Codes of Ethics


Typically, accountancy institutes have a code of ethics, to help guide the behaviour of their members. In recent years, the International Federation of Accountants (IFAC) has created an international code of ethics.
Students need to understand the arguments for and against having such codes, and be able to describe the fundamental principles typically included. Do we need a Code of Ethics?


  • It provides guidance to accountants on what is, and is not, acceptable behaviour
  • The principles may help to solve difficult ethical situations (ethical dilemmas)
  • The existence of a Code sends a message to the outside world that accountants believe ethical behaviour to be important
  • For trainee accountants who do not understand acceptable professional behaviour, the Code represents a useful educational and training aid.


  • If someone wants to be unethical, it is unlikely that the existence of a Code of Ethics will change their behaviour – unless they genuinely did not understand that their behaviour was unethical until they saw the Code
  • Producing the Code, and keeping it up to date, is costly
  • In different parts of the world, different behaviour may be considered ethical or unethical. Ethics – principles or rules?

It is usually the case that ethical codes / guidance for accountants are based on principles, with only a limited number of rules. There are several reasons for this:

  • It is hard to define rules that would be acceptable to all accountants, and appropriate to all situations
  • Accountants are professionals and should have the ability to make their own behavioural decisions in most cases – they should use professional judgement
  • Where there are rules, there will be some who look for loopholes so that the rules can be avoided or ignored. It is much harder to ignore principles

Of course, an opposing argument is that it is easy to see when someone breaks a law, but very difficult to prove that someone has breached a principle – as the latter are less defined.

The Fundamental Principles
For many years, a number of fundamental ethical principles have existed in accountancy:

Objectivity is a state of mind where the only matters considered when making a decision, or forming an opinion, are those matters relevant to the situation. Personal issues, conflicts, or the influence of others must be ignored, so that the final opinion given is fair, impartial, and justified.
For example, when deciding how to account for a business transaction, the only matters of relevance should be the facts of the situation and the relevant accounting standards. The effect on company profits is irrelevant to deciding on the correct accounting treatment.

Someone with integrity inspires trust because they stick to their principles in all situations. What those principles are will depend on their personal ethical beliefs.
In a professional sense, someone with integrity would be expected to uphold the values of the profession, abide by relevant laws and guidance (but seek to change those laws and guidance where they are not consistent with the principles they believe in), not look the other way when unethical practices are going on etc.

Due Care and Competence
Professionals should always carry out their work with professional care, and should only accept work that they believe they have the skills and experience to undertake properly.

Professional Behaviour
Accountants should not do anything that could do damage to the reputation of the accountancy profession.

Accountants will gain knowledge of client information that is private. Such information should not be disclosed to anyone else, unless:

  • The law demands it (e.g. suspicion of money laundering, terrorism).
  • The client allows it.
  • It is in “the public interest”.

The problem with the above is trying to define “the public interest”, a subject that we will investigate further both in this article

Ethical Dilemmas

Ethical dilemmas are situations where there may not be one clear course of action that is “ethical”, or “morally right”. Sometimes such situations can be very difficult to solve.

In some cases, such situations may be avoidable – thus solving the problem! For example, conflicts of interest may be avoidable by taking adequate precautions in advance.

But for some ethical dilemmas, avoidance is impossible. For such situations, there are ethical decision-making frameworks designed to help professionals make a decision in a clear and logical way. Two such frameworks are explained below – the American Accounting Association 7-step model, and Tucker’s 5 Questions.

But first, we will look at conflicts of interest.

Conflicts of interest
As professionals, accountants owe a duty of care to clients – to provide them with all relevant information, and to give the best possible advice.
However, this would be difficult (or maybe impossible) if good advice for client X would be detrimental to the interests of client Y. In such situations, the accountant would be forced to give preferential treatment to one client over another – or resign from both (the more likely solution).

Accountants need to monitor their client relationships to try to spot potential conflicts of interest before they actually arise. This may involve declining to act for some companies, or ensuring that different teams of staff are used to avoid the risk of client knowledge being transferred from one client to the other. The 7-step AAA Framework for making ethical decisions
In 1990, a report was submitted to the American Accounting Association. It outlined a 7 step process for trying to make ethical decisions. It does not make the decision for you, but tries to ensure that the final decision made takes account of all facts, consequences, and values that are relevant.

The steps are:

  • Establish all the facts of the situation
  • What ethical issues are involved
  • What are the principles, social norms, values that are relevant to the situation. This is likely to include any expectations from your profession
  • What alternative actions are available (all of them, whether or not they might be ethical)
  • Overlay step 3 on step 4 – apply the principles, norms etc. to each course of action
  • Consider the consequences from each possible action
  • Decide!

Whilst the steps may appear fairly obvious, they provide a useful and logical thought process. If questioned afterwards as to “why did you choose that course of action?” there will be a clear explanation showing why you did what you did.

Tucker’s 5 Questions model for making ethical decisions
Tucker’s model is more useful for looking at a particular course of action, rather than deciding between many options.

For any possible action, Tucker requires us to consider 5 questions – although not all of them may be relevant to every situation:

  • Would it be profitable. This is a difficult question, because it does not address profitable to who, and it does not consider profitability of other options (which may be better)
  • Is it legal.
  • Is it fair. Another difficult question. Fair to the person making the decision? Fair to all stakeholders?
  • Is it right. A third difficult question. What is “right” will differ between people, depending on their ethical views.
  • Is it sustainable / environmentally sound.

Again, the model seems to ensure that all issues are considered in deciding if a course of action is “ethical” – but it is far from simple to answer all of the questions! Kohlberg – levels of moral development
The frameworks above give a method for making decisions. However, they do not tell you the correct decision – the decision taken will depend on the individual concerned.

Kohlberg developed 3 levels of moral development – but each level splits into 2, giving a total of 6 levels in total:


Obey or be punished
At the most basic level, people make decisions based on punishment and reward. No particular ethical beliefs have been developed. If action A leads to punishment, then the person ceases to do action A. If action B generates a reward, then action B will be done.

To a certain extent, this level seems to reflect the behaviour of household pets, or small children.

If we believe that people behave in such a way, we can control their behaviour using punishment (via the law) and reward.

Thus, giving tax incentives to companies might improve their environmental record, or encourage them to adopt better corporate governance. Alternatively, legal penalties for excessive pollution, or breaching corporate governance best practice, would seem to be effective.

At a slightly higher level, people learn to do things for the promise of future benefits. Thus, if a colleague arrives late at work and asks you to cover for them, you may choose to do it in the hope / expectation that they will return the favour in the future.


Follow your peers
People start to develop behaviour patterns that are based on their family, friends, work colleagues etc. Therefore, if your family members all refuse to wear seatbelts in cars, you may follow and also refuse to wear a seatbelt, because it is the “norm” in your household.
If your work colleagues all overclaim expenses, you do too – it is the accepted way of behaving in your social group.

Follow society
Gradually, this expands into “norms” for society as a whole. If society accepts that parking illegally is ok, as long as you only do it for a few minutes (e.g. as you collect your takeaway meal, or buy a newspaper), then people park illegally and stop seeing it as a problem. It is almost as if there is an exemption in the laws that says you can break the law for a few minutes if you wish, but not for too long!


Individual Rights
People eventually start to challenge social norms. It begins at a personal level, refusing to behave as others do because your principles / morals say it is wrong that society has become like this. So you rigidly stick to speed limits because you believe speeding is wrong.

Universal Principles
But at the highest level, this is not enough. Not only will you reject social norms by behaving in the way you believe to be right, you will campaign to change the views of others so that your norms become society’s norms.
You may start a protest group, or a religion, aiming to create a new set of moral standards for people’s behaviour.
To be so sure of your principles that you are prepared to try to pass them to others, not just stick to them yourself, could be seen as true integrity.
Kohlberg’s research has been criticized as over-simplistic, partly because he centred his work on the behaviour of white American males and therefore excluded a large number of others. However, the levels of moral development he highlighted help to explain how over the course of a person’s life, they gradually adopt the behaviour and social values of those around them, before questioning those values as they get older.


Other factors affecting decision-making

Moral framing
If ethics are not discussed, it is possible that they will be totally ignored when making decisions.
If the “norm” of the workplace is to behave in a certain way, those who work there may explain this as “this is just the way it is” – nobody questions it, or potentially even thinks to question it.

It may need a new employee (probably at a senior level) to arrive at the company and say something … and once it is said, it is likely that others will be forced to address the ethics of their behaviour.
Unethical behaviour is far less likely if ethics are constantly discussed when making decisions. Ignoring the rights and wrongs of behaviour is easier if the issues are simply not discussed.

Moral intensity
The extent to which ethics / fairness is likely to be in someone’s mind when making a decision is also likely to depend on:
o How many people would be affected by your action
o Are these people that you know or care about
o The speed of the consequences
o The impact and likelihood of the consequences
o How society would view your action (and would society find out you had done it!)

Ethics has different meanings to different people.
To some, there is a fixed set of rights and wrongs that can never change. An action is either ethical or unethical, whatever the circumstances.
Others believe that there is a fixed set of rights and wrongs at any given time – but that over time this can change. Behaviour that was “right” 500 years ago may now be considered unethical.
Similarly, some believe that different ethical rules will need to exist in different countries and cultures, because people are different around the world and there cannot be one set of rights and wrongs that apply to everyone.
Others believe that right and wrong depends entirely on the circumstances, and that there are no rules as such.

Relativism v Absolutism

A relativist believes that different sets of ethical rules are likely to exist, depending on the conditions. Thus, acceptable behaviour in the past has included slavery, child labour, and murder. In many societies today, such behaviour is considered wrong.
Thus, behaviour depends on culture, language, point in history etc.

An absolutist believes there to be one set of unchanging universal truths that always apply.
A similar distinction would be to compare pragmatic (relativism) and dogmatic (absolutism).


Deontology v Teleology (Consequentialism)


Similar to the above, a deontologist believes there are certain principles that are always true, whatever the consequences. Their views are likely to have formed because they believe that a society based on these principles would be “better” than a society that is not.
As such, a deontologist would want these principles to be accepted and followed by all (e.g. by having a legal system based around them).
The word deontology is based on deon, or duty. Thus, a deontologist will feel a moral duty (maybe based on membership of a religion) to follow these principles.


A teleologist (or consequentialist) believes that ethics is driven by outcomes, not actions. Therefore, if an action achieves a “good” or desirable outcome, the action is ethical.
The question that arises is…

An egoist believes that if the outcome is good for you, then the action causing the outcome is ethical. This may at first sound like a very selfish way of making decisions, but it depends on how we evaluate what is good for us.
If I rob a bank and do not get caught, I am wealthy – which would appear to be good for me. On the other hand, I have to live with the secret (which is not so much fun) and the constant risk of being found out. If the bank goes out of business, or people lose their jobs as a result of my theft, this may cause me personal guilt and sadness. Robbing a bank has many consequences for me – it is not just the extra money I will have.
An egoist may choose to follow the rules, donate money to charity, and always do what society expects of them – because it makes them feel good, which is a good outcome.

A utilitarian believes that if the outcome is good for society, then the action causing the outcome is ethical.
This seems to suggest that anything viewed to be in “the public interest” is ethical.
This may suggest that capital punishment – putting a mass murderer to death for his crimes – could be seen as ethical by a utilitarian, because society is saved from further murders, and because other potential mass murderers may stop because they fear the punishment.

However, another utilitarian may feel that if the State kills prisoners, it is effectively saying that murder is acceptable, and this may result in more murders in the future. Also, wrong convictions could never be overturned, which may result in some people being killed for crimes they did not commit.

The most difficult concept here is the public interest. If I am making a decision, I need to try to understand:

  • Who would be affected by it
  • How they would be affected

This in itself is far from easy, but then I need to try to value the positive and negative effects that my actions would have and try to calculate whether my action has a net positive or negative impact on society.
Whilst egoism seems a rather selfish way of behaving, it is far easier to make decisions based purely on the outcome to your own life!

Ethics and CSR

Of course, corporate social responsibility can be viewed within the context of ethics – maybe it is ethically correct for businesses to consider other stakeholders such as society and the environment, not just to focus on shareholders.
Some particular ethical issues within CSR include:

Sustainability may be described as meeting the needs of today, without compromising the needs of the future. In other words, something is not sustainable if it cannot carry on in its present form.

  • If the fish population replenishes at 1 million fish per hour, but on average 2 million fish per hour are caught, this is not sustainable – eventually there will be no fish
  • If oil is extracted from the ground at such a rate that it does not give enough time to find new oil supplies, or an alternative to oil, then this is not sustainable
  • If staff are forced to work through the night day after day, they will eventually grow too tired and become sick and unable to work. Such practices will make recruiting new staff very difficult – so the company’s activities are unsustainable
  • If a company is spending money faster than it is making it, then eventually reserves will run out – it is unsustainable

Future generations are affected by the business decisions made today, but they have no voice to ensure their concerns are heard. As such, it may be necessary to force businesses (e.g. through law) to consider these stakeholders or they will be ignored.

Environmental Footprint
Your footprint is the imprint you leave after walking somewhere. Likewise, a company’s environmental footprint is the effect on the environment caused by the operations of a company.
In most cases this footprint is going to be something that society would probably wish to be reduced, as environmental effects are likely to be negative rather than positive. The use of natural resources, creation of waste and pollution are common to many businesses.
However, some businesses may have a positive effect on the environment (e.g. a manufacturer of solar panels).
Some companies have sought to offset their footprint by doing positive things in return. For example, some organizations sponsor the planting of new trees to “offset” the negative environmental effects they create.