Study tips: principles versus rules in professional ethics

Accounting incorporates a degree of theory in order to understand why and how to perform calculations. 

Ethics is an integral part of accounting, embedded in each decision we make that forms the basis of day-to-day practices and behaviour. Therefore effort is required in order to understand ethical concepts whilst we are studying as their application in the workplace is wide reaching and significant.

Three fundamental areas 

Firstly, AAT’s Code of Professional Ethics is a principles-based code rather than a rules-based one. In other words it adopts an integrity centred approach which expects its members to want to do the right thing rather than just follow rules.

Some rules are clear cut, we can all agree on the rules in sports. However, rules can sometimes be arbitrary and lack the flexibility to deal with situations in an ethical way. Even a straightforward situation such as how a batsman gets out in cricket, is complicated by the possibility of them being given out ‘leg before wicket’ if the batsman blocks the stumps with their legs.

The laws of cricket are written in great detail, covering every foreseeable scenario. These are enforced by the umpire. But this is more difficult for businesses and organisations.

They can write rules-based codes but as we all have different thoughts and views about moral issues and fairness, if we disagree with the rules there can be a temptation to break them or find a way of bending them.

There is also the question of how many rules are included. Sports continually change their rules as new situations develop. However, the number of new situations that can develop is limited. Unlike in business where the range of issues is potentially vast; from human resources to advertising and marketing, accounting and environmental concerns and so on.

Often there are too many situations that can arise, each with different circumstances that could influence an ethical outcome. If a rule-based code is thought to be too big, no one will read it anyway. Businesses and organisations therefore need to find other ways of defining and enforcing business ethics.

Adopting a system grounded by values that focus on fundamental principles is the alternative to prescribing rules. By trusting that as individuals we want to be honest, fair and truthful, the principles approach removes the need to lay down rules for every situation and circumstance that businesses encounter. For AAT’s Code of Professional Ethics these are the five fundamental principles:

  1. Professional Behaviour
  2. Professional competence and due care
  3. Confidentiality
  4. Integrity
  5. Objectivity

Using a principle-based code allows more flexibility. In theory it should be simpler than trawling through lots of rules but in practice it requires everyone who is bound by it to understand it and use diligent professional judgement to uphold it.

One way for an organisation to implement a successful principles-based code is to incorporate a conceptual framework, which AAT’s does. This is the second area we need to think about so we are clear about what a conceptual framework is and what impact it has.

What is a conceptual framework?

Let’s start with what it is. A concept is a general notion or idea that is intangible and sometimes hard to define. A conceptual framework pulls together theoretical ideas about a topic, like ethics, and organises them in a way that is easy to remember and apply in practice. Conceptual frameworks are not just used in accountancy, but are written for a variety of purposes in lots of fields such as education, research and development, entertainment and science.

We have already seen that AAT’s Code of Professional Ethics is based on the five fundamental principles listed above. As AAT members do not have a set of rules to follow the conceptual framework requires them to identify and evaluate situations and circumstances that would threaten their ability to comply with the fundamental principles. It also obliges them to respond appropriately to the threats and put suitable safeguards in place to reduce the threats to an acceptable level, or eliminate them entirely.

The final area we are going to consider is what status a code has. AAT’s Code of Professional Ethics is a voluntary code as opposed to a statutory one. The difference is that a voluntary code has no legal status but a statutory one does.

In order for a code to be statutory it must be created under legislation. It will most likely be regulated by an organisation independent of the industry it covers and companies will have no choice but to enforce it as its legal status makes it mandatory.

However, a voluntary code is often written by businesses and organisations that are self-regulated as a way of generating and maintaining high professional standards and reputations. Whilst there may be no legal requirement to have and implement a voluntary code, employees and members of businesses and organisations that do, will be required to uphold them as a condition of their employment or membership.

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Gill Myers is a self-employed accounts consultant. She has taught AAT qualifications since 2005 and written numerous articles and e-learning resources.

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