## Defining Ethics and the Code of Ethics
Blackboard Notes
Ethics: Derived from Greek ethos (character/custom). The study of right vs. wrong and moral
obligations.
Morality vs. Ethics:
- Morality: Personal/social customs (often relative to culture).
- Ethics: Explicit rules/principles (universal standards).
Code of Ethics: A formal set of principles and expectations binding on members of a specific
professional group.
AICPA Principles (Examples): Integrity, Objectivity, Independence, and Due Care.
Teacher’s Script (Word-by-Word)
On Ethics: "Class, let’s start with the word 'Ethics.' It comes from the Greek word ethos, which
means character. It isn't just about being a 'good person'; it is a discipline that studies our
duties and obligations to others. In accounting, it is the 'moral compass' that tells us what to
do when things get complicated."
On Morality vs. Ethics: "People often use these words the same way, but there is a slight
difference. Morality is about your personal culture or religion. Ethics is higher than that—it is a
universal set of rules that applies to all accountants, regardless of where they are from or
what they believe personally."
On Code of Ethics: "Think of a Code of Ethics as a professional contract. When you become
an accountant, you agree to follow these specific 'codes of conduct.' It isn't a suggestion; it is
binding. If you break it, you can lose your license to practice."
Importance of Ethics in Accounting
Blackboard Notes
- Public Trust: Ensures accuracy for investors and creditors.
- Legal Compliance: Helps avoid hefty fines and legal penalties.
- Sound Decision-Making: Provides a foundation to resist pressure to 'cook the books.'
- Protection: Guards the reputation of the individual and the firm.
- Culture of Integrity: Sets a positive example for colleagues.
Teacher’s Script (Word-by-Word)
On Public Trust: "Why is ethics so important in our field? Because the entire financial world
runs on Trust. If investors don't believe the numbers an accountant prepares, they won't
invest, and the economy collapses. We are the 'gatekeepers' of truth."
On Legal Compliance: "Accounting is heavily regulated. By following ethical principles, you
naturally stay within the law. This protects you from going to jail or paying millions in fines for
'shady' practices."
On Sound Decision-Making: "In your career, a boss might pressure you to hide a loss or
inflate a profit. A strong ethical foundation gives you the courage to say 'No.' It helps you
choose the right path even when the wrong path is easier or more profitable in the short term."
Part 3: Basic Principles of the Ethiopian Code
Blackboard Notes
- Integrity: Being straightforward, honest, and truthful.
- Objectivity: Avoiding bias, prejudice, or conflicts of interest.
- Independence: Being free from relationships that impair judgment (Fact & Appearance).
- Professional Competence & Due Care: Maintaining up-to-date knowledge and skills.
- Confidentiality: Protecting client information (unless legally required to disclose).
- Professional Behavior: Acting in a way that protects the profession’s reputation.
- Technical Standards: Following IFAC (Auditing) and IASB (IFRS) standards.
Teacher’s Script (Word-by-Word)
On Integrity: "Integrity is the most basic requirement. It means you are honest and candid.
You don't hide the truth for personal gain. If the public trust and your personal gain are in a
fight, integrity means the public trust wins every time."
On Objectivity: "Objectivity is a state of mind. You must be fair. You cannot let your personal
feelings or the influence of a powerful client change the facts. You must be intellectually
honest."
On Independence: "This is huge for auditors. You must be Independent not just 'in fact' (your
thoughts) but also 'in appearance.' If you are auditing your brother's company, even if you are
being honest, it looks bad to the public. You must avoid both."
On Competence: "The world of tax and accounting changes every day. You have a
'continuing duty' to keep learning. You can't give advice based on laws from ten years ago;
that is a violation of Professional Competence."
On Confidentiality: "Clients tell us their deepest secrets—their profits, their debts, their plans.
You must keep that information secret. The only exception is if there is a legal or professional
duty to speak up, such as reporting a crime."
Ethical Theories and Dilemmas
Blackboard Notes
Ethical Theories:
1. Deontology (Duty-Based): Focus on doing your duty regardless of the result.
2. Utilitarianism (Consequence-Based): Doing what creates the greatest good for the most
people.
3. Virtue Ethics: Focus on developing a good character (honesty/fairness).
4. Justice Theory: Focus on fairness and equal treatment for all.
Common Dilemmas:
- Creative Accounting: Pushing rules to make financials look better.
- Whistle-Blowing: Reporting wrongdoing vs. keeping your job.
Teacher’s Script (Word-by-Word)
On Deontology: "This theory says: 'Do your duty.' Period. If the code says be honest, you are
honest, even if it means the company loses money. You follow the rules because they are the
rules."
On Utilitarianism: "This is about the 'Greatest Good.' An accountant might think: 'If I report this
small error now, it might hurt the company a little, but it prevents a massive crash later that
would hurt thousands of people.' You look at the final result."
On Ethical Dilemmas: "An Ethical Dilemma is when you have two 'right' things that clash. For
example, you want to be loyal to your boss, but you also want to be honest with the public. If
your boss is stealing, your loyalty and your honesty are in a fight. That is a dilemma."
On Whistle-Blowing: "If you find fraud, you have a duty to report it. But we call it a dilemma
because 'Whistle-Blowing' is scary. You might lose your job or be treated badly by coworkers.
The Code of Ethics is there to give you the framework to make the hard, correct choice
anyway."
Part 5: Specific Ethical Threats
Blackboard Notes
4. Accepting Gifts or Favors: Can create an Obligation to overlook errors. Threatens
Objectivity. Rule: Follow professional guidelines on "acceptable" vs "excessive" hospitality.
5. Dealing with Unethical Colleagues: Pressure to manipulate data or "look the other way."
Action: Address the issue while protecting yourself from retaliation. Resource: Report to a
supervisor or professional ethics body.
Teacher’s Script (Word-by-Word)
On Gifts: "Class, what’s wrong with a client giving you a free vacation or an expensive watch?
It seems nice, right? But in accounting, this is a trap. It creates a Conflict of Interest. If that
client later asks you to hide a mistake in their taxes, you might feel like you 'owe' them. This is
why professional codes have strict limits on what we can accept. If it's more than a simple cup
of coffee or a branded pen, it's likely a threat to your objectivity."
On Unethical Colleagues: "Sometimes the pressure doesn't come from the client, but from the
person sitting at the desk next to you. A colleague might say, 'Just ignore this one error, it
makes our department look bad.' You must resist this. It’s hard because you don't want to be
a 'snitch,' but your first duty is to the Code of Ethics. You may need to report this to a manager
to protect your own career and the firm's reputation."
Part 6: Resolving Ethical Dilemmas (The 6-Step Approach)
Blackboard Notes
- Obtain relevant facts: Clear the air of misinformation.
- Identify ethical issues: What principles (Honesty vs. Loyalty) are clashing?
- Determine affected parties: Who are the stakeholders? (Investors, employees, public).
- Identify alternatives: Brainstorm every possible path.
- Identify consequences: What happens to each stakeholder for each path?
- Decide the action: Choose the path that minimizes harm and aligns with the Code.
Teacher’s Script (Word-by-Word)
Intro to Frameworks: "When you face a tough choice—an Ethical Dilemma—your emotions
might get in the way. That’s why we use a formal '6-Step Approach.' It’s like a recipe for
making the right decision."
On Steps 1 & 2: "First, get the facts. Don't act on rumors. Once you know exactly what is
happening, ask yourself: 'Which ethical rule is being broken?' Usually, it’s a conflict between
two values, like being loyal to your boss versus being honest with the bank."
On Steps 3 & 4: "Step 3 is about empathy. Who gets hurt if I lie? Who gets hurt if I tell the
truth? Think about the investors who might lose their savings. Then, in Step 4, don't just think
there are only two choices. Sometimes there is a 'middle way' that solves the problem
ethically."
On Steps 5 & 6: "Finally, look at the consequences of your choices. In the end, Step 6 is your
moment of truth. You choose the action that keeps your integrity safe. It might be the hardest
path, but it’s the only one that keeps you a professional accountant."
Part 7: Illustrative Case – The Pressured Intern
Blackboard Notes
Scenario: Mahlet (Intern) is pressured by Ato Elias (Accountant) to inflate inventory because
the CEO (Ato Jemal) wants the company to look more profitable.
The Decision: Mahlet discusses concerns with Elias directly.
The Goal: Emphasize transparency and honesty over the pressure to meet targets.
Teacher’s Script (Word-by-Word)
Setting the Scene: "Let’s look at a real-world example. Mahlet is an intern—just like some of
you might be soon. Her boss, Ato Elias, tells her to 'adjust' the inventory numbers. Why?
Because the CEO is angry that sales are low. They want to lie to investors to look profitable."
The Analysis: "If Mahlet helps, she loses her integrity on day one of her career. If she refuses,
she might upset her boss. Using our 6 steps, she realizes that Investors are the ones who will
truly be hurt by this lie. They will put money into a failing company because of her fake report."
The Resolution: "What did Mahlet do? She chose to speak up. She didn't just run to the police
immediately; she went to Ato Elias and explained why this was wrong and suggested finding a
legal way to improve the company. She showed Ethical Awareness. She protected the
company's reputation and her own future.