GE 9 Ethics Review Notes

1. Ethics – is about matters such as the good thing that should be pursued and the bad
thing that should be avoided; the right ways in which a person should act and the wrong
ways of acting.
2. Philosophy – a particular discipline that is rooted in the Greek words that translate to
“love of wisdom” (philia – friendship or love, and Sophia – wisdom). This discipline
asks significant questions that other fields are unable to address.
3. Metaphysics – wonders as to what constitutes the whole reality.
4. Epistemology – asks what is our basis for determining what we know.
5. Axiology – refers broadly to the study of value and is often divided into aesthetics
which concerns itself with the value of beauty, and ethics which concerns itself with the
value of human actions.
6. Descriptive study of ethics – reports how people, particularly groups, make their
moral valuations without making any judgment either for or against these valuations.
This is often the work of social scientists.
7. Normative study of ethics – is often done in philosophy or moral theology, and
engages the question: What could or should be considered as the right way of acting?
This prescribes what we ought to maintain as our standards or bases for moral
valuation.
8. Moral issue – is a situation that calls for moral valuation and is often the source of
considerable and inconclusive debate
9. Moral decision – a decision made when one is placed in a situation and confronted
by the choice of what act to perform
10.Moral judgment – an assessment made by a person who is an observer on the
actions or behavior of someone
11.Moral dilemma – going beyond the matter of choosing right over wrong, or good
over bad, and considering instead the more complicated situation wherein one is torn
between choosing one of two goods or choosing between the lesser of two evils
12.Principles – rationally established grounds by which one justifies and maintains her
moral decisions and judgments
13.Moral theory – is a systematic attempt to establish the validity of maintaining certain
moral principles
14.Framework – a system of thought or ideas; a theory of interconnected ideas, and at
the same time, a structure through which we can evaluate our reasons for valuing a
certain decision or judgment
15.Positive Law – refers to the different laws and regulations that are posited or put
forward by an authority figure that require compliance.
Ethics, also called moral philosophy, the discipline concerned with what is morally
good and bad and morally right and wrong.
"involves systematizing, defending, and recommending concepts of right and
wrong behavior".
Three major areas of study
▪ Meta-ethics-theoretical meaning and reference of moral propositions, and how their
truth values (if any) can be determined.
▪ Normative ethics - practical means of determining a moral course of action.
▪ Applied ethics - what a person is obligated (or permitted) to do in a specific situation
or a particular domain of action.

Ēthikós - "relating to Êthos -"character, Latin as ethica French as

Rushworth Kidder - states that "standard definitions of ethics have typically included
such phrases as 'the science of the ideal human character' or 'the science of moral
duty'".
Richard William Paul and Linda Elder- define ethics as "a set of concepts and
principles that guide us in determining what behavior helps or harms sentient
creatures".
The Cambridge Dictionary of Philosophy - states that the word "ethics" is "commonly
used interchangeably with 'morality' ... and sometimes it is used more narrowly to mean
the moral principles of a particular tradition, group or individual."
Paul and Elder - state that most people confuse ethics with behaving in accordance
with social conventions, religious beliefs, the law, and don't treat ethics as a stand-alone
concept.
Bernard Williams - "how one should live".
law - enforced by a way of a system of sanctions administered through persons and
institutions, which all help in compelling us to obey.
Religion- The Divine Command Theory expresses that many people of religious
sensibility find appealing and immediately valid: that one is obliged to obey his/her God
in all things.
Culture- Our exposure to different societies and their cultures makes us aware that
there are ways of thinking and valuing that are different from our own, that there is in
fact a wide diversity of how different people believe it is proper to act.
Psychological Egoism - “Human beings are naturally self-centered, so all our
actions are always already motivated by the self-interest.” is a theory that describes the
underlying dynamic behind all human actions. As a descriptive theory, it does not direct
one to act in any particular way. Instead, it points out that there is already an underlying
basis for how one acts. The ego or self has its desires and interests, and all our actions
are geared towards satisfying these interests.
Ethical egoism -differs from psychological egoism in that it does not suppose all our
actions are already inevitably self-serving. Instead, ethical egoism prescribes that we
should make our own ends, our own interests, as the single overriding concern.
Natural law - a system of right or justice held to be common to all humans and
derived from nature rather than from the rules of society, or positive law.
Virtue ethics - is currently one of three major approaches in normative ethics. It may,
initially, be identified as the one that emphasizes the virtues, or moral character, in
contrast to the approach that emphasizes duties or rules (deontology) or that
emphasizes the consequences of actions (consequentialism).
Virtue Ethics- A moral theory that focuses on the development of virtuous character
subjectivism is the recognition that the individual thinking person (the subject) is at the
heart of all moral valuations.
According to eudaimonist virtue ethics, the good life is the eudaimon life, and the
virtues are what enable a human being to be eudaimon because the virtues just are
those character traits that benefit their possessor in that way, barring bad luck.
Agent-Based and Exemplarist Virtue Ethics - are traced back to and ultimately
explained in terms of the motivational and dispositional qualities of agents.
Target-Centered Virtue Ethics- The touchstone for eudaimonist virtue ethicists is a
flourishing human life. For agent- based virtue ethicists it is an exemplary agent’s
motivations.
Platonistic Virtue Ethics- explain the nature of virtues like justice, courage, piety, and
wisdom.
Deontological ethics, sometimes referred to as duty ethics, places the emphasis on
adhering to ethical principles or duties.
Code of Ethics - A code of ethics or ethical code refers to a set of guidelines,
standards, and principles that a company adopts and that must be adhered to by its
workers. A code of ethics is usually in a written form. It is a document that outlines the
core values and ethics of a business that professionals must live by.
Ethical Framework - An ethical framework is a set of codes that an individual uses to
guide his or her behavior.
Moral Reasoning - Moral reasoning can be defined as the process through which
individuals try to determine the difference between what is right and wrong by using
logic.
Morals - A person's standards of behavior or beliefs concerning what is and is not
acceptable for them to do.
Utilitarianism - The doctrine that actions are right if they are useful or for the benefit
of a majority.
Virtue - A virtue is a trait or quality that is deemed to be morally good and thus is
valued as a foundation of principle and good moral being.
Morality is the system through which we determine right and wrong conduct -- i.e.,
the guide to good or right conduct.
Moral Subjectivism - Right and wrong is determined by what you – the subject -- just
happens to think (or 'feel') is right or wrong.
Cultural Relativism -Right and wrong is determined by the particular set of principles
or rules the relevant culture just happens to hold at the time.
Ethical Egoism- Right and wrong is determined by what is in your self- interest.
Divine Command Theory- Many claim that there is a necessary connection between
morality and religion, such that, without religion (in particular, without God or gods)
there is no morality, i.e., no right and wrong behaviour.
Virtue Ethics- Right and wrong are characterized in terms of acting in accordance with
the traditional virtues – making the good person.
Feminist Ethics - Right and wrong is to be found in women’s' responses to the
relationship of caring.
Utilitarianism -Right and wrong is determined by the overall goodness (utility) of the
consequences of action.
Kantian Theory-Right and wrong is determined by rationality, giving universal duties. It
is a Non-consequentialist moral theory.
Theories Rights-based -The basic idea is that if someone has a right, than others
have a corresponding duty to provide what the right requires.
Contractarianism -The principles of right and wrong (or Justice) are those which
everyone in society would agree upon in forming a social contract.

Fundamental principles of the profession and the conceptual

Acceptable level -A level at which A professional accountant using the reasonable and
informed third party test would likely conclude that the accountant complies with the
fundamental principles.
Advertising -The communication to the public of information as to the services or
skills provided by professional accountants in public practice with a view to procuring
professional business.
Appropriate reviewer-An appropriate reviewer is a professional with the necessary
knowledge, skills, experience and authority to review, in an objective manner, the
relevant work performed, or service provided. Such an individual might be a
professional accountant.
Assurance client -The responsible party that is the person (or persons) who: In a direct
reporting engagement, is responsible for the subject matter; or In an assertion-based
engagement, is responsible for the subject matter information and might be responsible
for the subject matter.
Assurance Engagement -An engagement in which a professional accountant in public
practice expresses a conclusion designed to enhance the degree of confidence of the
intended users other than the responsible party about the outcome of the evaluation or
measurement of a subject matter against criteria.
Assurance team -All members of the engagement team for the assurance
engagement
-All others within a firm who can directly influence the outcome of the assurance
engagement, including: Those who recommend the compensation of, or who provide
direct supervisory, management or other oversight of the assurance
Audit client -An entity in respect of which a firm conducts an audit engagement. When
the client is a listed entity, audit client will always include its related entities. When the
audit client is not a listed entity, audit client includes those related entities over which
the client has direct or indirect control.
Audit engagement -A reasonable assurance engagement in which a professional
accountant in public practice expresses an opinion whether financial statements are
prepared, in all material respects (or give a true and fair view or are presented fairly, in
all material respects), in accordance with an applicable financial reporting framework,
such as an engagement conducted in accordance with International Standards on
Auditing. This includes a Statutory Audit, which is an audit required by legislation or
other regulation.
Audit team -All members of the engagement team for the audit engagement
-All others within a firm who can directly influence the outcome of the audit
engagement, including:
Those who recommend the compensation of, or who provide directsupervisory,
management or other oversight of the engagementpartner in connection with the
performance of the audit engagement, including those at all successively senior levels
above the engagement partner through to the individual who is the firm’s
Senior or Managing Partner (Chief Executive or equivalent); Those who provide
consultation regarding technical or industry- specific issues, transactions or events for
the engagement; and Those who provide quality control for the engagement, including
those who perform the engagement quality control review for the engagement; and
Close family -A parent, child or sibling who is not an immediate family member.
Contingent fee -A fee calculated on a predetermined basis relating to the outcome of
a transaction or the result of the services performed by the firm. A fee that is established
by a court or other public authority is not a contingent fee.
Direct financial interest -A financial interest:
Owned directly by and under the control of an individual or entity (including those
managed on a discretionary basis by others); or
Beneficially owned through a collective investment vehicle, estate, trust or other
intermediary over which the individual or entity has control, or the ability to influence
investment decisions.
Director or officer -Those charged with the governance of an entity, or acting in an
equivalent capacity, regardless of their title, which might vary from jurisdiction to
jurisdiction.
Engagement Partner -The partner or other person in the firm who is responsible for
the engagement and its performance, and for the report that is issued on behalf of
the firm, and who, where required, has the appropriate authority from a professional,
legal or regulatory body.
Engagement period -The engagement period starts when the audit team begins to
perform the audit. The engagement period ends when the audit report is issued. When
the engagement is of a recurring nature, it ends at the later of the notification by either
party that the professional relationship has ended or the issuance of the final audit
report.
(Audit and Review Engagements)
Engagement Period -The engagement period starts when the assurance team begins
to perform assurance services with respect to the particular engagement. The
engagement period ends when the assurance report is issued. When the engagement
is of a recurring nature, it ends at the later of the notification by either party that the
professional relationship has ended or the issuance of the final assurance report.
(Assurance Engagements Other than Audit and Review Engagements)
Engagement quality control review -A process designed to provide an objective
evaluation, on or before the report is issued, of the significant judgments the
engagement team made and the conclusions it reached in formulating the report.
Engagement team -All partners and staff performing the engagement, and any
individuals engaged by the firm or a network firm who perform assurance procedures on
the engagement. This excludes external experts engaged by the firm or by a network
firm.
Existing Accountant -A professional accountant in public practice currently holding
an audit appointment or carrying out accounting, tax, consulting or similar
professional services for a client.
External expert -An individual (who is not a partner or a member of the professional
staff, including temporary staff, of the firm or a network firm) or organization possessing
skills, knowledge and experience in a field other than accounting or auditing, whose
work in that field is used to assist the professional accountant in obtaining sufficient
appropriate evidence.
Financial interest -An interest in an equity or other security, debenture, loan or
other debt instrument of an entity, including rights and obligations to acquire such an
interest and derivatives directly related to such interest.
Financial statements-A structured representation of historical financial information,
including related notes, intended to communicate an entity’s economic resources or
obligations at a point in time or the changes therein for a period of time in accordance
with a financial reporting framework. The related notes ordinarily comprise a summary
of significant accounting policies and other explanatory information. The term can relate
to a complete set of financial statements, but it can also refer to a single financial
statement, for example, a balance sheet, or a statement of revenues and expenses, and
related explanatory notes.
Financial statements on
which the firm will
express an opinion -In the case of a single entity, the financial statements of that
entity.nIn the case of consolidated financial statements, also referred to as
group financial statements, the consolidated financial statements.
Firm -A sole practitioner, partnership or corporation of professional accountants; An
entity that controls such parties, through ownership, management or other means; and
An entity controlled by such parties, through ownership, management or other means.
Historical financial information- Information expressed in financial terms in relation to
a particular entity, derived primarily from that entity’s accounting system, about
economic events occurring in past time periods or about economic conditions or
circumstances at points in time in the past.
Immediate family - A spouse (or equivalent) or dependent.
Independence
Independence comprises:
Independence of mind – the state of mind that permits the expression of a
conclusion without being affected by influences that compromise professional
judgment, thereby allowing an individual to act with integrity, and exercise objectivity
and professional skepticism.
Independence in appearance – the avoidance of facts and circumstances that are so
significant that a reasonable and informed third party would be likely to conclude that a
firm’s, or an audit or assurance team member’s, integrity, objectivity or professional
skepticism has been compromised.
Indirect financial Interest -A financial interest beneficially owned through a collective
investment vehicle, estate, trust or other intermediary over which the individual or entity
has no control or ability to influence investment decisions.
Inducement -An object, situation, or action that is used as a means to influence another
individual’s behavior, but not necessarily with the intent to improperly influence that
individual’s behavior.
Inducements -can range from minor acts of hospitality between business colleagues
(for professional accountants in business), or between professional accountants and
existing or prospective clients (for professional accountants in public practice), to acts
that result in non-compliance with laws and regulations. An inducement can takemany
different forms, for example:
Gifts.
Hospitality.
Entertainment.
Political or charitable donations.
Appeals to friendship and loyalty.
Employment or other commercial opportunities.
Preferential treatment, rights or privileges.
Key audit partner -The engagement partner, the individual responsible for the
engagement quality control review, and other audit partners, if any, on the engagement
team who make key decisions or judgments on significant matters with respect to the
audit of the financial statements on which the firm will express an opinion. Depending
upon the circumstances and the role of the individuals on the audit, “other audit
partners” might include, for example, audit partners responsible for significant
subsidiaries or divisions.
Listed entity -An entity whose shares, stock or debt are quoted or listed on a
recognized stock exchange, or are marketed under the regulations of a recognized
stock exchange or other equivalent body.
May -This term is used in the Code to denote permission to take a particular action in
certain circumstances, including as an exception to a requirement. It is not used to
denote possibility.
Might -This term is used in the Code to denote the possibility of a matter arising, an
event occurring or a course of action being taken. The term does not ascribe any
particular level of possibility or likelihood when used in conjunction with a threat, as the
evaluation of the level of a threat depends on the facts and circumstances of any
particular matter, event or course of action.
Network -A larger structure: That is aimed at co-operation; and That is clearly aimed
at profit or cost sharing or shares common ownership, control or management, common
quality control policies and procedures, common business strategy, the use of a
common brand-name, or a significant part of professional resources.
Network firm -A firm or entity that belongs to a network.
Non-compliance with laws and regulations -Non-compliance with laws and
regulations (“non-compliance”) comprises acts of omission or commission, intentional or
unintentional, which are contrary to the prevailing laws or regulations committed by the
following parties:
(Professional Accountants in Business) -The professional Those charged with
governance of the employing organization; Management of the employing organization;
or Other individuals working for or under the direction of the employing organization.
(Professional Accountants in Public Practice) -A client; Those charged with
governance of a client; Management of a client; or Other individuals working for or
under the direction of a client.
Office -A distinct sub-group, whether organized on geographical or practice lines.
Predecessor Accountant -A professional accountant in public practice who most
recently held an audit appointment or carried out accounting, tax, consulting or similar
professional services for a client, where there is no existing accountant.
Professional accountant -An individual who is a member of an IFAC member body.
Professional accountant in business -A professional accountant working in areas
such as commerce, industry, service, the public sector, education, the not-for-profit
sector, or in regulatory or professional bodies, who might be an employee, contractor,
partner, director (executive or non- executive), owner-manager or volunteer.
Professional accountant in public practice -A professional accountant, irrespective
of functional classification (for example, audit, tax or consulting) in a firm that provides
professional services.
Professional activity -The term “professional accountant in public practice” is also
used to refer to a firm of professional accountants in public practice.
Professional Services -Professional activities performed for clients.
Proposed accountant -A professional accountant in public practice who is considering
accepting an audit appointment or an engagement to perform accounting, tax,
consulting or similar professional services for a prospective client (or in some cases, an
existing client).
Public interest Entity -A listed entity An entity Defined by regulation or legislation as a
public interest entity; or For which the audit is required by regulation or legislation to be
conducted in compliance with the same independence requirements that apply to the
audit of listed entities. Such regulation might be promulgated by any relevant regulator,
including an audit regulator.
Reasonable and informed third party -The reasonable and informed third party test is
a consideration by the professional accountant about whether the same conclusions
would likely be reached by another party. Such consideration is made from the
perspective of a reasonable and informed third party, who weighs all the relevant facts
and circumstances that the accountant knows, or could reasonably be expected to
know, at the time that the conclusions are made. The reasonable and informed third
party does not need to be an accountant, but would possess the relevant knowledge
and experience to understand and evaluate the appropriateness of the accountant’s
conclusions in an impartial manner.
Related entity -An entity that has any of the following relationships with the client:
-An entity that has direct or indirect control over the client if the client is material to such
entity;
-An entity with a direct financial interest in the client if that entity has significant influence
over the client and the interest in the client is material to such entity;
-An entity over which the client has direct or indirect control;
-An entity in which the client, or an entity related to the client under
(c) above, has a direct financial interest that gives it significant influence over such
entity and the interest is material to the client and its related entity in (c); and
-An entity which is under common control with the client (a “sister entity”) if the sister
entity and the client are both material to the entity that controls both the client and sister
entity.
Review client -An entity in respect of which a firm conducts a review engagement.
Review engagement -An assurance engagement, conducted in accordance with
International Standards on Review Engagements or equivalent, in which a professional
accountant in public practice expresses a conclusion on whether, on the basis of the
procedures which do not provide all the evidence that would be required in an audit,
anything has come to the accountant’s attention that causes the accountant to believe
that the financial statements are not prepared, in all material respects, in accordance
with an applicable financial reporting framework.
Review team -All members of the engagement team for the review engagement; and
-All others within a firm who can directly influence the outcome of the review
engagement, including:
-Those who recommend the compensation of, or who provide direct supervisory,
manage- ment or other oversight of the engagement partner in connection with the
performance of the review engagement, including those at all successively senior levels
above the engagement partner through to the individual who is the firm’s
Senior or Managing Partner (Chief Executive or equivalent);
-Those who provide consultation regarding technical or industry specific issues,
transactions or events for the engagement; and
-Those who provide quality control for the engagement, including those who perform the
engagement quality control review for the engagement; and
-All those within a network firm who can directly influence theoutcome of the review
engagement.
Safeguards -Safeguards are actions, individually or in combination, that the
professional accountant takes that effectively reduce threats to compliance with the
fundamental principles to an acceptable level.
Senior professional accountant in business -Senior professional accountants in
business are directors, officers or senior employees able to exert significant influence
over, and make decisions regarding, the acquisition, deployment and control of the
employing organization’s human, financial, technological, physical and intangible
resources.
Special purpose financial statements -Financial statements prepared in accordance
with a financial reporting framework designed to meet the financial information needs of
specified users.
Those charged with governance -The person(s) or organization(s) (for example, a
corporate trustee) with responsibility for overseeing the strategic direction of the entity
and obligations related to the accountability of the entity. This includes overseeing the
financial reporting process. For some entities in some jurisdictions, those charged with
governance might include management personnel, for example, executive members of
a governance board of a private or public sector entity, or an owner- manager.
Let’s check
Integrity- To be straightforward and honest in all professional and business
relationships.
Objectivity- Not to compromise professional or business judgments because of bias,
conflict of interest or undue influence of others.
Professional competence & due care- Attain and maintain professional knowledge
and skill at the level required to ensure that a client or employing organization receives
competent professional service, based on current technical and professional standards
and relevant legislation
Confidentiality- To respect the confidentiality of information acquired as a resultof
professional and business relationships.
Professional Behavior- To comply with relevant laws and regulations and avoid
any conduct that the professional accountant knows or should know might discredit the
profession.
Self-interest threat-The threat that a financial or other interest will inappropriately
influence a professional accountant’s judgment or behavior;
Self- Review Threat- The threat that a professional accountant will not appropriately
evaluate the results of a previous judgment made; or an activity performed by the
accountant, or by another individual within the accountant’s firm or employing
organization, on which the accountant will rely when forming a judgment as part of
performing a current activity;
Advocacy Threat- The threat that a professional accountant will promote a client’s or
employing organization’s position to the point that the accountant’s objectivity is
compromised;
Familiarity Threat- The threat that due to a long or close relationship with a client ,
or employing organization, a professional accountant will be too sympathetic to their
interests or too accepting of their work; and
Intimidation Threat- The threat that a professional accountant will be deterred from
acting objectively because of actual or perceived pressures, including attempts to
exercise undue influence over the accountant.
Acceptable Level- A level at which A professional accountant using the reasonable
and informed third party test would likely conclude that the accountant complies with the
fundamental principles.
Advertising- The communication to the public of information as to the services or skills
provided by professional accountants in public practice with a view to procuring
professional business.
Appropriate Reviewer- An appropriate reviewer is a professional with the necessary
knowledge, skills, experience and authority to review, in an objective manner, the
relevant work performed, or service provided. Such an individual might be a
professional accountant.
Director or Officer- Those charged with the governance of an entity, or acting in an
equivalent capacity, regardless of their title, which might vary from jurisdiction to
jurisdiction.
Assurance Engagement- An engagement in which a professional accountant in public
practice expresses a conclusion designed to enhance the degree of confidence of the
intended users other than the responsible party about the outcome of the evaluation or
measurement of a subject matter against criteria.