Chapter 1: Ethics & Its Significance in the Framework for studying business & professional

Business Discipline ethics for accountants

• Ethics: The discipline dealing with what is good 1. Framework

and bad and with moral duty and obligation • Overview of business (development,
• Business ethics: The moral principles that act important and roles) Objectives and
as guidelines for the way a business conducts processes must direct attention to the
itself and its transactions perspective
• Governance: About setting appropriate • Ethical issues – mandatory and voluntary
strategies, objectives & policies, to ensure • Ethical decision-making process and
appropriate achievement & reporting towards factors that influence decisions
stakeholders as a continuing support • To ensure public’s expectation are met,
• Moral: Individual’s own principles regarding regulation may be created body text
right and wrong
• Environmental ethics: Discipline in 2. Moral Reasoning
philosophy that studies the moral relationship • Associated with the norms, values and
of human beings to, and also the value and beliefs embedded in social processes that
moral status of, the environment and its non- define right/wrong for one individual or a
human contents community

3. Ethical Decision Making

Importance of Ethics • Ethics = character, spirit/ attitude of a
group of people/ culture
• To produce people who are morally upright and • Business ethics = form of professional
truthful that will conduct the business in ethics that examines ethical principles and
accordance with what the society regards as moral ethical principles that arise in
ethical and acceptable business environment
Principle Objectives

• Company need to stay focus on their business’s New governance accountability frameworks
objectives as well as maintaining their ethical
behavior towards the corporate management • Successful corporations are best served by
governance and accountability mechanisms
Better Public Image • Different & broader set of fiduciary
• The public concern is not on the company’s relationships than in the past
profit, but whether the company is doing their • Allegiances of directors and executives must
business according to the law or not reflect stakeholder interests
• To direct attention to these new perspectives,
and modern accountability framework
Benefits of ethical business behavior
• Attracts more customers that would lead to Reinforced fiduciary role for professional
increase in sales accountants
• Retain existing employees and attract new
recruit • The condition to meet the public’s expectations
• Attract potential investor for trustworthy reports on corporate
performance are the professional accountants
must:
o Focus their loyalty on the public interest
5 Steps to create an ethical organization culture
o Adopt principles such as independence of
• Top management leads ethics by example judgement, objectivity, and integrity
• Communicate clear expectations of
organization code of ethics • Primary fiduciary responsibility – public
• Key components of ethics training program interest. If not:
• Reinforce ethical behavior through ethics o Expectation of stakeholders in society will
program not be met
• Provide protection for whistle blower
 o Credibility of the corporation will erode 3. Accountability
(effected) • Integrity
o Credibility of and reputation of the o Some issues are not covered, nor is
accounting profession will also erode there always a clear, balanced
presentation of how the interests of
stakeholders will be affected
Responses & Development
• Transparency
1. Emerging Governance & Stakeholder o An obtuse or unclear manner that the
Accountability Models lack of transparency will cloud the
• Trends understanding of the reader
o Expanding legal liability for corporate
directors and ultimately the CEO and • Accuracy
the CFO o Faithful representation is fundamental
o Management assertions to to an understanding of underlying facts
shareholders on the adequacy of
internal control • The needed improvement in integrity,
o A stated intention to manage risk and transparency and accuracy has motivated
protect reputation the discussion among accountants about
the nature of the guidelines they should use
- Significant Changes for preparation of financial reports, rules or
o Delaying, employee empowerment and principles
the use of electronic data interfaces
o Increased reliance by management on 4. Ethical Behavior & Development in Business
non-financial performance indicators Ethics
used on a real-time basis
• Immanuel Kant (German): People are
ethical when they do not use other people
opportunistically and when they do not act
2. Management Based on Values, Reputation & hypocritical manner demanding a high level
Risks of conduct for everyone else while making
- Values exceptions for themselves
o Hyper norm is a value that is almost • Aristotle (Greek): Directors, executives and
universally respected by stakeholder accountants should demonstrate integrity,
groups honor, loyal, courage and forthright
o Honesty, Compassion, Predictability, • John Stuart Mill (English): The goal of
Fairness, Integrity, Responsibility business is to contribute to increase the
physical and psychological benefits of
- Reputation society
o The reputation of the company and the • John Rawls (American): Businesses act in
degree of support gathered from
an ethical manner when they do not have
stakeholders will depend on the
discriminatory prices and hiring systems
understanding and on the ability of the
company to manage the risks facing the
company directly as well as those
impacting its stakeholders • Approaches to Ethical Decision Making
o Credibility, Reliability, Trustworthiness, o Consequentialism
Responsibility o Deontology
o Virtue Ethics
- Risks o Modified Five Question Approach
o Management and auditors have o Modified Moral Standard Approach
become increasingly risk management o Modified Pastin Approach
oriented since the mid 1990s
o The techniques have been developing in • Business Ethics Concepts & Terms
identifying risks early and in planning o Stakeholder Concept
o This is to avoid or mitigate the o Corporate Social Contract
unfortunate consequences inherent the
risks
The ethics environment for professional Fundamental principles of ethics for
accountants professional accountants

• Role: The public expects all professional • Integrity: To be straightforward and honest in
accountants to respect the professional values all professional and business relationships
of objectivity, integrity, and confidentiality, • Objectivity: Not to compromise professional or
which are designed to protect the fundamental business judgements because of bias, conflict
rights of the public of interest or undue influence of others
• Professional Competence & Due Care:
• Conduct: An employee-accountant must
o Attain and maintain professional
respond to the direction of management and
the needs of current shareholders knowledge and skill at the level required
o Act diligently and in accordance with
• Governance applicable technical and professional
1. GAAP and GAAS standards
o It is to provide analytical efficiency for • Confidentiality: To respect the confidentiality
the providers of capital to the world’s of information acquired as a result of
market and computational and audit professional and business relationships
efficiencies around the world • Professional Behavior: To comply with relevant
2. IFAC laws and regulations and avoid any conduct
o It has developed an International Code that the professional accountant knows or
of Ethics for professional accountants
should know might discredit the profession

• Services Offered
o The offering of non-audit services to Managing ethics risks & opportunities
audit clients has been curtailed
• Developing a culture of integrity
(reduced) so that tighter conflict of
interest expectations can be met • Corporate governance
o The advent and growth of
multidisciplinary firms in the late 1990s,
which included professionals to provide Professional ethics for accountants
a broader range of assurance and other
services to their audit clients has also • Obtain an accounting qualification and ac quire
been reduced by revised SEC and other a certain level of skills and experience
standards • Competent professional accounts in business
o Several major audit firms have are divers, working industry, financial services,
redeveloped specifically directed education and public and not-for-profit sectors
consulting services • Influence by technology, greater regulation,
increasing globalization and ever-increasing
risk
Purpose of Ethics in business & accounting • Must be able to employ an inquiring mind to
profession their work, founded on the basis of their
• Relate accounting education to moral issues in knowledge of company’s finance and using
a business context their skills and intimate understanding of the
• Provide the members of the profession with the company and environment in which it operates
tools to take decisions that have ethical
implications
• Develop a sense of moral obligation and social
responsibility
• Develop the skills required to deal with ethical
conflicts or dilemmas
• Develop the skills to deal with the ambiguities
of the accounting profession
Chapter 2: Ethical Thought & Moral Reasoning in o Compliance conditions in contracts
Business: Basis for Ethical Behavior o affirmative action programs in
corporations

4. Bad Judgement
• Human tend to make mistakes:
Sometimes to public or specific groups take
offense at these instances of bad
judgement and take action to make
directors and management aware that they
do not approve
• Case; Nestle & African Mothers: Nestle
products were boycotted in North America
and Europe to stop the free distribution of
baby formula powder to African mothers
who were mixing it with contaminated water
– thereby killing their babies
1. Unbridled greed • Activist’ stakeholders were clearly able to
• Uncontrolled desired to have something make a difference – which most people
that you need thought was for the best
• As an individual’s wealth and status rise, so
does their tendency to be unethical 5. Activist Stakeholders
• Schemes to steal money from investors • Ethical consumers: Interested in buying
• Dishonest banks that gives out mortgages products and services that were made in
with high interest just so the bank can make ethically acceptable manners
money and foreclosure on the house • Ethical Investors: Took the view that their
investments should not only make a
2. Physical & Environmental Concern reasonable return, but should do so in an
• Main issue: Concern about air pollution ethical manner
centered on smokestack and exhaust pipe
smog (e.g. acid rain, dissipation of Earth’s 6. Economic & Competitive Pressures
ozone layer) • Issues: Some people resorted to
• Causes: Respiratory irritation and disorders questionable ethical practices, including
falsification of transactions and other
• Consequences: Threats to personal safety
records and exploitation of environment or
• Action: Public (led by special interest
workers
groups) began to pressure companies as
o Part of reason for triggering cases of
well as governments directly to improve
environment and/or financial
safety standards for corporate emissions
malfeasance
• Corporation unable to rely on cyclical return
3. Moral Sensitivity
to profitability
• 1980s & 1990s: Significant increase in
o To restore risk of unethical behavior
sensitivity (includes feminist movement,
to former level
native people, minorities)
o Due to lack of fairness
7. Competition
o Discrepancies in equitable treatment
• Many products are now manufactured and
• Social Accountability: Develop workplace
sourced all over the world because of the
policies, standards, workplace auditor
growth of global economies
training programs, and reporting
• With lower rates of domestic workers, the
frameworks
resulting restructuring has been viewed as
• Desire for equity:
allowing greater competitiveness and lower
o Laws
costs. Therefore, the burden on working
o Regulations
 people to keep their jobs does not ease as • Issues:
demand rises. Nor, given the greater o Lack of trust in corporate processes
competition, greater volume would not and activities by investors and other
always increase profit, so the burden on stakeholders
companies will not to normal to previous o Realisation that unbridled greed by
levels executives and/or dominant
• Increasing competition also have its cons shareholders
i.e. the company sells counterfeit goods by • Actions: Companies publish more
claiming it is original or making sales near information on their websites and free-
the expiry date standing reports on their CSR performance
• The public expects businesses to practice o Subjects include: Environmental,
healthy business competition Health & Safety, Philanthropic,
Other Social Impacts
8. Financial Scandals/ Malfeasance
• Financial Fiasco: Public has become 11. Synergy
cynical about the financial integrity of • The need for improved mechanisms and
corporation controls to avoid unethical corporate
o Fiasco related to the environment or behavior has become more commonly
to dealings with employees, acknowledged
customers, shareholders, or • The public is concerned about the
creditors have put their onus on consequences of businesses’ unethical
corporations behavior on society, so they expect
o To manage their affairs more businesses to be more careful in their
ethically and to demonstrate that actions
they have done so • This also impacts politicians who react by
• Expectation Gap: Difference between wat preparing new legislation or tightening
public thinks it is getting in audited financial regulations
statements and what it is actually getting • I.e. International Accounting Standards
• Credibility Gap: Lack of credibility has Board (IASB) & the International Federation
spread from financial stewardship to of Accountants (IFAC) creates the
encompass other spheres of corporate International Financial Reporting and the
activity Code of Ethics for Professional
Accountants
9. Governance Failures & Risk Assessment
• Enron, Arthur Andersen, WorldCom: 12. Institutional Reinforcement
Failure to govern ethics risks – changed the • The public’s consciousness influences
calculus of risk management profoundly politicians, who react by drafting new laws
o Bankruptcy of two of world’s largest or tightening regulations. In effect, the many
companies and disappearance of problems that have come to the public’s
one of world’s most respected attention result in institutional
professional accounting firms reinforcement and codification in the law of
within a year the land. The multiplicity of ethical issues
• Solution: Governance reform was has refocused attention on the need for
perceived as necessary to protect public more ethical action
interest • The public expects regulatory institutions to
o Directors – Risks faced by investigate any irregularities and strengthen
corporation were properly managed, laws so that the public is not suffered by the
ethics risks now seen to be a key villains in business
aspect of process • The creation of the International Financial
Reporting Standards (IFRS) and the Code of
10. Increased Accountability & Transparency Ethics for Professional Accountants, are the
Desired focal points for harmonization worldwide
Institutional Reinforcement o The deviation from a profit-only focus
does not mean that profit will fall – in
Reactive Legislation:
fact, profit may rise
• U.S. Sentencing Guidelines of 1991 o Profit is now recognized as an
o Stimulated significant interest by incomplete measure of corporate
directors and executives in whether performance – therefore an inaccurate
companies were providing enough measure for resource allocation
guidance to their personnel about o Friedman explicitly expected that
proper behavior performance would be within the law
• Sarbanes-Oxley Act of 2002 (SOX) and ethical custom
o Drive the reform of corporate
governance and professional
accounting New governance & accountability frameworks
• Anti-Bribery Regime
• Successful corporations are best served by
o More advanced in that it seeks to
governance and accountability mechanisms
facilitate extraterritorial legal action
o Different & broader set of fiduciary
relationships than in the past
13. Environmental Reality
• Allegiances of directors and executives must
• Government reaction, mostly triggered by
reflect stakeholder interests (goals, processes,
disasters, has been significant at all levels
outcomes)
• The growing concern for local and global
o To direct attention to these new
environmental sustainability has led to
perspectives and modern accountability
competitive and activist pressures for
frameworks
companies to report publicly on their
o Which it should include report that focus on
environmental impacts using sustainability
them
frameworks such as the Global Reporting
Initiative’s G4 Guidelines
• Public expects business to take care of the
Reinforced fiduciary role for professional
environment and set aside budgets for
accountability
purposes of improving the environment
- Replanting trees, no plastic bags day, • Professional accountability
save the turtle campaign which is o Focus their primary loyalty on the public
prohibit the using of plastic straws interest
o Adopt principles that protect public
interest, i.e. independence of
New mandate for business judgement, objectivity, integrity
• Issue: Loyalty by auditors to management
• Implications on Milton Friedman’s Theory on
and/or directors can be misguided – have
profit
frequently proven to be self-interested that they
o Discounts the myth of businesses will
are untrustworthy
lose too many opportunities for being
• Consequence: Primary fiduciary responsibility
‘ethical’
of professional accountants should be to the
o Businesses focusing solely on profit is a
public interest
short-term strategy and is
o Otherwise, the expectation of
unsustainable in the long run
stakeholders in society will not be met
o Profit should be sough within the
and the credibility of corporations will
confine of law and the custom of the
erode (destroy)
society
o Profit guides the allocation of resources
to their best use of society
• Critical issues
Chapter 2: Ethical Thought & Moral Reasoning in o Allows people to adapt ethically as the
Business: Basis for Ethical Behavior culture, knowledge and technology change
in society
• Ethics: set of rules of conduct or “moral code”
o A good and valid form of relativism
• Characteristics of morality and moral codes
• Disadvantages
o Beliefs about the nature of man
o Truth, right and wrong and justice are all
o Beliefs about ideals, about what is good
relative
or desirable or worthy of pursuit for its
o Just because a group of people think that
own sake
something is right does not make it so
o Rules laying down what ought to be
done and what ought not to be done
o Motives that incline us to choose the
Egoism
right or the wrong course
• A theory, in ethics, that human beings act or
should act in their own interests and desires.
Differentiate between moral & legal standards Egoism is opposed to altruism, which asserts
that human beings should act in way that help
• Moral Standards
others
o Morals are concerned with the principles of
• A philosophical theory in ethics, which has at
right and wrong behavior and the goodness
least three subtypes, descriptive egoism,
of badness of human character
normative egoism and conditional egoism
o Morality governs private, personal
interactions
• Descriptive egoism
o Morality demands that men should act from
• Known as psychological egoism,
a sense of ethical duty. Morality has no such
contends that people always act in self-
enforcing authority from the state. It is
serving ways, though they may try to
autonomous
disguise their selfish motives
• Legal standards
o Law is the system of rules that a particular
• Normative egoism
country of community recognizes as
• Termed ethical egoism, claims people
regulating the actions of its members and
should act in self-serving ways because
may enforce by the imposition of penalties
it is morally right
o Law governs society as a whole, often
dealing with interactions between total
strangers • Conditionally egoism
o The law demands an absolution subjection • Asserts that egoism is morally right and
to its rules and commands. Law has acceptable if it leads to morally
enforcing authority derived from the state. It acceptable ends
is heteronymous • Self-motivation actions can be
considered morally acceptable, if they
lead to the betterment of society and
Ethical relativism the public as a whole

• Theory that holds that morality is relative to the

norms of one’s culture. That is, whether an Altruism
action is right or wrong depends on the moral
norms of the society in which it is practice. The • The unselfish concern for other people – doing
same action may be morally right in one society things simply out of a desire to help, not
but be morally wrong in another because you feel obligated to out of duty,
• Advantages loyalty or religious reasons. It involves acting
o It allows for a wide variety of cultures and out of concern for the well-being of other
practices. people. Contrasted with egoism, (which
claims individuals are morally obligated to
serve themselves first)
• Examples of altruism • Impartial – the person who makes them will
o Doing something to help another person be required to judge him or herself
with no expectation of reward according to the same standard by which he
o Forgoing things that may bring personal or she judges others
benefits if they create costs for others • If an action is moral for one person, it must
o Helping someone despite personal costs or be accepted as moral for everyone
risks
• It builds social connections – studies show that 2. Respect for rational being
people who are altruistic tend to be happier, to • The person performing the action should
be healthier and to live longer not see others as a means to further his
own interests but instead respects them as
individuals
Consequentialism • Kant claims that human being, they are to
be treated as persons
• A theory that suggests an action is good or bad
• This can be understood as not treating
depending on its outcome. An action that
people as mere resources, respecting
brings about more benefit than harm is good,
their autonomy, rights even choices. People
while an action that causes more harm than
should be treated with respect and have
benefit is not. The most famous version of this
rights that should not be violated upon in
theory is Utilitarianism
the face of oppression

3. Autonomy
Deontology
• The moral right one possesses, or the
• Universalizability, respect for rational being, capacity we have in order to think and make
autonomy decisions for oneself providing some
• A theory that suggests actions are good or bad degree of control or power over the events
according to a clear set of rules. Actions that that unfold within one’s everyday life
obey these rules are ethical, while actions that • Aims to protect human choice, rights and
do not, are not. This ethical theory is most freedoms from the influence of
closely associated with Immanuel Kant corporations, the state, or other
• Kant believes that ethical actions follow individuals from an ethical perspective. It
universal moral laws, such as “don’t lie. Don’t essentially allows us to be our own ruler
steal. Don’t cheat”
• Simple to apply. It requires that people follow
the rules and do their duty. This approach Types of justice
tends to fit well with our natural intuition about 1. Distributive justice
what is or isn’t ethical
• Referred as Social justice
• A philosophy approach that requires an ethical
• Primarily on principles designed to cover
decision depends upon the duty, obligations,
the fair distribution of benefits and
rights and justice.
burdens of economic activity among
• Weakness individuals in a society
o Categorical imperative does not provide
• Its roots are in social order and it is at the
clear guidelines for deciding which principle
roots of socialism, where equality is a
to follow when
fundamental principle, which also means
that everyone is equal
1. Universalizability
• Benefits: wealth, power, freedom
• Not a substantive moral principle but a
• Burdens: taxes, to be subjected to
logical feature of the moral terms: anyone
restrictions over one’s property
who uses such terms as “right” and
• Recognizes that all members of a social
“ought” is logically committed to
society do not have the same advantages
universalizability
mentally, physically and socially
 • There has to be redistribution of resources
to achieve fair shares among all members
2. Libertarian
of a society
• Committed to the principle that liberty is
the most important political value
2. Compensatory justice
• People do not deserve equal economic
• Refers to the extent to which people are
returns since they did not make the same
fairly compensated for their injuries by
contribution
those who have injured the,
• Reward is compensated with effort
• Example:
• Means being free to make you own choices
o Mine owners should compensate
about your own life, that what you do with
the workers (coal mine workers)
your body and your property ought to be up
whose health has been ruined
to you
o Compensation to workers who
involved in accident • People must not forcibly interfere with your
liberty and you must not forcibly interfere
3. Retributive justice with theirs
• Known as corrective justice • People are free to choose the kind of
contribution they want to make
• Refers to the extent to which punishments
are fair and just
• Those who commit certain kinds of
wrongful acts, paradigmatically serious Virtue ethics
crimes, morally deserve to suffer a • It may, initially, be identified as the one that
proportionate punishment emphasizes the virtues or moral character
• Justice is served and the wrongdoer • In contrast to the approach that emphasizes
behavior is changed or he or she is removed duties or rules (deontology) or that emphasizes
from society the consequences of actions
• Example: Ng Chong Hwa carries a (consequentialism)
punishment of up to 10 yeas’ imprisonment • Someone in need should be helped because
and a fine of at least RM1 million upon helping the person would be charitable or
conviction for money laundering benevolent
• The concept of a virtue is the concept of
something that makes its possessor good
Theory of justice • A virtuous person is a morally good, excellent or
1. Egalitarian admirable person who acts and feels as she
• Three claims about equality should
o All persons have equal moral and legal
standing
o In some contexts, it is unjust for people Golden rule
to be treated unequally on the basis of • The principle of treating others as one wants to
irrelevant traits be treated. It is a maxim that is found in most
o When persons’ opportunities or life religions and cultures
outcomes are unequal in some
• “Do unto others as you would have them do
important respect, we have a reason to
unto you”
lessen that inequality
o Everyone should be treated the same
o All human beings are equals in some
Self-interest
fundamental respects
o Each person has an equal claim to • Refers to a focus on the needs or desires
society’s goods and services (interests) of one’s self
o Equality proportion regardless of • Actions that display self-interest are often
individual differences performed without conscious knowing
Enlightenment o Example: Kindness, love, honesty, courage,
integrity, fairness
• Ideas concerning God, reason, nature and
humanity were synthesized into a worldwide
that gained wide assent in the West and that
Lawrence Kohlberg’s Cognitive Moral
instigated revolutionary developments in art,
Development
philosophy and politics
• Central to Enlightenment thought were the use • There are three levels of moral development
and celebration of reason, the power by which with each level splits into two stages
humans understand the universe and improve • Suggested that people move through these
their own condition stages in a fixed order and that moral
• The goals of rational humanity were considered understanding is linked to cognitive
to e knowledge, freedom and happiness development
• The three levels of moral reasoning include
preconventional, conventional and
John Rawl’s Veil of Ignorance postconventional

• Rawl’s recognizes that persons act on self-

interest
Level 1: Preconventional Morality
• Veilf of ignorance: A person does not know who
they are in the real world • Obedience & Egoism
• A society where the members do not know • It is shaped by the standard of adults and the
anything about each other’s social position and consequences of following or breaking a rule
backgrounds is formed • Concern with self with egocentric manner
• Veil of ignorance helps to prevent people from • Common among children
promoting biased principles of justice towards
their own combination of talents and
characteristics 1. Stage 1: Obedience & Punishment orientation
• Rules that are unfair and with bias will not get • Focuses on the individual’s desire to obey
acknowledgement from the people rules and avoid being punished
• An action is perceived as morally wrong
because the perpetrator is punished; the
Vices & virtues worst the punishment for the act is, the
more “bad” the act is perceived to be
• Vices
• The individual will obey in order to avoid
o Opposite of virtue
punishment
o Evildoing or immoral behavior of a person
2. Stage 2: Instrumental Relativist Orientation
o Will give negative effects to oneself and
others • The right behavior is determined by
o The lives of citizens will be uneasy and whatever the individual believes to be in
unhappy when majority of people in a their best interest (what’s in it for me)
community are immoral and evil • Shows a very limited interest in the needs of
o Example: greedy, malice, drinking alcohol & others, only to the point where it might
taking drugs, cruelty further the individual’s own interests
• Virtues • As a result, concern for others is not based
o Behavior that shows high moral standard, on loyalty or intrinsic
good deeds and thoughts • A child is asked by her parents to do a
o Virtues will bring happiness and goodness chore. Then the child ask “what’s in it for
to the heart of a person and it is the most me?” and the parents offer the child
useful and attractive qualities in a person incentive by giving rewards
o Good conduct arises from habits that in
turn can only be acquired by repeated
actions and corrections
Level 2: Conventional Morality • Universal principles of justice: equality of
human rights and respect for the person as
• An individual sense of morality is tied to
an individual
personal and societal relationship
• People at this stage have developed their
• Still continue to accept the rules of authority
own set of moral guidelines which may or
figures, but this is now due to their belief that is
may not fit the law. The principles apply to
necessary to ensure positive relationship and
everyone
societal order
• In this way, the individual act because it is
morally right to do so, if they violate those
principles, they feel guilty
1. Stage 3: Good Boy, Nice Girl Orientation
• Behavior is determine by social approval
• The individuals want the approval of others
Ethical reasoning process
and act in a ways to avoid disapproval
• Emphasis is placed on good behavior and • Ethical reasoning: pertains to the rights and
people being “nice” to others wrongs of human conduct. Each person has
2. Stage 4: Law-and-Order Orientation standards that are defined by their personal
• The individual blindly accepts the rules and values which come into play when faces certain
convention because their importance in dilemmas or decisions
maintaining a functioning society • Practical ethical decision making
• Rules are seen as being the same for o Philosophical theories, utilitarianism,
everyone and obeying rules by doing what consequentialism, deontology, justice &
one is “supposed” to do is seen as valuable fairness, virtue ethics
and important o Ethical dilemma
• If one violates a law, there is an obligation o Practical constraints, personal
and duty to uphold laws and rules characteristics, organizational features,
• I’m personally against the war but would environmental forces
never publicly protest it on campus without o Behavior
the administration’s permission

Ethical Vs Unethical Behavior

Level 3: postconventional Morality
• Ethical Behavior
• Individual live by their own ethical principles o An individual who follows the rules and
(basic human rights/liberty/justice) abides the ethics will get considered as a
• They view rules as useful but changeable person with good and healthy habits
mechanism, rather than absolute dictates that o Respectful
must be obeyed o Being kind
o Fair
o Responsible
1. Stage 5: Social-Contract Orientation o Honesty
• Individuals have different view, right and • Unethical Behavior
values o A person who does not obey the rules and
has an unethical manners will get viewed as
• Laws are regarded as social contracts
a person with bad and unhealthy habits
rather than rigid edicts
o Disrespectful
• Individuals become aware that while laws
o Bad and mean
might exist for the good of the greatest
o Unfair
number, there are times when they will work
o Irresponsible
against the interest of particular individuals
o Dishonest
2. Stage 6: Universal-Ethical-Principle Orientation
• Moral reasoning is based on abstract
reasoning using universal ethical principles
Quantitative Reasoning Approach amount of inductive evidence guarantees
the conclusion
• Application of basic mathematics skills such as
• Not logical necessities, inductive
algebra, to the analysis and interpretation of
arguments are not simply true
real world quantitative information in context of
3. Abductive Reasoning
a discipline or interdisciplinary problem to draw
• Guessing – conclusions drawn here are
• Can be found in areas such as health,
based on probabilities
economics, politics and science
• Typically begins with an incomplete set of
• QR and mathematics are inextricably linked but
observations and proceeds to likeliest
while mathematics is primarily discipline, QR is
possible explanations for the set
primarily a skill
• It yields the kind of daily decision-making
• Ability to understand and use quantitative
that does its best with the information at
information and come to a solid conclusion. It
hand, which is often incomplete
involves critical thinking skills to draw justified
conclusions from facts and evidence available
at hand
Moral Reasoning Approach
• Importance
o As a component of a complete education – • Thinking process with the objective of
it is one of four-state mandate students determining whether an idea is right or wrong
learning outcomes • In order to know whether something is right or
o To solve quantitative reasoning problems wrong one must first know what that something
and to make well-reasoned judgements is intended to accomplish
derive from quantitative information in a • Called as moral developing
variety of context • It is important as people consistently faced with
o Enable people to think critically about moral dilemmas and conflicts
mathematical and numerical information • Components of moral reasoning approach
that surrounds them o Moral sensitivity: ability to see an ethical
dilemma including how our actions will
effect the others
Logical Reasoning approach o Moral judgement: ability to reason correctly
about what ought to be done in a specific
• The process of using a rational, systematic
situation
series of steps based on sound mathematical
o Moral motivation: a personal commitment
procedures and given statements to arrive at a
to moral action, accepting responsibility for
conclusion
the outcome
o Moral character: courageous persistence in
spite of fatigue or temptations to take the
1. Deductive Reasoning
easy way out
• Using a given set of facts or data to deduce
other facts by reasoning logically
• It starts with the assertion of a general rule
and proceeds from there to guarantee
specific conclusion
• It moves from general rule to specific
application
• If the original assertions are true, then the
conclusion must be also true
2. Inductive Reasoning
• Generalize an information based on the
pattern and trend
• It moves from specific to the general
• Conclusions reached by the inductive
method are not logical necessities; no
Chapter 2: ethical thought & moral reasoning in 10. ‘Ilm cannot be acquired through senses but
business: basis for ethical behavior only through the intellect
• Irada (will)
The psychological nature of man
o When a man understands the full
• Ethical system relates to psychological significance of an object and the desirability
foundation of a man of seeking it, a yearning is aroused in him to
• If the concept of human psychology is wrong, achieve that object by adopting appropriate
then the codes of morality will fall means. This yearning is Irada
• Al-Ghazzali examines the psychological nature o The will in man is different from the will of
of a man and he discovers that all psychological animals
phenomena originate in the Self o The will in man is conditioned by the
development of knowledge through intellect
o The will in animals is a quality of anger as
Self well as of appetite

• The Self or Qalb is the essence of man

• Called as Qalb (heart) - it is connected with he Elements in the nature of man
physical heart, even though the connection is
merely transcendental 1. The sage in him – ‘Aql
• Al-Ghazzali – self includes Qalb, Ruh (soul), 2. The pig – ash-Shahwa (or his lust or gluttony)
Nafs (desire? Nature) and ‘Aql (intellect) 3. The dog – al-Ghadab (or anger and ferocity)
4. The devil – the brute which incites these two
• Six powers
animals to rebel against ‘Aql
1. Appetite
- Eating and drinking are samples of acts
that assist the body • ‘Aql and Shaytaniyya are contrary forces in the
- To secure human progress and the human self that work through the Shahwa and
species’ existence the Ghadab for construction and destruction
2. Anger • If ‘Aql overcome the evil tendency, the self will
- Derived from ferocious be on the state of an-Nafs al-Mutma’inna (the
- A person’s extreme anger can bring tranquil soul)
them to unsafe situations • If Shaytaniyya overcome ‘Aql, the Self will be in
3. Impulse the state of an-Nafs al-Ammara (the instigating
- Something that causes something to soul)
happen or happen more quickly • When divine element is continually struggling
4. Apprehension with the human evil tendency, the self is in the
- Suspicious or worry of the future state of an-Nafs al-Lawwama (the admonishing
5. Intellect soul)
- Derived from divine
- Intellect related to ‘Aql
6. Will Axioms of Islamic ethical philosophies
- It allows to deliberate action
1. Unity
• Related to the concept of tawhid
• The political, economic, social and religious
Self Vs Animals
aspects of man’s life form a homogeneous
• ‘Aql (intellect) whole
7. Intellect is a fundamental rational faculty in • A Muslim businessman will NOT:
man which enables him to generalize and o Discriminate among his employees,
form concepts suppliers, buyers or any other
8. Intellect is the basis of the ‘Ilm (knowledge) stakeholder
9. ‘Ilm includes: knowledge of the affairs of o Be coerced into unethical practices,
this world and the next, rational principles, since he has only Allah to fear and love.
self-evident truth He follows the same, unified code of
 behavior whether he is in the mosque, • Concept of responsibility
earning a living or acting out other o Fard al ‘Ayn
aspects of his life o Fard al kifayah
o Hoard his wealth avaricious. The • Application to business ethics:
concept of Amanah or trust is of critical o A Muslim businessman cannot blame
importance to him his actions on the pressures of business
2. Equilibrium or on the fact that everybody else is
• Related to the concept of ‘Adl behaving unethically. He bears the
• The property of equilibrium is a dynamic ultimate responsibility for his own
characteristic which each Muslim must actions
strive for in his or her life o All obligations must be honored unless
• To maintain a sense of balance between morally wrong
those who have and those who have not,
Allah stresses the importance of giving and 5. Benevolence
condemns the practice of conspicuous • It is all about showing others kindness or
consumption ihsan without expecting anything in return
• Allah admonishes Muslim businessman to: • It is an act that helps other people than the
o “give full measure when you measure people from whom the act proceeds
and weigh with a balance that is without requiring them to do anything
straight: that is the most fitting and the • Six kinds of benevolence
most advantageous in the final o If a person needs a thing, one should
determination” give it to him, making as little profit as
o Another meaning of ‘Adl is justice and possible. If the giver forgoes the profit, it
equity will be better for him
o A balanced transaction is also equitable o If a man purchases anything from a poor
and just person, it will be more graceful on his
3. Free will part to suffer a little loss by paying him
• Individuals have been given the freedom (to more than what he considers to be the
a degree) to direct their own lives proper price
• He has been given the ability to reason and o It is only proper that people who want to
make decisions, to pursue whatever path in return the goods they have purchased
life he desires and most significantly, to act should be permitted to do so as a
in line with any code of conduct he chooses matter of benevolence
• He has the option of acting ethically or o It is a graceful act on the part of a debtor
unethically if he pays his debts without being asked
• Application to business ethics: to do so, if possible long before they are
o Man has the freedom to make a due
contract and either honor or break it. A o When selling items on credits, be kind
Muslim, who has submitted to the will and also do not push for payment if
of Allah, will honor all contracts customers do no pay according to the
o Allah clearly directs all Muslims to fulfil terms
their obligations or contracts
4. Responsibility
• It implies no responsibility and Halal (Lawful) and Haram (Unlawful)
accountability
• War’al-Adul: avoidance by minister of justice of
• To meet the dictates of ‘Adl and unity, man
things that have been pronounced Haram by
needs to be accountable for his actions
jurists
• Islam is fair; a person is not responsible for
• War’as-Siddiqun: abstaining from things that
his/her action if he/she:
are naturally Halal but should be avoided for
o Has not reached the age of puberty
the sake of God’s pleasure
o Is insane
• War’al-Muttaqin: abstention from things that
o Is acting during sleep
are Halal yet can lead to Haram if taken
• War’as-Salihun: abstention from things that are
neither completely Haram nor completely
haram
• Makruh
o Anything that is inappropriate, distasteful or
offensive
o Although makruh behaviors are less bad
than sins or haram, it is nevertheless
advised that they should be avoided
• Haram
o In the religious writings of the Quran and the
Sunnah, haram acts are forbidden
Chapter 3: Approaches to ethical decision o Concern with overall utility-embraces all of
making and workplace ethics these variants
• Deontology
Ethical decision-making framework (EDM)
o Focus on the obligations or duties
• Incorporates traditional requirements for motivating or decisions or actions rather
profitability & legality, as well as requirements than on the consequences of the actions
shown to be philosophically important o Rightness depends on the respect shown
demanded by stakeholders for duty & the right & the fairness that duties
• Designed to enhance ethical reasoning by reflects
providing: o It also could yield universal respect for
o Insights into the identification and analysis human rights & fair treatment for all
of key issues to be considered and • Virtue ethics
questions or challenges to be raised o Concerned with the motivating aspects of a
o Approaches to combine and apply moral character demonstrated by decision
decision-relevant factors into practical makers
action o Consists of two dimensions: the actus reus
• Proposes that decisions or actions to be (guilty act) & the mens rea (guilty mind)
compared against three standards for a o Those character traits dispose a person to
comprehensive assessment of ethical behavior act ethically & make that person morally
o Consequences or well-offness created in good human being
terms of profit, net benefits or net cost
o Rights & duties affected including fairness
and those protected by law Stakeholders impact analysis
o Motivation or virtues expected
• Modified traditional decision-making
• The first two of the considerations involve
approaches
practical application of the philosophical
o Each approach has been modified to
principles of consequentialism, deontology
include tests of virtues expected
and justice are examined by focusing on the
o Three traditional approaches as follows:
impacts of a decision on stakeholders and
- Modified 5-question approaches (short
other affected stakeholders. An approach
term impacts & no externalities)
known as stakeholder impact analysis
- Modified moral standards approach
• The third consideration is motivation of
(medium and long term impacts with
decision maker involve applying what
externalities)
philosophers known as virtue ethics
- Modified Pastin’s approach (decisions
• These approaches provides insights that likely
within companies, innovative
to be helpful when assessing current and future
techniques)
governance problems as part of risk
• Fundamental interests of stakeholderse
management principles
1. Well-offness: the proposed decision should
result in more benefits than costs
2. Fairness: the decision should result in a fair
Philosophical Approaches distribution of benefits and burdens
• Each approach contributes differently to a 3. Rights: the decision should not offend any
useful & defensible approach for ethical of the rights of any stakeholders and
decision making in business or personal life decision maker
• Consequentialism, utilitarianism or teleology 4. Virtuosity: the proposed decision should
o An act is morally right if and only if that act demonstrate virtues reasonably expected
maximises the net good
o Some believe that only the act that
maximises the net benefit of favorable
minus negative consequences is morally
right or ethical
Modified 5-Question approach Modified Pastin’s approach

• Involves examining the first four key aspects of

ethics. The last aspect – the examination of
motivation, virtue and character – has been
added to ensure the review of these items

• Objective of these techniques should be

construct a profile about motivations, virtues,
character traits and processes involved with
and exhibited by the decision or action that can 1. Ground-rule ethics: pastin uses this concept to
be compared to those expected show that individual and organisation have
• It involves the examination or challenges of a ground rules or fundamental values that govern
proposed decision through the five questions their behavior or their desired behavior
as the table showed 2. End-point ethics: pastin suggest employing the
• If a negative response is more than one when all full extent of the measurement techniques-
five questions are asked, the decision maker profit, cost-benefit analysis, risk benefit
can iteratively attempt to revise the proposed analysis and ranking of stakeholder impacts
action to remove or offset the negative 3. Rule ethics: used to indicate the value of rules
• If the revision process is successful, the that spring from the application of valid ethical
proposal is ethical. If not, then it should be principles to an ethical dilemma
abandoned as unethical 4. Social contract ethics: Pastin suggest
• Even if there is no negative response when the formulating the proceed decision into an
question all asked, they should improve the imaginary contract would be helpful – it would
proposed action using the question as a guide allow the decision maker to change places with
the stakeholder to be impacted on

Modified moral standards approach

Steps for ethical decision

1. Identify the facts and all stakeholder groups

and interests likely to be affected
2. Rank the stakeholders and their interests,
identifying the most important and weighing
them more than other issues in the analysis
• All four standards must be applied, none is a
3. Asses the impact of the proposed action on
sufficient test by itself
each stakeholder group interest with regard to
• This approach to stakeholder impact analysis
their well-offness, fairness of treatment and
builds directly on the fundamental interests of
other rights, including motivations, virtues and
stakeholder
character traits expected
• It is more general than the 5-question approach
and leads the decision maker to a more broadly
based analysis of net benefit rather than just
profitability as a first challenge of proposed
decisions
• In result, it will offer a framework that is more
suited to the consideration of decisions that
have significant impacts outside the
corporation, including externalities
Measurement of quantifiable impacts of all stakeholders and their interests and
on a full appreciation of the significance of
1. Profit
the impacts on the position of each
• Fundamental to the interests of stakeholders &
• CBA does not fully reflect the importance of
essential to the survival & health of our
a stakeholder or the impact involved
corporations
• Profit essential simply to replace inventory at
the higher prices required
• Short-term measure

Map of corporate stakeholder accountability

• Corporation
1. Shareholders
2. Employees
3. Customers
2. Bringing the future to the present 4. Suppliers
• It is handled in a parallel in manner to 5. Activists
capital budgeting analysis, where the future 6. Governments
values are discounted at an interest rate 7. Creditors
that reflects the expected interest rate in 8. Lenders
future years 9. Other, including the media who can be
• Demonstrated as part of cost-benefit affected by or who can affect the
analysis in Brooks 1979 achievement of the corporation’s objectives

Assessment of non-quantifiable impacts

3. Dealing with uncertain outcome • Fairness among stakeholders

• Analysis can be based on best estimates, o The concern for fair treatment on current
on three possibilities which is most issues that related to human society such
optimistic, pessimistic and best estimate or as discrimination against women, hiring,
on expected values developed from a promotion & pay
computer simulation o A decision will be considered unethical if its
• All these are expected values, which are not properly addressed fairly among other
combination of a value and a probability of stakeholders
its occurrence • Rights of stakeholders
o A decision will only considered ethical if its
impacts do not offend the rights of
stakeholders impacted upon & rights of
• The advantage of this expected value formation
person making decision
is that the cost-benefit analysis can be
o The stakeholders rights involve life, health &
modified to include the risk associated with
safety, fair treatment, exercise of
outcomes to be included
conscience, dignity & privacy, freedom of
• Referred to as risk-benefit (RBA)
speech

4. Identifying stakeholders & ranking their interest

• The usefulness of stakeholder impact
analysis depends on the full identification
Workplace ethics • Workers are entitled for fair policies that
protects their rights on fairness
1. Employee rights
• Life
4. Health and safe workplace
• Health and safety
• The need for a healthy & safe environment
• Fair treatment
in the company is also important
• Exercise of conscience
• Smoke-free workplace areas where the
• Dignity and privacy company must recognise the need for
• Freedom of speech fitness and recreation by establishing
centres for these on-sites
2. Motivation, virtue, character traits & process • Employer cannot take this matter lightly
expectations because it is unethical
• Motivation
o Self-control rather than greed
o Fairness or justice considerations
Ability to exercise one’s conscience
o Kindness, caring, compassion and
benevolence • Ability to exercise one’s conscience: ability to
• Virtues act according to their fundamental value of
o Duties loyalty individual
o Integrity and transparency • Conscience: guide to one’s behavior whether it
o Sincerity rather than duplicity is right or wrong
• Character traits • A worker just did what he was ordered to do will
o Courage to do the right thing per personal & no longer provide the worker with protection in
professional standards many jurisdictions, so the worker should
o Trustworthiness exercise his conscience
o Objectivity & impartiality • Lead to blind loyalty concept: a concept where
o Honesty & truthfulness worker just do what they were ordered to do
o Selflessness rather than selfishness • Those who engage in blind loyalty in allegiance
o Balanced choices between extremes is more important than objectivity
• They believe keeping a positive image of the
3. Fair treatment/discrimination person or cause is more important that the
• The quality of treating people equally or in a truth
way that is right reasonable • How to avoid blind loyalty
• There should be equal opportunity for o Understand your responsibility to your
employment and equal pay for balance employee. Blind loyalty is not a job
work (women & minority) requirement. Loyalty is earned over time not
• Fair policies include: just simply given
o Fair promotion o Be loyal to employer after they earned your
o Fair wages loyalty
o Fair hours of working o Respect and over time because there is a
• People with disabilities are also required for deep relationship between two sides
fair treatment and this is considered as • How to prevent blind loyalty
ethical o Whistle-blowing
• Discrimination is treating a person or a
particular group differently
• It involves age, race, gender or sexual Whistle Blower
preferences
• A person who exposes information or activity
• It is considered unethical and illegal
that is deemed illegal, unethical or not correct
• It may lead to anxiety, sadness and
within the firm
depression, thus, productivity of the
• To protect the firm’s interest from being
company will be lower
manipulated by a certain person
• Discover any wrongdoings done by anyone o White: collar crime refers to financially
within the firm motivated, non-violent crime committed by
• Send a report or directly inform the manager or business and government professionals
the person with the highest rank in the firm o Executive are expected to ensure that they
take reasonable steps to guide, influence
and control employees who might be
Whistle-blowing inclined to become involved and external
auditors are expected to be alert for
• A policies that may protect the workers from potential problems
any harmful act or action from employer o Experience has suggested that an
• Where whistle blowers are encourage to report understanding for the circumstances
their concern outside the enterprise leading to enabling fraud and white-collar
• Receive protection and their identify are also crime and the motivation for it provides a
kept confidential useful foundation for preventive measures
• Employers cannot discriminate against an
employee who exercises his right under • Bribery and facilitating payment
Occupational Safety and Health Act (OSHA) o Bribery: usually a larger payment than
• It includes nominal and is paid to gain a competitive
o Job loss advantage and without which desired result
o Demotion would not to occur
o Disciplinary action o Facilitating payment: usually a nominal in
value and made a speed up a result that
would have happened anyway given enough
Whistleblower schemes time
o The offering, giving, receiving or soliciting of
• Primarily for concerns where the interest of any times of value to influence the actions
others or the Group are at risk of an official or other person in charge of a
• Designed to encourage employees to report public or legal duty
alleged malpractices or misconduct, to ensure o Bribery is offered to do something for
that all allegations are thoroughly investigate someone for the expressed purpose of
and suitable action is taken where necessary receiving in exchange
o Why problematic other than illegality?
- It adding the cost of the operation, good
Trust or service
- Undermining the practice of purchasing
• Refers to the relationship between manager
based on merit in a country or firm
and employee in the organisation
- Risking possible negative
• It is important to have a sufficient trust between
consequences from stakeholder group,
both parties to that employees can share ideas
should find out
without fear of losing jobs and to build loyalty
- Impossibility of assessing sales forces
and hardworking
effectiveness
• In order to maintain trust, the management
- Impossibility of enforcing performance
need to be prepared to make trustable
or obtaining a contract, after bribes are
commitments
paid

• Crisis management
Challenges related to workplace ethics
o A process by which an organisation deals
• Fraud & white-collar crime with a disruptive and unexpected event that
o Fraud: wrongful or criminal deception threatens to harm the organisation or its
intended to result in financial or personal stakeholders
gain o A crisis has the potential to have a very
significant impact of a crisis on the
reputation of the company and its officers,
 on the company’s ability to reach its
objectives and its ability to survive
o If ethical behavior is considered to be a
great importance by a corporation in its
normal activities, ethical considerations
should be more important crisis situations
o How to avoid/minimise impacts
- Anticipating crisis or recognising early
warning signs as soon as possible and
responding to soften or minimise the
impact and shorten the time during
which the crisis is uncontrolled
- Proper advance planning, by continued
monitoring and speedy, effective
decision making during crisis
Chapter 4: professional & business ethic: the • Conflicts between competing interest and
accountant & organisation stakeholder
o Sometimes the priority of competing for
interest can be made clear in training
session. If not, the protected routes for
consultation should be available
• When should the professional blow the whistle
and to who?
o A protected internal route for discussion
and reporting should be available for
professional accountants
• Adequate protection of whistle blower
o The most successful arrangements for
Threats to good governance & accountability whistle-blowing involve reporting, in
confidence, to an autonomous individual of
• Misunderstanding objectives and fiduciary duty
high rank or someone who reports to a
• Failure to identify & manage ethics risks
person of a very high rank in the
• Conflict of interests
organisation
• Service decisions involving judgement
Key elements of corporate governance &
o Codes of conduct should fashioned so it
accountability
does not rule out the exercise of a
• Compelling evidence for the development of an
professional’s value when those are
ethical corporate culture
required for the judgements they must
• Corporate psychopaths
make
• Developing, implementing & managing an
ethical corporate culture
• Director & officer liability
Ways to increase profit by having a proper code
• Corporate codes of conduct
of conduct
• Ethical leadership
• Public accountability benchmarks • It will give perception from consumer thus
influence the consumer to buy products from
the company
Corporate code of ethic and conducts • Attract investors to invest in ethical company
because the probability of having fraud is low
• Corporate code of conducts vary extensively in • Financial institutions will consider providing
design and objective financing policies because of the companies
• Codified set of ethical standards to which ethical environment. Perception that day will
corporations aim to adhere commit to pay
• Commonly generated by corporations
themselves
• Crucially they are not directly subject to legal Ethics of data usage and technology
enforcement
• Data ethics encompasses the moral obligations
of gathering, protecting and using personally
Corporate codes of conduct identifiable information and how it affects
individuals
• Conflicts between codes • It allows accountant to catch any example of
o The employee is subjected to an employer’s unethical data collection, storage or use
code & other code (professional code) • To analysts, data scientists and information
o To avoid the ethical dilemma of debating technology professionals
which code to follow, consultation with • By doing so, accountant can protect their
ethics officer is advised customers’ safety and save their organisation
from legal issues
Nature of profession o Accountant has a fiduciary duty towards the
stakeholders such as shareholders,
• Profession is any type of work that needs
creditors, investors
special training or a skill, often one that is
o Accountant must abide by the professional
respected because it involves a high level of
code of conduct as the public trust the duty
education
discharged by the accountant
• It incorporates the features, duties and the
• Protect the interest of your employer
rights
o It is less ethical especially if you employer
acts unethically
1. Essential features (Bayles)
o Succumbing to your employer’s demands is
• Extensive training risky as you as an accountant may violate
• Provision of important services to society the professional code of conduct and can
• Training and skills largely intellectual in be reprimanded by the courts. This is a kin
character to blind loyalty
2. Typical features o Your employer may have vested interest and
• Generally licensed or certified he does things based on his self-interest
• Represented by organisation, association or and not that of the society
institutes
• Autonomy
3. Foundation of ethical values (Behram) Public expectation of the professional
• Significantly delineated by and founded on accountant
ethical considerations rather than
techniques or tools • To have special technical expertise associate
with accounting and higher understanding than
layman of accounting field
Roles of professional accountant • To adhere to the general professional duties and
values which is honesty, integrity, objectivity
• Generating or creating value through and discretion in order to resist tempting
resource efficiency (financial and opportunities to serve themselves/others than
otherwise) through recognising stakeholder the client
value factors and organisational innovation • To adhere to those specific standards laid out
• Providing, evaluating and interpreting by professional body to which he/she belongs
knowledge to management for the
formulation, planning, decision making and
control of policy Features, duties, rights & values of the
• Performance measurement and accounting profession
communication to stakeholders, including
the financial recording of transactions and • Features
subsequent reporting to stakeholders o Provision of important fiduciary services to
typically under national or GAAP society
• Cost determination and financial control, o Extensive knowledge and skills are required
through the use of cost accounting o Overseen by self-regulating membership
techniques, budgeting and forecasting organisations
• The reduction of waste in resources used in o Accountable to government authority
business processes through the use of • Rights permitted in most jurisdictions
process analysis and cost management o Ability to hold oneself out as a designated
• Risk management and business assurance professional to render important fiduciary
services
o Ability to set entrance standards and
examine candidates
Who should professional accountant protect
o Self-regulation and discipline based on
• Protect the public interest codes of conduct
 o Participation in the development of • Most of accountant profession that involved in
accounting and audit practice the financial scandals are caused by errors in
o Access to some or all fields if accounting judgement about the appropriate use of a
and audit endeavor technique or the disclosure related to it
• Values necessary to discharge duties and • Only few of financial scandals that caused by
maintain rights methodological errors in the application of
o Honesty technique
o Integrity • Some errors in judgement are from
o Objectivity, based on independent misinterpretation of the problem as a result of
judgement complexity, result of lack of attention to the
o Desire to exercise due care and ethical values of honesty, integrity, objectivity,
professional scepticism due care, confidentially and the commitment to
o Competence the interests of those of oneself
o Confidentiality • The trust for a fiduciary relationship cannot be
o Commitment to place the needs of the sustained if without ethical value and the
public, the client, the profession and the credibility as well as rights will also be limited
employer or firm before the professional’s
own self-interest
• Duties essential to a fiduciary relationship Duty, loyalty, trust and fiduciary duty
o Continuing attention to the needs of clients
and other stakeholders • Primary role is to offer important fiduciary
o Development and maintenance of required services to society, the performance of services
knowledge and skills, including involves choices that favour interests of firm
professional scepticism owner, current shareholders etc
o Maintenance of the trust inherent in a
fiduciary relationship by behavior exhibiting • Duties
responsible values • To provide attention to needs of the client and
o Maintenance of an acceptable personal other stakeholders
reputation • To develop and maintain of the required
o Maintenance of credible reputation as a knowledge and skills
profession • To maintain of trust in fiduciary relationships
• To maintain of an acceptable personal
reputation
Responsibility of professional accountant • To maintain of a credible reputation as a
professional
• Exercise professional judgement and not to
• Loyalty
compromise the compliance to the
• Must be prepared to act with integrity
fundamental principles of the code of ethics in
• To ensure the accuracy and reliability of
the discharge of their duties
their work for benefits of the end-user which
• They must follow the instruction for the superior
is the public
in the company as they are bounded by the
• Specific fiduciary relationships is based on
term of agreement in the employment contract
the border trust between the public and the
• They should no blindly follow the instruction of
profession as a whole in the long term,
the superior if it is against the Code of Ethics of
codes should clearly require to ensure the
the profession
safety of the public
• Any breach of trust could lead to charges of
misinterpretation and loss of reputation as
Ethical value Vs Accounting and audit
a professional as a whole
techniques
• Trust
• A lot of accountants and non-accountants view • To maintain the trust inherent in the
the mastery of accounting and audit techniques fiduciary relationship
is the sine qua non of the accounting profession
 • By applying expertise with courage, honesty, • Not be associated with any misleading
integrity, due care and avoidance of information or misrepresentation
misrepresentation in ensuring that those • Perform with
relying on expertise can trust that proper o Integrity
care is taken of their interests o Objectivity & independence
• Adhere to Generally Accepted Accounting o Professional competence, due care and
Principles (GAAP) and Generally Accepted professional scepticism
Auditing Standards (GAAS) o Confidentiality
• To ensure choices made are fair to the users
of resulting financial reports and audits
• Fiduciary duty IFAC code of ethics
• To act solely in the best interests of the
• Professional competence and due care: act
beneficiary
diligently in accordance with applicable
• To provide certain professional services
technical and professional standards
such as tax services and asset
• Confidentiality: should not disclose any such
management
information to third parties without proper and
• An accountant may be deemed to be a
specific authority unless there is a legal or
fiduciary to their client when:
professional right or duty to disclose
o The accountant holds himself or herself
• Professional behaviour: should comply with
out as an expert in an aspect of
relevant laws and regulations and should avoid
business
any action that discredits the profession
o To client places a high degree of trust
and confidence in the accountant
o The client is heavily dependent upon the
accountant’s advice Importance to exercise professional scepticism
in carrying out duties

• Professional scepticism is an attitude that

Professional codes of ethics and conduct includes a questioning mind, being to
conditions which may indicate possible
• Designed to provide guidance about the
misstatement due to error or fraud
conduct expected of members in order that the
• It is a core to a quantity audit and is essential in
services offered will be off acceptable quality
all aspect of audit
and the reputation of the profession will not be
o From planning & risk assessment to the
sullied
critical assessment of audit evidence in
• If the reputation is sullied, there is a breach in
forming the auditor’s conclusion
the fiduciary relationship between the
professional accountant and the public and the
services performed are not done in a
professional manner. Threats to non-compliance independent
judgement
• It may mean that a member has offended the
rules of society and bring the profession's name • Self-interest threats: which may occur as a
into disrepute and thereby damage the public result of the financial or other interest of a
trust required for its members to serve other professional accountant or of an immediate or
clients effectively close family member
• Familiarity threats: which may occur because
of a close relationship, a professional
Fundamental principles in codes of conducts for accountant becomes too sympathetic to the
professional accountants interest of others
• Self-review threats: which may occur when a
• Act in public interest
previous judgement needs to be re-evaluated
• At all time maintain the good reputation of the
by the professional accountant responsible for
profession and its ability to serve the public
that judgement
interest
• Advocacy threats: which may occur when a • professional in audit practice or employed
professional accountant promotes a position or by the management can be offered a gift, a
opinion to the point that subsequent objectivity meal or entertainment by client
may be compromised
• Intimidation threats: which may occur when a
professional accountant may be deterred from
acting objectively by threats, actual or
perceived

Conflict of interest

• Conflict of interest affecting service offered

o Self-interest is a very powerful motivator
that can disadvantages clients, the public
and other stakeholders through a decline of
the service offered by professional Management to avoid & minimise consequences
accountants
o Due to auditor’s “business” side dominates • Avoidance
his professional side • Management of the conflict of interest so that
o Drive for professional gain dominates the the benefits of the judgement made outweigh
values that are needed to maintain the trust the costs
expected in fiduciary relationships • Disclosure to those stakeholders relying on the
o Desire for profit can lead to services being decision
performed at substandard level of quality
o Can also lead to conflict of interest with
other stakeholders Steps In managing the conflict of interest
• Conflict of interest involving the use or misuse
of information • Ensure that all employees are aware of their
o The use of information by the professional existence and consequences
before others who thinks that they have the • Guidelines
right to use such information is unfair and • Create an understanding of the reasons
considered unethical • Additional reinforcement of problems and good
o Anyone who is privy to inside information by examples
virtue of being an auditor or an employee
has the opportunity to use the information
personally or indirectly for insider trading
o The release of confidential information to
the public or competitors would have a
detrimental effect on the interest of client
• conflicts of interest involving improper use of
influence
• desire to improve the professional’s load
can lead to improved use of influence such
that the independent judgement of the
professional can be undetermined
• putting themselves in a position to be
approached by the management who want
favour in return
• may take the form of non-disclosure of
financial matter, the delay of such
disclosure or the minimisation on the
disclosure
Chapter 5: corporate social responsibility, Areas that CSR usually disclosure
accountability and sustainability
• Environmental protection/ green environment
• Corporate social responsibility: voluntary o Replanting of trees
activities undertaken by a company to operate o Recycling of waste
in an economic, social and environmentally o No plastic bag day
sustainable manner • Community involvement activities
o Donations
o Sponsorships
Types of CSR o Adoption of wildlife animals
• Employee’s welfare
• Economic responsibilities o Staff training program
o Company needs to be primarily concerned
o Financial & non-financial benefits
with turning a profit
o Staff cooperatives and recruitment policies
• Legal responsibilities
• Product/ service improvement or contribution
o The requirements that are placed on it by
o Information on product quality
the law
o Research & development
• Ethical responsibilities o Product safety and responsiveness to
o Responsibilities that a company puts on customer’s complaints
itself because its owners believe it is the
right things to do but not because they have
the obligation to do so
Why it is important
• Philanthropic responsibilities
o Responsibilities that go above and beyond • Increased in demand
what is simply required or what the o Employees, customers and government
company believes is right bodies for business to be more open about
• Environment-focused CSR their activities and to reach, and maintain,
o Focus on reducing damage effects of the acceptable standards in their business
corporation’s operation on the environment practice
o Reduce production of environment harming • Increase competitive advantage
by – product & promote use of non- o Employees seen CSR as an important way
renewable energy sources to increase competitive advantage, protect
• Community-based CSR and raise brand awareness and build trust
o Corporations join hands with other with customers and employees
organisation to ensure the welfare of the
local community
o These organisations either fund or received How corporations & employees benefit from CSR
funding to perform task that can improve
1. Corporation
the community’s livings condition
• Improve public image
• Human resource-based CSR
o Corporations can improve their public
o Focus on the wellbeing on their own staff
image by supporting non-profits through
and improve the living conditions
monetary donations, volunteerism, in-kind
o They can also provides medical insurance
donations of products and services and
to take care of accidents cause due to
strong partnerships
occupational hazards
o By publicizing their efforts and letting the
• Charity-based CSR
general public know about their
o Corporation donate to organisations or
philanthropy, companies increase their
individuals to improve their financial
changes of becoming favourable in the eyes
conditions and for their general up bringing
of consumers
• Increase media coverage company, workers feel more inclined to be
o Forming relationships with local media productive & creative
outlets so they’ll be more likely to cover the o Employers have identified creativity as one
stories you offer them of the most important leadership qualities
o How much good a company can do in its that an employee can possess. Creative
local communities, or even beyond that, is employees enjoy working that they can
CSR, and the better the benefits, the better believe in and stand behind
the media coverage o By incorporating comprehensive
• Boosts employee engagement philanthropy programs, companies can
o Employees like to work for a company that help employees become more productive &
has a good public image and is constantly in creative
the media for positive reasons • Promote individual philanthropy
o Happy employees = better output o When employees notice that the company
o When companies shows that they are they work for is involved in a charitable aim,
dedicated to improve their communities they play follow the leader and begin to
through corporate giving programs, they are engage in their own philanthropic activities
more likely to attract and retain valuable, o If a company encourages group
hardworking and engaged employees volunteerism and matches donations to
• Attracts & retain investor non-profit with a matching gift program, an
o When companies donate money to non- employees is more likely to take advantage
profit organisations and encourage their of those programs and become more
employees to volunteer their time, they individually philanthropically minded
demonstrate to investors that they don’t • Encourage professional & personal growth
just care about profit o When employees contribute their time and
o They also show that they have an interest in money to worthy causes, they develop
the local and global community professionally and personally
o Investors are more likely to be attracted to o By helping those in need and volunteering
and continue to support companies that as teams, employees learn to work better
demonstrate a commitment not only to together on important projects
employees & customers but also to causes o Employees also experience a sense of pride
& organisations that impact the lives of when they work for a company that cares
others about the community and encourages the
to be passionate about worthy causes
2. Employees
• Positive workplace environment
o When corporations exhibits philanthropic Impacts of neglecting CSR
behavior, they are more likely to provide
• Failure to build public trust towards company
employees with a positive workplace.
Consequently, employees feels engaged • Failure to reflect competitiveness level as many
and productive when they walk into work companies do take up CSR actively
each day • Affect company reputation and image
o Instilling a strong culture of CSR within • Loss of investors’ confidence towards company
every employee from the top down will help & reduce investment opportunity
to create a positive & productive • High staff turnover as no employee engagement
environment where the employees can
thrive
• Increase in creativity CSR Reporting
o Employees who know that their employer is
Types of CSR report
committed to bettering the local & global
communities feel a stronger connection to • Written reports: can be prepared by internal
the company. Because of this close staff & certified by external agents like auditor,
relationship that employees share with their professor or editors of ethic publications
• Chart/ progress reports: charts or progress
reports on bulletin boards, partial or full reports
as stand-alone documents & verbal or video
report by senior management
• News letter: news letter can provide full or
partial report on the ethical performance of the
company
• Exemplary behaviour: they can also recognise
exemplary behaviour by employees

Monitoring aspects of CSR

Reasons for reporting
• Similar organization
• Enhanced ability to track progress against • Results obtained in earlier periods
specific targets • Best practice alternative for benchmarking
• Facilitating the implementation of the • Industry statistics & averages
environmental strategy • Management by objective targets
• Greater awareness of broad environmental
issues throughout the organization
• Ability to clearly convey the corporate message How monitoring can improve planning &
internally and externally optimizing resources
• Improved all-round credibility from greater
transparency • Learning from past experiences which could
• Ability to communicate efforts and standards yield good results in enhancement of CSR
• License to operate and campaign activities
• Reputation benefits, cost saving identification, • Regular monitoring carried out to ensure the
increased efficiency, enhanced business, effectiveness implementation of CSR activities
development opportunities and enhanced the in achieving its pre-set goals and to the
staff morale relevance of the activities that are well-directed
towards stakeholders
• Enhancing the ability to consult, coordinate and
engage with various stakeholders
Reasons for not reporting
• The well-structured monitoring leads to
• Doubts about the advantages it would bring to identification of relevant issues in a timely
the organization manner which in turn can enhance the ability to
• Competitor are neither publishing reports address the issues through proper performance
• Customers (general public) are not interested in indicators of CSR activities
it, it will not increase sales
• The company already has good reputation for
its environmental performance Legal requirements
• There are many other ways of communicating
• A voluntary in nature and being made based on
about the environmental issues
discretion of the reporting entity
• It is too expensive
• Reporting of CSR is different from one company
• It is to difficult to gather consistent data from all
to another company as there is no specific
operations and to select correct indicators
framework to be used as standardized guideline
in CSR reporting
• There is no specific requirement in Companies
Act 2016 and MFRS Standards for CSR
disclosure
• However, NACRA Award did stimulate CSR
disclosures among corporations as it helps to
enhance decision making
Sustainability reporting trying to serve their best in order to respond to
the need of the public for greater corporate
• A report published by a company about the
reporting
economic environment & social impacts
caused by its everyday activities
• This report is a key platform for communicating
sustainability performance & impacts whether
positive or negative
• The practice of measuring, disclosing and being
accountable to internal and external
stakeholders for organisational performance
towards the goal of sustainable development
• Includes:
o Efforts to replace fossil fuels with
renewable energy sources by the business
o The overall use of natural resources by the
business
o Any workplace, health and safety risks
present in the business’s operations

Enhance the credibility of its corporate reporting

through SD

• The inclusion of SD will enable the

shareholders and the public to gain better
information about the reporting entity and the
activities carried out in relation to
sustainability/CSR practices. Direct towards a
better decision-making process among users
• SD will help to boost the image of an
organization as a reporting entity. Apart from
revealing only the compulsory sections of
financial statements and the required
information, sustainability information is said to
add credibility of reporting as such disclosure
does complement and supplement the
reporting of financial information. It is
understood that users also depend on other
available source of information to make
strategic decisions
• The SD also will create greater awareness for
the stakeholders about an organization well
being. This will instil better support for
corporate involvement with community as well
as paying greater concern towards the
environment besides focusing on profit motive
alone
• The credibility of corporate reporting can be
evidenced through SD as it reflects the effort of
the organization in trying its very best in order to
comply with any requirements a company has
to follow. (At the same time the company is also
Chapter 6: corporate governance o It acts mainly as machinery in monitoring
the implementation of NIP towards
• A process and structure used to direct and
developing a nation of high integrity,
manage the business and affairs of the
resilient and embraces universal good
company towards enhancing business
values
prosperity and corporate accountability with
• Securities Commission Malaysia (SC)
the ultimate objective of realising long-term
o Statutory body entrusted with the
shareholders value while talking into account
responsibility of regulating and
the interest of other stakeholders
systematically
o Developing the securities and future
industries in Malaysia
Corporate governance reforms o Established under Securities Commission
• corporate governance plays a very important Act 1993
role in the development of a nation particularly o Reports to Ministry of Finance and tables its
in the enhancement and deepening of its accounts to Parliament annually
financial and capital market o Have power to make, interpret, investigate
• In Malaysia the need for good corporate and enforce rules related to law securities
governance sparked off by the 1997/98 Asian o Supervise and monitors the capital and
Financial Crisis future markets and more
• There was an urgent need, among others, to
introduce good governance practices to
stabilize the financial and capital market and to The organisation for economics cooperation &
put it on a stronger footing development
• Development of corporation governance in • As a reference tool for countries all over the
Malaysia world
1. The period before the Asian Financial Crisis • Principles:
2. The period during the Asian Financial Crisis o Specific guidance for policy makers,
3. The period after the Asian Financial Crisis regulators and market participants in
improving the legal, institutional and
regulatory framework that underpins
Institutional & regulatory bodies in Malaysia corporate governance, with a focus on
• Bursa Malaysia publicly traded companies
o An exchange holding company approved o Practical guidance and suggestions for
under section 15 of the Capital Markets and stock exchanges, investors, corporations
Services Act 2007 and other parties that have a role in the
o Operates fully-integrated exchange, offering process of developing good corporate
the complete range of exchange-related governance
services including trading, cleaning, • Key areas
settlement and depository services 1. Basis
o Maintain an efficient, secure and active o Should promote transparent and
trading for investors efficient markets, be consistent with the
• Companies Commission of Malaysia rule of law and clearly articulate division
o Statutory body formed under an Act of responsibilities different regulatory
Parliament that regulates corporate and supervisory, and enforcement
business affairs in Malaysia authorities
2. Role of shareholder
• Malaysian Institute of Integrity (IIM)
o Recognize the right of stakeholders as
o Brand child of YAB Dato’ Seri Abdullah
established by law and encourage
Ahmad Badawi (5th Prime Minister)
active co-operation between
o To facilitate the aims and objectives of the
corporations and stakeholders in
National Integrity Plan (NIP)
creating wealth, jobs, and the
sustainability
 3. Right of shareholder & key ownership use of accounting standard should be
function enforced
o Should protect the right of shareholders 4. Boards of directors need to improve their
which include access to relevant oversight of management
information on the corporations • Board should regularly evaluate the
4. Responsibilities of the board performance of the CEO, giving appropriate
o Ensure the strategic guidance of a weight to each area in providing leadership,
company, the effective monitoring of ethics, governance, financial reporting as
management by the board, and the well as performance of the company
boards accountability to the company 5. The threats to auditor independence need to
and the shareholders receive greater attention in corporate
5. Equitable treatment of shareholders governance process and by auditors
o Treat all shareholders equitably themselves
including minority and foreign • Auditor’s primary relationship with the
shareholders. All shareholders should company should be with the board, through
have the opportunity to obtain effective its audit committee or similar governance
redress for violation of their rights body and not with the management
6. Disclosures and transparency
o Ensure that timely and accurate
disclosures is made on all material Theories of governance
matters regarding the corporation,
including the financial situation, 1. Agency theory
performance, ownership and • Identifies the agency relationship between
governance. (Include financial and principal and agent, whereby the principal
operational plans) engages the agent to perform some
services on their behalf and the principal
will normally delegate some decision-
IFAC making authority to the agent
• In an organization, the agency relationship
• To protect the public interest by is seen as the contractual relationship
encouraging high quality practices by the between:
world’s accountants o Shareholders (theprincipal) that
• Aim: provide an international perspective providescapital to the company
on the causes of the loss of credibility in o CEO and top management team (the
financial reporting and corporate disclosure agent) of the organization who runs the
company
o Managers who have a duty to fulfill their
5 major items must include in credible corporate obligations in maximizing shareholders'
reports wealth
• Problems in agency theory
1. Effective corporate ethic codes need to be in
o Occurs due to separation of ownership
place and actively monitored
and control of a company
2. Corporate management must place greater
1. Adverse selection
emphasis on the effectiveness of financial
o The principal cannot determine if the agent
management
is performing the work for which he is paid
• Formal reporting to shareholders, setting
2. Differing time horizon
out responsibilities for financial reporting
o Agent may be eager to take actions which
and internal controls as well as regular
have relatively short-run payoffs in order to
assessment by audit committee
demonstrate success, whereas shareholder
3. Incentive to misstate financial information need
interests may be better served by longer-
to be reduced
term action
• Companies should refrain from providing
the market with forecast of profit. Instead,
 3. Moral hazard o Individuals within a firm are said to
o Principal is unsure if the agent has be limited in their ability to plan for
performed their work to their ability due to the future and to accurately predict
self-seeking motives and plan for the various
4. Different attitude towards risk contingencies that may due to the
o Managers may not act in the best interest of turbulent nature of the environment
shareholders and may prefer different within which an organization
actions with stakeholders hence they have functions
different interest and risk preferences 2. Opportunism
o E.g. managers have a wider range of o Managers always seek to conduct
economic and psychological needs such as opportunistic behaviour such as to
maximizing compensation while mislead, distort and confuse the
shareholders are interested in maximizing other party in the contract
return on investments • Types of transaction cost
• Agency costs 1. Pre-transaction costs
1. Monitoring costs o Cost that a firm incurred before
o Cost paid by shareholders (principal) to transacting with other economic
measure, monitor and control the actors
activities and behaviour of managers 2. Post-agreement costs
(agent) o Cost to maintain on-going contract
2. Bonding costs such as monitoring and
o Cost of establishing and complying with administering costs
the mechanisms of guaranteeing that
the agent will compensate the principal
if they act in a manner contrary to the 3. Stewardship theory
principal's interest • Stewardship theory acknowledges a larger
3. Residual loss range of human motives including
o Occurs because the costs of monitoring orientations towards achievements,
and bonding make it impossible to altruism and the commitment to
identify or stop all self-interested meaningful work
behaviour by managers • Focus of this theory is on intrinsic rewards
that are not easily quantified such as
opportunities for growth, achievement,
2. Transaction cost theory affiliation and self-actualization.
• Exist principally for the purpose of • Stewardship theory recognizes a strong
facilitating transactions relationship between manager's pursuit of
• Is often viewed as coy related to agency the objectives of the enterprise, the owners'
theory satisfaction, and the satisfaction of otherp
o Transaction cost economy views the articipants in the enterprise reward
firm as a governance structure • Davis, Schoorman and Donalds(1997)
o Agency theory views the firms as a claimed that a steward protects and
nexus of contracts where there is a maximizes shareholders' wealth through
connected group or series of contracts firm performance, because by doing so, the
amongst various players, because it is steward's utility functions are maximized
impossible to have a contract which • Can be enhanced by:
perfectly aligns the interest of principle o Stewards will best focus on
and agent in a corporate control performing the duties to enhance
situation the interest of shareholders and
• Assumptions company and not to themselves
1. Managers operate under bounded (the dominance of intrinsic
rationality motivations)
 o The theory recognises a strong
relationship between manager’s
pursuit of enterprise’s objectives,
owners’ satisfaction and the
satisfaction of other participants in
the enterprise rewards
o A steward will protect and maximize
the owner’s wealth through firm’s
performance. By doing so, the
stewards utility functions are
maximized as they would give the
best to fulfil owner’s satisfaction. By
fulfilling owner’s satisfaction, it is
also a mean of fulfilling steward’s
satisfaction

4. Stakeholder theory
• Holds that every corporation or organization
was created to serve more than its
shareholders, but instead to serve a diverse
range of people who have a legitimate stake in
the organization's outcomes and performance
• Dictates how business managers morally ought
to respond to the interest or claims of
stakeholders in a proper way as managers bear
fiduciary relationship to stakeholder
• Stakeholder theory focuses on how
corporations are doing their best to enhance
the interest of overall stakeholders rather than
focussing on maximising only the shareholder's
interest
• Corporations need to balance the need of all
stakeholders involve and minimise conflicts
that may arise between the stakeholders
• Does not give primacy to one stakeholder group
over another although there are times when one
group will benefit more. The objective of this
theory is to balance the profit maximization
with the long-term ability of the corporation to
remain a going-concern
Chapter 7: framework of corporate governance in 5. Engages on a continuous basis with local
Malaysia institutional investors to draw awareness on
how shareholders rights can influence
Bursa Malaysia
company behaviour
• Guided by the Malaysian Code of Corporate
Governance
• Led by the Boards, periodically reviews the Comprehend, apply and report
Board Charter to ensure it complies with
• Comprehend: understand & internalise the
legislation and best practices and remains
spirit & intention behind the principles and
relevant and effective in light of the Board’s
practices including its intended outcome
objectives
• Apply: implement the practices in
• Roles of Bursa Malaysia
substance to achieve the intended
o Governs the conduct of its members and
outcomes of building & supporting a strong
member stockbroking companies in
corporate governance culture throughout
securities
the company
o Enforces listing requirements which spell
• Report: provide fair and meaningful
out the listing and disclosure standards to
disclosure on the company’s corporate
be maintained by public listed companies
governance practices
o responsible for the surveillance of the
• Encourages companies to clearly identify
market place
the thought process involved in practicing
o provide the information to the investors to
good corporate governance
compare the performance of stocks and
manage their portfolios • Aims to reinforce mutual trust between
companies and their stakeholders by
• BOD to disclose in annual reports its
promoting fair and meaningful disclosures
compliance with the MCCG
that will be relied upon by stakeholders to
o Failure on disclosure, making false or
have engagements with the company
misleading disclosures are considered
non-compliance • Help generate greater interest in corporate
o Non-compliance may result the PLCs to governance best practices, facilitate
be reprimanded, suspended trading in assessments and stimulate conversations
securities, delisting the company or on corporate governance
issue other penalties as the Bursa
Malaysia deems appropriate
3 principles

1. Board leadership and effectiveness

How Bursa Malaysia monitor adherence to 2. Effective audit, risk management
corporate governance standards 3. Integrity in corporate governance & meaningful
1. Performing reviews of corporate governance relationships with stakeholders
disclosures in annual reports
2. Practical guides to encourage boards to raise
the level of CG through the structuring and Malaysian Institute of Corporate Governance
implementation of sound practices and (MICG)
processes • To promote and encourage corporate
3. Approach for education – structuring programs governance development
for directors & senior management of targeted
• To provide education and training for the benefit
listed issuers based on specific areas of focus
of its members and other interested institutions
for strengthening of GC culture as well as
of bodies in Malaysia
transparency
• To facilitate businesses and corporate
4. Collaboration with other organizations to
development in the country through corporate
enhance standards of CG amongst listed
governance best practices
issuers
• 5 committees:
 1. Nominating committee provide company and business information to
2. Finance committee the public
3. Events committee • To establish good corporate governance and
4. membership committee promote proper professional conduct amongst
5. technical & external affairs committee officer groups and bodies continuous
• Measures availability of publicly-accessible education
information on a company. The companies
were assessed and ranked in 3 dimensions:
1. Anti corruption programmes Security commission
2. Organisational transparency
3. Sustainability • To promote and maintain fair, efficient, secure
• Objectives of MICG and transparent securities and derivatives
o To be a leading organization for corporate markets
governance development and promotion of • To facilitate the orderly development of an
awareness and best practices for all innovative and competitive capital market
corporate stakeholders • Scope of Responsibilities
o To establish linkages and networking with o Improve the general capital market and its
leading international corporate governance market segments
organizations, to collaborate with relevant o Helps the development and digital services
authorities and regulatory agencies through the capital market
o To be independent and impartial in o Establish new ways to gain a sustainable
providing input or information to enhance financing system
the performance of corporate entities to o Ensure all market members are conducting
intended investors, from within and outside properly through supervising, surveiling and
Malaysia enforcement work
o Support the greater cross-nation regulatory
assistance and thought leadership
Minority shareholders watchdog group (MSWG) o Advocating good corporate governance
practices
• To protect the interests of minority shareholders • Regulatory functions
through shareholder activism o Granting authority for corporate bonds
• Provides a platform and a collective voice to o Controlling all issues related to securities
both retail and institutional minority and futures contract
shareholders and it advises on voting at general o Controlling all issues related to the take
meetings of public listed companies over and mergers of companies
• It functions as platform for all minority o Supporting self-regulation
shareholders in the event of unethical or
suspicious practices by the management of a
public listed company in Malaysia Malaysian Accounting Standard Board (MASB)
• To enforce voting system as proxy system – still
have voting right in the company’s AGM • Act as the standard-setting committees of
Financial Reporting Foundation (FRF)
• Functions of MASB
o Publish new accounting standards as
Companies Commission of Malaysia (CCM)
approved accounting standards
• Statutory body that regulates company and o Evaluate and then amend or adopt the
business affairs in Malaysia existing accounting standards
• Formed as a results of merger between the o Evaluate and then amend, adopt,
Registrar of Companies (ROC) & Registrar of substitute, suspend or revoke any approved
Business (ROB) accounting standards in whole or in parts
• To serve as an agency to incorporate o Sponsor or embark on development of
companies and register business as well as to possible accounting standards
 o Work together with other national and o As they will continuously perform the
internation accounting standards-setters process and procedure with consistent
and monitor the development of other quality of performance
national and international accounting • Distinguishability of error
standards o By applying the framework of corporate
o Develop a conceptual framework for the governance periodically, it helps to identify
purpose of assessing proposed accounting any errors easier
standards • Reduced costs to manage a company
o As the operations are running based on the
framework, they able to prevent and reduce
Governance reporting and disclosure any wastages
• Smoothing the company’s operations to carried
• The contracts with every details on the
out
distribution of responsibilities, rights and
o By following the corporate governance
rewards between a company and its
framework regularly, they able to eliminate
stakeholders
and prevent any inconsistent event or
• The procedures related to reconcile the
process
occasional conflict of interest of stakeholders
according to their duties, privileges and roles
• The procedure on how to supervise, control and
Concepts in governance reporting
flow information properly to act as system of
checks and balances • Disclosure: every companies required by
MCCG to disclose any material information
related to the company
Importance of CG
• Transparency: both financial and non-financial
• Corporate Governance assists in educating a information could be obtained easily and timely
company culture of integrity, led to profitable • Openness: the director’s willingness to share
performance and sustainable business information and listen to the shareholders’
generally opinions
• In fact, it exists to improve the accountability of
the company’s employees and committees and
prevent any potential mistakes Governance reporting
• By having a firm corporate governance, it will
• Companies should see corporate governance
help to promote the company and attract more
disclosures as a chance to show to
investor as they are notified that the company is
stakeholders that they have complete and
in a good hand, and it is well-managed
effective corporate governance engagement
• This will contribute to the company with strong
• In the long-term, good CG disclosures helps to
competitive advantage
attract capital investor and maintain assurance
• An effective reporting framework enable the
in the capital market
leaders to reflect on the social, environmental,
• Companies must provide a detailed explanation
economic and financial impacts of the
on the application of each practices
company they lead
• If large companies set out from practice, they
• Through Integrated Reporting, the leaders able
are required to disclose
to show the transparency and accountability in
o Actions which they have taken or intend to
their activities
take
o The time frame required
• The standard disclosure should not only
Benefits of good corporate governance
disclosure on what the board or management
• Improve the efficiency in managing the considers meaningful but also on what
company stakeholders and shareholders consider
informative and useful
Importance of disclosure

• Guarantees transparency
o Improve transparency of the company’s
operation and management
o Assists the investor to make an accurate
and timely decisions
• Prevent any insider trading and window
dressing
o Prevent agents from disclose or sell any
confidential information
o Prevent the possibility of window dressing
and manipulation of accounts
• Improve the company’s credibility
o As it reduce any uncertainty
o It will also prevent any unpredictability
events to occur
• Enable investor to make informed decisions
o Reduce the level of doubts and rumor
o Increase the investor’s confidence to make
investment decisions
• Prevent any calamities financially and
economically
o High level of transparency helps to avoid
any financial and economic crisis
Chapter 8: BOD & governance issues in business o Members of the board of directors without
executive responsibilities in the company
• BOD: an appointed or elected member of BOD
o Responsible: Perform various tasks
of a company who, with other directors, has the
including acting as the company’s
responsibility for determining and
chairperson and sitting on various key
implementing the company’s policy
committees
• Importance
o As the organisation’s agents, they can bind
the company with valid contracts entered
Directors’ Duties
into third-parties such as buyers, lenders
and suppliers • Duty of care
o They are also responsible in making the o Exercise due diligence where directors
organisation’s policies which is a guideline make business decisions on an informed
to the whole employees in the organisation basis
o Act in good faith and with honest belief that
their actions were taken to serve the best
Board structure interest of the company
• Duty of obedience
• Unitary Board Structure (one-tier system)
o Must obey the law
o Practice in Malaysia
o Ensure that the company itself obeys the
o The board is the highest governing board in
law
the company
• Duty of loyalty
o Characterised by one single board that is
o Must demonstrate unyielding loyalty to the
responsible for all aspect of company’s
company and avoid conflict of interest
activities
o Must refrain from personal activities that
o Shareholder elect the directors to the board
either take advantage of or injure the
at the company’s annual meeting and do
company
not generally influence the direction of the
o Court will defer to director’s business
company
judgment when he or she has acted with all
• Dual Board Structure (two-tier system)
loyalty and exercised all possible care
o Practice in Europe
o The shareholders appoint the members of
the supervisory board(non-management
Directors’ Primary Roles
members)
o Supervisory board appoints the members of • Monitoring/ Control Role
the management board o Select board members, compensate and
o Supervisory only appoints, supervises and make implicit or explicit decisions regarding
advices the members of the management the retention of the CEO
board on policy but does not participate in o Review conflict of interest transactions
the company’s day to day management between senior managers and the company
o Overseeing the process of accounting,
financial reporting, auditing and disclosure
Type of directors • Service/ Expertise/ Counsel Role
o Involves directors advising the CEO and top
• Executives
management on administrative and other
o Full-time employees of the company
managerial issues
o Members of the board of directors with
o Actively initiating and formulating strategies
specific executive responsibilities, for
• Resource Dependence Role
example Finance Director
o Views the board as a means of facilitating
o Responsible: To oversee the day-to-day
the acquisition of resources such as capital
running of the company
and business partnerships, critical to the
• Non-executive
firm’s success
o Appointed on a part-time basis
Responsibilities of BOD • Outside directors provide advice to the CEO
that is not necessarily available from inside
• Reviewing and adopting a strategic plan for the
directors
company
• Board size should have a balance number of
• Overseeing the conduct of the company’s
independent and non-independent
business to evaluate whether the business is
properly managed
• Identifying principal risks and ensure
Importance of non-executive directors
implementation of appropriate systems to
manage risks • To monitor and control the actions of the
• Succession planning, including appointing, directors due to their opportunistic behavior
training, fixing the compensation of and where • Help to reduce management consumption of
appropriate, replacing senior management perquisites
• Developing and implementing an investor • Challenge the executives who are too
relations programme shareholder committed to tradition & strategic persistence
communications policy for the company • Enhance the effectiveness of the board as the
• Reviewing the adequacy and integrity decision expert that can work in systems of
company’s internal control systems, diffuse control
management information system, systems for • Removal of non-performing CEO of the
compliance with applicable laws, regulations, company & other board personnel
rules, directives and guidelines • Influence the quality of directors’ deliberations
and decisions & provide strategic direction to
improve performance
Chairman primary responsibilities • In order to have an effective board, there must
be right balance in board composition
• Provides leadership for the board so that the
board can perform its responsibilities
effectively
Importance of board composition
• Sets the board agenda and ensures that board
members receive complete and accurate • Improve transparency and accountability to the
information in a timely manner shareholders
• Leads board meeting and discussion • Geared towards realizing the company’s growth
• Encourages active participation and allowing and expansion programs, which includes
dissenting views to be freely expressed making a stronger presence in the domestic
• Manages the interface between board and and the global markets
management ensures appropriate steps are • Assure institutional investors that the company
taken to provide effective communication with had placed well-balanced structure and in line
stakeholders and their view communicated to with global corporate governance trends and
the board as a whole requirements
• Leads the board in establishing and monitoring
good corporate governance practices in the
company Impacts of board size function

• Larger boards are often to be more capable of

Board composition monitoring the top management actions which
difficult for CEO to dominate larger boards
• Distinction between inside and outside • Larger board size make it more difficult for CEO
directors and operationalised as the percentage to obtain consensus for taking action that will
of outside directors on the board harm shareholder’s interests
• The role of independent outside directors • Larger board are less effective as the oversight
becomes crucial in monitoring the performance duties compare to smaller boards which the
of inside directors (management), including the CEO dominate over the board matters
CEOs
• Smaller board size with outsider representation Interlocking directors
is conducive to an active board with high level
• Interlocking or cross-directorships refer to the
of involvement in strategic formulation
situation where the directors sit on more than
• Smaller boards are associated with better
one board
performance, where market values for firms
• Related issue known as “reciprocal
with smaller boards are high
interlocking” occurs when one directors serve
on board of two different corporations
• Example: CEO of company A is serving on the
Advantage of role duality
other company which is Company B
• Managers act in the best interest of the firm and
shareholders which may enhance board
effectiveness Benefits/ advantages of interlocking directors
• Stronger flow of information
• Provide directors with the opportunity to
• Better decision making by permitting sharper
compare management policy and practice
focus on company objectives and promote
• Expose directors to economic trends and
rapid implementation of operational decision
aspects of international business as well as
• Allows CEO with understanding strategic vision
different management styles and monitoring
to shape the destiny of the firm with minimum
behavior through the knowledge of other
board interference
organization
• Lead to improve performance resulting from
• Provide insight into how other companies
clear unfettered leadership of the boards
pursue new approaches to business
• Provide directors with wider experience and
allow personal development, obtain and
Disadvantage of role duality
improve business contact
• When CEO is also a chairman, he is in position
of evaluating his own performance, determining
his compensation and tenure Disadvantages of interlocking directors
• CEO/chairman duality can be used for personal
• Holding additional directorship may encourage
gain at the expense of the other stakeholders
directors to pursue their own objectives at
o Creates an environment of greed and
shareholders expense
corruption that eventually creates a loss in
• Cross-directorship may collusion
the share value
• Lead to inter corporate Weaken the
independence of a director
Advantage of role separation

• Separate chairperson can exercise the Audit committee requirement

necessary independence of judgement for such
• Must be composed of no fewer than 3 members
self-evaluation
• A majority of the audit committee must be
• Independent structure may facilitate more
independent directors
active discussion and debate between the
board and executives • At least one member of the audit committee:
o Must be a member of the Malaysian
• Ensure a balance power and authority
institute of accountant
• Promote better monitoring and implementation
o If he is not a member of the MIA, he must
• Lead to more independent boards, which
have at least 3 years working experience
provide the essential checks and balances over
and:
management’s performance
- Must have passed the examination
specified in part 1 of the first schedule
of the accountants act 1967 or
- He must be a member of one of the
associations of accountants specified
 in part 2 of the 1st schedule of the Nomination committee
accountants act 1967 or
• Made up of independent directors that adopts a
- Fulfils such other requirements as
formal procedure for appointments to the board
prescribed by the exchange
o No alternate director is appointed as a member • It is their responsibility in appointing director
of the audit committee with the skill and characteristics needed in the
board
• They should involve in assessing existing
directors and succession planning in the
Functions of audit committee
company by identifying possible gaps in skill
• Review the following and report the same to the and knowledge that would need to be filled with
board of directors of the listed issuer new appointments
• Recommend the nomination of a person or
person as external auditors
• To ensure that the organization is properly run, Steps in strategic recruiting
manage, and be accountable to the
1. Create a board charter that defines the role and
stakeholders and preserving corporate
mission of the board
governance for an organization
2. Create a needs matrix that defines the critical
needs and expertise to achieve it
3. Definite the basic structure of the board in term
Audit committee effectiveness
of size, meeting frequency, committees,
• To ensure that management does not override compensation, term limit and age
establishment prudent financial practices and 4. Develop a measurable profile for each director
procedures slot
• To assist the board of directors in discharging 5. Know and specify why directors will want to
their responsibilities for financial reporting and serve
internal controls 6. Recruit proactively to each profile
• To provide an impartial channel for complaints 7. Interview and reference potential directors
concerning the management and direction of a 8. Provide comprehensive orientation
company 9. Recruit in continuum

Remuneration committee Enhancing board committee effectiveness

• Remuneration committee of the board faces • Define independent more rigorously

less legal danger of its failing • Mandate committee to have all independent
• The need for an independent remuneration members
committee • Independent non-executive director as
• Functions chairman who has the confidence in the board
o To determine the company’s policy on • A committee of three members is ideal
executive remuneration and specific • Membership of committee chairman be rotated
remuneration packages for the every few years
executive directors • Stronger communication need
o Determination of remuneration of Non • Qualification and continuous training
executive director including chairman
o Committee should provide procedure to
set executive remuneration levels Other corporate governance committee
o Individual should abstain from
discussing their own remuneration • Risk management
• Employment share option
• Financial
• Corporate social responsibility
• Executive Importance of disclosure
• Stakeholders relationship
• Contributes to liquid and efficient markets by
enabling investors make investment decision
through the information given
Best practices in CG disclosure requirements
• Critical element as it provides basis to inform
• The thrust of Malaysia Corporate Governance shareholders, stakeholders and potential
reform agenda underlying the report focuses on investors with respect to capital allocation,
the following areas: corporate transactions and financial
o Fair treatment of all shareholders & performance monitoring
protection of shareholders right • Helps public to know company’s activities,
o Transparency, clear and comparable policies and performances which will led to
information good relationship between company with
o Accountability and independence stakeholders and communities
o Strengthening regulatory enforcement • Poor quality of disclosure and lack of
o Promoting training & education at all level transparency can make excessive risk-taking
and leveraging by global financial institutions
• High quality elsewhere not only serve to protect
MCCG investors but helps regulators in maintaining
market confidence on systematic stability
• Standards that companies are expected to o Quantitative: annual reports
adapt as part of their governance structure and o Qualitative: how useful the information
processes provided is in assisting
• Aims to encourage disclosure by providing
investors with timely and relevant information
upon which investment decisions are made &
evaluation of companies performance
• guide to Board of Directors by clarifying their
responsibilities & also provides remedy to
strengthen the control exercised

Main areas of OECD

• Ensuring the basis of an effective corporate

governance framework
• Rights of shareholders and key ownership New development in governance disclosure
functions
1. Securities Commission Malaysia released new
• Equitable treatment of shareholders
Malaysian Code on CG
• Role of shareholders
• Internalization of corporate governance
• Disclosure and transparency
culture
• Responsibilities of the Board
• 36 practices to support 3 principles
• Introduction of the Comprehend, Apply and
Report (CARE)
Reporting requirements for governance in
• Introduction of ‘Step Up’ practices
Malaysia
2. Securities Commission Malaysia announced 3
• Financial transparency: cash flow statement years strategic plan
• Board and management structure and process: • Strengthening the ecosystem
changes in BOD; retire, resign or re-elect • Leveraging technology
• Ownership structure and exercise of control • Promoting gender diversity on boards
rights: ordinary and preference shares • Embedding corporate governance culture
• Auditing: compliance with MFRS early