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BUSINESS ETHICS [20 marks]

Nut – Shell:
Ethics is a way of being human. Applying this concept in business, establish the concept of
Business Ethics.
Golden rule of ethics: - “Treat others as you would like to be treated, if you were them.”
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CHAPTER 1:- PRINCIPLES OF BUSINESS ETHICS
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‘ETHICS’ AND ‘BUSINESS ETHICS’
(NOV. 2007)
Meaning of Ethics  The term ‘Ethics’ has a variety of meanings. One of the meaning
of ‘Ethics’ are The Principles of Conduct governing an individual
or a group.
 Another definition describes ethics as relating to what is good or
bad and having to do with moral duty and obligation.
 Ethics is a way of being human. Applying this concept in business,
establish the concept of Business Ethics.
Meaning of Business  Business Ethics is the study of what constitutes right and wrong or
Ethics good and bad human conduct in business context.
 Business Ethics is that set of principles or reason which should
Business Ethics
govern the conduct of business both at the individual or collective
involved moral
level by the application of ethical reasoning to specific business
judgement
situations & activities.
based on
 Business ethics is that set of principles or reason which should
understanding
govern the conduct of business both at the individual or collective
of society.
level by the application of ethical reasoning to specific business
situations & activities.

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Principle of Business Ethics
By CA Lokesh Kasat
Need for Business Ethics  Comply with Rules: The need for complying with rules. For Ex.:-
Laws of land, customs & expectation of community, principles of
morality, policies of organization & General concerns such as the
A business man has
needs of others
to act only as a
 Actions affecting Employee, Community, Society: How the
trustee of the society
for whatever he has products, services and actions of a business enterprise can effect its
gained from the stakeholders i.e. employees, the community and society as a
society. Everything whole, either positively or negatively.
finally belongs to Some of the factors justifying the need for business ethics are:-
the society.  Society bestows upon businesses the authority to own and use land
& natural resources. In return society has the right to expect that
productive organization will enhance the general interest of
consumers, employees & community. Society may also expect that
organization will honour existing rights and limit their activities
within the bounds of justice.
 The products and services of an organization and the actions of its
members can affect its stakeholders i.e. employees, the community
and society as a whole, either positively or negatively.
 Business ethics provides guidance regarding the expectations of
the community, principles of morality, consequences &
complications of their actions, etc. Hence, business ethics are
extremely needed for well-being of organization as well as
community as a whole.
Question: To maintain social contract between society and business, the trusteeship relations are essential”. Describe the role of
business ethics in this reference. (5 Mark) (May 2009)
Correct  Above description of Need of Business Ethics

SOCIAL SIN OF MAHATMA GANDHI (NOV.

2010, 2013)
Seven Social Sin Listed  Mahatma Gandhi, Father of India, promoted non-violence, justice
by Mahatma Gandhi and harmony between people of all faiths and listed following sins:
Wealth without Work.
Politics without Principle.
Commerce without Morality
Knowledge without Character
Pleasure without Conscience.
Science without Humanity.
Workship without sacrifice
Business Ethics is the behaviour that business
adheres in its daily dealing.
 Lalgarh Palace, VidhyaDhar Nagar
Sector-2, 0141 - 3299963

ETHICAL STANDARDS (MAY

2013)
Meaning  Ethical Standard means the method to identify that on which
sources ethics are based on.
Sources of Ethical  The Utilitarian Approach: Some ethicists emphasize that the
Standards ethical action is the one that provides the most good or does the
(Nov. 2015) least harm, or, to put it another way, produces the greatest balance
of good over harm.
 The Rights Approach (The Deontological Approach): This
approach starts from the belief that humans have a dignity based
on their human nature per se or on their ability to choose freely
what they do with their lives.
May 2015  The Fairness or Justice Approach: Today we use this idea to say
that ethical actions treat all human beings equally-or if unequally,
then fairly based on some standard that is defensible. We pay
people more based on their harder work or the greater amount that
they contribute to an organization, and say that is fair.
 The Common Good Approach: This approach suggests that the
interlocking relationships of society are the basis of ethical
reasoning and that respect and compassion for all others-especially
the vulnerable-are requirements of such reasoning.
 The Virtue Approach: These virtues are dispositions and habits
that enable us to act according to the highest potential of our
character and on behalf of values like truth and beauty.

Question: Moral V/S Ethics (May 2013, Nov. 2007, 2009, 2011
Point Moral Ethics
1 Derived from Latin word MOS meaning Derived from Greek word ETHIKOS or
customs. ETHOS meaning character.

2 Is accepted from an authority say culture, Are personal principles/ attribute.

religion i.e. defined by group.

3 Narrower scope Wider scope

4 Can be expressed as General rules & Cannot be expressed as General rules &
statements statements
5 Are absorbed as a child from family, Are developed over a period of time.
schools, friends, etc.,
6 Societies have customs. People have character

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Principle of Business Ethics
By CA Lokesh Kasat

ETHICAL DILEMMA
Meaning  Many business issues may seem straight forward and easy to
resolve by choosing the one option which appears to be the clear
choice but in reality one is faced with having to make a choice
from various alternatives resulting in an ethical dilemma.
 In other words sometimes its very difficult to identify that what is
right & what is wrong in adverse situations.
Guidelines to ease i) Define the Problem clearly
Ethical Dilemmas ii) How it is Related to other parties?
iii) The situations arise Over which issue?
iv) To whom are you Bound to be loyal as person & as a member of
organization.
v) What will you Look at while making decisions?
vi) What are the Expected results & how they are comparable with
actual results?
vii) Whom could your decisions or Main results of actions injure?
Key to Remember viii) Can you Save the problem by discussing it with other affected
parties?
PROBLEM
ix) Are you confident that your position will be as valid Over long
period of time as it seems means?
SOLVE
x) Can you ask your boss, CEO, your family, society as a whole to
Look upon your decisions?
xi) What are the Various potentials of your actions?
xii) Under what conditions would you allow Exceptions to your
stand?

HIPPOCRATIC OATH
Meaning  It is an ancient Greek ethical code which is a basis of all medical
ethics.
 It emphasis on patient’s dignity confidentiality & physician’s
responsibility to guard against abuse of profession and corruption
of their knowledge.
 It also emphasizes that the physician should honour the rules of
their profession & expose those who do not follow the high
standards of conduct.

Business Ethics is the behaviour that business

adheres in its daily dealing.
 Lalgarh Palace, VidhyaDhar Nagar
Sector-2, 0141 - 3299963

BENEFITS OF BUSINESS ETHICS

(NOV. 2008, 2013)
1. Improved society  A few decades ago, children and workers were ruthlessly
exploited.
 Influence was applied through intimidation and harassment.
 Then society reacted and demanded that businesses place high
value on ethics, fairness and equal rights resulting in framing of
antitrust laws, establishment of Government agencies and
recognition of labour unions
2. Easier Change  Attention to business ethics is critical during times of fundamental
Management change - times like those faced presently by businesses, whether
non profit or for-profit.
 Continuing attention to ethics in the workplace sensitizes leaders
and staff for maintaining consistency in their actions.
3. Strong teamwork and  Ongoing attention and dialogue regarding values in the workplace
greater productivity builds openness, integrity and community, all critical ingredients
of strong teams in the workplace.
4. Enhanced employee  Attention to ethics in the workplace helps employees face the
growth reality, both good and bad in the organization and gain the
confidence of dealing with complex work situations.
5. Ethics programs help  A major objective of personnel policies is to ensure ethical
guarantee that treatment of employees.
personnel policies are  Ethics management programs are also useful in managing
legal. diversity.
 Such programmes require the recognition and application of
diverse values and perspectives which are the basis of a sound
ethics management programme.
6. Avoid Criminal acts  Ethics programs help to detect ethical issues and violations early,
so that they can be reported or addressed.
7. Manage Values  Helps to manage values associated with quality management,
(Nov. 2014) strategic planning & diversity management.
 Ethics programs help identifying preferred values and ensuring that
organizational behaviors are aligned with those values.
 This includes recording the values, developing policies and
procedures to align behaviours with preferred values, and then
training all personnel about the policies and procedures.
 For example, Total Quality Management (TQM) initiatives include
high priority on certain operating values, e.g., trust among
stakeholders, performance, reliability, measurement, and feedback.

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Principle of Business Ethics
By CA Lokesh Kasat
8. Promote strong public  An organization that pays attention to its ethics can portray a
image strong and positive image to the public.
(Nov. 2011, 2015)  People see such organizations as valuing people more than profit
and striving to operate with the integrity and honour.
Note:
1. Knowledge without morality is a social sin. (May 2007)
2. Company management is not only responsible to shareholder but to complete user of FS.
(Nov. 2007)
3. Ethics doesn’t means moral.
4. The Governance Model Position management as accountable solely to investor. (Nov.2008)
5. Trusteeship provides a means of transforming the present capitalist order of society. (Nov
2010).

Business Ethics is the behaviour that business

adheres in its daily dealing.
 Lalgarh Palace, VidhyaDhar Nagar
Sector-2, 0141 - 3299963

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CHAPTER 2:- CORPORATE GOVERNANCE AND CORPORATE SOCIAL
RESPONSIBILITY
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CORPORATE GOVERNANCE (Nov. 2004, 2007, 2013, May 2008,
2010, 2013, 2015, 2016)
Meaning  Governance means the process of decision making and the process
by which decisions are implemented in the interest of stakeholders.
Corporate
 The term “Corporate Governance” can be defined as a formal
Governance is
system of accountability & control for ethical & socially
about promoting
responsible organisational decision & use of resources.
corporate
fairness,
 Accountability relates to how well the work place decisions
transparency and are co-ordinate with strategic decisions.
accountability  Control involves process of auditing & improving
organisational decisions & actions.
Characteristics of Good  Consensus Oriented.
Corporate Governance  Participatory. Key to Remember
 Transparent.
 Follows the rule of the law. CPT–F EAR
 Equitable, Efficient, Effective.
 Accountable.
 Responsive.
Benefits to Good  Protection of investor interest and strong capital markets.
Corporate Governance  Studies show clear evidence that the good Corporate Governance
(May 2010, 2013) is rewarded with a higher market valuation.
 Ensures commitment of the board in managing the company in a
transparent manner.

SHAREHOLDER v/s STAKEHOLDER (MAY

2009, NOV 2012)
Point Shareholder Stakeholder (Nov.2012)
1 Shareholders are the owners of a Constituents of an organization; insiders like
particular organization. employees, trade union; outsiders like
customers, creditors, society, government,
competitors, local communities, shareholders.
2 Shareholder is a narrower term. Stakeholder is a wider term.
3 Every shareholder is a stakeholder. Every stakeholder is not a shareholder.

Question: What corporate governance measures are required to be implemented by the Indian Companies as per clause 49 of the

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Corporate Governance & CSR
By CA Lokesh Kasat
listing agreement? Explain in brief. (Nov.2014)
In general, corporate governance measures include appointing non- executive directors, placing constraints on
management power and ownership concentration as well as ensuring proper disclosure of financial information and
executive compensation. Many companies have established ethics and/or social responsibility committees on their
boards to review strategic plans, assess progress and offer guidance on social responsibilities of their business. In
addition to having committees and boards, some companies have adopted guidelines governing their own policies and
practices around such issues like board diversity, independence and compensation.
1) Indian companies are required to comply with clause 49 of the listing agreement primarily focusing on
following areas: Board composition and procedure
2) Audit committee responsibilities
3) Subsidiary companies
4) Risk management
5) CEO/CFO certification of financial statements and internal controls
6) Legal compliance
7) Other disclosures

Question: The responsibility of the corporate management lies towards shareholders only (May 2011)
Incorrect  Growing number of corporations accept the constituents other than
shareholders
 The responsibility of the corporate management lies towards stakeholders.

CORPORATE SOCIAL RESPONSIBILITY [CSR]

(MAY 2007, NOV. 2006,
2008, 2013, 2014)
Meaning  CSR refers to operating a business in a manner that accounts for
the social and environmental impact created by the business.
 CSR means a commitment to developing policies that integrate
responsible practices into daily business operations, and to
reporting on progress made toward implementing these practices.
Besides making
 In short, CSR is achieving commercial success in ways that honour
Profits, business
ethical values & respect people, communities & the natural
should be
environment.
answerable to all
Stakeholders  The concept of CSR focuses on the idea that beyond making
profits, a business has a social obligation to produce an overall
positive impact on the society by fulfilling the needs of employees,
consumers, community & society as a whole.

BENEFITS OF CSR (MAY 2007, 2008,

NOV. 2009)
The Iron Law of  If business wants to grow it must respond to society need
Responsibility
CSR – Focused Businesses would proactively promote
the Public Interest
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(Nov.2009, 2012, May constructively. (Nov. 2015)

2009, 2014, 2016)  The institution of business exists only because it performs
invaluable services for society. Society gives business its license to
exist and this can be amended or revoked at any time if it fails to
live up to society’s expectations. (Nov.2012)
 Therefore, if a business intends to retain its existing social role and
power, it must respond to society’s needs constructively. This is
known as the “Iron Law of Responsibility”.
Achievement of long  Businesses have been delegated economic power and have access
term objectives to productive resources of a community. They are obliged to use
these resources for the common good of society so that more
wealth for its betterment may be generated. Technical and creative
In the long-term
resources are also helpful to it. A business organization sensitive to
those who do
community needs would in its own self interest like to have a
not use power in
better community within which the business may be conducted.
a manner that
This way, the resulting benefits would be:
society
(a) Decrease in crime
considers
(b) Easier labour recruitment
responsible, will
(c) Reduced employee absenteeism.
tend to lose it.
(d) Easier access to international capital, better conditions for loans on
international money markets.
Enhanced Brand Image  Customers are drawn to brands and companies with good
and Reputation reputations.
(Nov. 2013)  A company considered socially responsible can benefit both from
its enhanced reputation with the public as well as its reputation
within the business community, increasing a company’s ability to
attract capital and trading partners.
Checks Government  Regulation and control are costly to business, both in terms of
Regulation / Controls energy and money and restrict its flexibility of decision-making as
failure of businessmen to assume social responsibilities invites
government to intervene and regulate or control their activities.
 By their own socially responsible behaviour, they can prevent
government intervention.
Helps minimise  The effluents of many businesses damage the surrounding
Ecological Damage environment. By their own socially responsible behaviour, they
can prevent government intervention if they are proactive in
recognising their ecological responsibility towards society.
Improved Financial  Business and investment communities have long debated whether
Performance there is a real connection between socially responsible business

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Corporate Governance & CSR
By CA Lokesh Kasat
practices and positive financial performance.
Reduced Operating  Some CSR initiatives can reduce operating costs dramatically.
Costs  For Ex, Initiatives aimed at improving environment performance,
such as redducing release of gases that contribute to global climate
change or reducing use of agrochemicals also lower costs.
Increased Sales and  A number of studies have suggested a large and growing market
Customer Loyalty for the products and services of companies perceived to be socially
responsible.
Increased Productivity  Efforts to improve working conditions, lessen environmental
and Quality of Work life impacts or increase employee involvement in decision-making
often lead to increased productivity and reduced error rate in a
company.
Increased Ability to  Companies perceived to have strong CSR commitments often find
Attract and Retain it easier to recruit and retain employees, resulting in a reduction in
Employees turnover and associated recruitment and training costs. Even in
difficult labour markets, potential employees evaluate a company’s
CSR performance to determine whether it is the right fit.

NEED FOR CSR

Need for CSR in  CSR is pursued by businesses to balance their economic,
Business environmental and social objectives while at the same time
addressing stakeholder expectations and enhancing shareholder
value.
CSR does not
 More companies than ever before are engaged in serious efforts to
have a
define and integrate CSR into all aspects of their business to fulfill
universal
four responsibilities:
definition
1. Economic Responsibilities
2. Legal Responsibilities
3. Ethical Responsibilities
4. Discretionary Responsibilities
Further Points to  Converts resistance into resources.
Support Need  Fulfills long term Self-interest.
 Avoid government Regulation & control.
Key to Remember:
 Control environmental damage.
 Avoids misuse of natural resources & economic power.
CSR Creates A
 Gives an organization a law of responsibility.
Great Society
 Helps to achieve goals & establish a better Society.

CSR – Focused Businesses would proactively promote

the Public Interest
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Sector-2, 0141 - 3299963

CSR POLICIES
(NOV. 2011)
Common CSR policies  Commitment to diversity in hiring employees and barring
discrimination;
 Adoption of internal controls reform in the wake of Enron and
other accounting scandals;
 Management teams that view employees as assets rather than
costs;
CSR Policies is  High performance workplaces that integrate the views of line
nothing but employees into decision-making processes;
applying CSR in  Adoption of operating policies that exceed compliance with social
Corporate and environmental laws;
Environment  Advanced resource productivity, focused on the use of natural
resources in a more productive, efficient and profitable fashion
(such as recycled content and product recycling); and
 Taking responsibility for conditions under which goods are
produced directly or by contract employees domestically or
abroad.
 Management teams that view employees as assets rather than
costs;
 High performance workplaces that integrate the views of line
employees into decision-making processes;
 Adoption of operating policies that exceed compliance with social
and environmental laws;

CSR MECHANISM & KEY STRATEGIES (NOV. 2011,

2014)
CSR Mechanism  Nowadays, Companies are adopting formal techniques to discuss
CSR into business strategy & decision making framework. Some
companies have established committees, standing committees or
special BOD to include responsibility for CSR issues.
 Companies implement CSR by putting in place internal
management systems that generally promote:
 Adherence to labour standards
 Respect for human rights
 Consumer Protection
 Avoiding bribery & corruption
 Protecting environment

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Corporate Governance & CSR
By CA Lokesh Kasat
 Reducing the negative impacts of operating in conflict zones
Key Strategies  Some of the key strategies which can be used by companies when
(Nov. 2010, 2014) implementing CSR policies and practices are as follows:
a. Mission, Vision & Value statements
b. Cultural Values
c. Management structures
d. Strategic planning
e. General accountability
f. Employee recognition & rewards
g. Communication, Education & Training
h. CSR reporting
i. Use of influence.
Question: Explain briefly the key strategies which can be used at the time of implementation of Corporate Social Responsibility
policies and practices in a company. (Nov.2010)
Write all Key Strategies  Each company differs in how it implements Corporate Social Responsibility
(CSR). The distinction depends on such factors as the company's size, sector,
culture and the commitment of its leadership.

GLOBAL REPORTING INITIATIVE (GRI)

Introduction to GRI i) GRI is a reporting standard rather than a performance standard.
ii) It was established in 1997 with the mission of designing globally
applicable guidelines for preparing enterprise-level sustainability
reports including both social & environmental indicators.
iii) The GRI is convened by CERES (Coalition for Environmentally
Responsible Economies) & incorporates the active participations
of corporations, NGO’s, International organization, UN agencies,
Consultants, Accountancy org., business associations, Universities
& other stake holder around the world.
Globally various
types of
iv) The GRI first released its Sustainability Reporting guidelines in
Reporting 1999 & is now a permanent, independent, international body with a
Standards are multi-stake holder governance structure.
there in relation v) Its core mission will be maintenance and enhancement of the
to CSR guidelines through a process of ongoing consultation & stake
holder engagement.
vi) The GRI vision is that reporting on economic, environmental and
social performance by all organization. GRI accomplishes this
vision by developing, continually improving and building capacity
around the use of its Sustainability Reporting Framework.

CSR – Focused Businesses would proactively promote

the Public Interest
 Lalgarh Palace, VidhyaDhar Nagar
Sector-2, 0141 - 3299963

VARIOUS COMMITTEE IN CSR AND ITS ROLE (MAY

2008, 2012)
Board of Directors  The Board’s role is that of trusteeship to protect and enhance
shareholders value through strategic supervision. The strategy
should aim at accountability and fulfillment of goals.
Audit Committee  They have to provide assurance to Board on adequacy of internal
control systems and financial disclosures.
Compensation  The committee has to recommend to the Board compensation
Committee terms for Executive Directors and the senior most level of
management below the Executive Director.
Nomination Committee  It is to recommend to the Board nominations for membership of
the Corporate Management Committee and the Board and oversee
succession to the senior most level of management below the
Executive Director.
Corporate Management  Its primary role is strategic management of company’s business
Committee within Board’s approved direction.
Inverstor Services  It is to look into redressal of shareholders and investors grievances,
Committee approval of transmissions, sub division of shares, issue of duplicate
shares etc.,
Divisional Management  It is to realize tactical and strategic objectives in accordance with
Committee Corporate Management Committee / Board approved plan.

SOCIAL ACCOUNTABILITY-8000 (NOV

2011)
Introduction (SA 8000)  SA 8000 is a comprehensive, global, verifiable performance
standard for auditing and certifying compliance with corporate
responsibility. The heart of the standard is the belief that all
workplaces should be managed in such a manner that basic human
rights are supported and that management is prepared to accept
accountability for this.
 SA8000 is an international standard for improving working
conditions. This standard is based on the principles of the
international human rights norms as described in International
Labour Organization conventions, the United Nations Convention
on the Rights of the Child and the Universal Declaration of Human
Rights.
 The requirements of this standard apply regardless of geographic

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Corporate Governance & CSR
By CA Lokesh Kasat
location, industry sector, or company size.

Question: Inclusion of environmental consideration as a part of corporate strategy improves corporate performance. (May 2015)
Correct Statement  A good environmental practice improves corporate performance.
 Environmental friendly practices have resulted in more savings.

CSR – Focused Businesses would proactively promote

the Public Interest
 Lalgarh Palace, VidhyaDhar Nagar
Sector-2, 0141 - 3299963

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CHAPTER 3:- WORK PLACE ETHICS
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Ethical behavior is essential to working environment at the working place (May 2012)
FACTORS INFLUENCING ETHICAL BEHAVIOUR AT WORK
PLACE
Three General Factor  Individual standards and values; with
(May 2009, Nov. 2014)  Managers and co-worker influence; with
 Codes and compliance requirements
Result in Ethical / unethical choices in work places
For Example  If the boss or co-workers leave work early, one may be tempted to
do so as well.
 If one sees co-workers making personal long-distance phone calls
at work and charging them to the company, then one may be more
likely to do so also.

ETHICAL ISSUES FACED BY AN INDIVIDUAL AT WORK PLACE

(May 2009,
Nov. 2010, 2012)
1. Business Relationships  The behaviour of businesspersons toward customers, suppliers, and
others in their workplace may also generate ethical concerns.
 Ethical behaviour within a business involves keeping company
secrets, meeting obligations and responsibilities, and avoiding
undue pressure that may force others to act unethically.
2. Conflicts of interest  A conflict of interest exists when a person must choose whether to
advance his or her own personal interests or those of the
organization i.e. Self Vs Organisation.
 Conflicts of interest need not be financial.
3. Fairness and Honesty  Fairness and honesty are at the heart of business ethics and relate
(Nov. 2009, May 2012) to the general values of decision makers i.e. they are the Pillars of
success in business
 At a minimum, businesspersons are expected to follow all
applicable laws and regulations.
4. Communications  Communications is another area in which ethical concerns may
arise.
 False and misleading advertising, as well as deceptive personal-
selling tactics, anger consumers and can lead to the failure of a

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Work Place Ethics
By CA Lokesh Kasat
business.
 Truthfulness about product safety and quality are also important to
consumers.

DISCRIMINATORY PRACTICES (MAY 2011, 2012, 2014, NOV

2013, 2015)
Meaning of  To discriminate means to distinguish one object from another.
Descrimination  Discrimination is treating people differently.
 Employment discrimination is treating one person better than
another because of their age, gender, race, religion or other
protected class status.

Commonly Recognized Descrimination Practices

1. Recruitment Practices  Firms that rely solely on the word-of-mouth referrals of present
employees to recruit new workers only from those racial and
Key to Remember:
sexual groups that are already represented in their labour force.
 When desirable job positions are advertised only in media that are
Ram Se Pehle
not used by minorities or women or are classified as for men only,
Dashrath Crowned
recruitment would also tend to be discriminatory.
2. Screening Practices  Screening is said to be discriminatory when the parameters
required are such as which are not relevant to the job to be
performed.
 Interviews for the jobs are said to be discriminatory if the
interviewer disqualifies certain class of people for reason not
related to work. E.g. the occupation is not suitable for women, etc.
3. Promotion Practices  Promotion, job progression & transfer practices are discriminatory
when employer place males on job tracks separate from those open
to women & minorities.
4. Dismissal  Firing on employee on the basis of her/his race or sex is a clear
form of discrimination; though not as serious as an offence but the
same is considered as discriminative.
5. Condition of  Many times equal wages & salaries are not given to employees
Employment performing essentially similar tasks.
 Another issue is related to fair wages and treatment to workers.
Question: Promotion policies based on individual merits and not purely on the basis of seniority, is discriminatory? (Nov 2013)
Incorrect  Seniority alone cannot be the deciding factor in the promotion, if the senior
person is not fit for the job.

Workplace ethics are an extension of personal

standards valuing Work Place
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HARASSMENT
(NOV. 2010, 2011)
Meaning  Harassment is “tormenting someone by subjecting to constant
interference or intimidation”. It creates a negative work
environment where work is extracted from the employees by
intimidating them & using coercive measures to get job done.
Harrasment in Business
a. Racial Harassment  Racial or colour Harassment includes offensive written or physical
conduct at the characteristics of a person’s race, entire or national
origin name or colour. It also includes derogatory name calling
racist jokes & so on.
b. Sexual Harassment  Sexual Harassment means situations in which an employee is
(Nov. 2011) coerced into giving into another employee’s sexual demands by the
threat of losing some significant job benefit, such as promotion,
raise or even the job.
 It is an unjust misuse of the unequal power that an employer can
exercise over the employee.
 Sexual Harassment is prohibited & an employer is held responsible
for all sexual harassment engaged in by employees “regardless of
whether the employer knew or should have known. The
harassment occurring & regardless of whether if was forbidden by
the employer”
c. Adverse Terms  It means introducing unreasonable condition in Job
d. Unreasonable  It means unreasonable pressure of Manager during Job.
Interference

IMPORTANCE OF ETHICAL BEHAVIOUR AT THE WORK PLACE

(Nov. 2009, MAY 2009,
2012)

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Work Place Ethics
By CA Lokesh Kasat
Introduction  An organization, whether a business or a government agency, is
first & Foremost human society.
 If an employer does not take steps to create a work environment
Problems may
where the employees have a clear, common understanding of what
arise at work place
is right & wrong & free feel to discuss & ask questions about
because an
organization is ethical issues & reports violations, significant problems could
first and foremost arise which are as follows:-
a human society.  Diminished reputations in the industry & community
 Increased risk of employees making Unethical decisions
 Significant legal exposure & loss of competitive advantage in
Key to
market place
Remember:
 Increased Tendency of employees to report violations to
outside regulatory authorities because they lack on adequate
D U S T E R
internal forum.
 In the long run, Effect of this would be that it would render the
company unprofitable & the company would go into
liquidation.
 Inability to Recruit & Retain top people.
Question: What problems may arise at work place when ethical behaviour is not adopted? (May 2014)
Significant Problems  Write above Points “ D U S T E R “

GUIDELINES FOR MANAGING ETHICS IN THE WORKPLACE

Measures to ensure ethics in work place (May 2007, 2009, 2011, 2013, 2016)
 The focus on core values & sound ethics, the hall mark of ethical management is being
recognized as an important way to ensure the long term effectiveness of governance structures
& procedures & avoid the need for whistle blowing.
 Employers who understand the importance of work place ethics, provide their work force with
an effective frame work & guiding principles to identify & address ethical issues as they arise.
1. Codes of Conduct and  A code of ethics specifies the ethical rules of operation in an
Ethics organization.
 Codes of conduct specify actions in the workplace and codes of
ethics are general guides to decisions about those actions
2. Establish Open  Instead of just creating and distributing an ethics policy, it is
Communication important that take the time to explain the reasons for the policy
and review the guidelines and conduct formal or informal training
to further sensitise employees to potential ethical issues.
3. Ethics Decision  Make ethics decisions in groups, and make these decisions public.
 This usually produces better quality decisions by including diverse
Workplace ethics are an extension of personal
standards valuing Work Place
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interests and perspectives, and increases the credibility of the

decision process and outcome by reducing suspicion of unfair bias
4. Integration  Integrate ethics management with other management practices.
 When developing personnel policies, reflect on what ethical values
you’d like to be most prominent in the organization’s culture
5. Cross - Functional  It’s vital that the organization’s employees feel a sense of
Teams participation and ownership in the program if they are to adhere to
its ethical values.
 Therefore, include employees in developing and operating the
program.
6. Appointing an  The ombudsperson is responsible to help coordinate development
Ombudsperson of the policies and procedures to institutionalise moral values in
the workplace.
 Ombudsperson means a person on organization who work as a
mediator between management and employees.
7. Atmosphere of Trust  Creating an atmosphere of trust is also critical in encouraging
employees to report ethical violations they observe.
 This function might best be provided by an outside consultant
8. Updation  Regularly update policies and procedures to produce behaviours
preferred from the code of conduct, job descriptions, performance
appraisal forms, and other relevant control instruments to ensure
conformance to the code of conduct.
9. Grievance Policy  Include a grievance policy for employees to use to resolve
disagreements with supervisors and staff.
10. Set an example from  Executives and managers not only need to endorse strict standards
the top of conduct, but should also ensure that they follow it themselves.
 They must stress to employees that dishonest or unethical conduct
will not be tolerated,
Question: State, how far a sound ethical environment in a company may be created and corporate scandals may be avoided.
(May 2009)
Write Above Guidelines  Measures to ensure ethics in work place

SHORT NOTE ON WORK PLACE ETHICS

i) Work place ethics is how one applies values to work in actual decision making, a set of right and wrong
actions that directly impact the work place.
ii) Ethical decision in an organization are influenced by 3 factors: Individual moral standards, influence of
manages & co-workers & opportunity to engage in misconduct.
iii) Good moral standard help an individual to have a good sense off ethics which he would carry along
with him to enterprise & thereby set a good example to follow workers.

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Work Place Ethics
By CA Lokesh Kasat
iv) The activities of colleagues along with policies established by the firm are critical in gaining consistent
ethical compliance in an organization.
v) Acts such arriving late to work, engaging in gossips at work place, etc. tempt other employees to follow
the same & thereby lead to a chain of unethical acts throughout the organization.
vi) The behaviour of business person towards customers, suppliers & others in their workplace also
generates ethical concerns.
vii) Ethical behaviour within a business involves keeping secrets, meeting obligations & responsibilities
avoiding undue pressures that may force others to act unethically.
viii) Hence, a clear code of conduct practiced at the highest level, fairness & honesty in its dealings with
the stakeholders & prohibition of any kind, discrimination & harassment are the characteristics of
highly ethical workspace

Workplace ethics are an extension of personal

standards valuing Work Place
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CHAPTER 4 :- ENVIRONMENT AND ETHICS
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POLLUTION AND RESOURCE DEPLETION
Meaning of Pollution  Pollution refers to the undesirable and unintended contamination of
the environment by the manufacture or use of commodities.
Meaning of Resource  Resource depletion refers to the consumption of finite or scarce
Depletion resources.
 In a certain sense, pollution is also a type of resource depletion
because contamination of air, water, or land diminishes their
beneficial qualities.
Types of Pollution 1. Air Pollution
2. Global Warming (May 2011)
3. Ozone depletion
4. Acid rain (May 2014)
5. Water Pollution (Nov. 2008)
6. Land Pollution (Solid Wastes, Hazardous or toxic substances)
Depletion of Fossil Fuels  Fossil fuels depletion at an exponentially rising rate results in the
loss of forest habitats. Combined with the effects of pollution it has
led to the extinction of a phenomenal number of species and the
danger of many existing species disappearing forever.

ECOLOGICAL ETHICS (May

2011)

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Environmental Ethics
By CA Lokesh Kasat
Business as a part of  An ecological system is an interrelated & interdependent set of
Ecological System organisms & environments.
 The corporate world, the industry or others engaged in the use of
natural resources or environment services are closely linked with
environment and natural resources.
 Business firms depends on natural environment for their energy,
Ecological material resources and waste disposal and that environment in turn
Ethics focus on is affected by the commercial activities of business firms.
responsibility  So all business firm must ensure that their activities do not injure
of business the ecological ethical system. This resolve is called ecological
towards ethics.
environment
 It is based on the idea that the environment should be protected not
only for the sake of human beings but for its own sake.
 Hence, as ecological systems are interrelated & affected by
business; business forms an important part of it.
Question: Discuss the different environmental phenomena of ethical concern? (Nov. 2015)
 Answer will be the matter as described above.

CONSERVATION OF NATURAL RESOURCES

Meaning  Conservation refers to the strong rationing of natural resources for
later uses.
 Conservation, therefore, looks primarily to the future: to the need
to limit consumption now to have resources available for
tomorrow.
Business and  Environmental ethics is a larger issue that concerns ethical
Environmental Ethics behaviour of all types of organisations ranging from International
bodies, national governments, opinion makers, media,
intelligentsia, public and private enterprises and NGOs.
Development in India  The Chipko movement in India is a proof of people’s concern
about balance in ecosystem
 The Factories Act, 1948.
 The Industries (Development and Regulation) Act, 1951.
 Mines and Minerals (Regulation and Development) Act, 1957.

ECO FRIENDLY BUSINESS PRACTICES

Meaning  Business and Industry are closely linked with environment and
resource utilization.

Environmental ethics is the part of philosophy

including non human world.
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 If companies redesigned products & adopts eco friendly business
practices they are the ones who are ultimately going to enjoy the
fruits.
Waste Management  Minimum production of waste.
Policy  Maximizing reuse of waste and recycling.
 Promoting environmentally sound waste disposal practices.
Benefits of Eco Friendly i) The goals of reduction in wastage & resources depletion can be
Practices achieved.
ii) Incorporating environmental issues in the process of developing a
product improves corporate performance.
iii) Eco friendly practices results in more savings. E.g. Process of
recycling of the waste.
iv) Business firms will be able to create wealth if they respond to the
challenges of sustainable development as unsustainable products
will become obsolete.
v) Proper environmental costs can be reflected with the help of
green accounting system & even consumer would adjust market
behaviour in a way that would reduce damage to environment.
vi) Business firms using eco friendly practices will gain competitive
knowledge
vii) Business, Industry & MNC’s have to recognize environment
management as the priority area & a key determinant to
sustainable development.
viii) Sound management of wastes is among the major environmental
issues maintaining the quality of environment and achieving
sustainable development.

SPECIAL RESPONSIBILITIES FOR NATURAL RESOURCES

(May 2012)
Steps to be taken for Industries that are based on natural resources like minerals, timber,
Protection of Resources fiber and foodstuffs etc., have a special responsibility for :
 Adopting practices that have built-in environmental considerations.
 Introducing processes that minimize the use of natural resources
and energy, reduce waste and prevent pollution.
 Making products that are ‘environment-friendly’ with minimum
adverse impact on people and ecosystem.
 Green Accounting Systems

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Environmental Ethics
By CA Lokesh Kasat
GREEN ACCOUNITNG SYSTEM (May 2007, 2010, 2012,
Nov.2014)
Meaning  Green Accounting system basically focuses on deficiencies in
conventional accounts with respect to the environment.
 It makes efforts to see that environmental costs are properly
There is no doubt,
reflected in the prices paid for goods & services.
that with the public
opinion moving
 As a result companies & consumers would adjust market
towards accountable behaviour in a way that would reduce damage to environment &
socio-economic decrease pollution and waste products.
structures, ethical &  Price signal will also influence human behaviour to avoid
eco-friendly business
exploitation or excessive use of natural resources.
practices would be
 Such measures will facilitate the approach of “Polluter Pay
standard corporate
norms. Principles” & thus avoid policy decisions which are non
sustainable for the country.
Question: Explain the term sustainable development with reference to pollution & conservation of natural resources.
(May 2007, 2015, 2016)
 Sustainable development refers to maintaining development. It may be defined as development that
meets the needs of present without compromising the ability of future generation to meet their own
needs.
 A nation or society should satisfy its requirements – social, economic & others – without jeopardizing
the interest of future generations.

 There is no economic growth without ecological costs (May 2009, Nov. 2012, 2014) – High economic
growth means high rate of extraction, transformation and utilization of non – renewable resources. One
must realize that increased development higher GNP are related to environmental damage and resource
depletion. Therefore, an element of resources re-generation and positive approach to environment has to
be incorporated in developmental programmes. Business, Industry & MNC’s have to recognize
environment management as priority area & a key determinant to sustainable development.

Question: State the special responsibilities of the industries that are based on natural resources towards future generations.
(Nov. 2014)
 Industries that are based on natural resources like minerals, timber, finer & foodstuffs, etc. have a special
responsibility.
 To adopt practices that have built in environmental consideration
 To introduce process that minimize the use of natural resources & energy reduce waste and prevent
pollution.
 Make products that are environment – friendly with minimum impact on people & ecosystem.

Question: Business does not sub-serve environmental ethics. (Nov. 2008)

Environmental ethics is the part of philosophy

including non human world.
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Incorrect Statement  Environmental ethics make good business sense if quality, ethics and
environmental standards are maintained.

Question: A Nation should satisfy its social and economic requirement without damaging the interest of future generation.
(Nov. 2011)
Correct Statement  An element of resource regeneration and positive approach to environment
has to be incorporated in developmental programmes.
 Sustainable development is necessary because it meets the needs of the present
without compromising the ability of future generations to meet their own
needs.

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Ethics in Marketing & CP
By CA Lokesh Kasat
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CHAPTER 5:- ETHICS IN MARKETING AND CONSUMERS
PROTECTION
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‘ETHICS’ AND ‘MARKETING’
Introduction  Ethics are standards of moral conduct. To act in an ethical fashion
is to conform to an accepted standard of moral behavior.
 Marketing executives face the challenge of balancing their own
best interests in the form of recognition, pay, and promotion, with
the best interests of consumers, organization and society.
 In any situation they must be able to distinguish what is ethical
from what is unethical and act accordingly, regardless of the
possible consequences.

ETHICAL GUIDELINES
Ethical Guidelines in  Many organizations have code of ethics that identify specific acts
Marketing (bribery, accepting gifts) as unethical and describe the standards
employees are expected to live up to these guidelines will:
1. Lessen the chance that an employee will knowingly or
unknowingly violate a company’s standards.
A marketing manager
must be able to 2. Strengthen a company’s hand in dealing with customers or
evaluate a situation prospects that encourage unethical behavior.
and formulate a 3. Valuable guides for young or inexperienced executives, to resist
response. pressure to compromise personal ethics in order to move up in the
organization.
Limitation of ethical  Every decision cannot be taken by the manager.
guidelines  Determination of what is right and what is wrong can be extremely
difficult in adverse situation.
 Difficult for any enterprise to construct a two-column (ethical v/s
unethical) list of all practices.

COMPETITION
Meaning  Competition is “a situation in a market in which firms or sellers
independently strike for the buyers’ patronage in order to achieve a
particular business objective. E.g. Profit, Sales or Market share”.
Features of Competition  Unrestricted liberty of every man to buy & sell.
 The factor affecting free market (regulated) is the income

When an entity behaves Ethically, Customers develop

more positive attitude
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distribution system where the one with good disposable income

rules the market.
 In an unregulated market it could be benefit to the owner of
withhold of goods from market in order to extract a high price.

BEHAVING ETHICALLY IN MARKETING

(MAY 2012)
Need of ethical  Marketing is the most important element of any business. It
behaviour in marketing influences sales and behaviour of customers. The main reasons for
scenario ethical behaviour are:
Or i) To reverse declining public confidence in marketing:
Pragmatic Reasons for Unethical practice such as misleading package labels, false claim
Ethical behavior in in ads, infringements of well establishment trademarks, etc. not
Marketing only declines public confidence in marketing but also damages
(Nov. 2009, 2015) reputation of all marketers. To reverse this situation, Companies
must set high ethical standards & enforce them in consumer’s
interest as consumers are lifeblood of business.
ii) To avoid increase in Government regulation: Most of the
governmental limitation on marketing are the results of
management’s failure to live up to its ethical responsibilities at
one time or other.
iii) To sustain the power granted by society: - Marketing
executives hold and use a great deal of social power as they
influence market & speak out on economic issues. However,
there are responsibilities tied to this power & if marketers do not
use their power in a socially acceptable manner then that power
will be lost in long run.
iv) To protect Image of the organization: - Buyers often form as
impression of an entire organization based on their contact with
one person & and mostly that person represents the marketing
functions.

COMPETITION ACT, 2002

(NOV. 2011)
Introduction  The competition Act, 2002 which passed on 13th January, 2003 is
a laudable step towards harmonizing international trade policy. It
intends to provide:-
a. For establishment of a commission to prevent practice having
adverse effect on competition.
By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Ethics in Marketing & CP
By CA Lokesh Kasat
b. To promote & sustain competition in market.
c. To protect the interest of consumers.
d. To ensure freedom of trade carried on by other participants in
markets.
Parameters of Competition Law (Nov. 2011, 2013)
Prohibition of certain  Agreements considered to be anti-competitive in nature are
agreements Prohibited like Bid-Rigging, Tie-in-Agreement etc.
Abuse of dominant  Exploitation of dominant position by imposing unfair conditions
position and restricting production of goods and services
Regulation of  Combinations which causes or likely to cause an adverse effect on
combinations competition within India; such combinations are considered to be
void.

MEANING OF CONSUMER
Section 2(f) of  "Consumer" means any person who:
Competition Act, 2002 i. Buys any goods for a consideration which has been paid or
promised or partly paid and partly promised, or under any system
of deferred payment and includes any user of such goods other
than the person who buys such goods for consideration paid or
In relation to Goods promised or partly paid or partly promised, or under any system
of deferred payment when such use is made with the approval of
such person, whether such purchase of goods is for resale or for
any commercial purpose or for personal use;
ii. Hires or avails of any services for a consideration which has been
paid or promised or partly paid and partly promised, or under any
system of deferred payment and includes any beneficiary of such
services other than the person who hires or avails of the services
In relation to Services
for consideration paid or promised, or partly paid and partly
promised, or under any system of deferred payment, when such
services are availed of with the approval of the first-mentioned
person whether such hiring or availing of services is for any
commercial purpose or for personal use.

Question: A retailer was purchasing goods regularly from XYZ Ltd. for the purpose of resale. There were defects in the goods in one
of the purchase lot and as a result the retailer suffered loss of his share in competition. The retailer sued the said company for this
reason. The company contended that the goods were purchased for the purpose of resale and therefore, not bound. Is it a valid
contention ? Explain clearly the provisions of Competition Act, 2002 in this regard. (Nov 2008)
Contention of XYZ Ltd. is not  Start with the Meaning of Consumer
When an entity behaves Ethically, Customers develop
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valid
 Consumer will also include a person who purchases goods for re-sale

CONSUMER INTEREST AND PUBLIC INTERES (Nov. 2012, May

2009, 2014)
Both are different Terms  Often, consumer interest and public interest are considered
synonymous. But they are not and need to be distinguished.
 In the name of public interest, many Governmental policies are
formulated which are either anti-competitive in nature or which
manifest themselves in anti-competitive behavior.
 If the consumer is at the fulcrum, consumer interest and consumer
welfare should have primacy in all Governmental policy
formulations.
Meaning of Consumer  Consumer is a member of a broad class of people who purchase,
Interest use, maintain and dispose of products and services. Consumers
Interest are affected by pricing policies, financing practices, quality
of goods and services and various trade practices.
Meaning of Public  Public interest, on the other hand, is something in which society as
Interest a whole has some interest, not fully capture, by a competitive
market (it is an externality).
 However, there is a justifiable apprehension that in the name of
public interest”, Governmental policies may be fashioned and
introduced which may not be in the ultimate interest of the \
consumers.

UN GUIDELINE THEME ON CONSUMER PROTECTION

(May 2015)
Meaning  The United Nations Guidelines Themes on consumer protection
call upon Governments to develop, strengthen and maintain a
strong consumer policy and provide for enhanced protection of
consumers by enunciating various steps and measures consisting
around eight themes (UNCTAD, 2001).
Eight UN Themes  Physical safety;
 Economic interests;
 Standards;
 Essential goods and services;
 Redress;
By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Ethics in Marketing & CP
By CA Lokesh Kasat
 Education and information;
 Specific areas concerning health; and
 Sustainable consumption

CONSUMER PROTECTION COUNCIL IN INDIA (May 2011, 2014, Nov.2010,

2012)
Meaning  In India, we have 3-tier structure of Consumers Councils at
Central, State & District levels which are as follows:
1) The Central Consumer Protection Council: at Central level
2) The State Consumer Protection Council: at State level
3) The District Consumer Protection Council: at District level
Rights of Consumer The objects of the consumer protection councils shall be to promote &
(May 2016) protect the rights of the consumers at their representative levels which
are as follows:
 Right of protection against marketing of goods which are
The UN hazardous to life & property.
Guidelines also  Right of information about the quality, quantity, purity, standard &
Provides Rights price of goods & services.
of Consumer  Right to access to variety of goods & services at competitive
prices.
 Right to redress against unfair trade practices.
 Right to seek consumer education.
 Right to be heard and to be assured that consumer’s interest will
receive due consideration at appropriate terms.

When an entity behaves Ethically, Customers develop

more positive attitude
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CHAPTER 6:- ETHICS IN ACCOUNTING & FINANCE
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INTRODUCTION
Need for Ethics in  Finance and Accounts is perhaps the only business function which
Finance & Accounts accepts responsibility to act in public interest.
(May 2012)  Hence, a finance and accounting professional’s responsibility is
not restricted to satisfy the needs of any particular individual or
organisation While acting in public interest, it becomes imperative
that the finance and accounting professional adheres to certain
basic ethics in order to achieve his objective.
Ethics & Ethical  Ethical Dilemmas exist when finance and accounting professionals
Dilemma need to choose from amongst alternatives and there are:
1. Significant value conflicts among differing interests;
2. Actual alternatives which can all be justified;
Finance and
3. Significant consequences to all stakeholders.
accounting
 For example, in preparing a profit forecast for launching a new
professional faces
an “Ethical product to be financed by external debt a finance and accounting
Conflicts” in professional should decide between:
circumstance when a. Projecting unrealistic high revenue and mislead the lunching
he is not in a institution in order to get the loan;
position to comply b. Projecting realistic but insufficient revenue, which is not
with the principles satisfactory to the lender and consequently the project is
that govern ethical closed.
behavior.  Both the above mentioned actions have got there own risks. There
is no right answer to such a situation.

POTENTIAL CONFLICTS (May 2011)

Finance and Accounting  In public practice should take adequate care to identify situation
professional working as that could pose a conflict of interest.
consultant or auditor  If not followed, they may give rise to threat to comply with the
fundamental principles.
Finance and Accounting  Has professional obligation to comply with the fundamental
professional working as principles laid down by the organization.
an employee  At the same time, he should also follow the regulation of the law &
(May 2011) should ensure that whatever he does complies with ethical code of
conduct.
 However, there are situations when superiors or the top level of
management apply pressure on the employees to perform activities
By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Ethics in Accounting &
Finance
By CA Lokesh Kasat
which are:
Act contrary to law or regulation.
Act contrary to technical or professional standards.
Facilitate unethical or illegal earnings management strategies.
Lie to, or otherwise intentionally mislead others.
The auditors of the employing organization;
Issue, or otherwise be associated with, a financial or non-
financial report that materially misrepresents the facts,
including statements in connection with, for example: The
financial statements; Tax compliance; Legal compliance; or
Reports required by securities regulators.

CREATING A SOUND ETHICAL ENVIRONMENT (Nov. 2008, May

2011)
1. Awareness of legal  Ethical organization should have policies to train & motivate
and ethical employees towards ethical behaviours. This would require
responsibilities initiation from the top.
 Number of companies both in West & in India have been known
for their quality & soundness of their ethics programmes.
 Companies now are also providing an integrity manual which
helps employees whenever they face ethical dilemmas.
2. Transparent  Ethical organization should provide facilities for employees
Communication through which they could communicate with responsible position
System for reporting frauds, mismanagement or any other form of non
routine detrimental (harmful) behaviour.
3. Fair treatment to  This is the most important and sensitive issue, as this encourages
Whistle Blowers other members of the company to report similar activities in future.
 On the contrary, if the company demotes such whistle blowers, it
discourages other eguradmployees from reporting on any
malpractices within the organization which might affect its
reputation as well as cause financial losses.

REASON FOR UNETHICAL BEHAVIOUR (May

2009, 2011)
1. Emphasis on Short  Company’s manipulated accounting entries to depict good
Term Results profitability in order to raise further capital from the market. This
is one of the primary reasons for downfall of companies like
Ethics in accounting is of utmost importance to
accounting professionals.
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Enron, WorldCom, Satyam, etc.
2. Ignoring Small  Tolerance of small lapses lead to larger problems. So, the
Unethical Issue companies should develop an environment where small ethical
(Nov 2013) lapses are taken seriously so that they are not repeated in the
future.
3. Economic Cycle  To prevent disclosure of ethical problems in times of depression,
companies should be extremely careful & vigilant during good
times.
 It must ensure itself that the effect of depression on the company’s
financial statements will be limited & company will be able to bear
losses & at the same time it makes the situation acceptable for the
share holders.
4. Accounting Rules  In the era of globalization, accounting rules are changing faster &
becoming more complex. It becomes difficult to identify deviation
from these complex set of requirements. The difficulty associated
with identifying abuse are the reason which may promote unethical
behaviour.
Question: Creation of proper ethical environment requires a proper understanding of the reasons which lead to an unethical
behavior. (May 2011)
Incorrect  Companies need to develop an environment where small ethical lapse are taken
seriously so that these do not repeated in future.

FUNDAMENTAL PRINCIPLES RELATING TO ETHICS (Nov. 2010,

May 2011)
1. The Principle of  Integrity means “adherence to moral and ethical principles”
Integrity professional have to adhere religiously to honesty and
(Nov 2013) straight forwardness while disclosing their representative
professional duties.
 The following act of responsibility would help to comply with the
The dictionary
integrity principles.
meaning of
Avoid activities which could affect goodwill of an
integrity is
organization.
veracity
Communicate adverse and unfavorable information with those
concerned.
Refuse favours or gifts which could influence action taken or
to be taken.
Refuse to get involved in activities which could adversely
affect the achievement of organization objectives.
Avoid conflicts.

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Ethics in Accounting &
Finance
By CA Lokesh Kasat
2. The Principles of  This principle requires practitioners of accounting and financial
Objectivity management to refrain from disclosing confidential information
related to their work.
 According to this principle accounting and finance professionals
should not allow bias, personal views, conflicting interest and
undue influence of themselves or other to override business
judgement. They should communicate information fairly and
objectively in a transparent manner.
3. The Principles of  This principle requires practitioners of accounting and financial
Confidentiality management to refrain from disclosing confidential information
related to their work.
 Such information may be however disclosed to
a) Subordinate & ensure that they too maintain confidentiality &
b) When under legal obligation or because of some statutory
ruling.
4. The Principles of  Finance & accounting professional need to update their skills and
professional knowledge from time to time and shall ensure the client or
competence & due employers receives competent professional services based upon
care current developments in the related areas.
5. The Principles of  This principle requires accounting & finance professional to
Professional comply with relevant laws and regulations and avoid such actions
behaviour which may result into disgracing the profession.
Question: Small ethical lapses do not result into unethical behavior? (Nov 2013)
Incorrect  Companies need to develop an environment where small ethical lapse are taken
seriously so that these do not repeated in future.

THREATS (May
2014, 2015)
Meaning  The dynamic environment in which business operate today has
posed many situation because of which compliance with
fundamental principles may be potentially threatened.

Ethics in accounting is of utmost importance to

accounting professionals.
 Lalgarh Palace, VidhyaDhar Nagar
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9636200699
Classification of Threats  Self Interest Threats – which may occur as the result of the
financial or other interest of a finance and accounting professional
or of an immediate or close family members.
Key to Remember  Self Review Threats – which may occur when a previous
judgement needs to be revaluated by the finance and accounting
S S F A I professional responsible for that judgement.
 Advocacy Threats – Advocacy is the act of arguing on behalf of a
particular issue, idea or person. These threats occur when
professional promotes a position or opinion to the point that
subsequent objectivity may be compromised.
 Familiarity Threats – occur when professional has close
relationship in the work environment & such relationship impair
his selfless attitude towards work.
 Intimidation Threats – occur when a professional may be
prohibited from acting objectively by threats, actual or perceived.
Question: Which threats are existing in environment which adversely affect the fundamental principles of ethics ? (May 2014)
Write Above Threats  Write all Points “S S F A I”

SAFEGUARDS (May 2010, Nov. 2007,

2014)
Meaning of Safeguard  It is important to have safeguards which may increase the
likelihood of identifying or deterring unethical behavior.
 Safeguards that may eliminate or reduce the various threats to an
acceptable level fall into 2 categories:
Safeguards created by  Corporate governance regulations.
profession, legislation or  Professional or regulatory monitoring & disciplinary procedures.
regulation.  Educational training & experience requirements for entry into the
(May 2016) profession.
 Professional standards.
 Continuing professional development requirements.
 External review by a legally empowered third party of the reports,
returns, communications or information produced by concerned
professionals.
Safeguards in Work  Strong internal controls.
Environment  Appropriate disciplinary process.
 The employing organization’s systems of corporate oversight or
other oversight structures.
 The employing organizations ethics & conduct programs.
 Policies & procedures to implement & monitor the quality of

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Ethics in Accounting &
Finance
By CA Lokesh Kasat
employee performance.
 Timely communication of the employing organisation’s policies
and procedures.

ETHICAL CONFLICT RESOLUTION

(May 2007)
Meaning  While evaluating compliance with the fundamental principles,
finance and accounting professional may be required to resolve a
conflict in the application of fundamental principles.
Needs to be consider for 1. Relevant facts.
Conflict Resolution 2. Ethical issues involved.
3. Fundamental principles related to matter in question.
4. Established internal procedure.
5. Alternative course of action.
 Having considered these issues, a professional should determine
the appropriate course of action that is consistent with fundamental
principles identified & weight the results of each possible course of
action.
If the matter remains 1. Consult the appropriate person within the firm or employing
unsolved, the organization for help in obtaining resolution.
professional should take 2. If the matter involves conflict within an organization; then it is
following steps advisable to consult with those charged with governance of the
organization of the organization such as BOD.
3. It may be in the best interest of the professional to document the
detail and the substance of issue.
4. If a significant conflict cannot be resolved, obtain advice from the
relevant professional body or legal advisors & there by obtain
guidance on ethical issues without breaching confidentiality.
5. If after all relevant possibilities, the ethical conflict remain
unresolved, it is appropriate to withdraw from the engagement
team or specific assignment or to resign altogether from the
engagement team, the firm or the employing organization.

Ethical Threats faced by Finance and Accounting

Professional
Types of Threat Working as an Employee Working as Consultant or Auditor

Ethics in accounting is of utmost importance to

accounting professionals.
 Lalgarh Palace, VidhyaDhar Nagar
Sector-2, 0141 - 3299963
9636200699
1. Self Interest Financial interests, loans and A financial interest in a client or
Threats guarantees in the company in jointly holding a financial interest
which the professional is working. with a client.
Incentive compensation Having a close business
arrangements. relationship with the client.
Inappropriate personal use of Potential employment with a
corporate assets. client.
Concerns over employment Contingent fees relating to an
security. assurance engagement.
2. Self Review Such threats occur when business The discovery of a significant
Threats decision or data is subject to error during re-evaluation of the
review and justification is required work of the finance and
to be given by the same accounting professional.
professional who was responsible A member of the assurance team
for taking such decisions or being or having recently been, a
preparing that data director or officer of that client.
3. Advocacy When furthering the legitimate Promoting shares in a “listed
Threats goals & objectives of their entity” when that entity is a
employing organization; finance consultancy or a financial
and accounting professional may statement audit client.
promote the organization’s Acting as an advocate on behalf of
position provided any statement an assurance client in litigation or
made are neither false nor disputes with 3rd parties.
misleading.
4. Familiarity Long association with business A member of the engagement
Threats contacts influencing business team having a close or immediate
decision. family relationship with a director
Acceptance of a gift/preferential or officers of the client.
treatment unless the value is Accepting gifts or preferential
clearly insignificant. treatment from a client, unless the
value is clearly insignificant.
Long association of senior
personnel with the assurance
client.
5. Intimidation Threat of dismissal or replacement Being threatened with dismissal or
Threats over a disagreement about the replacement.
application of an accounting Being threatened with litigation.
principle in which financial Being pressured to reduce
information is to be reported for inappropriately the extent of work

By CA Lokesh Kasat, FCA, ACS, DISA, M.Com (TAX, AUDIT & LAW Expert)
BUSINESS ETHICS – Ethics in Accounting &
Finance
By CA Lokesh Kasat
external use as well as decision performed in order to reduce fees.
making purpose.
A dominant personality attempting
to influence the decision making
process. E.g. with regard to
exclusion of irrelevant cost from
projected cost estimates.

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-X-X-X-
“Ethics is not definable, is not implementable,
because it is not conscious; it involves not only our
thinking, but also our feeling. ” -CA LOKESH
KASAT-

Ethics in accounting is of utmost importance to

accounting professionals.