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Summary CIMA BA4 Notes
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Chartered Institute of Management Accountants Certificate Level BA4BA4 Fundamentals of Ethics, Corporate Governance and
Business Law
Structure
Business ethics and ethical conflict (30%)
1. Business ethics
2. Ethical conflict
Corporate governance, controls and corporate social responsibility (45%)
3. Corporate governance
4. Controls
5. Corporate social responsibility
General principles of the legal system, contract and employment law (15%)
6. The law of contract
7. The law of employment
Company administration (10%)
8. Company administration
Jack Gould 1 of 43
,Chartered Institute of Management Accountants Certificate Level BA4
Business ethics
• Ethics: the moral principles that govern a person’s behaviour of the conducting of an activity
• Ethics is concerned with how someone should act in a given situation: ’doing the right thing’,
morality, and the difference between right and wrong.
• Business ethics: ethics in business is the application of ethical principles in a business setting,
such as: corporate crime, insider trading, legal loopholes, misrepresenting financial performance
• Ethical values describe how entity does its business, not what it does; an action can be right or
wrong, depends on many factors: consequence; motivation; principles; key values; human rights
Schools of ethics:
• Virtues: drawing on Aristotle, virtues - justice, charity, generosity, etc - are dispositions to act in
ways benefitting the person and society. Virtue ethics is the ethical school of accountancy
• Deontological: defended by Kant, the concept of duty is central to morality in deontological
ethics, as humans (rational beings) are bound to respect other rational beings
• Utilitarianism: ethics is driven by outcomes - not actions - thus the guiding principle of conduct
should be the result yielding the greatest happiness or benefit (Bentham)
• Relativism: ethical rules differ depending on context; for example slavery was once acceptable
• Absolutism: there is only one set of unchanging universal truths which must always be applied
• Consequentialism: there are certain principles that are always true whatever the consequence
ROLE OF THE ACCOUNTANT IN PROMOTING ETHICAL BEHAVIOUR
• A management accountant’s role is to provide information forming the basis of decision-making in
an organisation; if work is undertaken badly or in bad faith there can be ranging consequences.
• Unethical behaviour can impact the accountant (such as disciplinary action), as well as jobs,
financial viability, and a firm’s business efficacy.
• Accountants belong to a profession, thus have a duty to act in the public interest
• Public interest: refers to the common well-being or general welfare of society
• Professional accountant thus have a special role in promoting ethical behaviour across the firm.
ETHICAL INFLUENCES
• Everyone’s values and beliefs evolve over their lives. Numerous factors affect ethical obligations:
• The law: legislation makes it clear what is acceptable, however ethics are more than obeying
the law: for example legal loopholes to avoid tax are not illegal, yet are viewed as unethical
• Government regulations: regulations set standards on different issues, such as unfair
competition. However some firms will find ways to manoeuvre such regulations.
• Ethical codes: organisations often have codes that state the ethical standards and principles its
employees should follow; they are usually adhered to when written down and enforced.
• Social pressure: many people draw their values from what people around them say or do. Just
as society changes, social pressure can change too; for example protest groups seek to change
public values with the long term hope that new values are reflected in law
• Corporate culture: “the sum total of all the beliefs, attitudes, norms and customs that prevail
within an organisation”; this is ideally a culture that encourages ethical behaviour. The example
set by senior management - the tone at the top - is of particular importance.
• Personal values: an individual’s characteristics such as gender, age and religious beliefs can
also influence their approach to ethics
COSTS AND BENEFITS OF BUSINESS ETHICS
• Costs: it may be argued that the primary purpose of a corporate entity is to earn profit; it may thus
be contended that going beyond legal minimum standard of behaviour set by law goes against this
primary objective, and that ethical behaviour increases costs and reduces profit. For example:
• Increased cost of ethically sourced materials
• Rejecting relationships with unethical clients
• Benefits: however there can be commercial benefits to acting ethically. For example:
• Enhances reputation and brand image, retaining old and attracting new customers
• Attracts higher calibre of staff and results in more effective workforce
• Cost savings of avoiding charges applied to unethical businesses, such as pollutant taxes
• Whereas some firms have failed due to unethical practices, ethics can reduce risk
ROLE OF LAW IN ETHICS
• Legal and disciplinary frameworks provide an effective means of challenging wrong-doing; they
provide deterrents through punishment.
Jack Gould 2 of 43
,Chartered Institute of Management Accountants Certificate Level BA4
• However this method of controlling behaviour sets the threshold for what amount to
unacceptable accounting practice at high levels.
• Law by nature is inflexible, and can cause difficulty when applying to cases of ethical misconduct
• Relying solely on law to police accounting ethics is therefore not the optimal way of preventing
and detecting unethical practices.
ROLE OF PROFESSIONAL BODIES
• The International Federation of Accountants (IFAC): is an umbrella organisation representing
all major accountancy bodies globally: its role is to protect the public interest by developing
international standards, promoting strong ethical values, and encouraging quality practice.
• IFAC’s International Ethics Standards Board for Accountants (IESBA): independent standard-
setting board that develops and issues high-quality ethical standards for accountants worldwide:
• IESBA develops the Code of Ethics for Professional Accountants, establishing shared ethical
requirements for all professional accountants; as well as providing implementation support,
promoting ethical practice, and fostering international debate on ethical accounting issues
• The Financial Reporting Council (FRC): the UK’s independent non-governmental regulator
responsible for promoting high quality corporate governance and reporting, to foster investment:
• The FRC’s Board issues UK versions of International Standards on Auditing, taking advice from
the Audit & Assurance Council of the FRC
• The Board also issues UK versions of International Financial Reporting Standards, taking advice
from the Accounting Council of the FRC
• The Conduct Committee: part of the FRC, providing independent oversight of:
• Monitoring of Recognised Supervisory and • Corporate Reporting Reviews
Recognised Qualifying bodies, ie CIMA • Professional disciplinary issues
• Audit Quality Reviews • Regulation of accountants and actuaries
• The FRC’s Professional Oversight Body for Accounting makes recommendations for changes
to professional and ethical rules; but cannot make new rules on its own account.
CODE OF ETHICS
• Each profession has a specific code of ethics which form part of its identity.
• Accountants have the ethical responsibility to be objective and independent in representing
accounts; its ethical principles create solidarity of the profession that society accepts.
• To uphold benefits accrued from the profession (status/financial benefits), it is the responsibility of
professionals to act within ethical principles and ensure public interest is paramount
• Corporate codes of ethics: most companies creating a set of internal policies which employees
are instructed to follow; these policies can be either broad generalisations or specific rules.
• There is no standard list of content as this will vary between firms, however it may contain
guidelines on honesty, integrity and customer focus for example.
• Ethics Officers may also be appointed to discuss ethical dilemmas
• The International Federation of Accountants (IFAC) Code of Ethics: in June 2005 IFAC
published Code of Ethics for Professional Accountants, prepared by IESBA; continually revised
with most recent version in 2018. CIMA’s Code of Ethics is heavily based on the IFAC Code
• The IFAC Code is designed to develop and issue high-quality ethical standards for professional
accountants around the world; IFAC Code is mandatory for all member firms or bodies of IFAC
• The CIMA Code of Ethics: CIMA launched CIMA Code of Ethics for Professional Accountants in
2006, revised in 2010, 2015 and 2020. It applies to all CIMA members and students, reflecting
IFAC’s fundamental principles and conceptual framework, adjusted to the local regulatory context
• The CIMA code reflects its status as a Chartered Institute and set the standards CIMA expects
of its members and students, aligning with global standards. The Code of Ethics aims to:
• Identify the nature of personal responsibility the management accountant takes on
• Provide guidance on identifying solutions where care must be taken to avoid ethical pitfalls
• Provide guidance on addressing ethical questions; and raising concern of unethical behaviour
• CIMA code developed to assist management accountants to identify potential ethical pressures
• CIMA Code provides a basis for complaints under CIMA's disciplinary procedures
• The CIMA Code of Ethics is divided into three parts:
A. General Application of the Code: outline the fundamental principles of integrity, objectivity,
professional competence and due care, confidentiality, and professional behaviour.
B. Professional Accountants in Public Practice: cover particular issues identified as being
relevant to accountants in public practice
Jack Gould 3 of 43
, Chartered Institute of Management Accountants Certificate Level BA4
C. Professional Accountants in Business: covers issues such as potential conflicts,
reporting, acting with sufficient expertise, financial interests and inducements. 2015 revision
developed in co-operation with American Institute of Certified Public Accountants (AICPA).
• Any firm or body may not apply less stringent standards than those set in the Code of Ethics.
CIMA’S FUNDAMENTAL PRINCIPLES
• CIMA is committed to upholding the highest ethical and professional standards, to ensure the
public confidence in CIMA, management accounting, its members, and its students.
• The CIMA Code of Ethics outlines five fundamental principles all members and students must
comply with, which are the foundations of reasoning and professional practice to guide their work:
• Integrity: be straightforward, honest and truthful in all professional and business relationships
• Objectivity: not allow bias, conflict of interest or undue influence of others to override business
or professional judgement; make decisions on their own merit
• Professional competence and due care: professional competence must first be attained, and
then there is an ongoing commitment for an appropriate level of professional knowledge and
skill to be maintained; a commitment to continuing professional development (CPD)
• Confidentiality: to respect the confidentiality of information acquired as a result of professional/
business relationships, therefore resulting in two key considerations:
• Not to disclose confidential information to a third party without specific authority or permission
to do so; or unless there is a legal or professional duty to do so. Reasons for disclose may be:
• Permitted by law and authorised by the client
• Required by law or requested by a regulator
• Professional duty or right to dislocate
• Not to use confidential information acquired during provision of services for personal gain
• Professional behaviour: compliance with all relevant laws and regulations; also avoiding action
that could negatively affect the reputation of or discredit the profession
NATURE OF ETHICS: THREATS AND SAFEGUARDS
Conceptual framework approach
• It is impossible to define every situation threatening compliance with fundamental principles, or to
specify all mitigating actions. Hence, a conceptual framework requiring accountants to identify and
address threats to compliance, rather than merely comply with a set of rules, is in public interest.
Threats
• To apply all the fundamental principles of CIMA Code of Ethics, it is necessary to identify and
evaluate existing or potential threats to them. Albeit impossible to define all situations that may
constitute a threat to compliance, the code identifies five common categories:
• Self-interest threats: can occur due to personal or family interests, creating a conflict of interest
• Self-review threats: when required to re-evaluate a previous judgement, such as justifying a
business decision or reporting on the operation of systems you designed and implemented.
• Familiarity threats: can arise when a close relationship results in professional judgement being
compromised; perhaps due to a long association with a business contact or accepting gifts
• Intimidation threats: occur when deterred from acting objectively by actual or perceived threats,
such as the threat of dismissal or a dominant personality attempting to influence decisions
• Advocacy threats: when promoting an opinion to the point that objectivity is compromised
Safeguards
• Having identified a threat to compliance with the fundamental principles, action must be taken to
mitigate it when here is anything other than an insignificant consequence. CIMA Code of Ethics
does not describe all safeguards but rather gives general guidance for handling ethical issues.
• Safeguards created by the profession, legislation or regulation include but not limited to:
• Education, training and experience requirements for entry to the profession
• Continuing professional development (CPD)
• Corporate governance regulations
• Professional standards
• Monitoring and disciplinary procedures
• External review of the reports or information carried out by a legally empowered third party
• Safeguards in the workplace environment include but not limited to:
• Employing organisation’s systems of corporate oversight
• Employing organisation’s ethics and conduct programmes
• Recruitment procedures emphasising importance of employing high calibre staff
Jack Gould 4 of 43
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