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Governance, risk and ethics
Governance, risk and ethics
Section A: Governance and responsibility
Section B: Internal control and review
Section C: Identifying and assessing risk
Section D: Controlling risk
Section E: Professional values and ethics
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Section E: Professional values and ethics
Designed to give you knowledge and application of:
E1. Ethical theories
E2. Different approaches to ethics and social responsibility
E3. Professions and the public interest
E4. Professional practice and codes of ethics
E5. Conflicts of interest and the consequences of unethical behaviour
E6. Ethical characteristics of professionalism
E7. Social and environmental issues in the conduct of business and of ethical
behaviour
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Study Guide E1: Ethical theories
Learning Outcome
 Explain and distinguish between the ethical theories of relativism and
absolutism.[2]
 Explain, in an accounting and governance context, Kohlberg's stages of
human moral development. [3]
 Describe and distinguish between deontological and teleological /
consequentialist approaches to ethics. [2]
 Apply commonly used ethical decision-making models in accounting and
professional contexts. [2]
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Explain & distinguish between ethical theories of relativism &
absolutism.
Right
Wrong
According to Crane
& Matten, ethics may
be seen in terms of
morally right
as opposed to
economically right
or wrong
Business ethics focus on rights & wrongs in relation to
business activities, situations & decisions
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Ethical theories of relativism & absolutism
Absolutism
eternally & universally applicable moral principles & as a
result, right & wrong are objective qualities that can be
rationally determined
Therefore a moral principle could be
‘bribes are unacceptable in all forms’
Features
 View: there are eternally & universally applicable moral principles
 right & wrong are objective qualities that can be rationally determined
 absolute truth exists and is undisputed
 consists of clear & definite rules
 does not consider any changes in culture & beliefs within society
 theory interpreted by human beings
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Relativism
Morality is context-dependent & subjective. Under ethical
relativism, it is possible that different solutions provided
in two different cultures could be equally right
Features
 View: morality is context-dependent & subjective
 Different solutions provided in different cultures could be equally right
 There can be no objective knowledge of moral principles
 There is no universal truth & all situations can be dealt with differently
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Absolutism
Pluralism
Relativism
combines
the insights
Of
Decision-maker needs to understand different frameworks in order to
establish a consensus that can guide a decision.
Refer to Test Yourself 1 and 2 on page 421
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Kohlberg's stages of human moral development
Level 1
Preconventional
morality
Level 2
Conventional
morality
Level 3
Postconventional
morality
1. Obedience & punishment orientation
 Focused on rules / consequences as punishment for doing wrong
 Not seeing themselves a part of society that sets rules/ punishment
2. Individualism & exchange
 There could be different viewpoints & rules are not just handed down
 Recognising the ideas of self-interest
 Not seeing themselves as members of a society that creates rules
3. Good interpersonal relationships
 Good behaviour has the right motive
 Right motive is required to be a good citizen
4. Maintaining the social order
 Understand the real purpose of law
 Obey the laws as disobedience would lead to chaos & anarchy
5. Social contract & individual rights
 To protect the fundamental human rights & uphold the law
 To perceive the laws as part of a social contract
6. Universal principles
 Laws are universal principles that can always be applied
 Based on fundamental premise of justice & equal respect for all
human beings
Refer to pages 421 to 426
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Criticism of
Kohlberg's
stages
Based on thinking & logic, not on feelings
for others
Based on age and wisdom, rather than
real life experience
Focus is on the individual, not on what
makes a moral community
Involves western philosophy and culture
Moral thinking is based on rules, rights &
principles, which is how men view moral
thinking
Difference in the method of reasoning
(based on the stage of moral
development) would determine
acceptability of solution
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Kohlberg in the context of professional
ethics
Kohlberg in the context of Corporate
governance
Professional codes of ethics begin:
Moral hazards:

whole of society to bear the costs

with fundamental principles that are
beyond question
then are followed by a conceptual
framework of guidance
suffered by entrepreneurs
safer investments have lower returns
It is argued that accountants are at
stage 2 of Kohlberg as they effectively
exchange restrictions of an incomplete or
flexible ethical code for the benefits of
commercial opportunity.
It is argued that Corporate
governance is also to be seen as
within stage 2 of Kohlberg.
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Describe & distinguish between deontological & teleological /
consequentialist approaches to ethics
Non-consequentialist
(deontological) views
Base moral judgement on
principles of decision-maker’s
motivation
answer is right / wrong
because principles are
morally right / wrong
Kant’s deontological
view
Deontological
ethics are dutybased ethics
Refer to the table on page 430
Individuals have to
obey universal moral
laws irrespective of
consequences
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Kant’s 3 categorical imperatives
(basis of ethical judgement)
Universality of
proposition
Must always recognise
people’s rights as unique
autonomous beings
Moral proposition
Every autonomous
being is subjected to
universal laws
Proposition should be
same for all people &
circumstances
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Moral judgement is based on whether
the outcome is right / wrong
Actions by themselves do not
have any moral values
Actions cannot be right if the
consequences are not right
Consequentialist
(teleological views)
Utilitarianism
Egoism
Action is right if it gives
maximum satisfaction & to
maximum no. of people
Action is right if it gives
maximum satisfaction to
people
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Apply commonly used ethical decision-making models in accounting &
professional contexts
Ethical decision-making
models
Tucker’s 5-question
model
American Accounting
Association model
Model justifies profits,
 Assumes the teleological
provided they are earned in
an ethical way
5-questions to be answered
(i.e. whether the decision is
profitable, legal, fair, right,
environment-friendly &
ensures continuation of
business)
theory
 Based on a seven step
approach to decision
making
Refer to Test Yourself 6 on page 437
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RECAP
 Explain and distinguish between the ethical theories of relativism and
absolutism.[2]
 Explain, in an accounting and governance context, Kohlberg's stages of
human moral development. [3]
 Describe and distinguish between deontological and teleological /
consequentialist approaches to ethics. [2]
 Apply commonly used ethical decision-making models in accounting and
professional contexts. [2]
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