middle ground) (Mintz & Morris, 2013:
Angeles, 2020)
2.2. Weigh the alternatives based on their impact on the stakeholders guided by the
standards in the profession and in general such as normative ethical theories, the code of
ethics, IFRS, ISA, and Legal Frameworks
3. Act: Strategize a well-reasoned action
- Prepare a well reasoned action plan
3.1. Select the most appropriate course of action of
3.1.1. Do not pass the buck.

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- Your action should be something active not passive

3.1.2. One needs to strike a balance in this area
3.2. Prepare a plan detailing how you will execute the decision. You might be asked to write
a memo or an email detailing your course of action.
3.3. Reflect on your decision. Which values did you give more weight to? Which ones did you
trade off? Why?

Teaching Case: Charge to Experience

Malaya, a new associate in an accounting firm, learned that they are assigned to a group performing
professional services (financial statements audit, management consulting, and information systems audit)
to clients in the retail industry. Malaya's direct supervisor is Matapang. Both Malaya and Matapang report
to the engagement manager, Amihan. Finally, the group is under the overall guidance of the audit partner,
Mahusay. Malaya was impressed by the welcome remarks delivered for the new hires by Mahusay.
Mahusay emphasized the need to serve the needs of the clients and the other stakeholders with integrity.
After attending a planning meeting for Hari and Subsidiaries, Malaya was instructed by Matapang to
charge the day to client code 9840. When Malaya was preparing the time report, they noticed that client
code 9840 pertains to another client, Datu Company. When asked about the matter, Matapang said that it
is a usual practice that professionals charge their time to other clients, especially that the code for Hari
and Subsidiaries is already over charged for the month. It is just a usual business practice to spread out
the engagement costs, Matapang explained. Overall, this practice benefits both the firm and the clients
since the firm can retain long-term clients while balancing the related costs. At any rate, regardless of the
time charges, the same amount of fees will be billed to the clients.
- persona: Malaya

Seeing
1.1. Facts of the Case
● Malaya was asked by Matapang to charge the former's hours to another client.
● The said practice is considered a normal business practice in the organization.
● The practice aims to spread out costs across clients and maintain market share.
● The practice does not affect the clients since the audit fees billed to them is still the same (i.e.,
practice only affects internal reporting).

1.2 Stakeholders
● Primary: Malaya, Engagement Team, Accounting Firm
● Secondary: The clients

1.2 Stakeholders; 1.3. Preliminary Issues

Primary Stakeholders Stakes Preliminary Issues

Malaya Integrity (Personal Honesty) Accounting (Ethics): Integrity —

being straightforward and
honest with one's dealings

Engagement Team Stability Smooth Operations Strategic: Maintaining market

- Malaya, Matapang, share despite low fees
Amihan and Mahusay Operational: Economies of scale

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Accounting Firm Integrity (Procedural Honesty of Strategic: Charge appropriate

- whole firm with the other Internal Reporting) fees to the client while
partners - accuracy of internal maintaining market share
reporting
Operational: FR of internal
reporting system

1.4 The Dilemma

Personal and Procedural Integrity Versus Stability of Operations
- faithful representation for procedural integrity
- faithful representation of the amounts
- the dilemma is the result of the moral agent actions or inactions
- what would result from the action/inaction— what are the resulting differences?
- action/inaction would result to either procedural integrity (whether facilitated or inhibited) or the
stability operations

Judging
2. Alternatives and Weight
Alternative Impact to Stakeholders Positive Negative

A1: Charge to another Malaya Will be viewed as a Will sacrifice personal

client per instructions. team player and integrity and honesty.
obedient. Inaccurate reporting of
costs
Engagement Team Will balance costs
across clients Inaccurate reporting of
costs.
Accounting Firm Will balance costs Might impact ethical
across clients climate
- Because that
practice is
prevalent in the
firm, the
professionals
inside the firm
might have the
notion that a
purely utilitarian
rule for most
decisions is
acceptable

A2: Charge to the Malaya Will preserve personal Will disobey superior
correct client code. integrity and might be
reprimanded
Engagement Team Accurate reporting of Client account will be
costs overcharged.

Accounting Firm

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Ethical climate might be Client account will be

enhanced. overcharged.

Acting
Which is the more important value?
- Deontology: In guiding your answer in that question which is the more important value -> we can
go to what would the categorically imperative say. This might be construed as an issue related to
truth telling.
- Utilitarianism: What would utilitarianism say? What would benefit the most number of people in
the long run?
- Virtue ethics: What is in line with the character of a good person?

Argue based on the dilemma:

- Which particular alternative will support the more important value? Why do you say that is the
more important value?

● What are the obstacles that you will face? How will you face them? Which value did you uphold?
Is there no middle ground?
- sometimes the middle ground is a win-win solution

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M3 LEC01 CODE OF PROFESSIONAL ETHICS PART 1 2

COMPLYING WITH THE CODE 2
FUNDAMENTAL PRINCIPLES 2
1. Integrity 2
2. Objectivity 3
3. Professional Competence and Due Care 3
4. Confidentiality 3
5. Professional Behavior 4
CONCEPTUAL FRAMEWORK 5
1) Exercise of professional judgment 5
2) Understanding the known facts and circumstances 5
3) Reasonable and informed third party test 6
A. Identifying Threats 6
1. Self-interest 6
2. Self-review 7
3. Advocacy Threat 7
4. Familiarity Threat 7
5. Intimidation 7
B. Evaluating Threats 8
C. Addressing Threats 8

M3 LEC02 CODE OF PROFESSIONAL ETHICS PART 2 10

SECTION 200: INTRODUCTION 10
SECTION 210: CONFLICT OF INTEREST 12
SECTION 220: PREPARATION AND PRESENTATION OF INFORMATION 13
SECTION 230: ACTING WITH SUFFICIENT EXPERTISE 15
SECTION 240: FINANCIAL INTERESTS, COMPENSATION AND INCENTIVES LINKED TO
FINANCIAL REPORTING AND DECISION MAKING 16
SECTION 250 INDUCEMENTS, INCLUDING GIFTS AND HOSPITALITY 17
SECTION 260 RESPONDING TO NON-COMPLIANCE WITH LAWS AND REGULATIONS 20
SECTION 270 PRESSURE TO BREACH THE FUNDAMENTAL PRINCIPLES 22

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M3 LEC01 CODE OF PROFESSIONAL ETHICS PART 1

https://www.youtube.com/watch?v=306hBcbAvVE&feature=youtu.be

The code sets out fundamental principles of ethics for professional accountants reflecting the profession's recognition
of its public interest responsibility.
- the principles outlined in this code establishes the standard of behavior expected of a professional
accountant
- the code provides a conceptual framework as well that professional accountants are to apply in order to
identify, evaluate, and address threats to compliance with the fundamental principles
- the code sets out requirements and application material and various topics to help accountants apply the
framework to those topics
- the code is structured in four parts
- complying with the code fundamental principles and conceptual framework

Course Outline
● Lesson 1: Complying with the Code
● Lesson 2: The Fundamentals Principles
● Lesson 3: The Conceptual Framework

COMPLYING WITH THE CODE

● A professional accountant shall comply with the International Code of Ethics for Professional Accountants
(“Code”)
● A breaches of any provision requires a determination of significance of the breach and impact on the
accountant's ability to comply with the fundamental principles
● The accountant shall also:
○ Take whatever actions that might be available to address the consequences of the breach
satisfactorily; and
○ Determine whether to report the breach to the relevant parties
■ Who are these relevant parties to whom the accountant must report said breaches?
● we have those who might have been affected by the breach
● so, the accountant must make knowns and preach to those that may be affected
and the accountant must also report it to a professional or regulatory body or an
oversight authority
● all professional accountants must comply with the code

FUNDAMENTAL PRINCIPLES

1. Integrity
2. Objectivity
3. Professional Competence and Due Care
4. Confidentiality
5. Professional Behavior

1. Integrity
● integrity means to be straightforward and honest in all professional and business relationships

Association with Certain Information

A professional accountant shall not knowingly be associated with reports, returns, communications or other
information where the accountant believes that the information:
● may contain materially false or misleading statements;

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● if the information contains statement or information provided recklessly; or

○ not enough research done regarding the information
○ the information prepared was rushed
● if the information omits or obscures required information where such omission or obscurity would
be misleading

2. Objectivity
● Objectivity means not to compromise professional or business judgments because of any bias, conflict of
interest or undue influence of others
○ in all professional activity by the accountant, you must act objectively

3. Professional Competence and Due Care

● The accountant is to attain and maintain professional knowledge and skill at the level required based on
current technical professional standards and relevant legislation; and
○ to ensure that the client or employing organization receives competent professional service
○ meaning -> even after you've graduated the course or before you become accountants learning
wouldn't stop there
○ we have a responsibility to maintain the skill or level required to ensure that our clients or those
employing us receives competent professional service
○ it cannot be accepted that even though we've already graduated or already obtained the title of
CPA, we let go of continuing education
● Act diligently in accordance with applicable technical and professional standards

Training Supervision and Limitations

● A professional accountant shall take reasonable steps to ensure that those working in a
professional capacity under the accountant’s authority have appropriate training and supervision.
○ because those people under the accountant's authority will be the responsibility of the
accountant so, he must or he or she must make sure that they have appropriate training
and there is sufficient supervision
● A professional accountant shall make clients, the employing organization, or other users of the
accountant's professional services or activities, aware of the limitations inherent in the services or
activities.
○ for every work that a professional accountant will do for a client or an employing
organization or any user — any work must be outlined and the limitations must be
described
○ in practice we have a statement of work for every engagement that a professional
accountant may enter into:
■ that statement of work would outline the limitations inherent in the services or
activities
○ “So, if you're telling me that I will prepare or audit a company's financial statements that
doesn't mean that I am also responsible to file the audited financial statements.”
○ “or if the company would face any assessment from the BIR that doesn't mean that I
should be the one defending the company.”
○ all of these limitations must be made aware to the client or employing organization

4. Confidentiality
● Respect and confidentiality or of information acquired as a result of professional and business relationships

Responsibilities of the Accountant

1. Be alert to the possibility of inadvertent disclosure, including a social environment, and particularly
to a close business associate or an immediate or a close family member;
○ once you're done with work, you go home -> you don't blabber what you've learned
regarding the professional service that you just provided during that day, you have to be
aware of your responsibility to maintain confidentiality

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○ Maintain confidentiality or to respect the confidentiality of the information you have

acquired from the service provided
2. Maintain confidentiality of information within the firm or employing organization
3. Maintain confidentiality of information disclosed by a prospective client or employing organization;
4. Not disclose confidential information acquired as a result of professional and business relationships
outside the firm or employing organization without proper and specific authority, unless there is a
legal or professional duty or right to disclose;
○ when we say we have to maintain confidentiality there are certain exceptions would be
■ if the accountant acquired consent from the client or the employing organization
then matters can be disclosed or
■ if the accountant is legally obligated to do so or it is within his professional duty or
right to disclose then he should do so
■ common examples: when there is criminal acts being being done with a client or
being done by the company (anti-money laundering acts, so there is a
professional duty to disclose said information)
5. Not use confidential information acquired for the personal advantage or for the advantage of a third
party
○ inside information: let's say regarding the acquisition of stocks in the market -> you can't
use what you've learned during the professional activity for your own advantage or gain
6. Not use or disclose any confidential information after that relationship has ended
○ the responsibility of maintaining the information as confidential does not stop even after
the engagement or even after the relationship ended
○ so, whatever you've learned, whatever information you've acquired during the
engagement must maintain or must be confidential even after the engagement
7. Take reasonable steps to ensure that personnel under the accountant’s control and individuals from
whom advice and assistance are obtained, respect the accountant’s duty of confidentiality.
○ if you're operating an accounting firm, you have several staff under you so, all the files
(hard copy files) mustn't just be as in plain view because these are information acquired
from our clients from our employing organization
○ the confidentiality of the information must be respected by the accountant and his/her staff

Exceptions on Disclosing Confidential Information

1. Disclosure is required by law
2. Disclosure is permitted by law and is authorized by the client or the employing organization; and
3. There is a professional duty or right to disclose, when not prohibited by law.

5. Professional Behavior
● Comply with relevant laws and regulations and avoid any conduct that the professional accountant knows or
should know might discredit the profession.
○ so it's about maintaining that behavior ideal to that of an accountant

Marketing and Professional Activities

- there are some instances when an accountant would market or advertise himself/herself
as a great accountant or an accountant that accomplished so many things or could
guarantee certain information to be prepared -> this might breach this fundamental
principle
- in the code, it's separately outlined the different marketing and professional activities or
the limitations in the marketing and professional activities that the accountant must
practice
● A professional accountant shall not bring the profession into disrepute
- you're not allowed to make it a competition with other accountants
- you can’t say that you're a better accountant in this organization or this firm is better than
this firm
● A professional accountant shall be honest and truthful and shall not make

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○ Exaggerated claims for the services offered by, or the qualifications or experience of, the
accountant; or
○ Disparaging references or unsubstantiated comparisons to the work of others

CONCEPTUAL FRAMEWORK

The conceptual framework which would help the professional accountant to identify threats to compliance with the
fundamental principles, evaluate these threats, and address the threats by eliminating or reducing them to an
acceptable level.

● Applying the conceptual framework

○ Exercise professional judgment
■ What are the different acts covered in the application of the conceptual framework?
● we identify the threats
● we have to exercise professional judgment
● we evaluate the threats then we address the threats by eliminating it or if not
eliminate, reduce them at an acceptable level
● so all these we have to make use of professional judgment
○ Remain alert for new information and to changes in facts and circumstances; and
■ so if at the beginning of an engagement there is no threat to compliance to any of the
fundamental principles but then while the engagement is going on, there are new
information that you are now aware of where there are changes in circumstances that
occurred during the engagement that now poses a threat to the compliance of the
fundamental principles then, you have to identify the threat, evaluate the threat, and
address the threat for its removal or reduction at an acceptable level
■ meaning: if at the beginning of an engagement you did not identify any threat to
compliance to any of the fundamental principles -> you should not let your guard down
during the engagement
○ Use the reasonable and informed party test

1) Exercise of professional judgment

● Application of relevant training, professional knowledge, skill and experience commensurate with the facts
and circumstances
○ if you're dealing with a small client — in practice, you have to have a certain risk analysis for every
engagement or client that you would encounter
○ if in the risk analysis the risk is stacked as low not much preparation is needed but if the risk
analysis is high then additional research research may be made and acquire other people in the
industry to determine if there are potential threats in compliance with the fundamental principles

● Make informed decisions about courses of actions available, and to determine whether such decisions are
appropriate in the circumstances.

2) Understanding the known facts and circumstances

● An understanding of known facts and circumstances is a prerequisite to the proper application of the
conceptual framework
● Determining the actions necessary to obtain this understanding and coming to a conclusion about whether
the fundamental principles have been complied with is important

- What do we mean by understanding known facts and circumstances?

- In obtaining this understanding the professional accountant might consider among others whether
there is reason to be concerned that potentially relevant information might be missing.
- So, not everything would be disclosed for the accountant must not rely on every document or
information provided to him but on its face, we must be on guard.

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- So, if there is reason to be concerned that potentially relevant information might be missing from
the facts and circumstances known to the accountant then, we may choose to or there may be
threats to the compliance of the fundamental principles
- Also, in engaging a client if you already you should have already studied that said client or for any
engagement you should have studied the said engagement
- If there is an inconsistency between the known facts and circumstances delivered by the client or
the engagement and to your expectations -> if there is an inconsistency with what is being provided
to you and what you had expected then there may be something wrong so, again be on guard

3) Reasonable and informed third party test

● A consideration about whether the same conclusions would likely be reached by another party.
● Such consideration is made from the perspective of a reasonable and informed third party, who weighs all
the relevant facts and circumstances that the accountant knows, or could reasonably be expected to
know, at the time the conclusions are made.

- if you've determined that this would be the best course of action or this decision is best -> try to
apply the reasonable and informed third party set test
- meaning if a third party who has the same information you have, who is an informed third
party
- would he or she make the same decision
- would he or she come to the same conclusion
- so, if not then there may be something wrong but if yes then it would it may look
like you're going the right path

CONCEPTUAL FRAMEWORK
● The conceptual framework specifies an approach for a professional accountant to:
○ identify threats
○ evaluate threats
○ address the threats

A. Identifying Threats
1. self-interest threat
2. self-review threat
3. advocacy threat
4. familiarity threat
5. intimidation threat

- in identifying the threats there is a need to understand the facts and circumstances
- understanding the facts and circumstances are important for us to make a
decision
- there is a need to understand the facts and circumstances that might
compromise compliance with the fundamental principles
- the existence of certain conditions policies and procedures established by the profession,
legislation, regulation, the firm, or the employing organization that can enhance the
accountant ethically might also identify help identify threats to compliance

1. Self-interest
● is the threat that a financial or other interests will inappropriately influence a professional
accountant's judgment or behavior
● so meaning there is a financial or other interests that may drive you, that may influence you to
perform a breach of the code
● for example: you are invited or approached by a company for an audit engagement so, you later
figured out that said company is one of the companies being held by a holding company which you

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are invested in -> so you have a financial or other interest that may influence you in auditing this
subsidiary company
○ you have to be careful
○ so, once you've taken note of that, once you've established that you are financially
interested in that company there is a self interest

2. Self-review
● the threat that a professional accountant will not appropriately evaluate the results of a previous
judgment made or an activity performed by same accountant or by another individual within the
accountant's firm or employing organization on which the accountant will rely when forming a
judgment as part of performing a current activity
○ For example: In 2020, XYZ company approached you to give an advice on a specific
accounting treatment for lease of printers or other office equipment
■ as a professional accountant you form related advice -> this should be based on
existing standards accounting standards “this is how you treat a lease of office
equipment” -> then you laid out your opinion and your advice
■ In 2021, the same company but different management approached you and
asked how to treat the lease of the same office equipment and then you were
asked to review your own work (so that is a self review threat)
■ or in another way, if the one that performed or the one that made their made the
advice was another person within your firm (there is a self review threat) —
because you would be afraid to contradict what was written on the first advice
because
● you're the one who made it or
● a person within your firm made it
3. Advocacy Threat
● threat that a professional accountant will promote a client's or the employing organization's
possession to the point that the accountant's objectivity is compromised
○ so you are bending to the will of the client or the employing organization because for the
better reasons (you like the client, you like what the client's doing, the client's purpose is)
-> so your objectivity may have been compromised

4. Familiarity Threat
● A threat that due to a long or close relationship with a client or employing organization a
professional accountant will be too sympathetic to their interests or too accepting of their work
○ so this is a common in practice when you have a long-term client so this client has been
engaging you for 3-4 years
○ management personnel are already close to you, you already play golf like once a month,
you've established relationships with them, and then one day you figured out that they
they had something wrong in their books-> there may be a risk that you will turn a blind
eye on these errors because of a familiarity threat

5. Intimidation
● A threat that an accountant would be deferred from acting objectively because of actual or
perceived pressures including attempts or exercise of undue influence over the accountant
○ so you are prevented from doing your duty — prevented from complying with the code
because of intimidation or actual or perceived pressures
○ you've prepared a negative opinion about the client's books and then the client would
spread during a meeting that “maybe we will no longer engage your services in the future”
■ there is perceived pressure on your side that if you pursue or if you go along with
the negative opinion you have on the client's books then you will lose a client in
the future

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B. Evaluating Threats
● When the threat is identified, the accountant shall evaluate whether such a threat is at an acceptable level
○ meaning not all threats will be eliminated but if it’s at an acceptable level then you can still
personally engage
- for example: if you have an interest over the company that you are currently engaged in now you're
providing services for them but your interest is only .001 of the total shares of the company
- it may be minimal but still it doesn't mean that you don't identify just because it is at an
acceptable level
- you still have to identify it and explain that it's minimal

Acceptable level
● This is the level at which a professional accountant using the reasonable informed third-party test
would likely conclude that the accountant complies with the fundamental principles

Consideration of New Information or Changes in Facts and Circumstances

- again, once you've started the engagement there may be changes in the facts or
circumstances or new information presented during the engagement that may pose a
threat in the compliance with the fundamental principles

● If the professional becomes aware of new information or changes in facts and circumstances that
might impact whether a threat has been eliminated or reduced to an acceptable level, the
accountant shall re-evaluate and address that threat accordingly
○ if at the beginning of the engagement there is a threat and during the engagement it was
reduced or eliminated then we shall re-evaluate

C. Addressing Threats
● Eliminate the circumstance therefore eliminating the threat
● Applying safeguards to eliminate the threat or reduce it at an acceptable level
● Declining or ending the specific professional activity

- if the professional accountant determines remains that the identified threats to compliance are not
at acceptable level of course → the accountant shall address the threats by eliminating them or
reducing them to an acceptable level
- What are actions to eliminate the threats?
- a threat might be addressed by eliminating the circumstance creating the threat however,
there are some situations in which threats can only be addressed by declining or ending
the specific activity -> this is because the circumstance that created the threats cannot
be eliminated and safeguards are not capable of being applied
- What are safeguards? safeguards are actions, individually or in combination, that the
professional accountant takes that effectively reduce threats to compliance with the
fundamental principles to an acceptable level

Consideration of Significant Judgments Made and Overall Conclusions Reached

● The professional accountant shall form an overall conclusion about whether the actions that the accountant
takes, or intends to take, to address the threats created that will eliminate those threats or reduce them to an
acceptable level
● In forming the overall conclusion, the accountant shall:
○ Review any significant judgments made or conclusions reached; and
○ Use the reasonable and informed third party test

Considerations for Audits, Reviews, and Other Assurance Engagements

● Independence
● Professional skepticism

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A. Independence
- you are independent because you have no bias against a certain engagement
- Example: An accountant is married to X. X’s father owns a company. The company is being audited
by the accountant.
- In that instance, you can argue upon yourself that you are independent on your own. You
are objective in doing your work because you can say you're not really close with your
father-in-law who owns the company.
- But in other people's eyes, although there may be independence of the mind, there is no
independence in appearance because you're still connected with the company because
you're married to the daughter of the owner of the company. So, there may be discussions
behind the scenes. There is a breach of independence in appearance.

Independence of the mind

● The state of mind that permits the expression of a conclusion without being affected by influences
that comprise professional judgment, thereby allowing an individual to act with integrity, and
exercise objectivity and professional skepticism

Independence in appearance
● the avoidance of facts and circumstances that are so significant that a reasonable and informed
third party would be likely to conclude that a firm’s or an audit or assurance team member’s
integrity, objectivity, or professional skepticism has been compromised

- you have to comply with both independence

B. Professional skepticism
● Under auditing, review and other assurance standards, professional accountants in public practice are
required to exercise professional skepticism when planning and performing audits, reviews and other
assurance engagements
● Professional skepticism and the fundamental principles that are described previously are interrelated
concepts.

- meaning the five principles (integrity, objectivity, competence and due care, confidentiality and
professional behavior) are under the exercise of professional skepticism

Brief review or overview

● compliance with the code
○ so as a rule all professional accountants must comply with this code
● the fundamental principles
○ integrity
○ objectivity
○ professional
○ competence and due care
○ confidentiality and professional behavior
● conceptual framework
○ that would help us identify threats to compliance with the fundamental principles
○ evaluate those threats and address the threats to eliminate them or to reduce them at an
acceptable level

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M3 LEC02 CODE OF PROFESSIONAL ETHICS PART 2

https://drive.google.com/file/d/1I2DUG2YgssY3qJ__aKZbEYJyrBd51CTI/view?fbclid=IwAR1gfDGGOvpDSf-shX8pCS
j0Wa8yzwaWTpUMS7ck3kI_Zkie_vNkkD97SzU

https://www.ifac.org/system/files/publications/files/IESBA-Handbook-Code-of-Ethics-2018.pdf

Discuss: Salient provision of international code of ethics for professional accounts and provide perspectives

Professional Accountants In Business

Professional accountants in business include professional accountants employed, engaged or contracted in an
executive or non-executive capacity in, for example:
● Commerce, industry, or service.
● The public sector.
● Education.
● The not-for-profit sector.
● Regulatory or professional bodies.

SECTION 200: INTRODUCTION

Introduction
200.3 A professional accountant in business might be an employee, contractor, partner, director (executive
or non-executive), owner-manager, or volunteer of an employing organization.The legal form of the
relationship of the accountant with the employing organization has no bearing on the ethical responsibilities
placed on the accountant.
○ Employee – whether you engage inn employer-employee relationship
○ Contractor – if you have a contract partner

Professional accountants in business might solely or jointly be responsible for the preparation and
reporting of financial and other information.
● Financial – FS
● Other information – notes, that might be related to the organization

On which both employing organizations (company) and third parties (investors, creditors, suppliers,
government, and such) might rely. They might also be responsible for providing effective financial
management and competent advise on a variety of business related matters.

The legal form of the relationship of the accountant and the employing organization has no bearing
on the ethical responsibilities placed on the accountant.
● Example. Employee of the organization or employee of third party (outsource of the
organization to perform responsibilities for the preparation of financial and non-financial
information) – it does not have a bearing on the organization/

Requirements And Application Material: General

R200.5 A professional accountant shall comply with the fundamental principles set out in Section 110 and
apply the conceptual framework set out in Section 120 to identify, evaluate, and address threats to
compliance with the fundamental principles.

Fundamental Principles
1. Integrity – quality of being honest or having a strong moral principle, moral uprightness
2. Objectivity – not influenced by personal feelings or opinions in considering and representing facts.
Not being subjective.
3. Professional competence and due care – obligation that members of the professional bodies
maintain their knowledge and skill at level required

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4. Professional behavior – requires to comply with relevant laws and regulations. Avoid any conduct
that might discredit the profession.
5. Principle of Confidentiality – respect the confidentiality of the information acquired as a result of
a professional and business relationship.

● To the extent that they are able to do so, taking into account their position and seniority in the
organization, accountants are expected to encourage and promote an ethics-based culture in the
organization.
o The more senior the accountant is, the greater will be the ability to influence and access to
information so you can influence the policies, decisions made and actions taken by others
involving with the employing organization. As such, we are kind of encouraged to promote
ethics based culture to our respective organization.

Example: We can achieve this through introduction, implementation, and oversight of the following:
1. Ethics Education and Training Programs – specific point of contact in your department
1. Ethics and Whistleblowing Policies – act with participation in creating of related policies on
ethics and whistleblowing policies
2. Policies and Procedures Design to Prevent Noncompliance with laws and regulations –
active participation in creation of a related policies on compliance to laws and regulation take for
example, privacy laws and other relevant laws to the organization.

Requirements And Application Material: Identifying Threats

200.6 A1 Threats to compliance with the fundamental principles might be created by a broad range of facts
and circumstances. The following are examples of facts and circumstances within each of those categories
that might create threats for a professional accountant when undertaking a professional activity:

● Self-review threats – something that you did or you perform a work on for example, when a
professional accountant, determining the appropriate accounting treatment for a business
combination after performing the feasibility studies supporting the purchase decision.
● Advocacy threats – something you are an advocate or in line with what you are supporting for
example, when a professional accountant having the opportunity to manipulate information in a
prospectus in order to obtain favorable financing.
● Familiarity threats – when you have a close ties or long association with an individual, for
example, when a professional accountant, being responsible for the financial reporting of an
organization, when an immediate or close family member employed by the organization makes
decision that affect the financial reporting of that organization
● Intimidation threats – there is exercise of influence, inducing fear, for example, when an individual
attempting to influence the decision-making process of the professional accountant with regards of
awarding of contracts for the application of an accounting principle
● Self-interest threats – when you have financial interests in one’s personal interest is at an
advantage, for example, a professional accountant would bring a financial interest on receiving a
loan or guarantee from the employing organization or as well as when they participate in incentive
compensation arrangement offered by the employing organization

Requirements And Application Material: Addressing Threats

200.8A1 Sections 210 to 270 describe certain threats that might arise during the course of performing
professional activities and include examples of actions that might address such threats.
● Section 210 – Conflict of Interest
● Section 260 – Compliance to laws and regulations
● Section 270 – Pressure to breach the fundamental principles
200.8A2 In extreme situations, if the circumstances that created the threats cannot be eliminated and
safeguards are not available or capable of being applied to reduce the threat to an acceptable level, it might
be appropriate for a professional accountant to resign from the employing organization or
o if you are not having an employee-employer to that organization, you can terminate the undertaking
immediately, for example, in a contract basis.

Requirements And Application Material: Communicating With Those Charged With Governance
R200.9 When communicating with those charged with governance in accordance with the code, a
professional accountant shall determine the appropriate individual(s) within the employing organization's

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governance structure with whom to communicate. If the accountant communicates with a subgroup of those
charged with governance, the accountant shall determine whether communication with all of those charged
with governance is also necessary so that they are adequately informed.

200.9 A1 An accountant might consider the following in determining whom to communicate:

1. Nature and iImportance of circumstances
2. Matter to be communicated (e.g., audit committee, member of the board)

SECTION 210: CONFLICT OF INTEREST

Introduction
210.1 Professional accountants are required to comply with the fundamental principles and apply the
conceptual framework set out in Section 120 to identify, evaluate and address threats.

210.2 A conflict of interest creates threats to compliance with the principle of objectivity and might create
threats to compliance with other fundamental principles.
o Such threats can be created when a professional accountant undertakes a professional activity
related to a particular matter for two or more parties whose interest with respect to that matter are
in conflict (subject as the conflict).
o The interest of a professional accountant with respect to a particular matter and the interest of a
party for whom the accountant undertakes a professional activity related to that matter are in
conflict (interest of the professional and interest of the party are in conflict).

Requirements And Application Material: General

R210.4 A professional accountant shall not allow a conflict of interest to compromise professional or
business judgment.

210.4 A1 Examples of circumstances that might create a conflict of interest:

1. Serving in a management or governance position for two employing organizations and acquiring
confidential information from one organization that might be used by the professional accountant to
the advantage or disadvantage of the other organization.
● DMCI and SMDC are both related to making condominiums. If a person served as both
management accountant for both employing organizations, then the person could use
confidential information with respect to the pricing, costing and other related information
that could be advantageous to one organization.

2. Responsible for selecting a vendor. For the employing organization, when an immediate family
member of the accountant might benefit financially from the transaction. Why? Favorable terms
might be given to that immediate family member if the professional would be the one responsible in
the selection of the vendor for the organization.
3. Serving in a governance capacity in an employing organization that is approving certain
investments for the company where one of those investments will increase the value of the
investment portfolio of the accountant or an immediate family member.
- Serving in a governance capacity in an employing organization that is (??) investment
portfolio of an accountant or an immediate family member. Why? Potential bias over
approvals of certain investments, and personal gain might happen that is why there is
conflict of interest.

Requirements And Application Material: Conflict Identification

R210.5 A professional accountant shall take reasonable steps to identify circumstances that might create a
conflict of interest, and therefore a threat to compliance with one or more of the fundamental principles.

Such steps include:

● Identifying the nature of the relevant interest and relationship between the parties involved.
o Example is when you have a family member that you are going to discuss with (??)
professional activity.
● Activity and its implication for relevant parties.

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o Example is whether you will personally gain, or you immediate relatives/related parties
were directly benefiting with the conduct of activity or undertaking. (Ex. You have a relative
that have stocks, and of you conduct the activity, their stock prices will increase)

R210.6 A professional accountant shall remain alert to changes over time in the nature of the activities,
interests and relationships that might create a conflict of interest while performing a professional activity.

Requirements And Application Material: Threats Created By Conflict Of Interest

210.7 A1 In general, the more direct the connection between the professional activity and the matter on
which the parties' interests conflict, the more likely the level of the threat is not at an acceptable level.
210.7 A2 An example of an action that might eliminate threats created by conflicts of interest is withdrawing
from the decision-making process related to the matter giving rise to the conflict of interest.

Example: Professional undertaking where you are evaluating the preparation of a merger between two
organizations, and you have interests in those two companies. To eliminate the conflict of interest, you will
only be assigned to the paperwork and others will be assigned for evaluation.

Other examples:
1. Restructuring or segregating certain responsibilities and duties
- Example: Be preparers instead of making the decision, evaluation or review obtaining appropriate
oversight on acting under the supervision of an executive or non-executive director.

Requirements And Application Material: Disclosure And Consent

It is generally necessary to:
● Disclose the nature of the conflict of interest and how any threats created were addressed to the relevant
parties, including to the appropriate levels within the employing organization affected by a conflict; and
● Obtain consent from the relevant parties for the professional accountant to undertake the professional
activity when safeguards are applied to address the threat
o Consent might be implied by parties conduct in circumstances where the professional accountant
has sufficient evidence to conclude that the parties know their circumstances at the outset and
have accepted the conflict of interest if they do not raise objection to the existence of the conflict.
o If such disclosure If such disclosure or consent is not in writing, the professional accountant is
encouraged to document:
▪ The nature of the circumstances giving rise to the conflict of interest;
▪ The safeguards applied to address the threats when applicable and
▪ The consent obtained.

Other considerations:
When addressing a conflict of interest, the professional accountant is encouraged to seek guidance from within the
employing organization or from others, such as a professional body, legal counsel or another accountant, when
making such disclosures or sharing information within the employing organization and seeking guidance of third
parties the principle of confidentiality applies.
● When you are seeking guidance to another party, you have to consider that there is a confidentiality
scheme in you professional undertaking.

SECTION 220: PREPARATION AND PRESENTATION OF INFORMATION

220.2 Preparing or presenting information might create a self-interest, intimidation or other threats to
compliance with one or more of the fundamental principles. This section sets out specific requirements and
application material relevant to applying the conceptual framework in such circumstances.

Requirements And Application Material: General

220.3 A1 Professional accountants at all levels in an employing organization are involved in the preparation
or presentation of information both within and outside the organization.

220.3 A2 Stakeholders to whom, or for whom, such information is prepared or presented, include:
o Management and those charged with governance

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o Regulatory bodies.
o Investors and lenders or other creditors.
This information might assist stakeholders in understanding and evaluating aspects of the employing
organization’s state of affairs and in making decisions concerning the organization. Information can include
financial and non-financial information that might be made public or used for internal purposes.

Examples include:
● Operating and performance reports – Financial information containing operational or performance
reports (Income Statements)
● Decision support analyses. – Notes to FS, disclosure in estimates, etc.
● Budgets and forecasts – used by management
● Information provided to the internal and external auditors – supporting documents on preparation of
FS, external auditors would rely for operating effectiveness of controls
● Risk analyses
● General and special purpose financial statements.
● Tax returns
● Reports filed with regulatory bodies for legal and compliance purposes

Requirements And Application Material: General (Cont.)

When preparing or presenting information, a professional accountant shall:

● Prepare or present the information in accordance with a relevant reporting framework, where applicable;
o PH – PFRS
o US – US GAAP
● Prepare or present the information in a manner that is intended neither to mislead nor to influence
contractual or regulatory outcomes inappropriately;
o Using professional judgement aligned to make the FS presented fairly
● Exercise professional judgment to:
o Represent the facts accurately and completely in all material respects;
o Describe clearly the true nature of business transactions or activities; and
o Classify and record information in a timely and proper manner; and
▪ We need supporting documentation and sufficient evidences for us to use our professional
judgment
● Not omit anything with the intention of rendering the information misleading or of influencing contractual or
regulatory outcomes inappropriately
o Influencing an contractual or regulatory outcome inappropriately using an unrealistic estimate with
intention of avoiding violation of contractual requirement such as a debt covenant or of a regulatory
requirement such as a capital requirement for a financial institution.

Use of Discretion In Preparing or Presenting Information

R220.5 Preparing or presenting information might require the exercise of discretion in making professional
judgments. The professional accountant shall not exercise such discretion with the intention of misleading
others or influencing contractual or regulatory outcomes inappropriately.

220.5 A1 Examples of ways in which discretion might be misused to achieve inappropriate outcomes
include:

● Determining estimates, for example, determining fair value estimates in order to misrepresent profit
or loss.
o Since estimates would require our professional judgment, there are controls around this
like sufficient and appropriate documentation to support our analysis and determination
● Selecting or changing an accounting policy or method among two or more alternatives permitted
under the applicable financial reporting framework, for example, selecting a policy for accounting
for long-term contracts in order to misrepresent profit or loss.
o We have accounting method whether we use zero profit percentage of completion among
long term construction contracts which allows us to use alternatives that can be both
permitted under the standards

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● When performing professional activities, especially those that do not require compliance with a
relevant reporting framework, the professional accountant shall exercise professional judgment to
identify and consider:
o The purpose for which the information is to be used:
o The context within which it is given; and
o The audience to whom it is addressed,

Example: When preparing or presenting pro forma reports, budgets or forecasts, the inclusion of relevant
estimates, approximations and assumptions, where appropriate, would enable those who might rely on such
information to form their own judgments.

● They have to understand whether the financial information will be used for decision making of our
creditors, investors, or be used by internal management. Then we incorporate professional
judgement in determining the level of disclosures our assumptions or estimates, for those who will
ultimately rely on the reports that we are going to generate.

Relying On The Work Of Others

● A professional accountant who intends to rely on the work of others, either internal or external to the
employing organization, shall exercise professional judgment to determine what steps to take, if any, in order
to fulfill the responsibilities, set out in paragraph R220.4.

When preparing or presenting information, a professional accountant shall:

1. Prepare or present the relevant reporting framework where applicable (PH – PFRS)
2. Prepare or present the information in a manner that is intended neither to mislead nor to influence
contractual or regulatory outcomes inappropriately
3. Exercise professional judgment to:
● Represent the facts accurately and completely in all material respects;
● Describe clearly the true nature of business (??)
● Factors to consider in determining whether reliance on others is reasonable include:
○ The reputation and expertise of, and resources available to, the other individual or
organization.
○ Whether the other individual is subject to applicable professional and ethics standards.

Such information might be gained from prior association with, or from consulting others about, the other individual or
organization.

● Example: I am a CIA guided by IAA Code of Ethics, IT Professional guided on ISACA Code of Ethics

SECTION 230: ACTING WITH SUFFICIENT EXPERTISE

● Professional accountants are required to comply with the fundamental principles and apply the conceptual
framework set out in section 120 to identify, evaluate and address threats.
● Acting without sufficient expertise creates a self-interest threat to compliance with the principle of
professional competence and due care. This section sets out specific requirements and application material
relevant to applying the conceptual framework in such circumstances.

… due care, this section provides an overview and considerations when an professional is acting with sufficient
expertise.

General:
● A professional accountant shall not intentionally mislead an employing organization as to the level of
expertise or experience possessed.
o Example: I cannot say I am not expert on Valuation when my expertise is on IT.
● A self-interest threat to compliance with the principle of professional competence and due care might be
created if a professional accountant has:
o Insufficient time for performing or completing the relevant duties.

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▪ Due care that we are providing conclusion based on sufficient and appropriate evidence
which might be tainted without adequate time to perform procedures
o Incomplete, restricted or otherwise inadequate information for performing the duties.
▪ Due care that we are providing conclusion based on sufficient and appropriate evidence
which can be hindered by incomplete access or inadequate access to perform our
procedures.
o Inadequate experience, training and/or education.
▪ Professional competence whether we have the necessary skills based from our training,
education, experience as well.
o Inadequate resources for the performance of the duties.
▪ Due care, to ensure that we perform our duties diligently and adequate resources are
provided for us to perform our procedures.

General (Cont.):

● If a threat to compliance with the principle of professional competence and due care cannot be addressed, a
professional accountant shall determine whether to decline to perform the duties in question. If the
accountant determines that declining is appropriate, the accountant shall communicate the reasons.

… that might be safeguards to address such self-interest threats include:

- Obtaining assistance or training from someone with the necessary expertise.

o There are areas (??)
- Ensuring that there is adequate time available for performing the relevant duties.
o We practice our professional due care such as adequacy of our resources, time and so on.

SECTION 240: FINANCIAL INTERESTS, COMPENSATION AND INCENTIVES LINKED TO FINANCIAL

REPORTING AND DECISION MAKING

● Professional accountants are required to comply with the fundamental principles and apply the conceptual
framework set out in Section 120 to identify, evaluate and address threats.
● Having a financial interest or knowing of a financial interest held by an immediate or close family member
might create a self-interest threat to compliance with the principles of objectivity or confidentiality. This
section sets out specific requirements and application material relevant to applying the conceptual
framework in such circumstances.

Since we need to apply Section 120 to identify threats, such as self-interest threats on having financial interest or
knowing of a financial interest held by an immediate or close family member which may create self-interest threat to
compliance with the principles of objectivity, confidentiality.

Requirements And Application Material: General

● A professional accountant shall not manipulate information or use confidential information for personal gain
or for the financial gain of others.
o Example: Person A is a professional accountant outsourced to make a FS of Company X and that
A’s mother has financial interest over Company X. There are two possibilities that could be created:
▪ A could tailor pick the FS for the parent and probably the parent is stockholder gained
financial information that could be useful to decide whether her parent should hold or sell
the shares of stock.

Another circumstances that might create self-interest threat includes situation in which the professional accountant or
an immediate close member:

- Has a motive and opportunity to manipulate price-sensitive information in order to gain financially.
o Example: Person could manipulate stock price of a certain stock when the person or immediate
family member has shares

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- Holds a direct or indirect financial interest in the employing organization and the value of that financial
interest might be directly affected by decisions made by the accountant.
o The financial interest can be affected directly via the results of the financial reporting information
- Eligibility for a profit-related bonus and the value of that bonus might be directly affected by decisions made
by the accountant.
- Holds, directly or indirectly, deferred bonus share rights or share options in the employing organization, the
value of which might be affected by decisions made by the accountant.
o Immediate family member is a manager of a company where the bonus is dependent to profit or
other metrics that can be affected by accountant’s judgment in terms of reporting information
- Participates in compensation arrangements which provide incentives to achieve targets or to support efforts
to maximize the value of the employing organization’s shares.
o An example of such an arrangement might be through participation in incentive plans which are
linked to certain performance conditions being met.
o Compensation is directly related to the sales/share price.

● Professional accountants might have financial interests or might know of financial interests of immediate or
close family members that, in certain circumstances, might create threats to compliance with the
fundamental principles. Financial interests include those arising from compensation or incentive
arrangements linked to financial reporting and decision making.

Requirements And Application Material: General (Cont.)

Factors that are relevant in evaluating the level of such a threat include:
● The significance of the financial interest. What constitutes a significant financial interest will depend on
personal circumstances and the materiality of the financial interest to the individual.
● Policies and procedures for a committee independent of management to determine the level or form of
senior management remuneration.
● In accordance with any internal policies, disclosure to those charged with governance of:
o All relevant interests.
o Any plans to exercise entitlements or trade in relevant shares.
● Internal and external audit procedures that are specific to address issues that give rise to the financial
interest.

Example: In an auditing firm, there will be times where you will disclose your financial interest or whether you have
family that has financial interest in order to ensure that you are independent and objective in auditing the FS.
(annually)

SECTION 250 INDUCEMENTS, INCLUDING GIFTS AND HOSPITALITY

Introduction
250.1 Professional accountants are required to comply with the fundamental principles and apply the
conceptual framework set out in Section 120 to identify, evaluate and address threats.

250.2 Offering or accepting inducements might create a self-interest, familiarity or intimidation threat to
compliance with the fundamental principles, particularly the principles of integrity, objectivity and
professional behavior.
● honest - high moral principles
● objectivity - not being subjective or not being persuaded by opinion

250.3 This section sets out requirements and application material relevant to applying the conceptual
framework in relation to the offering and accepting of inducements when undertaking professional activities
that do not constitute non-compliance with laws and regulations. This section also requires a professional
accountant to comply with relevant laws and regulations when offering or accepting inducements.

Two parts:

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1. Inducements when undertaking professional activities that does not constitute

non-compliance with laws and regulations – may be considered not allowed under Section
250
2. Compliance with relevant laws and regulations when offering or accepting inducements

Requirements and Application Material: General

250.4 A1 An inducement is an object, situation, or action that is used as a means to influence another
individual's behavior, but not necessarily with the intent to improperly influence that individual's behavior.
Inducements can range from minor acts of hospitality between business colleagues to acts that result in
non-compliance with laws and regulations.

● Minor acts can be considered as inducements which are not within the noncompliance with laws
and regulations or does not constitute noncompliance with laws and regulations
● An inducement can take many different forms
○ Gifts - gaming laptop
○ hospitality - if you are an accounting staff and you will be provided a first class check in
experience to the hotel you are auditing
○ entertainment- given the access to play unlimited golf or bowling
○ political or charitable donations - contributions to campaign funds
○ Appeals to friendship and loyalty.
○ Employment or other commercial opportunities.
○ Preferential treatment, rights or privileges.

Inducements Prohibited by Laws and Regulations

R250.5 In many jurisdictions, there are laws and regulations, such as those related to bribery and
corruption, that prohibit the offering or accepting of inducements in certain circumstances. The professional
accountant shall obtain an understanding of relevant laws and regulations and comply with them when the
accountant encounters such circumstances.
● Philippines: anti corruption law
● US: foreign corrupt practices act

Inducements Not Prohibited by Laws and Regulations - With Intent to Improperly Influence
R250.6 A1 The offering or accepting of inducements that is not prohibited by laws and regulations might still
create threats to compliance with the fundamental principles.
● Some laws and regulations probably will not be able to outline all related matters that
create threat to the fundamental principles
● Professional accountants should not accept because it is intent to improperly influence

- R250.8 A professional accountant shall not accept, or encourage others to accept, any inducement that the
accountant concludes is made, or considers a reasonable and informed third party would be likely to
conclude is made, with the intent to improperly influence the behavior of the recipient or of another
individual.
- 250.9 A1 An inducement is considered as improperly influencing an individual’s behavior if it causes the
individual to act in an unethical manner. Such improper influence can be directed either towards the recipient
or towards another individual who has some relationship with the recipient. The fundamental principles are
an appropriate frame of reference for a professional accountant in considering what constitutes unethical
behavior on the part of the accountant and, if necessary by analogy, other individuals.
- 250.9 A2 A breach of the fundamental principle of integrity arises when a professional accountant offers or
accepts, or encourages others to offer or accept, an inducement where the intent is to improperly influence
the behavior of the recipient or of another individual.

R250.9 A3 The determination of whether there is actual or perceived intent to improperly influence behavior
requires the exercise of professional judgment. Relevant factors to consider might include:

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● The nature, frequency, value and cumulative effect of the inducement.

- giving you a grocery items but the value is 100,000 -> need to exercise professional
judgment
● Timing of when the inducement is offered relative to any action or decision that it might influence.
● Whether the inducement is a customary or cultural practice in the circumstances, for example,
offering a gift on the occasion of a religious holiday or wedding.
● Whether the inducement is an ancillary part of a professional activity, for example, offering or
accepting lunch in connection with a business meeting.
● Whether the offer of the inducement is limited to an individual recipient or available to a broader
group. The broader group might be internal or external to the employing organization, such as other
customers or vendors.
● The roles and positions of the individuals offering or being offered the inducement.
● Whether the professional accountant knows, or has reason to believe, that accepting the
inducement would breach the policies and procedures of the counterparty’s employing
organization.
● The degree of transparency with which the inducement is offered.
● Whether the inducement was required or requested by the recipient.
● The known previous behavior or reputation of the offeror.

250.10 A2 Examples of actions that might be safeguards to address such threats include:
● Informing senior management or those charged with governance of the employing organization of
the professional accountant or the offeror regarding the offer.
● Amending or terminating the business relationship with the offeror.
- inform the board or the audit committee of such matters

Inducements Not Prohibited by Laws and Regulations - Without Intent to Improperly Influence
250.11 A1 The requirements and application material set out in the conceptual framework apply when a
professional accountant has concluded there is no actual or perceived intent to improperly influence the
behavior of the recipient or of another individual.
- it happens when such inducement is trivial and inconsequential, no material value, the frequency is
not intended for them to improperly influence us to be not objective or violate the fundamental
principles

250.11 A3 Examples of circumstances where offering or accepting such an inducement might create threats
even if the professional accountant has concluded there is no actual or perceived intent to improperly
influence behavior include:
● Self-interest threats: A professional accountant is offered part-time employment by a vendor.
● Familiarity threats: A professional accountant regularly takes a customer or supplier to sporting
events.
● Intimidation threats; A professional accountant accepts hospitality, the nature of which could be
perceived to be inappropriate were it to be publicly disclosed.

250.11 A5 Examples of actions that might eliminate threats created by offering or accepting such an
inducement include:
● Declining or not offering the inducement.
● Transferring responsibility for any business-related decision involving the counterparty to another
individual who the professional accountant has no reason to believe would be, or would be
perceived to be, improperly influenced in making the decision.

250.11 A6 Examples of actions that might be safeguards to address such threats created by offering or
accepting such an inducement include:
● Being transparent with senior management or those charged with governance of the employing
organization of the professional accountant or of the counterparty about offering or accepting an
inducement.

Maria Camel Luzara & Jacquelyn Joyce Cuaycong

 Page | 20

- made aware of your board of directors that you are going to receive a gift (it can but it may
not still address the threats)
● Registering the inducement in a log maintained by the employing organization of the accountant or
the counterparty.
- some organizations have the mechanism that you will register the gifts you would receive
to monitor whether there is a breach or if it’s okay to accept those gifts
● Having an appropriate reviewer, who is not otherwise involved in undertaking the professional
activity, reviews any work performed or decisions made by the accountant with respect to the
individual or organization from which the accountant accepted the inducement.
● Donating the inducement to charity after receipt and appropriately disclosing the donation, for
example, to those charged with governance or the individual who offered the inducement.
● Reimbursing the cost of the inducement, such as hospitality, received.
● As soon as possible, returning the inducement, such as a gift, after it was initially accepted.
- received substantial material amount of money considered as a gift but as a way to
safeguard or mitigate the threats to -> return the gift that was initially accepted

Other Considerations
250.15 A1 If a professional accountant is offered an inducement by the employing organization relating to
financial interests, compensation and incentives linked to performance, the requirements and application
material set out in Section 240 apply.

250.15 A2 If a professional accountant encounters or is made aware of inducements that might result in
non-compliance or suspected non-compliance with laws and regulations by other individuals working for or
under the direction of the employing organization, the requirements and application material set out in
Section 260 apply.

250.15 A3 If a professional accountant faces pressure to offer or accept inducements that might create
threats to compliance with the fundamental principles, the requirements and application material set out in
Section 270 apply.

SECTION 260 RESPONDING TO NON-COMPLIANCE WITH LAWS AND REGULATIONS

Introduction
260.1 Professional accountants are required to comply with the fundamental principles and apply the
conceptual framework set out in Section 120 to identify, evaluate and address threats.

260.2 A self-interest or intimidation threat to compliance with the principles of integrity and professional
behavior is created when a professional accountant becomes aware of non-compliance or suspected
noncompliance with laws and regulations

260.3 A professional accountant might encounter or be made aware of non- compliance or suspected
non-compliance in the course of carrying out professional activities. This section guides the accountant in
assessing the implications of the matter and the possible courses of action when responding to
non-compliance or suspected non-compliance with:
a. Laws and regulations generally recognized to have a direct effect on the determination of material
amounts and disclosures in the employing organization’s financial statements; and
b. Other laws and regulations that do not have a direct effect on the determination of the amounts and
disclosures in the employing organization’s financial statements, but compliance with which might
be fundamental to the operating aspects of the employing organization’s business, to its ability to
continue its business, or to avoid material penalties.
- bribery
- corruption
- privacy laws

Maria Camel Luzara & Jacquelyn Joyce Cuaycong

 Page | 21

Objectives of the Professional Accountant in Relation to Non-compliance with Laws and Regulations
260.4 A distinguishing mark of the accountancy profession is its acceptance of the responsibility to act in the
public interest. When responding to non-compliance or suspected non-compliance, the objectives of the
professional accountant are:
A. To comply with the principles of integrity and professional behavior;
- integrity means that you are honest and have high moral values
B. By alerting management or, where appropriate, those charged with governance of the employing
organization, to seek to:
a. Enable them to rectify, remediate or mitigate the consequences of the identified or
suspected non- compliance; or
b. Deter the non-compliance where it has not yet occurred; and
C. To take such further action as appropriate in the public interest.

- Alert the appropriate management for them to rectify and deter the noncompliance

Requirements and Application Material: General

260.5 A1 Non-compliance with laws and regulations (“non-compliance”) comprises acts of omission or
commission, intentional or unintentional, which are contrary to the prevailing laws or regulations committed
by the following parties:
a. The professional accountant’s employing organization;
b. Those charged with governance of the employing organization;
c. Management of the employing organization; or
d. Other individuals working for or under the direction of the employing organization.

260.5 A2 Examples of laws and regulations which this section addresses include those that deal with:
● Fraud, corruption and bribery.
● Money laundering, terrorist financing and proceeds of crime.
● Securities markets and trading.
● Banking and other financial products and services.
● Data protection.
● Tax and pension liabilities and payments.
● Environmental protection.
● Public health and safety.

260.5 A3 Non-compliance might result in fines, litigation or other consequences for the employing
organization, potentially materially affecting its financial statements. Importantly, such non-compliance might
have wider public interest implications in terms of potentially substantial harm to investors, creditors,
employees or the general public. For the purposes of this section, non-compliance that causes substantial
harm is one that results in serious adverse consequences to any of these parties in financial or non-financial
terms. Examples include the perpetration of a fraud resulting in significant financial losses to investors, and
breaches of environmental laws and regulations endangering the health or safety of employees or the
public.

- There is a lot of risk like financial risk, compliance risk, and reputational risk related to
noncompliance with laws and regulations
- Financial terms: fines
- Nonfinancial: loss of reputation

Responsibilities of the Employing Organization’s Management and Those Charged with Governance
260.8 A1 The employing organization’s management, with the oversight of those charged with governance,
is responsible for ensuring that the employing organization’s business activities are conducted in
accordance with laws and regulations. Management and those charged with governance are also
responsible for identifying and addressing any non-compliance by:

Maria Camel Luzara & Jacquelyn Joyce Cuaycong

 Page | 22

a. The employing organization;

b. An individual charged with governance of the employing organization;
c. A member of management; or
d. Other individuals working for or under the direction of the employing organization.

Responsibilities of All Professional Accountants

R260.9 If protocols and procedures exist within the professional accountant’s employing organization to
address non-compliance or suspected noncompliance, the accountant shall consider them in determining
how to respond to such non-compliance.
- look at what is policy or procedures related to noncompliance or suspected nonchalant

260.9 A1 Many employing organizations have established protocols and procedures regarding how to raise
non-compliance or suspected noncompliance internally. These protocols and procedures include, for
example, an ethics policy or internal whistle-blowing mechanism. Such protocols and procedures might
allow matters to be reported anonymously through designated channels.

R260.10 Where a professional accountant becomes aware of a matter to which this section applies, the
steps that the accountant takes to comply with this section shall be taken on a timely basis. For the purpose
of taking timely steps, the accountant shall have regard to the nature of the matter and the potential harm to
the interests of the employing organization, investors, creditors, employees or the general public.
- there is a breach of privacy laws a you have made aware, before the effect (fines, loss of
reputation) the accountant shall act in a timely manner to address those

Documentation
260.23 A1 In relation to non-compliance or suspected non-compliance that falls within the scope of this
section, the senior professional accountant is encouraged to have the following matters documented:
● The matter.
- situation, happening, explanation of the matter
● The results of discussions with the accountant’s superiors, if any, and those charged with
governance and other parties.
● How the accountant’s superiors, if any, and those charged with governance have responded to the
matter.
● The courses of action the accountant considered, the judgments made and the decisions that were
taken.
● How the accountant is satisfied that the accountant has fulfilled the responsibility set out in
paragraph R260.17

SECTION 270 PRESSURE TO BREACH THE FUNDAMENTAL PRINCIPLES

Requirements and Application Material: General

R270.3 A professional accountant shall not:
a. Allow pressure from others to result in a breach of compliance with the fundamental principles; or
b. Place pressure on others that the accountant knows, or has reason to believe, would result in the
other individuals breaching the fundamental principles

270.3 A3 Factors that are relevant in evaluating the level of threats created by pressure include:
● The intent of the individual who is exerting the pressure and the nature and extent of the pressure.
● The application of laws, regulations, and professional standards to the circumstances.
● The culture and leadership of the employing organization including the extent to which they reflect
or emphasize the importance of ethical behavior and the expectation that employees will act
ethically. For example, a corporate culture that tolerates unethical behavior might increase the
likelihood that the pressure would result in a threat to compliance with the fundamental principles.

Maria Camel Luzara & Jacquelyn Joyce Cuaycong

 Page | 23

● Policies and procedures, if any, that the employing organization has established, such as ethics or
human resources policies that address pressure

270.3 A1 A professional accountant might face pressure that creates threats to compliance with the
fundamental principles, for example an intimidation threat, when undertaking a professional activity.
Pressure might be explicit or implicit and might come from:
● Within the employing organization, for example, from a colleague or superior.
● An external individual or organization such as a vendor, customer or lender.
● Internal or external targets and expectations.

270.3 A2 Examples of pressure that might result in threats to compliance with the fundamental principles
include:
● Section 210, Conflicts of Interest — Pressure related to conflicts of interest
● Section 220, Preparation and Presentation of Information — Pressure to influence preparation or
presentation of information
● Section 230, Acting with Sufficient Expertise — Pressure to act without sufficient expertise or due
care
● Section 240, Financial Interests, Compensation and Incentives Linked to Financial Reporting and
Decision Making — Pressure related to financial interests
● Section 250, Inducements, Including Gifts and Hospitality — Pressure related to inducements
● Section 260, Responding to Non-compliance with Laws and Regulations — Pressure related to
non-compliance with laws and regulations

270.3 A3 Factors that are relevant in evaluating the level of threats created by pressure include:
● The intent of the individual who is exerting the pressure and the nature and extent of the pressure.
- Are they forcing us?
● The application of laws, regulations, and professional standards to the circumstances.
● The culture and leadership of the employing organization including the extent to which they reflect
or emphasize the importance of ethical behavior and the expectation that employees will act
ethically. For example, a corporate culture that tolerates unethical behavior might increase the
likelihood that the pressure would result in a threat to compliance with the fundamental principles.
● Policies and procedures, if any, that the employing organization has established, such as ethics or
human resources policies that address pressure.

Documentation
270.4 A1 The professional accountant is encouraged to document:
● The facts.
● The communications and parties with whom these matters were discussed.
● The courses of action considered.
● How the matter was addressed

- to have a sufficient documentation of the matter

- to enable us to prove that we are complying with the code of ethics

Maria Camel Luzara & Jacquelyn Joyce Cuaycong

Module 1: Introduction to Professional
Values, Ethics and Attitude
Lesson 1: Introduction to Ethics
In this lesson, we have reviewed the basic definitions, principles, and theories concerning
ethics.

Ethics Defined (gk. ethos, lt. moralis)

● “The field of philosophy involving systematizing, defending, and
recommending concepts of right and wrong behavior” (Fiesser, N.D.)
● Ethics is more general than professional values. Professional values pertain
to the set of fundamental beliefs and principles laid down by a profession.
Attitude, on the other hand, pertains to a disposition or tendency towards an
action or behavior.

Approaches/Divisions
● Normative Ethics
○ Concerned with the rules in determining the right or ethical decision
given a situation
○ Includes certain theories in determining which decision is ethical.
○ Can be considered as something prescriptive (i.e., what a person ought
to do).
○ Context clue: norm as in rules.

● Metaethics
○ Deals with the fundamental definition, concepts, and statements
surrounding the concept of “what is good”.
○ Two most prominent issues concerning this subset are metaphysical
(i.e., the objective versus the relative) and psychological (e.g., gender
and ethics) concerns (Fieser, n.d.).
○ Context clue: meta as in beyond

● Applied Ethics
○ Concerned with the analysis of concrete and controversial issues.
○ Precepts in normative ethics are contextualized in controversial issues
such as euthanasia (bioethics), artificial intelligence (computer ethics),
and earnings management (accounting ethics).
○ Context clue: applied
Ethical (Normative) Theories
Utilitarianism Deontology Virtue Ethics

Basic tenet Greatest benefit Act according to Focus on the person’s

(over harm) for the your duty; means virtues as guide
most number of over ends
people
Nonconsequentialist
Teleological and
consequentialist

Focus Outcome (benefit) Rule (duty) Human character

Strengths General good for Focus on duties and Focus on the human
everyone is rights person
promoted

Easier to apply since Focus on rightness Emphasis on character

the focus is on or wrongness of building
consequences actions themselves

Weaknesses Difficult assignment Difficulty to apply in Difficult to qualify virtues

of values to choices certain situations
(arbitrary) (e.g., Trolly Cultural differences in
Problem) determining virtues

May violate justice

in dealing with
minority interests

Major Jeremy Bentham Immanuel Kant Aristotle

Proponents Coined the term in Proposed an Wrote the Nicomachean
1781, developed the overarching ethics a seminal work on
felicific calculus principle of duty virtue ethics
called the
John Stuart Mill categorical Thomas Aquinas
Defended Bentham; imperative Wrote the Disputed
distinguished Questions on the Virtues
“higher” and “lower” which explains and
pleasures. strengthens the precepts
contained in the
Nicomachean ethics.
Applications Relevant Independence rules Fundamental principles in
in Accounting (differential) Costing in the code of ethics the code of ethics
imposed on public
practitioners

Rules versus Rule Not applicable

Act Norms are applied to general formulations
rather than individual actions (e.g., rule
utilitarianism and rule deontology).

Act
Norms are applied on a case-to-case basis
based on individual actions (e.g., act
utilitarianism and act deontology).
Module 1: Introduction to Professional
Values, Ethics and Attitude
Lesson 2: Ethics and the Accounting Profession
In this lesson, we have discussed the ethical foundations and requirements for the development
of professional accountants.

The Profession Hallmarks in Accounting

● Mastery of a Highly Technical Skill
○ This is why a bachelor’s degree is required for most professional
certifications
○ Additionally, professional certifications would normally include
passing an exam

● Adherence to a Professional Code of Ethics

○ For professional accountants, this pertains to the IFAC’s Code of
Ethics for Professional Accountants

● Accountability to Society
○ Professional accountants have the responsibility to protect the
common good. They are made accountable for this responsibility
through regulation (self and professional).

The Accounting Metaphors

As applied As applied ethics
finance/economics

Meaning Accounting is an Accounting is an

application of the application of the
precepts and rules in precepts and rules in
finance and economics ethics (e.g., deontology,
(e.g., cost-benefit, virtue ethics)
resource maximization
etc.)

Application/Example Disclosure, just like any Adherence to code of

other business activity, ethics for professional
should only be assessed accountants
using cost-benefit
 considerations.

Proponents Ball & Brown, 1968 Bowie, 1991

Beaver, 1968 Dolsma, 2005
Lev, 1992 Pava, 2010

Reminders ● Metaphors are just devices to understand a

reality; such must not be taken literally
● Metaphors are not mutually exclusive

Professional Development of Accountants

(Source:https://www.ifac.org/system/files/publications/files/Handbook-of-Internati
onal-Education-Standards-2019.pdf)

When accountants are In which areas What are the levels of

developed accountants developed professional
professionally? professionally? development for
accountants?

Initial Professional Technical Competence Foundational

Development Application of Application of the
Pertains to the aspiring professional knowledge competence in
professional accountant’s to a certain level of environments with LOW
initial formation leading performance levels of ambiguity,
to performing the roles complexity, and
of a professional Example: International uncertainty.
accountant; usually ends Financial Reporting
in the APA’s membership Standards, International Moderate
to an IFAC member body Standards on Auditing, Application of the
(e.g., after passing the Tax Laws competence in
certification/licensure environments with
exams) Professional Skills MODERATE levels of
“Intellectual, ambiguity, complexity,
Continuing Professional interpersonal and and uncertainty.
Development communication, After IPD, APAs are
Learning and personal, required to have a
development which aim and organizational skills” moderate level of
to maintain and upgrade professional competence
the skills of the Example: critical for all domains except for
professional accountants thinking, one (Technical
communication, time Competence -
management, leadership Economics[Foundational]
).
Professional Values,
Ethics, and Attitude Advanced
Defining characteristics Application of the
of PAs as members of a competence in
profession which environments with HIGH
includes principles of levels of ambiguity,
good conduct leading to complexity, and
professional behavior uncertainty.

Example: ethics,
professional skepticism,
professional judgment,
commitment to public
trust
Module 1: Introduction to Professional
Values, Ethics and Attitude
Lesson 3: Kohlberg’s Cognitive Moral Development
Paradigm
In this lesson, we have explained moral reasoning in line with Kohlberg’s CMD and criticized it
using Gilligan’s Ethics of Care.

What is the CMD paradigm It explains how individuals resolve ethical dilemmas
about? in a progressive and developmental manner.

As a developmental paradigm, Kohlberg suggests that

higher levels are more advanced than the lower
levels.

The paradigm is anchored on justice and fairness.

What are the stages and the Level 1: Preconventional Stage 1: Avoid
levels? Decision-making is Punishment.
focused on the SELF.

“I will do this to avoid

punishment and harm
inflicted by an external
agent.”

Stage 2: Satisfy Needs.

“I will do this to receive

something desirable.”

Level 2: Conventional Stage 3: Good Behavior

Decision-making is Conformance
focused on the OTHERS.
“I will do this because this is
what a “good” boy or girl
does”

Stage 4: Law and Order

“I will do this because this is

 what the law and/or
regulation tells me to do”

Level 3: Postconventional Stage 5: Social Contract

Decision-making is
focused on the “I will do this because this is
ABSTRACT NOTIONS in line with the SPIRIT of
(PRINCIPLES). the law, rather than its
form.”

Stage 6: Universal Ethical

Principles

“I will do this because this

is in line with my
principles*.”

These principles may be

rule deontology, rule
utilitarianism, or virtue
ethics.

What are the major Gilligan argues that the paradigm fails to capture the
criticisms of Kohlberg’s “feminine voice” due to the design of Kohlberg (i.e.,
CMD? interviewing male participants only). Furthermore,
Kohlberg’s CMD denotes the primacy of fairness and
justice over other principles.

What is the major argument In her seminal work, In a Different Voice, Gilligan
of Gilligan? argues that the female (feminist) ethics is anchored
on a care and response orientation. It means that the
female (feminist) ethics would focus on:
(1) withholding judgment until more facts are
known, and
(2) choosing the course of action in which no
one is harmed or at least harm is minimized.

What are the criticisms of As regards #1 and #2 above, Kohlberg denoted that
Gilligan’s Ethics of Care? such action encourages ethical relativism and trying
to please everyone (i.e., decision no one is harmed).

Recent literature also denotes that gender differences

are not a significant determinant of ethical decision.
Module 3: Introduction of the Code of
Ethics for Professional Accountants
Lesson 1: Introduction to Professional Codes
In this lesson, we have discussed the basic principles regarding a professional code of ethics.

Professional versus Corporate Codes of Ethics

● A professional code of ethics is a document that embodies the norms,
principles, and rules governing the members of a PROFESSION. As
discussed in Module 1, adherence to a common professional code is one of
the hallmarks of a profession.
● A corporate code of ethics is a document that embodies the norms,
principles, and rules governing the members of an ORGANIZATION.

Principles versus Rules-based Codes of Ethics

Principles-based: frameworks are Rules-based: exact and precise

presented to be applied by the prescriptions are to be followed by the
professional. professional.

Advantages: Advantages:
Integrity-driven, Professional-driven, Easier to apply due to its precision
flexible, dynamic Little room for misunderstanding

Disadvantages: Disadvantages:
May be more subjective and Compliance-driven, mechanistic,
complicated to apply prescriptive.

More difficult to defend in courts

(legally)

The Code of Ethics for Professional Accountants is PRIMARILY (MORE)

principles-based. However, it is incorrect to say that there are no rules-based
components in the Code (e.g., mandatory prohibitions regardless of materiality
levels).

Main Features of the IFAC’s Code of Ethics (2016 Edition)

● More principles than rules-based
● Three parts: A for all PAs, B for PAs in Public Practice, C for PAs in Business
● Primarily anchored on a conceptual framework
Module 3: Introduction of the Code of
Ethics for Professional Accountants
Lesson 2: Part A of the IFAC’s Code of Ethics for
PAs
In this lesson, we have discussed the contents of the Part A of the Code.
Source and Direct Quotations from:
https://www.ethicsboard.org/publications/2016-handbook-code-ethics-professional-accountants

Conceptual Ethical Framework

● Identify threats to compliance with the fundamental principles

● Evaluate the significance of the threats
○ Apply 3rd party test in evaluating the significance (i.e., would a
reasonable and informed 3rd party consider the threat significant)
● Apply safeguards to either (a) eliminate, or (b) reduce the threat to an
acceptably low level.
○ If no safeguard is available, withdraw and/or disassociate
○ Consider reporting requirements, if any

Fundamental Principles

Principle Meaning Example

Professional “To maintain professional Continuing Professional

Competence knowledge and skill at the Development is required for
and Due Care level required to ensure all PAs to ensure that they
competent professional remain competent despite the
services based on current changes in the profession.
developments in practice,
legislation and techniques”

“To act diligently in

accordance with applicable
 technical and professional
standards”

Integrity “To be straightforward and PAs must discuss the details of

honest in all professional and their professional relationship
business relationships with a client in the
engagement letter (EL),
including fees, if any. The EL
should be clear and must not
be subject to
misinterpretations.

Confidentiality “To refrain from disclosing In the event of an imminent

confidential information yet confidential merger, the PA
acquired as a result of should not disclose this to
professional and business his/her family members (i.e.,
relationships without proper prevention of insider trading).
and specific authority to
disclose unless there is a legal
or professional right or duty
to disclose”

“To refrain from using

confidential information
acquired as a result of
professional and business
relationships for personal
advantage or the advantage of
third parties”

Professional “Obligation to comply with PAs should follow the rules

Behavior relevant laws and regulations governing conducting business
and avoid any action that amidst the COVID19
discredits the profession” pandemic.

Objectivity “To not allow bias, conflict of Auditors should not have any
interest or undue influence of shares of the auditee to
others to override maintain their professional
professional or business (original) interest.
judgments”

Threats

Threat Meaning Example

Self-interest Financial or other interest Em, the auditor of A Company,
Threat threat, may inappropriately holds 1,000 shares of A
influence judgment/behavior Company.

Em’s investment may provide

a conflict with his professional
appointment as the auditor.

Self-review Inappropriate evaluation of Em, the auditor of A Company,

Threat previous judgment made on accounted for a merger of one
which accountant will rely of A’s subsidiaries. Em is also
when forming (new) the auditor of the group’s FS.
judgment
Em might be too confident in
reviewing the working papers
related to the merger. Also,
PFRS categorically states that it
is management’s responsibility
to prepare and present the FS,
including accounting for
transactions.

Advocacy Promotion of Em, the auditor of A Company,

Threat client’s/employer’s position is the general counsel of A
Company.
That compromises the
accountant’s judgment In this case, Em might
promote the interest of A
Company beyond what’s
required of an auditor-auditee
relationship.

Familiarity Long and close association Em, the auditor of A Company,

Threat with client has been auditing the company
for the last 10 years.
Accountant becomes too
sympathetic or too accepting Em’s judgment might be
compromised due to the
relationship built with the
client during the last decade.

Intimidation Accountant is deterred from Em, the auditor of A Company,

Threat acting objectively due to was informed by Management
actual and perceived pressures that s/he will be replaced if
s/he will not agree with the
 goodwill impairment testing
performed by the client.

The threat of replacement

might deter Em in acting
objectively.

Safeguards

Created by the profession, legislation, Safeguard in the work environment

regulation

These are general checks and balances These are specific checks and balances
put in place to ensure that accountants put in place to ensure that accountants
will adhere to the fundamental will adhere to the fundamental
principles and mitigate threats. principles and mitigate threats.

● Education, Training, and ● Will be discussed in Parts A and

Experience B of the Code
● Continuing Professional
Development
● Professional standards
● Corporate governance
regulations
● External reviews
Module 1: Introduction to Professional Values, Ethics and Attitude
Lesson 1: Introduction to Ethics
In this lesson, we have reviewed the basic definitions, principles, and theories concerning ethics.
Ethics Defined (gk. ethos, lt. moralis)
● “The field of philosophy involving systematizing, defending, and recommending concepts of right and
wrong behavior” (Fiesser, N.D.)
● Ethics is more general than professional values. Professional values pertain to the set of fundamental
beliefs and principles laid down by a profession. Attitude, on the other hand, pertains to a disposition or
tendency towards an action or behavior.
Approaches/Divisions
● Normative Ethics ○ Concerned with the rules in determining the right or ethical decision given a
situation ○ Includes certain theories in determining which decision is ethical.
○ Can be considered as something prescriptive (i.e., what a person ought to do).
○ Context clue: norm as in rules.
● Metaethics ○ Deals with the fundamental definition, concepts, and statements surrounding the concept
of “what is good”.
○ Two most prominent issues concerning this subset are metaphysical (i.e., the objective versus the
relative) and psychological (e.g., gender and ethics) concerns (Fieser, n.d.).
○ Context clue: meta as in beyond
● Applied Ethics ○ Concerned with the analysis of concrete and controversial issues.
○ Precepts in normative ethics are contextualized in controversial issues such as euthanasia (bioethics),
artificial intelligence (computer ethics), and earnings management (accounting ethics).
○ Context clue: applied
Ethical (Normative) Theories

Utilitarianism Deontology Virtue Ethics

Basic Greatest benefit (over harm) Act according to your duty; Focus on the person’s
tenet for the most means over ends virtues as guide

number of people
Teleological and Nonconsequentialist
consequentialist

Focus Outcome (benefit) Rule (duty) Human character

General good for

Focus on duties and rights
everyone is promoted
Focus on the human person
Strengths Focus on rightness or
Easier to apply since the
wrongness of actions Emphasis on character building
focus is on
themselves
consequences
 Difficult assignment of
values to choices
Difficulty to apply in certain Difficult to qualify virtues
(arbitrary)
Weaknesses situations (e.g., Trolly Cultural differences in
May violate justice in Problem) determining virtues
dealing with minority
interests

Aristotle Wrote the

Jeremy Bentham Coined
Nicomachean ethics a seminal
the term in 1781,
work on virtue ethics
developed the felicific Immanuel Kant Proposed an
Major calculus overarching principle of duty Thomas Aquinas Wrote the
Proponents called the categorical Disputed Questions on the
John Stuart Mill
imperative Virtues which explains and
Defended Bentham;
strengthens the precepts
distinguished “higher”
contained in the Nicomachean
and “lower” pleasures.
ethics.

Independence rules in the

Applications in Relevant (differential) Fundamental principles in the
code of ethics imposed on
Accounting Costing code of ethics
public practitioners

Rule Norms are applied to general formulations rather

than individual actions (e.g., rule utilitarianism and rule
Rules versus deontology).
Not applicable
Act Act Norms are applied on a case-to-case basis based
on individual actions (e.g., act utilitarianism and act
deontology).

Module 1: Introduction to Professional Values, Ethics and Attitude

Lesson 2: Ethics and the Accounting Profession
In this lesson, we have discussed the ethical foundations and requirements for the development of
professional accountants.
The Profession Hallmarks in Accounting
● Mastery of a Highly Technical Skill ○ This is why a bachelor’s degree is required for most professional
certifications ○ Additionally, professional certifications would normally include passing an exam
● Adherence to a Professional Code of Ethics ○ For professional accountants, this pertains to the IFAC’s
Code of Ethics for Professional Accountants
● Accountability to Society ○ Professional accountants have the responsibility to protect the common
good. They are made accountable for this responsibility through regulation (self and professional).
The Accounting Metaphors

As applied finance/economics As applied ethics

Accounting is an application of the precepts and Accounting is an application of the

Meaning rules in finance and economics (e.g., cost- precepts and rules in ethics (e.g.,
benefit, resource maximization etc.) deontology, virtue ethics)
 Disclosure, just like any other business activity,
Adherence to code of ethics for
Application/Example should only be assessed using cost-benefit
professional accountants
considerations.

Bowie, 1991 Dolsma, 2005 Pava,

Proponents Ball & Brown, 1968 Beaver, 1968 Lev, 1992
2010

Reminders
● Metaphors are just devices to understand a reality; such must not be taken literally
● Metaphors are not mutually exclusive
Professional Development of Accountants
(Source:https://www.ifac.org/system/files/publications/files/Handbook-of-International-
EducationStandards-2019.pdf)

In which areas
When accountants are developed What are the levels of professional
accountants developed
professionally? development for accountants?
professionally?

Technical Competence
Application of professional
knowledge to a certain
level of performance
Example: International
Financial Reporting
Foundational Application of the
Standards, International
competence in environments with
Standards on Auditing,
LOW levels of ambiguity,
Tax Laws
complexity, and uncertainty.
Initial Professional Development
Professional Skills
Pertains to the aspiring professional Moderate Application of the
“Intellectual, interpersonal
accountant’s initial formation leading to competence in environments with
and communication,
performing the roles of a professional MODERATE levels of ambiguity,
personal, and
accountant; usually ends in the APA’s complexity, and uncertainty.
organizational skills”
membership to an IFAC member body
(e.g., after passing the After IPD, APAs are required to
Example: critical thinking,
certification/licensure exams) have a moderate level of
communication, time
professional competence for all
management, leadership
Continuing Professional Development domains except for one (Technical
Learning and development which aim Professional Values, Competence -
to maintain and upgrade the skills of Ethics, and Attitude Economics[Foundational]).
the professional accountants Defining characteristics of
Advanced Application of the
PAs as members of a
competence in environments with
profession which includes
HIGH levels of ambiguity,
principles of good conduct
complexity, and uncertainty.
leading to professional
behavior
Example: ethics,
professional skepticism,
professional judgment,
commitment to public trust

Module 1: Introduction to Professional Values, Ethics and Attitude

Lesson 3: Kohlberg’s Cognitive Moral Development Paradigm
In this lesson, we have explained moral reasoning in line with Kohlberg’s CMD and criticized it using
Gilligan’s Ethics of Care.

It explains how individuals resolve ethical dilemmas in a progressive and

developmental manner.
What is the CMD
As a developmental paradigm, Kohlberg suggests that higher levels are more
paradigm about?
advanced than the lower levels.
The paradigm is anchored on justice and fairness.

Stage 1: Avoid Punishment.

“I will do this to avoid punishment and
harm inflicted by an external agent.”
Level 1: Preconventional Decision-making is
focused on the SELF.
Stage 2: Satisfy Needs.
“I will do this to receive something
desirable.”

What are the stages Stage 3: Good Behavior Conformance

and the levels? “I will do this because this is what a
“good” boy or girl does”
Level 2: Conventional Decision-making is
focused on the OTHERS.
Stage 4: Law and Order
“I will do this because this is what the
law and/or regulation tells me to do”

Level 3: Post-conventional Decision-making Stage 5: Social Contract

is focused on the ABSTRACT NOTIONS “I will do this because this is in

line with the SPIRIT of the law, rather than its form.”

Stage 6: Universal Ethical Principles

(PRINCIPLES).
“I will do this because this is in line with my principles*.”
These principles may be rule deontology, rule utilitarianism,
or virtue ethics.

What are the major Gilligan argues that the paradigm fails to capture the “feminine voice” due to the
criticisms of design of Kohlberg (i.e., interviewing male participants only). Furthermore,
Kohlberg’s CMD? Kohlberg’s CMD denotes the primacy of fairness and justice over other principles.

In her seminal work, In a Different Voice, Gilligan argues that the female (feminist)
ethics is anchored on a care and response orientation. It means that the female
What is the major (feminist) ethics would focus on:
argument of
(1) withholding judgment until more facts are known, and
Gilligan?
(2) choosing the course of action in which no one is harmed or at least harm is
minimized.

What are the As regards #1 and #2 above, Kohlberg denoted that such action encourages
criticisms of ethical relativism and trying to please everyone (i.e., decision no one is harmed).
Gilligan’s Ethics of Recent literature also denotes that gender differences are not a significant
Care? determinant of ethical decision.

Module 3: Introduction of the Code of Ethics for Professional Accountants

Lesson 1: Introduction to Professional Codes
In this lesson, we have discussed the basic principles regarding a professional code of ethics.
Professional versus Corporate Codes of Ethics
● A professional code of ethics is a document that embodies the norms, principles, and rules governing
the members of a PROFESSION. As discussed in Module 1, adherence to a common professional code
is one of the hallmarks of a profession.
● A corporate code of ethics is a document that embodies the norms, principles, and rules governing the
members of an ORGANIZATION.
Principles versus Rules-based Codes of Ethics

Principles-based: frameworks are presented to Rules-based: exact and precise prescriptions are to
be applied by the professional. be followed by the professional.

Advantages: Advantages:
Integrity-driven, Professional-driven, flexible, Easier to apply due to its precision Little room for
dynamic misunderstanding

Disadvantages:
Disadvantages:
May be more subjective and complicated to apply
Compliance-driven, mechanistic, prescriptive.
More difficult to defend in courts (legally)

The Code of Ethics for Professional Accountants is PRIMARILY (MORE) principles-based. However, it is
incorrect to say that there are no rules-based components in the Code (e.g., mandatory prohibitions
regardless of materiality levels).

Main Features of the IFAC’s Code of Ethics (2016 Edition)

● More principles than rules-based
● Three parts: A for all PAs, B for PAs in Public Practice, C for PAs in Business
● Primarily anchored on a conceptual framework
Module 3: Introduction of the Code of Ethics for Professional Accountants
Lesson 2: Part A of the IFAC’s Code of Ethics for PAs
In this lesson, we have discussed the contents of the Part A of the Code.
Source and Direct Quotations from: https://www.ethicsboard.org/publications/2016-handbookcode-ethics-
professional-accountants
Conceptual Ethical Framework
● Identify threats to compliance with the fundamental principles
● Evaluate the significance of the threats ○ Apply 3rd party test in evaluating the significance (i.e., would
a reasonable and informed 3rd party consider the threat significant)
● Apply safeguards to either (a) eliminate, or (b) reduce the threat to an acceptably low level.
○ If no safeguard is available, withdraw and/or disassociate ○ Consider reporting requirements, if any
Fundamental Principles

Principle Meaning Example

“To maintain professional knowledge and skill

at the level required to ensure competent Continuing Professional
Professional professional services based on current Development is required for all PAs
Competence and developments in practice, legislation and to ensure that they remain competent
Due Care techniques” despite the changes in the
“To act diligently in accordance with applicable profession.
technical and professional standards”

PAs must discuss the details of their

“To be straightforward and honest in all professional relationship with a client
Integrity
professional and business relationships in the engagement letter (EL),
including

fees, if any. The EL should be clear

and must not be subject to
misinterpretations.

“To refrain from disclosing confidential

information acquired as a result of professional
and business relationships without proper and
specific authority to disclose unless there is a In the event of an imminent yet
Confidentiality legal or professional right or duty to disclose” confidential merger, the PA should not
disclose this to his/her family members
“To refrain from using confidential information (i.e., prevention of insider trading).
acquired as a result of professional and
business relationships for personal advantage
or the advantage of third parties”

“Obligation to comply with relevant laws and PAs should follow the rules governing
Professional
regulations and avoid any action that discredits conducting business amidst the
Behavior
the profession” COVID19 pandemic.

“To not allow bias, conflict of interest or undue Auditors should not have any shares of
Objectivity influence of others to override professional or the auditee to maintain their
business judgments” professional (original) interest.

Threats

Threat Meaning Example

Em, the auditor of A Company, holds 1,000

Self- Financial or other interest threat, may shares of A Company.
interest inappropriately influence
Threat judgment/behavior Em’s investment may provide a conflict with his
professional appointment as the auditor.
 Em, the auditor of A Company, accounted for a
merger of one of A’s subsidiaries. Em is also the
Self- Inappropriate evaluation of previous auditor of the group’s FS.
review judgment made on which accountant will Em might be too confident in reviewing the
Threat rely when forming (new) judgment working papers related to the merger. Also, PFRS
categorically states that it is management’s
responsibility to

prepare and present the FS, including accounting for

transactions.

Promotion of position Em, the auditor of A Company, is the general counsel

of A Company.
Advocacy client’s/employer’s
Threat In this case, Em might promote the interest of A
That compromises the accountant’s Company beyond what’s required of an auditor-
judgment auditee relationship.

Long and close association with Em, the auditor of A Company, has been auditing the
Familiarity client company for the last 10 years.
Threat Accountant becomes too Em’s judgment might be compromised due to the
sympathetic or too accepting relationship built with the client during the last decade.

Em, the auditor of A Company, was informed by

Management that s/he will be replaced if s/he will not
Accountant is deterred from acting agree with the goodwill impairment testing performed
Intimidation
objectively due to actual and by the client.
Threat
perceived pressures
The threat of replacement might deter Em in acting
objectively.

Safeguards

Created by the profession, legislation, regulation Safeguard in the work environment

These are general checks and balances put in place

to ensure that accountants will adhere to the
fundamental principles and mitigate threats.
● Education, Training, and Experience These are specific checks and balances put in
place to ensure that accountants will adhere to the
● Continuing Professional Development fundamental principles and mitigate threats.
● Professional standards ● Will be discussed in Parts A and B of the Code
● Corporate governance regulations
● External reviews