Ethics and Governance: Accounting Bodies

Executive Summary

Accounting bodies have the mandate of enhancing disclosure of financial information to facilitate accountability and transparency. Members of professional bodies need not to act in a manner that suggests or implies inconsistency with their reputation with reference to ethical codes of conduct as dictated by accounting bodies. This plan ensures that members do not only discredit themselves, but also discredit the accounting professional bodies.

The goal is to ensure that all stakeholders perceive the bodies as not acting in bad faith and dishonesty. This claim implies that the codes of ethics for professional bodies in any nation have some paradigms of stakeholders’ interest ingrained in them. Five main fundamental principles of codes of ethics guide the Australian accounting professional bodies. They include uprightness, impartiality, competence, and the exercise of due care, privacy, and professional behaviour. Factors such as conflicts of interest, self-review threat, advocacy, intimidation, and familiarity threats can compromise these fundamental principles.

Upon considering the case of Coca-Cola Shanghai that involved two former employee allegations of breach of integrity that resulted in engagement in fraudulent activities, the paper uses the book Accounting by Hogget et al. (2011) to confirm that fundamental principles of ethical conducts amongst professional accountants are critical in enhancing proper functioning of accounting bodies in Australia.

Fundamental Principles of Codes of Ethics of Australian Professional Bodies


Professional accountants are required to act in a straightforward way. They also have an added requirement to act honestly and diligently in all businesses and business transactions. Where situations of restating a company’s financial statements are warranted, the trustworthiness of the leadership team of such a company is compromised (Desai, Hogan & Wilkins, 2006). It is reasonable and safe to assert that errors do not occur by themselves.

There must be involvement staff members due to lack of inadequate knowledge on accounting standards, negligence, and/or lack of integrity. Shareholders do not attribute the mistakes to erroneous accountants. Rather, they blame leaders whom they have entrusted to run the company on their behalf for failing to prevent the errors from occurring. This case implies that apart from advising professional accountant to act in good faith or with integrity in all business relationships, Australian professional accounting bodies also require organisational leaders to monitor the conducts of their employees to ensure integrity.


Objectivity is an ethical principle that demands accounting professionals not to permit bias, conflicting interests, and/or any undue intrinsic or extrinsic forces to override their professional decision-making and business judgments. When making recommendations to clients, professional accountants have an ethical responsibility to offer unprejudiced advice whilst maintaining impartial attitudes, notwithstanding any clients’ situation (The Institute of Chartered Accountants in Australia 2005). Members of accounting bodies also need to identify and ensure effective management of real and potential conflicts of interest among stakeholders.

Professional Competence and the exercising of due Care

According to Hogget et al. (2011), professional accountants offer services to clients ranging from individual employers to organisations or companies. In Australia, as part of their ethical requirements towards the employers, they have ‘a continuing duty to maintain professional knowledge and skills at the required level to ensure that a client or employer receives competent professional services based on the current developments in practice, legislation, and techniques’ (The Institute of Chartered Accountants in Australia 2005, p.9). This observation implies that they must work diligently and in a manner that is directly consistent with the applicable professional standards and techniques.


Confidentiality entails preventing unauthorised disclosure of accounting information that belongs to a given client. In Australia, accountants are required to maintain confidentiality of any information that arises from any business relationships. However, through legal compulsion, they may be required to disclose some financial information to third parties without specific authority (The Institute of Chartered Accountants in Australia 2005). Nevertheless, accountants are advised not to deploy information from a client for personal gains or to advantage third parties.

Professional Behaviour

Personal conduct implies conformity to the appropriate rulings and policies in an effort to evade acting in a manner that dishonours the accounting occupation. The goal is to ensure that all clients who seek financial advisory services are satisfied with the offered services (Ketz 2006). For instance, when a client is discontented with a service and/or considers changing his or her financial adviser, the new accounting professional approach should comply with provisions that are enumerated in D6 and F3.

Five Types of Threats to the Fundamental Principles of Codes of Ethics

The capacity of accounting professionals to comply with fundamental principles of ethics in the Australian accounting profession depends on the ability to overcome various threats or circumstances and relationships. One threat may function as a hindrance towards conforming to one or even more than one principle. In the Australian context, five threats are evident.

Conflict of Interest

Conflict of interest encompasses a threat where professional accountants’ behaviour may influence negatively their decision-making processes or advice. The behaviours may entail any conduct that is aimed at fulfilling self-interests at the cost of other stakeholders who depend on financial advisory that is offered by an accounting professional (Kearns 2003). Conflicts of interest emerge when an advice or recommendation made by a professional contravenes the general interest and expectations of the clients.

Self-review Threat

Decision-making follows a number of processes. In the accounting practice, accounting professionals make decisions in a cascading manner. This claim means that one accountant uses the first decision to make the second one, regardless of whether he or she is working for an organisation that makes the second decision or he or she is employed by another organisation whose employee makes the first decision. Self-review threat arises when an accounting professional fails to conduct a review of previously made decisions or advice in an appropriate manner to make an effective second recommendation or advisory

Advocacy Threat

Advocacy intimidations result from proficient accountant’s probability of endorsing managers and/or clients’ ranks up to levels where their independence is negotiated (Hogget et al. 2011). Loss of objectivity leads to the making of compromised decisions, which discriminate stakeholders’ interests.

Intimidation Risk

Intimidation occurs in circumstances where the impartiality of qualified accountants is discouraged due to an authentic or even alleged danger. For instance, an attempt to influence inappropriately the work of professional accountants intimidates one’s capacity to act in accordance with requisite professional guidelines.

Familiarity Threat

Repeat clients of any organisation’s financial services have impacts on their long-term personal relationships. Constant contact with employers also leads to the development of close relationships. Due to such relationships, an accounting professional may become over sympathetic to the interests of the clients or employers so that he or she accepts work without any due diligence, which is against accounting professional practice codes of ethics.

The Concept of Safeguards and their Use

Safeguards encompass all necessary actions, which either eliminate or reduce threats to some manageable levels. Safeguards help in the resolution of threats that are experienced by professional accountants in the process of execution of their work (Aier et al. 2005). This claim suggests that safeguards are only applicable upon successful identification of potential threats. Hence, they constitute reactive approaches to the management of threats with reference to ethical codes of conduct as applied by the Australian professional accountants. Safeguards fall into three main categories.

Safeguards are contained in regulations and/or statutes that relate to a specific purpose of a given accounting task (Turner & Weirich 2006). They can also be contained in provisions of rules of conduct as spelt by accounting professional bodies. Organisations also develop internal controls to enhance the quality of their services whilst fostering internal operations. As described by statutes and or regulations, safeguards are used in the regulation of corporate structures to control organisational governance. They are also employed in the process of regulating training, development, and experience that is necessary for accounting professionals. They also help stipulate the appropriate financial advisory practices.

Accounting professional organisations deploy safeguards to eliminate any conflicts of interest amongst organisational stakeholders. In this extent, International Valuation Standards Council (2011, p.10) reckons, ‘Separation of managerial control, access to data, and support services should all be considered appropriate to the circumstances and level of threat.’ Professional accountants guide their actions by deploying safeguards effectively to foster any disclosure to clients who rely on their financial advisories. This observation suggests the necessity of including accounting professional ethical safeguards in any valuation recommendation.

Response Questions

Question A

Organisational stakeholders encompass all parties that have stakes in the operations of an organisation. They may include the owners or shareholders, workforce, organisational managers, service providers, and consumers (Yassin 2012; Pettijohn, Pettijohn & Taylor 2008).

In the case of Coca-Cola Shanghai, the main stakeholders include the government of China, employees, and the Coca-Cola Company, and its shareholders. Any act of fraud affects these parties in the extent that the government suffers from a reduction of revenues. Besides, the shareholders lose in terms of reduced investment returns. The Coca-Cola Company loses in terms of reduced investor confidence. Hence, failure to pass integrity tests as discussed in the section on fundamental principles of codes of ethics of the Australian professional bodies is detrimental to the best interest of all stakeholders of the Coca-Cola Company.

Question B

Integrity and conflict of interest are major ethical issues that are reflected in the case of Coca-Cola Shanghai. As allegations unveil, former employees do not deploy any safeguards to ensure that the organisation’s stakeholders are protected from any situation that may be opposed to their general interest on the company’s operations in China. The likelihood of loss of over $1.69 million implies a threat of reduced investment returns. Indeed, employees are not willing to take accountability for their allegations. The company’s representative informs that the police detained the suspects.

The implication is that they (suspects) were not willing to answer questions on allegations for failing to act in an ethically appropriate manner as required by accounting professional ethical codes of conduct. Since the former employees are detained for failing to respond to the question on allegations of embezzlement of funds, the main ethical issue is integrity, which gives rise to conflicts of interest. However, the Coca-Cola Company does not disclose information on what exactly transpired. Hence, inadequacy of information disclosure is also another major ethical concern in the case.

Question C

Organisations establish common guidelines in their ethical codes of conduct as discussed in the section on safeguards and their use. Such practices should apply in all areas where an organisation has established operations to enhance homogeneity and a standard way of doing business (Bouckaert & Vandenhove 1998; Byrne 2011). Based on this logic, if bribing government officials in a country that I am dealing with is a normal business practice, it is unethical to do so, regardless of the country where the practice is being upheld.

Question D

Different countries have diverse rules and regulations (Soutar, McNeil & Caron 1995). However, for an organisation that is operating in a foreign nation, any form of intimidation is inappropriate since the organisation is forced to compromise its fundamental principles of ethical conduct. When a country imposes its values in my country, I will feel that my country’s power of control or development of values for the common good of all citizenry has been compromised. This observation raises the concern of violation of human rights and national rights of being a sovereign nation.


It is unethical to engage in practices that are inconsistent with ethical requirements for accounting professional practices. For instance, bribing government officials in foreign nations where an organisation has established operations is unethical to the extent that it contravenes ethical guidelines of operations in the home country. It is recommended for an organisation to consider closing any operation in a country that has normalised the bribing of government officials.


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