The behaviour of the practicing management accountant is prescribed and regulated by the management accountant's personal code of ethics, the code of ethics of the employer, societal norms, and the law. In addition members of the Society are regulated by the Society's code of ethics. As more organizations adopt codes of ethics, management accountants will increasingly be asked to design systems to control, evaluate, interpret or apply ethical judgement. The following develops the basis for forming ethical judgements.

The management accountant fulfils four broad roles concerning ethics: 1. to ensure that management has developed and installed a comprehensive and internally controlled code of ethics. 2. to verify that the code of ethics and its controls are comprehensive and that everyone in the organization understands and complies with it. 3. to report to management any deviation from the code of ethics and its control systems. The Board of Directors may ultimately have to address any failures in the code or its controls. 4. o act in accordance with the code of ethics in making personal decisions. What are Ethics and Morals? Ethics are the rules people use to define and regulate moral behaviour. Morals distinguish right from wrong. Descriptive ethics are codes of ethics as actually practiced. Descriptive ethics provide no value judgements. Normative ethics, or moral reasoning, develops statements about whether a practiced ethical system is good or bad and suggests how ethical dilemmas, which are conflicts between individual systems of ethics ought to be resolved.

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Metaethics questions the meaning and universality of ethical statements. There is wide agreement that there is no basis for making universal normative ethical statements. A popular, but not universal, view is that ethics are the principles that people would agree should constrain inter-personal behaviour if they understood that these principles would be used to regulate all inter-personal behaviour. A common statement of this point of view is that people should treat others the way they would like to be treated themselves.

Adapted with the permission of the Society of Management Accountants of Ontario General Approaches to Ethics There are four broad approaches to moral theories; ethical fundamentalism, ethical relativism, utilitarianism, and deontology. Ethical fundamentalism claims that all ethical questions can be answered by an authority. There is little acceptance of this point of view. Ethical relativism asserts that answers to ethical questions are individual, therefore subjective, opinions that cannot be generalized.

There is little acceptance of this point of view. Utilitarianism asserts that decisions should be made to provide the greatest good for the greatest number of people. In other words, utilitarianism believes that each decision should maximize the expected utility (where utility is usually defined as happiness, pleasure, welfare, or wealth) of all the parties affected by the decision. Therefore, the decision that provides the greatest net good for all the stakeholders in a decision is classified as moral. Any other decision is classified as immoral.

Utilitarianism asserts that no decision is good or bad in itself. Goodness or badness, moral or immoral, is defined only by the consequences of a decision. The utilitarianism principle is that the greatest good for the greatest number is the sole criterion of the morality of a decision. The utilitarianism principle is reflected in statements made by classical economists that businesses should be operated to provide the highest return to their owners which, in turn, provides the traditional justification for capitalistic systems.

Utilitarianism does not address the significant issues of: how the benefit or loss created by a decision can be quantified for a particular consequence how the consequence of a decision might be viewed differently by different stakeholders how benefits can be summed across all the individuals affected by the decision (which requires inter-personal comparisons of utility) in order to determine the net benefit of the decision.

For example, how should the leader in a sinking life raft conclude that one person should be sacrificed (by being put overboard) to save the rest and, if that decision is made, decide which person should be chosen in order to create the greatest good for the greatest number? Since no decision is inherently right or wrong in the utilitarianism perspective, the appropriate decision, by reflecting the situation, can vary. Therefore, the application of utilitarianism can lead to situational ethics where a decision that is moral in one situation is immoral in another.

The dilemma of situational ethics is addressed by creating two forms of utilitarianism: act utilitarianism and rule utilitarianism. Act utilitarianism requires that the decision maker choose the decision that maximizes net benefit to all the stakeholders in a decision, irrespective of whether this creates decision inconsistencies over time. The development and use of standard operating principles, or rules, to guide ethical practice are inconsistent with this view.

Rule utilitarianism requires that decisions must follow laid-down moral prescriptions in order to avoid decision inconsistencies through situational ethics created by the exercise of individual judgement. Rule utilitarianism advocates the development of standard operating principles or rules. The proponents of act utilitarianism believe that rule utilitarianism is a contradiction of the basic nature of utilitarianism. Deontology asserts that decisions should conform to, or reflect, laid-down ethical principles that are inherently moral, or acceptable.

Decisions should conform to these principles whether or not they create the greatest good for the greatest number in any given situation. For example, returning to the lifeboat example above, if a general prohibition against murder or suicide is a laid down rule, the solution of saving the remaining people in a lifeboat by sacrificing one is unacceptable. Ends cannot be used to justify means. An end can only be sought by following acceptable means. Therefore, deontology focuses on developing universal rules to guide ethical decision making.

Deontology, therefore, requires that the decision be inherently right, irrespective of the specific consequences of the decision. Immanuel Kant formulated the categorical imperative, which is the basis of deontology. The categorical imperative states that one ought never to act unless one is willing to have the maxim on which one acts become universal law. The acceptance of the categorical imperative logically implies that all moral decisions must conform to moral rules that must be obeyed (the imperative) by all people because these moral rules always apply (they are categorical).

This approach is in clear contradistinction to the utilitarianism approach to ethics. Since the principle embodied in the categorical imperative implies the symmetrical acceptance of moral rules, there are two broad attributes of a moral rule implied by the categorical imperative and, therefore, deontology: the rule must be universally acceptable and the rule must respect the rights of individuals. Although both utilitarianism and deontology have many supporters, deontology is generally favoured over utilitarianism.

The attacks on business which assert that there is distributive injustice inherent in the capitalistic system reflect the deontological perspective. The widespread existence of organization codes of ethics, which prescribe acceptable behaviour, also reflects the deontological perspective. In summary, there is no generally accepted moral theory to guide the development of moral standards for an individual, a profession, or an organization. There are two widely accepted moral theories.

Utilitarianism asserts that people should choose the decision that provides the greatest good for the greatest number. From this perspective, it is impossible to assert that a certain decision is always acceptable or moral. From this perspective, ends always justify means. Deontology asserts that there are certain moral rules that ought to be followed, irrespective of the circumstances. From this perspective, ends justify only those means that are inherently moral.

By specifying what types of behaviour are acceptable and unacceptable, The Society of Management Accountants' Code of Ethics and organization codes of ethics reflect the deontological perspective. Organization Ethics and Management's Responsibility Organization ethics are dealt with at three levels. Each level is more specific than the last: 1. the organization mission statement 2. the specification of relations among the organization's stakeholders 3. the specification of ethical codes and moral practices.

The organization's mission statement should provide a broad and clear statement of its ethics. For example, a statement like: While conducting the organization's business our employees will never act in a way that is, or appears to be, illegal or improper. Every employee will avoid embarrassing or harming our customers, other employees, our suppliers, our shareholders, or members of society at large. included in the organization's mission statement conveys to its stakeholders what employee behaviour is expected.

A broad statement such as this also provides the basis for establishing the organization's ethical environment. The organization's mission statement should identify the organization's commitment to stakeholders including its customers, employees, suppliers, and the community at large. This commitment also informs all stakeholders how conflicts of interest between groups of stakeholders will be resolved, and avoids the potential ethical problem of not fully disclosing the organization's agenda to them.

The promises made in the mission statement flow from the strategic planning process, where the organization decides how it intends to serve each stakeholder group. A conscious goal throughout is to provide the greatest good, or the least net harm. The general statement of the organization's ethics in its mission statement should then be expanded in its code of ethics. This code should provide guidance to decision makers in identified situations and guiding principles for use in new situations.