Chapter
1:- Principles of Business Ethics
Q.1) Explain the Need for Business Ethics
Ans.
Business ethics is that set of principles or reason which should govern the
conduct of business both at the individual or collective level by the
application of ethical reasoning to specific business situations &
activities. Some of the factors justifying the need for business ethics
are:-
ü
Society
bestows upon businesses the authority to own and use land & natural
resources. In return society has the right to expect that productive organization will enhance the general interest of consumers,
employees & community. Society may also expect that organization will honour existing rights and limit their activities within the bounds of justice.
ü
The products and services of an organization and the actions of
its members can affect its stakeholders i.e. employees, the community and society
as a whole, either positively or negatively.
Business ethics provides guidance regarding the expectations of the community,
principles of morality, consequences & complications of their actions, etc.
Hence, business ethics are extremely needed for well-being of organization as
well as community as a whole.
Q. 2) Explain the
meaning of terms ‘ethics’ and business ethics and also state the requirements
of business ethics?
Ans.
The term ‘Ethics’ has a variety of meanings. One of the meaning of ‘Ethics’ are
The Principles pf Conduct governing an individual or a group. Another
definition describes ethics as relating to what is good or bad and having to do
with moral duty and obligation.
Business ethics is that set of principles or reason which should govern the conduct of business both at the individual or collective level by the application of ethical reasoning to specific business situations & activities.
Business ethics is that set of principles or reason which should govern the conduct of business both at the individual or collective level by the application of ethical reasoning to specific business situations & activities.
Requirements:
Being ethical in
business requires acting with an awareness of:-
a) The need for
complying with rules. Egg.:- Laws of land, customs & expectation of
community, principles of morality, policies of organization & General
concerns such as the needs of others
b) How the products,
services and actions of a business enterprise can effect its stakeholders i.e.
employees, the community and society as a whole, either positively or
negatively.
Q. 3) Moral V/S
Ethics
Point
|
Moral
|
Ethics
|
1
|
Derived from
Latin word MOS meaning customs.
|
Derived from
Greek word ETHIKOS or ETHOS meaning character.
|
2
|
Is accepted from
an authority say culture, religion i.e. defined by group.
|
Are personal
principles/ attribute.
|
3
|
Narrower scope
|
Wider scope
|
4
|
Can be expressed
as General rules & statements
|
Cannot be
expressed as General rules & statements
|
5
|
Are absorbed as
a child from family, schools, friends, etc.,
|
Are developed
over a period of time.
|
6
|
Societies have
customs.
|
People have
character
|
Q. 4) What is
Ethical dilemma? List the guidelines one could follow to address an ethical
dilemma?
Ans.
Many business issues may seem straight forward and easy to resolve by choosing
the one option which appears to be the clear choice but in realty one is faced
with having to make a choice from various alternatives resulting in an ethical dilemma.
Some guidelines
which one can address to ease ethical dilemmas are:-
KEY –
(PROBLEM SOLVE)
i)
Define
the Problem clearly
ii)
How
it is Related to other parties?
iii)
The
situations arise Over which issue?
iv)
To
whom are you Bound to be loyal as person & as a member of
organization.
v)
What
will you Look at while making decisions?
vi)
What
are the Expected results & how they are comparable with actual
results?
vii)
Whom
could your decisions or Main results of actions injure?
viii)
Can
you Save the problem by discussing it with other affected parties?
ix)
Are
you confident that your position will be as valid Over long period of
time as it seems means?
x)
Can
you ask your boss, CEO, your family, society as a whole to Look upon
your decisions?
xi)
What
are the Various potentials of your actions?
xii)
Under
what conditions would you allow Exceptions to your stand?
Q. 5) Hippocratic
Oath?
Ans. It is
an ancient Greek ethical code which is a basis of all medical ethics. It
emphasis on patient’s dignity confidentiality & physician’s responsibility
to guard against abuse of profession and corruption of their knowledge.
It also emphasizes that the physician should honour the rules of their
profession & expose those who do not follow the high standards of conduct.
Q. 6) Importance
of Business ethics in present corporate environment.
Ans. The
term ‘Ethics’ has a variety of meanings. One of the meaning of ‘Ethics’ are The
Principles pf Conduct governing an individual or a group. Another definition
describes ethics as relating to what is good or bad and having to do with moral
duty and obligation.
Business ethics is that set of principles or reason which should govern the
conduct of business both at the individual or collective level by the
application of ethical reasoning to specific business situations &
activities.
Requirements:
Being ethical in
business requires acting with an awareness of:-
a) The need
for complying with rules. Egg.:- Laws of land, customs & expectation of
community, principles of morality, policies of organization & General
concerns such as the needs of others.
b) How the
products, services and actions of a business enterprise can effect its
stakeholders i.e. employees, the community and society as a whole, either
positively or negatively.
Present corporate scenario of constant change & global competition, ethics
is an important factor because it builds trust and confidence in business
relationships and a positive image of the company ethical programs cultivates a
strong team work & productivity, support employee recruitment, retention
and growth. Ethical actions may result in negative publicity declining sales
& even legal action as demonstrated by the recent corporate scandals
leading to the downfall of giant corporation like ENRON.
Q. 7) Benefits of
Business ethics.
Ans.
Definition of Business ethics.
Benefits of
Business ethics:-
i)
Helps
to build a strong public image.
ii)
Cultivates
strong team work & productivity among employees.
iii)
Helps
to manage values associated with quality management, strategic planning & diversity
management.
iv)
Helps
in creating legal policies.
v)
Avoids
criminal acts & lower fines.
vi)
Supports
employee growth.
vii)
Attention
to be substantially improves society.
Chapter
2:- Corporate Governance and Corporate Social Responsibility
Q. 1) What is
meant by Corporate Governance? State the major
characteristics of good Corporate Governance? Benefits of good Corporate
Governance?
Ans.
Governance means the process of decision making and the process by which
decisions are implemented in the interest of stakeholders.
The term “Corporate Governance” can be defined as a formal system of
accountability & control for ethical & socially
responsible organisational decision & use of resources.
ü
Accountability
relates to how well the work place decisions are co-ordinate with strategic
decisions.
ü
Control
involves process of auditing & improving organisational decisions &
actions.
Good Corporate
Governance has the following major characteristics: - KEY: CPT FEAR
i)
C-Consensus
Oriented.
ii)
P-Participatory.
iii)
T-Transparent.
iv)
F-Follows
the rule of the law.
v)
E-Equitable,
Efficient, Effective.
vi)
A-Accountable.
vii)
R-Responsive.
Benefits to good
Corporate Governance:-
i)
Protection
of investor interest and strong capital markets.
ii)
Ensures
commitment of the board in managing the company in a transparent manner.
iii)
Studies
show clear evidence that the good Corporate Governance is rewarded with a
higher market valuation.
Q. 2) Shareholder
V/S Stakeholder
Point
|
Shareholder
|
Stakeholder
|
1
|
Shareholders are
the owners of a particular organization.
|
Constituents of
an organization; insiders like employees, trade union; outsiders like
customers, creditors, society, government, competitors, local communities,
shareholders.
|
2
|
Shareholder is a
narrower term.
|
Stakeholder is a
wider term.
|
3
|
Every
shareholder is a stakeholder.
|
Every
stakeholder is not a shareholder.
|
Q. 3) Corporate
Governance (CG) – issues – Development abroad and in India .
Ans.
i)
CG is
concerned with structures & processes for decision making, accountability
control & behaviour at the top level of organization.
ii) It influences how
the objectives of an organization are set & achieved, how the risk is
monitored and assured &how the performance is optimized.
iii) CG measures
include non-executive directors placing constraints on management power &
ownership concentration.
iv) It includes
ensuring of proper disclosure of financial information & executive
compensation.
v) CG is getting
focused attention for satisfying the divergent interest of the stakeholders
especially after corporate scandals & loss of shareholders value at Enron.
vi) The scandals led
to numerous CG performs including---Sarbanes --- Oxley Act.
Adoption of New listing requirement by NYSE (New York Stock Exchange). In India , various
committees were set up by SEBI & DCA (Department of Company Affairs) to
recommend further improvements in CG applicable to Indian companies.
Q. 4) What is CSR
(Corporate Social Responsibility)? Why it is needed in Indian Business
Environment?
Ans.
The concept of CSR focuses on the idea that beyond making profits, a business
has a social obligation to produce an overall positive impact on the society by
fulfilling the needs of employees, consumers, community & society as a
whole. Besides making profits & being answerable to shareholders;
organization are also responsible towards its stakeholders like investors,
creditors, government, competitors, etc.
In short, CSR is achieving commercial success in ways that honour ethical
values & respect people, communities & the natural environment.
Need for CSR – KEY: CSR
Creates A Great Society
C- Converts
resistance into resources.
S- Fulfills long
term Self-interest.
R- Avoid
government Regulation & control.
C- Control
environmental damage.
A- Avoids
misuse of natural resources & economic power.
G- Gives an
organization a law of responsibility.
S- Helps to
achieve goals & establish a better Society.
Q. 5) Benefits of
CSR.
ü
Increases
productivity & quality of work life.
ü
Increases
ability to attract & retain employees.
ü
Reduce
regulatory oversight.
ü
Improves
financial performance.
ü
Increases
sales.
ü
Improves
customer loyalty.
ü
Access
to capital.
ü
Reduce
operating cost.
ü
Brand
image & reputation.
Q. 6) List the
various ways in which the companies can integrate CSR into business strategy
& decision making frame work.
OR
CSR Mechanism. Key
strategies used by companies for implementing CSR policies?
Ans.
Nowadays, Companies are adopting formal techniques to discuss CSR into business
strategy & decision making framework. Some companies have established
committees, standing committees or special BOD to include responsibility for
CSR issues. Companies implement CSE by putting in place internal management
system that generally promote:-
ü
Adherence
to labour standards
ü
Respect
for human rights
ü
Consumer
protection environment
ü
Avoiding
bribery & corruption
ü
Protecting
environment
ü
Reducing
the negative impacts of operating in conflict zones
Each company differs in how it implements CSR; distinction depends upon
company’s size, sector, culture and the commitment of its leadership.
Key strategies
used by companies for implementing CSR policies are as follows:
ü
Mission , Vision &
Value statements
ü
Cultural
Values
ü
Management
structures
ü
Strategic
planning
ü
General
accountability
ü
Employee
recognition & rewards
ü
Communication,
Education & Training
ü
CSR
reporting
ü
Use
of influence.
Q. 7) Global
Reporting Initiative (GRI)?
Ans.
i)
GRI
is a reporting standard rather than a performance standard.
ii)
It
was established in 1997 with the mission of designing globally applicable guidelines
for preparing enterprise-level sustainability reports including both social
& environmental indicators.
iii)
The
GRI is convened by CERES (Coalition for Environmentally Responsible Economies)
& incorporates the active participations of corporations, NGO’s,
International organization, UN agencies, Consultants, Accountancy org.,
business associations, Universities & other stake holder around the world.
iv)
The
GRI first released its Sustainability Reporting guidelines in 1999 & is now
a permanent, independent, international body with a multi-stake holder
governance structure.
v)
Its
core mission will be maintenance and enhancement of the guidelines through a
process of ongoing consultation & stake holder engagement.
vi)
The
GRI vision is that reporting on economic, environmental and social performance
by all organization. GRI accomplishes this vision by developing, continually
improving and building capacity around the use of its Sustainability Reporting
Framework.
Chapter
3:- Work place ethics
Q. 1) Write a
short note on discriminatory practices.
Ans.
To discriminate means to distinguish one object from another. Employment
discrimination is treating one person better than another because of their age,
gender, race, religion or other protected class status.
KEY:
Ram Se Pehle Dashrath Crowned
a) Recruitment
Practices: Firms that rely solely on the word-of-mouth referrals of
present employees to recruit new workers only from those racial and sexual
groups that are already represented in their labour force. When desirable job
positions are advertised only in media that are not used by minorities or women
or are classified as for men only, recruitment would also tend to be
discriminatory.
b) Screening
Practices: Screening is said to be discriminatory when the parameters
required are such as which are not relevant to the job to be performed.
Interviews for the jobs are said to be discriminatory if the interviewer
disqualifies certain class of people for reason not related to work. E.g. the
occupation is not suitable for women, etc.
c) Promotion
Practices: Promotion, job progression & transfer practices are
discriminatory when employer place males on job tracks separate from those open
to women & minorities.
d) Dismissal: Firing on
employee on the basis of her/his race or sex is a clear form of discrimination;
though not as serious as an offence but the same is considered as
discriminative.
e) Condition of
Employment: Many times equal wages & salaries are not given to
employees performing essentially similar tasks. Another issue is related to
fair wages and treatment to workers.
Q. 2) Write a
short note on “Harassment”
Ans.
Harassment is “tormenting by subjecting to constant interference or
intimidation”. It creates a negative work environment where work is
extracted from the employees by intimidating them & using coercive measures
to get job done. Harassment in business can be of following forms:
a) Racial Harassment: Racial or colour
Harassment includes offensive written or physical conduct at the
characteristics of a person’s race, entire or national origin name or colour.
It also includes derogatory name calling racist jokes & so on.
b) Sexual Harassment: Sexual Harassment
means situations in which an employee is coerced into giving into another
employee’s sexual demands by the threat of losing some significant job benefit,
such as promotion, raise or even the job. It is an unjust misuse of the unequal
power that an employer can exercise over the employee. Sexual Harassment is
prohibited & an employer is held responsible for all sexual harassment
engaged in by employees “regardless of whether the employer knew or should have
known. The harassment occurring & regardless of whether if was forbidden by
the employer”
Q. 3) Importance
of Ethical behaviour at the work place
KEY:
DUSTER
Ans.
An organization, whether a business or a government agency, is first &
Foremost human society. If an employer does not take steps to create a work
environment where the employees have a clear, common understanding of what is
right & wrong & free feel to discuss & ask questions about ethical
issues & reports violations, significant problems could arise which are as follows:-
ü
D- Diminished
reputations in the industry & community
ü
U-
Increased risk of employees making Unethical decisions
ü
S- Significant
legal exposure & loss of competitive advantage in market place
ü
T-
Increased Tendency of employees to report violations to outside
regulatory authorities because they lack on adequate internal forum.
ü
E- In
the long run, Effect of this would be that it would render the company
unprofitable & the company would go into liquidation.
ü
R-
Inability to Recruit & Retain top people.
Q.
4) Explain in brief the measures to ensure ethics in work place.
Ans.
The focus on care values & sound ethics, the hall mark of ethical
management is being recognized as an important way to ensure the long term
effectiveness of governance structures & procedures & avoid the need
for whistle blowing. Employers who understand the importance of work place
ethics, provide their work force with an effective frame work & guiding
principles to identify & address ethical issues as they arise.
Measure to ensure
ethical in work place is
1)
Code
of conduct & ethics
2) Establish open
communication
3) Make ethics
decisions in group and make these decision public as appropriate
4) Integrate ethics
management with other management practices
5) Use of
cross-functional teams when developing & implementing the ethics management
programme
6) Appointing an
Ombuds person
7) Creating an
atmosphere of trust
8) Regulatory
updating of policies & procedures
9) Include a
grievance policy for employees
10) Set an example from the top
Q. 5) Write a note
on work – place ethics.
Ans.
i)
Work
place ethics is how one applies values to work in actual decision making, a set
of right and wrong actions that directly impact the work place.
ii) Ethical decision
in an organization are influenced by 3 factors: Individual moral standards,
influence of manages & co-workers & opportunity to engage in
misconduct.
iii) Good moral
standard help an individual to have a good sense off ethics which he would
carry along with him to enterprise & thereby set a good example to follow
workers.
iv) The activities of
colleagues along with policies established by the firm are critical in gaining
consistent ethical compliance in an organization.
v) Acts such arriving
late to work, engaging in gossips at work place, etc. tempt other employees to
follow the same & thereby lead to a chain of unethical acts throughout the
organization.
vi) The behaviour of
business person towards customers, suppliers & others in their workplace
also generates ethical concerns.
vii) Ethical behaviour within a
business involves keeping secrets, meeting obligations & responsibilities
avoiding undue pressures that may force others to act unethically.
viii)
Hence,
a clear code of conduct practiced at the highest level, fairness & honesty
in its dealings with the stakeholders & prohibition
of any kind, discrimination & harassment are the characteristics of highly
ethical workspace.
Chapter
4 :- Environment and Ethics
Q. 1) Business is
a part of the ecological system. Elaborate
Ans.
i)
An
ecological system is an interrelated & interdependent set of organisms
& environments.
ii) The corporate
world, the industry or others engaged in the use of natural resources or
environment services are closely linked with environment and natural resources.
iii) Business firms
depends on natural environment for their energy, material resources and waste
disposal and that environment in turn is affected by the commercial activities
of business firms.
iv) So all business
firm must ensure that their activities do not injure the ecological ethical
system. This resolve is called ecological ethics.
v) It is based on the
idea that the environment should be protected not only for the sake of human
beings but for its own sake.
vi) Hence, as
ecological systems are interrelated & affected by business; business forms
an important part of it.
Q. 2) Write a
short note on “Conservation of Natural resources”
Ans.
1)
Conservation
refers to the strong or rationing of natural resources for later uses.
2) Environment
protection should be in mind while achieving economic progress/growth.
3) If companies
redesigned products & adopt latest technologies available; they can achieve
the goals of reduction in wastage & conservation of resources.
4) Eco friendly
technologies throughout the product life cycle & maximization of waste play
major role in protecting the environment & conservation of resources.
5) Business, Industry
& MNC’s have to recognize environment management as the priority area &
a key determinant to sustainable development.
6) Sound management
of wastes is among the major environmental issues maintaining the quality of
environment and achieving sustainable development.
7) Conservation is
the only way of ensuring a supply for tomorrow’s generations.
8) According, waste
management can be achieved by
ü
Minimum
waste production
ü
Maximizing
re-use of waste and recycle it
ü
Promoting
environmentally sound waste disposal practices.
Q. 3) Explain the
term sustainable development with reference to pollution & conservation of
natural resources.
Ans.
Sustainable development refers to maintaining development. It may be defined as
development that meets the needs of present without compromising the ability of
future generation to meet their own needs.
A nation or society should satisfy its requirements – social, economic &
others – without jeopardizing the interest of future generations.
This is no economic growth without ecological costs – High economic growth
means high rate of extraction, transformation and utilization of non –
renewable resources. One must realize that increased development higher GNP are
related to environmental damage and resource depletion. Therefore, an element
of resources re-generation and positive approach to environment has to be
incorporated in developmental programmes. Business, Industry & MNC’s have
to recognize environment management as priority area & a key determinant to
sustainable development.
Q. 4) State the
special responsibilities of the industries that are based on natural resources towards
future generations.
Ans.
Industries that are based on natural resources like minerals, timber, finer
& foodstuffs, etc. have a special responsibility.
ü
To
adopt practices that have built in environmental consideration
ü
To
introduce process that minimize the use of natural resources & energy
reduce waste and prevent pollution.
ü
Make
products that are environment – friendly with minimum impact on people &
ecosystem.
Q. 5) How the
adoption green accounting system helps in avoiding policy decisions which are
non-sustainable for the country?
Ans.
i)
Green
Accounting system basically focuses on deficiencies in conventional accounts
with respect to the environment.
ii)
It
makes efforts to see that environmental costs are properly reflected in the
prices paid for goods & services.
iii)
As a
result companies & consumers would adjust market behaviour in a way that
would reduce damage to environment & decrease pollution and waste products.
iv)
Price
signal will also influence human behaviour to avoid exploitation or excessive
use of natural resources.
v)
Such
measures will facilitate the approach of “Pollution Pay Principles” & thus
avoid policy decisions which are non sustainable for the country.
Q. 6) List the
benefit of eco-friendly business practices.
Ans.
Business & Industry are closely linked with environment & resources
utilization. If companies redesigned products & adopts eco friendly
business practices they are the ones who are ultimately going to enjoy the
fruits.
The benefits can
be listed below:-
i)
The
goals of reduction in wastage & resources depletion can be achieved.
ii)
Incorporating
environmental issues in the process of developing a product improves corporate
performance.
iii)
Eco
friendly practices results in more savings. E.g. Process of recycling of the
waste.
iv)
Business
firms will be able to create wealth if they respond to the challenges of
sustainable development as unsustainable products will become obsolete.
v)
Proper
environmental costs can be reflected with the help of green accounting system
& even consumer would adjust market behaviour in a way that would reduce
damage to environment.
vi)
Business
firms using eco friendly practices will gain competitive knowledge
vii)
Business,
Industry & MNC’s have to recognize environment management as the priority
area & a key determinant to sustainable development.
viii)
Sound
management of wastes is among the major environmental issues maintaining the
quality of environment and achieving sustainable development.
ix)
Conservation
is the only way of ensuring a supply for tomorrow’s generations.
Chapter
5:- Ethics in marketing and consumers protection
Q. 1) Explain the
reasons for/need of ethical behaviour in marketing scenario.
Ans. Marketing
is the most important element of any business. It influences sales and behaviour
of customers. The main reasons for ethical behaviour are:-
i)
To
reverse declining public confidence in marketing: Unethical
practice such as misleading package labels, false claim in ads, infringements
of well establishment trademarks, etc. not only declines public confidence in
marketing but also damages reputation of all marketers. To reverse this
situation, Companies must set high ethical standards & enforce them in
consumer’s interest as consumers are lifeblood of business.
ii)
To
avoid increase in Government regulation: Most of the governmental
limitation on marketing are the results of management’s failure to live up to
its ethical responsibilities at one time or other.
iii)
To
sustain the power granted by society: - Marketing executives hold
and use a great deal of social power as they influence market & speak out
on economic issues. However, there are responsibilities tied to this power
& if marketers do not use their power in a socially acceptable manner then
that power will be lost in long run.
iv)
To
protect Image of the organization: - Buyers often form as
impression of an entire organization based on their contact with one person
& and mostly that person represents the marketing functions.
Q. 2) What is competition?
Ans.
Competition is “a situation in a market in which firms or sellers independently
strike for the buyers’ patronage in order to achieve a particular business
objective. E.g. Profit, Sales or Market share”.
The following are
the salient features of competition are:-
i)
Good
competition is trade where there is unrestricted liberty of every man to buy
& sell.
ii)
The
factor affecting free market (regulated) is the income distribution system
where the one with good disposable income rules the market. However, the real
culprit is income distribution system and not the competitive system.
iii)
Thus
in an unregulated market it could be benefit to the owner of withhold of goods
from market in order to extract a high price.
iv)
Therefore,
the problem in a free market can be overcome by posturing competition. It is
the only way to protect the interest of ultimate consumer.
Q. 3) Explain the
salient features of Competition Act, 2002
Ans. The
competition Act, 2002 which passed on 13th January, 2003 is a
laudable step towards harmonizing international trade policy.
It intends to
provide:-
a) For establishment
of a commission to prevent practice having adverse effect on competition.
b) To promote &
sustain competition in market
c) To protect the
interest of consumers
d) To ensure freedom
of trade carried on by other participants in markets
Parameters of
Competition Law:-
i)
Prohibition
of certain agreements considered to be anti-competitive in nature.
ii) Exploitation of
dominant position by imposing unfair conditions and restricting production of
goods and services.
iii) Regulation of
combinations which causes or likely to cause an adverse effect on competition
within India ;
such combinations are considered to be void.
Q. 4) Competition
Laws UK
& US.
Ans. 3
major federal anti-trust laws in US aimed at encouraging competition are:-
i) The Sherman Act
passed in 1890 & aimed at restraint of trade & monopolization of interstate
&foreign commerce.
ii) The Clayton
Act passed in 1914 to overcome the failures of Sherman Act. It attempts to nip
monopolize in the business by specifying practices that monopolists used to
gain monopoly power.
iii)The Federal
Trade Commission Act, 1914 to prohibit unfair methods of competition.
These laws ensure free and open competition thereby bringing benefits by way of
lower prices, new and better products, etc.
The UK Competition Act 1988 came into force in 01.03.2000 aimed at prohibiting
the agreements with the objective of preventing, restricting of distorting
competitions which directly or indirectly fix prices, trading conditions
limit/control products, markets sources of supply.
Q. 5) Define
consumer as per competition Act, 2002
Ans. CONSUMER – Sec2(f) - "consumer" means any person
who –
(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, whether such purchase of goods is for resale or for any commercial purpose or for personal use;
ii) hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first-mentioned person whether such hiring or availing of services is for any commercial purpose or for personal use.
(i) buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, whether such purchase of goods is for resale or for any commercial purpose or for personal use;
ii) hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first-mentioned person whether such hiring or availing of services is for any commercial purpose or for personal use.
Q. 6) List the themes around which the UN guidelines has enunciated various
steps for consumers welfare.
Ans.
The UN guidelines has call upon governments to develop, strengthen &
maintain a strong consumer policy and provide for enhanced protection of
consumers by enunciated various steps & measures around 8 themes:
ü Physical safety
ü Economic interest
ü Standards
ü Essential goods &
services
ü Redress
ü Education and information
ü Specific areas concerning
health
ü Sustainable consumption
Q. 7) Mention the consumer rights recognized by UN guidelines.
Ans.
The Consumer rights recognized by UN guidelines can be used as touchstones for
assessing the consumer welfare implications of competition policy & law and
to see how they help or obstruct the promotion of these rights.
The Rights are:-
ü Right to Basic needs
ü Right to Safety
ü Right to Choice
ü Right to Redress
ü Right to Information
ü Right to Consumer Education
ü Right to Healthy
environment
ü Right to Representation
Q. 8) Explain the 3-tier consumer protection council in India .
Ans.
In India ,
we have 3-tier structure of Consumers Councils at Central, State & District
levels which are as follows:
∙ The Central Consumer Protection council at Central level
∙ The State Consumer Protection council at State level
∙ The District Consumer Protection council at District level
The
objects of the consumer protection councils shall be to promote & protect
the rights of the consumers at their representative levels which are as
follows:
Rights of consumers:
ü Right of protection against
marketing of goods which are hazardous to life & property.
ü Right of information about
the quality, quantity, purity, standard & price of goods & services.
ü Right to access to variety
of goods & services at competitive prices.
ü Right to redress against
unfair trade practices.
ü Right to seek consumer
education.
ü Right to be heard and to be
assured that consumer’s interest will receive due consideration at appropriate
terms.
Chapter
6:- Ethics in Accounting & Finance
Q. 1) Explain the potential conflicts faced by a finance & accounting
professional working –
a) As consultant or
auditors
b) As an employer
Ans.
a) A Finance & accounting professional working as
consultant/auditors in public practice should take adequate care to
identify situation that could pose a conflict of interest. If not followed,
they may give rise to threat to comply with the fundamental principles.
b) A Finance & accounting professional working as an employer
has professional obligation to comply with the fundamental principles laid down
by the organization. At the same time, he should also follow the regulation of
the law & should ensure that whatever he does complies with ethical code of
conduct. However, there are situations when superiors or the top level of
management apply pressure on the employees to perform activities which are:
ü Contrary to law or
regulation.
ü Contrary to technical or
professional standards.
ü Unethical or facilitate
illegal earnings management strategies.
ü Associated with issue of
financial or non financial report that materially misrepresents the facts,
including statements in connection with financial statements, tax compliance,
legal compliance or reports required by security regulators.
Q. 2) Point to be kept in mind for creating a sound ethical environment.
Ans.
A sound ethical environment can be created if the following points are kept in
mind:
1) Awareness of legal and ethical responsibilities
ü Ethical organization should
have policies to train & motivate employees towards ethical behaviours.
This would require initiation from the top.
ü Number of companies both in
West & in India
have been known for their quality & soundness of their ethics programmes.
ü In India, Wipro was amongst
the pioneers to establish an organized set of beliefs to guide business
conduct.
ü Companies now are also
providing an integrity manual which helps employees whenever they face ethical
dilemmas.
2) A Transparent communication system
ü Ethical organization should
provide facilities for employees through which they could communicate with
responsible position for reporting frauds, mismanagement or any other form of
non routine detrimental (harmful) behaviour.
ü Companies like Wipro have
introduce a helpline comprising of senior members of the company who are
available for guidance on any moral, legal or ethical issues that an employee
may face.
3) Fair
treatment to whistle blowers: Fair treatment to whistle
blowers is important, as this encourages other members of the company to report
similar activities in future. On the contrary, if the company demotes such
whistle blowers, it discourages other employees from reporting on any malpractices
within the organization which might affect its reputation as well as cause
financial losses.
Q. 3) Reason for unethical behaviour
Ans.
Some of the reasons which encourage employees to act unethically are as
follows:
1. Emphasis on short term results: Company’s manipulated accounting entries to depict good profitability in
order to raise further capital from the market. This is one of the primary
reasons for downfall of companies like Enron, WorldCom, Satyam, etc.
2. Ignoring
small unethical issues: Tolerance of small lapses lead to larger
problems. So, the companies should develop an environment where small ethical
lapses are taken seriously so that they are not repeated in the future.
3. Economic
cycle: To prevent disclosure of ethical problems
in times of depression, companies should be extremely careful & vigilant
during good times. It must ensure itself that the effect of depression on the
company’s financial statements will be limited & company will be able to
bear losses & at the same time it makes the situation acceptable for the
share holders.
4. Accounting
Rules: In the era of globalization, accounting
rules are changing faster & becoming more complex. It becomes difficult to
identify deviation from these complex set of requirements. The difficulty
associated with identifying abuse are the reason which may promote unethical
behaviour.
Q. 4) Fundamental Principles relating to Ethics.
Ans.
Certain fundamental principles need to be adhered for behaving in an ethical
manner. These principles have been summarized below-
1) The Principle of Integrity:-
Integrity means “adherence to moral and ethical principles” professional have
to adhere religiously to honesty and straight
forwardness while disclosing their representative
professional duties. The following act of responsibility would help to comply
with the integrity principles.
ü Avoid activities which
could affect goodwill of an organization.
ü Refuse to get involved in
activities which could adversely affect the achievement of organization
objectives.
ü Communicate adverse and
favorable information with those concerned.
ü Avoid conflicts.
ü Refuse favours or gifts
which could influence action taken or to be taken.
2) The Principles of Objectivity:-
According to this principle accounting and finance professionals should not
allow bias, personal views, conflicting interest and
undue influence of themselves or other to override
business judgement. They should communicate information fairly and objectively
in a transparent manner.
3) The Principles of Confidentiality:-
This requires accounting & financial professional to refrain from
disclosing confidential information related to their
work. Such information may be however disclosed to
a) Subordinate
& ensure that they too maintain confidentiality &
b) When under legal obligation
or because of some statutory ruling.
4) The Principles of professional competence & due care:-
Finance & accounting professional need to update their skills and knowledge
from time to time and shall ensure
the client or employers receives competent professional services
based upon current developments in the related areas.
5) The Principles of professional behaviour:-
This principle requires accounting & finance professional to comply with
relevant laws and regulations and
avoid such actions which may result into discrediting the profession.
Q. 5) Explain the types of ethical threats.
Ans.
The dynamic environment in which business operate today has posed many
situation because of which compliance with fundamental principles may be
potentially threatened.
Such
threats are classified as follows:-
1) Self
Interest threats – which may occur as the result of the financial or other
interest of a finance and accounting professional or of an immediate or close
family members.
2) Self review threats – which
may occur when a previous judgement needs to be revaluated by the finance and
accounting professional responsible for that judgement.
3) Advocacy threats – Advocacy
is the act of arguing on behalf of a particular issue, idea or person. These
threats occur when professional promotes a position or opinion to the point
that subsequent objectivity may be compromised.
4) Familiarity threats – occur
when professionals has close relationship in the work environment & such
relationship impair his selfless attitude towards work.
5) Intimidation threats –
occur when a professional may be prohibited from acting objectively by threats,
actual or perceived.
Q. 6) What are the various ethical threats faced by an finance and
accounting professional working as an employee of a company?
Ans.
The dynamic environment in which business operate today may usher a broad range
of circumstances because of which compliance to principles of integrity,
objectivity, confidentiality & professional competence and due care in case
of a finance and accounting professional working as an employee may be
threatened surely and it can be classified as under:
Ø
Self interest threats
- Financial interests, loans and guarantees in the
company in which the professional is working.
- Incentive compensation arrangements.
- Inappropriate personal use of corporate assets.
- Concerns over employment security.
Ø
Self review threats
· Such
threats occur when business decision or data is subject to review and
justification is required to be given by the same professional who was
responsible for taking such decisions or preparing that data
Ø
Advocacy threats
- When furthering the legitimate goals &
objectives of their employing organization; finance and accounting
professional may promote the organization’s position provided any
statement made are neither false nor misleading.
Ø
Familiarity threats
- Long association with business contacts influencing
business decision.
- Acceptance of a gift/preferential treatment unless
the value is clearly insignificant.
Ø
Intimidation threats
- Threat of dismissal or replacement over a
disagreement about the application of an accounting principle in which
financial information is to be reported for external use as well as
decision making purpose.
- A dominant personality attempting to influence the decision
making process. E.g. with regard to exclusion of irrelevant cost from
projected cost estimates.
Q. 7) What are the various ethical threats faced by an finance and
accounting professional working as a consultant or an auditor of a company?
Ans.
Threats faced by an accounting & finance professional working as an auditor
of a company can be classified as follows:-
Ø
Self interest threats
- A financial interest in a client or jointly holding
a financial interest with a client.
- Having a close business relationship with the
client.
- Potential employment with a client.
- Contingent fees relating to an assurance engagement.
Ø
Self review threats
- The discovery of a significant error during
re-evaluation of the work of the finance and accounting professional.
- A member of the assurance team being or having
recently been, a director or officer of that client.
Ø
Advocacy threats
- Promoting shares in a “listed entity” when that
entity is a consultancy or a financial statement audit client.
- Acting as an advocate on behalf of an assurance
client in litigation or disputes with 3rd parties.
Ø
Familiarity threats
- A member of the engagement team having a close or
immediate family relationship with a director or officers of the client.
- Accepting gifts or preferential treatment from a
client, unless the value is clearly insignificant.
- Long association of senior personnel with the
assurance client.
Ø
Intimidation threats
- Being threatened with dismissal or replacement.
- Being threatened with litigation.
- Being pressured to reduce inappropriately the extent
of work performed in order to reduce fees.
Q. 8) Ethical Conflict Resolution
Ans.
While evaluating compliance with the fundamental principles, finance and
accounting professional may be required to resolve a conflict in the
application of fundamental principles.
The following needs to be considered either individually or together with
others, during a conflict resolution process:
ü Relevant facts.
ü Ethical issues involved.
ü Fundamental principles
related to matter in question.
ü Established internal
procedure.
ü Alternative course of
action.
Having considered these issues, a professional should determine the appropriate
course of action that is consistent with fundamental principles identified
& weight the results of each possible course of action. If the matter
remains unsolved, the professional should take following steps:
- Consult the appropriate person within the firm or
employing organization fro help in obtaining resolution.
- If the matter involves conflict within an
organization; then it is advisable to consult with those charged with
governance of the organization of the organization such as BOD.
- It may be in the best interest of the professional
to document the detail and the substance of issue.
- If a significant conflict cannot be resolved, obtain
advice from the relevant professional body or legal advisors & there
by obtain guidance on ethical issues without breaching confidentiality.
- If after all relevant possibilities, the ethical
conflict remain unresolved, it is appropriate to withdraw from the
engagement team or specific assignment or to resign altogether from the
engagement team, the firm or the employing organization.
Q. 9) Explain the safeguards which may be created by business enterprise to
overcome various threats faced by accounting & finance professionals.
Ans.
Safeguards that may eliminate or reduce the various threats to an acceptable
level fall into 2 categories:
(A)
Safeguards created by profession, legislation or
regulation.
ü Corporate governance
regulations.
ü Professional or regulatory
monitoring & disciplinary procedures.
ü Educational training &
experience requirements for entry into the profession.
ü Professional standards.
ü Continuing professional
development requirements.
(B)
Safeguards in work environment.
ü Strong internal
controls.
ü Appropriate disciplinary
process.
ü The employing organizations
ethics & conduct programs.
ü Policies & procedures
to implement & monitor the quality of employer performance.