Ethics Resources for Accounting Professionals

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Ethics Resources for Accounting Professionals
Management Accountants

Is it true that "The boss is always right"? Should I follow the management's instruction even if it appears to be biased?

In order to project splendid financial performance and healthy financial position, senior management may exert pressure on management accountants to use aggressive or even unrealistic assumptions when making forecasts. Sometimes, management accountants may be asked to render analyses to support the personal ambition of some senior management staff.

Different project teams have approached me over their budget plans. Which one should I entertain?

Management accountants are at times requested to prepare budgets and set targets for projects and units based on information drawn from the past, present and predictive insights about the future. Project teams and operational units may strongly disagree with the budgets and targets and consider them unrealistic. In order to make the targets more readily achievable, they may approach management accountants at the budget planning stage and try to influence them.

Pressure from the management and colleagues

Management accountants are responsible for analysing information to advise business strategy and drive sustainable business success. Such information may relate to macroeconomic indicators (e.g. inflation, interest rates and exchange rates), government policies and socio-political factors. As management accounting sometimes may involve subjective judgment made according to management's instructions, it may be subject to the undue influence of individual staff member, or be harnessed for personal advantage because of interpersonal rivalry in the organisation.

As professionals, management accountants are trusted to be ethical, accountable and mindful of the organisation's values, governance requirements and social responsibilities. They should be vigilant to all actual or potential conflicts of interest and not to put personal advantage or short-term considerations before the longer-term interests of the organisation and its stakeholders. In addition, they should always behave and be seen to behave with integrity and objectivity.

When preparing the budgets, they should ensure that the budgeting processes are transparent and consultative so that the parties concerned could have a better understanding of the budgets and in turn set targets in line with the key strategic priorities of the organisation. Moreover, they should engage individual project teams and operational units with the planning of activities and the setting of targets at an early stage to engender accountability.

Management accountants should always take heed of the requirements of the POBO, as well as the COE. Upon facing pressure from the management or colleagues, they should:

decline any advantage which is offered with an intention to influence the bases of assumptions and forecasts;
stand firm on their professional judgment or ethical practice in any circumstances; and
use their professional knowledge and experience to constructively challenge any queries or decisions which may undermine the organisation's values.

Management accountants often encounter different risks while navigating their organisations forward, placing them in ethical dilemmas. A practical tool, a "GPS Ethics Compass", is introduced in the "Topic of Interest" section below to help accountants arrive at a sound decision when encountering ethical dilemmas.

I recommend my relatives and close friends to buy shares of my company. Is it fine?

Management accountants of listed companies may have access to the company's confidential information (e.g. merger and acquisition plans) which is likely to influence the share price of the company. They may face the temptation to disclose such highly sensitive information to friends and relatives prior to the public announcement.

Management accountants should be aware of the threats as well as understand the legal requirements under the Prevention of Bribery Ordinance (POBO) (Cap. 201) and other relevant legislations. The above situations create various threats to the fundamental principles of ethics for professional accountants.

Fundamental principles of ethics for professional accountants

According to the Code of Ethics for Professional Accountants (COE) issued by the HKICPA, there are five fundamental principles of ethics for professional accountants (the fundamental principles):

Integrity – to be straightforward and honest in all professional and business relationships.
Objectivity – to exercise professional or business judgment without being compromised by:
- Bias;
- Conflict of interest; or
- Undue influence of, or undue reliance on, individuals, organizations, technology or other factors.
Professional Competence and Due Care – to:
- Attain and maintain professional knowledge and skill at the level required to ensure that a client or employing organization receives competent professional service, based on current technical and professional standards and relevant legislation; and
- Act diligently and in accordance with applicable technical and professional standards.
Confidentiality – to respect the confidentiality of information acquired as a result of professional and business relationships.
Professional Behaviour – to:
- Comply with relevant laws and regulations;
- Behave in a manner consistent with the profession's responsibility to act in the public interest in all professional activities and business relationships; and
- Avoid any conduct that the professional accountant knows or should know might discredit the profession.

Unlawful Acts or Defaults by or on Behalf of a Member's Employer

It is not practicable to set out all the offences which members may encounter in the course of their work but the principal statutory and common law offences concerned are:

theft, obtaining by deception, false accounting, and suppression of documents;
fraud, forgery and offences in relation to companies;
corruption offences;
bankruptcy or insolvency offences, frauds on creditors or customers, false trade descriptions, and offences arising out of relations between employers and employees;
conspiracy, soliciting or inciting to commit crime and attempting to commit crime;
offences in relation to taxation; and
insider dealing.

(Paragraph 500.1, section 500, Chapter C of the COE)

If a member acquires knowledge indicating that his employer or someone acting on behalf of his employer may have been guilty of some default or unlawful act, he should normally raise the matter with management internally at an appropriate level. If his concerns are not satisfactorily resolved, he should report the matter to non-executive directors and those charged with governance where these exist. Where this is not possible or fails to resolve the matter, a member may wish to consider making a report to a third party. Members in business should refer to section 260 under Chapter A of the COE, which sets out the response framework when members encounter non-compliance with laws and regulations during the course of their work. Local guidance is provided in section 500 of Chapter C of the COE on reporting suspected defaults or unlawful acts to third parties outside the organisation for which the member works.

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