Unit 4 Application of Ethical Standard
INTRODUCTION
Ethical standards are a set of principles established by the founders of the
organization to communicate its underlying moral values. This code provides a
framework that can be used as a reference for decision making processes.
These standards are an important part of an organization’s culture. They establish
the parameters of behavior that owners and top executives expect from employees
and also from suppliers, at least to the extent of their relationship with the
organization. A corporate governance system will put a lot of effort into
communicating and enforcing these principles. This is mostly done through
behavior modeling, which means that top executives should set the example of
how lower-level employees should act.
A few examples of these standards would be responsibility, honesty, transparency
or fairness and even though they might be interpreted differently by each person,
companies usually describe the founder’s perspective of each value to avoid
confusions.
MANUFACTURING DUTIES OF MANUFACTURER
There are certain ethical duties that a manufacturer has towards consumers. There
are several issues like dangerous and risky products, poorly constructed products,
failure to respect warranties and more. Manufacturing company must be able to
solve the various problems related to the consumers.
Firms which are providing the safety products by following the ethics are unable to
compete with those who are selling unsafe products because they sell it at cheap
prices. Manufacturers should set a code of conduct that appropriate to draw the line
between what is good & what is bad.
Here are few manufacturing duties of manufacturer:-
1. No force labor: The manufacturer should acknowledge the right of
employees to leave their job after a notice & should not use any form of forced or
involuntary labor.
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“Almost 21 million people are victims of forced labour. 11.4 million women and
girls and 9.5 million men and boys. Forced labour in the private economy
generates US $ 150 billion in illegal profits per year”. ILO
2. No child labor: The manufacturer should not use the child labor in
manufacturing and other acts.
3. No discrimination: The manufacturer shouldn’t apply any type of
discriminatory practice with regards of recruitment, compensation, access of
training, promotion, retirement based on caste, gender, union membership or
political affiliation.
4. No harsh & inhumane treatment: Manufacturer should treat their respect
& dignity. Employees should be protected from sexual harassment, racial
harassment & any form of abuse.
5. Safe and hygienic working condition: Manufacturer should provide a
working environment that ensures safety of its workers that will prevent work
related to injuries & accidents. A hygienic working condition where access to
toilet, drinking water & other required facilities should be there.
- The manufacturing companies should develop a comprehensive ethical
program that will give employees provision of ethical guidance, a system of getting
advice about ethical issues & providing ethical training and workshops.
Theories of ethical duties of manufacturer
1) Due care theory- to take precaution to ensure quality & prevent customer
and employee from injured.
2) Contract theory- duty is created by the contractual relationship
3) Social cost theory- to pay for any injuries caused by the defects in the
product, even if the manufacturer excised all due care in designing, making &
marketing the product.
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CONSUMER RIGHTS
A consumer is a person or a group who intends to order, or uses purchased goods,
products, or services primarily for personal, social, family, household and similar
needs, not directly related to entrepreneurial or business activities.
The rights of consumer are discussed below:-
1. Right to safety:
Consumer should feel assured that the product they purchase will not cause injuries
in normal use, not damage and protect from hazardous goods.
In 2008, 20 people died after eating meat made by Maple leaf Foods that was
contaminated with listeria. Company sales dropped by nearly fifty after this news
become public.
2. Right to informed:
The business should always provide complete, appropriate and truthful information
about the product or services so that consumers are educated for buying decision
and its consumption.
Consumer should get available information required for weighing alternatives and
protection from false and misleading claims in advertising and labeling practices.
3. Right to choose
Consumers should have the right to free choice among the products which are
offered by different companies.
So the companies should make available of competing goods & services by
offering alternatives in terms of price, quality, and service.
4. Right to be heard (complaints)
Consumers should have the right to express legitimate complaints about product or
services to appropriate parties. Many companies expend considerable effort to
ensure full hearings for consumer complaints.
5. The right to satisfaction of basic needs
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Consumers have the right to demand the basic and essential goods& services from
producers and concern parties.
6. The right to redress
Consumers should have the right to receive a fair settlement of just claims
including compensation for misrepresentation, shoddy goods or unsatisfactory
services.
For eg a consumer should be able to go to consumer court against mobile
companies that put hidden charges on the bill that were not previously explained or
activate the ring tone without the consumer’s permission.
In Nepal, Department of Food Technology & Quality Control (DFTQC) organizes
awareness programs regarding various issues in consumer rights.
7. The right to be educated about purchases
All description drugs now come with detailed information regarding dosage,
possible side effects and potential interactions with other medications.
INFORMED CONSUMER
Consumer information is the most important element for consumer protection and
policy decisions. An informed consumer is capable of making sensible decisions by
gaining an insight about a product prior to its purchase. This insight equips the
consumer with the data to arrive at an evidence based conclusion.
This can be made clear through in a few common aspects:
Appropriate quality – Almost every purchase comes with a variety of options
from which to choose. Consumer information enables the customers to select a
quality of product which matches their needs for durability or sustainability.
Reliability – Information about products facilitates safe purchases. Mass
production of bulk consumer goods may result in instances of products bearing
manufacturing defects. Recognizing these defects can prevent the customer from
financial injury or loss. Product and brand reviews and consumer forums online
can be instrumental in educating the customers about potential problems with the
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product, and should be considered when making big purchases like appliances and
vehicles.
Affordability – Consumers may be misled by aggressive sales tactics, especially
by professionals paid by commission, who may induce the consumer to buy
expensive products, products with a high mark-up, or expensive options.
Information about the potential purchases can help the consumer save money and
ensure a smarter purchase.
Ethical considerations – Consumers may not wish to deal with a company which
indulges in unethical practices, such as animal testing, labour abuse, environmental
pollution, and political corruption.
It is not only about misleading advertisement that is problematic but also on all
communication with customers like salesperson controlled to clearly & accurately
inform customers about warranties.
Most packaged goods firms, personal computer makers & other makers of products
brought for personal use by consumers include toll-free customer service numbers
in their product labels so that consumers can get answers when they have questions
about a product.
To protect their customers & avoid claims of insufficient disclosure; businesses
often include warnings on products.
The rationale is that market actors who are informed have a greater capacity to
understand the importance of their market actions & choices, and are enabled in
making better choices.
An informed consumer can immediately recognize the company’s claim as
misleading and rejects such ad which insults consumers intelligence.
Consumer information is the solution to issues ranging from online transactional
threats, behavioral targeting, loss of privacy & other problems.
An informed consumer is capable of making sensible decisions, gains an insight
about a product prior to its purchase as well as advantageous to the economy &
market.
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CONSUMER POLITICS
- Consumer politics believes that politics need to be responsive to the whims
& desires of the marketplace.
- It is the movement about the choice of producers & products with the aim of
changing ethically or politically objectionable institutional or market practices.
- Their choices are informed by attitudes & values regarding issues of justice,
fairness, non-economic issues that concern personal & family well-being & ethical
or political assessment of favorable and unfavorable business & government
practices.
- They make their choices based on considerations of justice or fairness or on
an assessment of business & government practices.
- Regardless of whether political consumers act individually or collectively,
their market choices reflect an understanding of material products as embedded in
a complex social & normative context, which is called the politics behind products.
- Political consumers are defined as people who state that they either have
boycotted or boycotted products for political, ethical or environmental reasons.
- Political consumption is widely assumed to have a positive relationship with
civic & political engagement.
- Political consumption is the conscious decision to buy or avoid products &
services for ethical or governmental or political reasons is closely tied to political
communication.
- On one hand, it is a vehicle for individuals to communicate their civic &
political values & preferences.
- On the other hand, political consumption also offers individuals the means to
challenge & protest what they see as un-civic or socially irresponsible brands.
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Consumer privacy
- Consumer privacy also known as customer privacy, involves the handling &
protection of sensitive personal information that individuals provide in the
course of everyday transactions.
- With the advent & evolution of the World wide-web & other electronic
methods of mass communications, consumer privacy has become a major
issue.
- Personal information, when misused or inadequately protected, can result in
identity theft, financial fraud & other problems that collectively cost for
people, business & governments.
- In addition, internet crimes & civil disputes consume court resources,
confound legislators and police departments can produce untold personal
aggravation.
- Another consumer privacy features commonly offered by corporations &
government agencies includes do not call lists ; verification of transactions
by e-mail or telephone, and e-mail passwords.
- Privacy is a fundamental human right recognized in all major international
treaties & agreements on human rights, so every country recognizes human
rights as fundamental human rights in their constitution, either explicitly or
implicitly.
- There are two dimensions to consumer privacy:
a. Consumer awareness of information collection & growing.
b. There must be a balance between right to privacy & business needs.
Ethical consumption
- Ethical consumption is the conscious & deliberate choice to make certain
consumption choices due to personal moral beliefs & values.
- Ethical consumption means that more customers are choosing to purchase
goods that are ethically sourced, ethically made & ethically distributed.
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- There are four types of consuming in ethical consumption:
a. Positive buying: buying ethical made products
b. Negative buying: not buying ethically made products.
c. Company-based purchasing: choosing whether to support or not a
company based on goods it produces.
d. Fully-screened approach: combination of three methods above.
- Ethical consumption leads to sustainable use of environment & natural
resources. The Use and Throw mentality is being dominant among consumer
which has further escalated the environmental implications.
- Social & human welfare is highly suffering due to sustainable consumerism.
The amount of inequality & status biases is also the result of these trends.
- However, modern day capitalism has come to a point where status oriented
purchases, luxury purchases & extravagance life styles are chased by people
which has hampered social equality, human well-being, human welfare and
quality of life as a whole.
- To promote ethical consumption, the concept of Use it, Loose it should be
replaced by Reuse and Recycle.
- The ethical consumption is about when buy such products that have been re-
used & recycled in order to protect the environment & resources.
- Consumers need to ask every time they buy a product as to how the product
is made, who profits from it & what implication will it have on environment,
society & human welfare as a whole.
- When consumers consume ethical product & avoid unethical ones,
companies are forced to act ethically.
- Consumers need to become ethical. Ethical consumers are one who take
consideration of products that are made ethically-has not harmed humans,
animals or environment. So to enhance ethical consumptions, consumers
should look the company’s practices then the brand.
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Classification of Unethical behavior
Corruption, bribery etc committed in the society is called unethical behavior.
Unethical behavior is classified as per the intention, different view of ethics,
impact intensity and levels at which ethics may be addressed.
1. Based on intention:
On the basis of intension of an individual, unethical behavior can be classified into
two groups:
a. Intentional unethical behavior: it is incur when people engage in actions
which they know to be wrong but are unaware of the forces or biasness
affecting their judgments.
b. Unintentional unethical behavior: it is incur when the people behave
unethically without knowing the reality and also fail to notice the unethical
behavior around them.
2. Based on impact intensity:
As per the impact on individual & other round him by the unethical behavior, it
can be classified into two groups:
a. Unethical behavior of minimal impact: some of the unethical behavior
carried out by an individual may not have considerable impact on others,
which is called unethical behavior of minimal impact. For e.g. Rs.20
stealing from the father’s pockets.
b. Unethical behavior of large or considerable impact: there are some
unethical behaviors whose impact are huge & cannot be neglected, which
are called unethical behavior of large impact. For e.g. dumping of
harmful wastes by industries directly to river without filtering.
3. Based on different view of ethics:
As per the view of different people, unethical behavior can be classified into two
groups:
a. Unethical behavior from the individualism view:
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- Individualism focuses on the importance of individual self-reliance &
liberty, opposing the external interference on individual choices by society,
state, organization or any other group.
- The action that produces the greater good to bad ratio for the individual
compared to other alternatives is the best to perform.
b. Unethical behavior from the utilitarian:
- As per the utilitarian view, ethical decisions are made solely based on the
outcomes or consequences.
- It focuses on collectivism so contrasts with individualism view.
- This view only concerns the majority of the people, who are benefitting from
the decision or behavior & not the minority who are affected by the decision.
LEGAL VERSUS MORAL
- Law & ethics (moral) are not identical, nor do they always agree.
- Some ethical requirements such as treating one’s employee with respect are
not legally required, though may be ethically warranted.
- Some action may be legally permitted such as firing an employee for no
reason, would fail many ethical standards.
- Law follows norms established by society through the political process.
Morals focus on social justice; doing what is right. Ethics may be in conflict with
unjust laws.
- The law can be effective mechanism to prevent serious harms but it is not
effective at promoting things that are good. For e.g. acts of charity, common
dignity & personal integrity.
- The law cannot anticipate every possible dilemma that business might face
so there may not be a regulation for that particular dilemma that challenges a
business leader.
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- As a result, one had no choice but to rely on the ethical decision making
process of those in power to respect the appropriate boundaries of employee
privacy.
ETHICS IN THE MARKETPLACE
- A market is a forum in which people come together for the purpose of
exchanging ownership of goods or money.
- If the free market is moral, it maximizes the economic liberty & respect the
liberty of both buyer and sellers.
- Competition tends to promote efficiency in the market place & benefits the
general consumer by resulting in a variety of goods at the best price.
- The competition practices in the market and their morality are as
follows:
a. Perfectly free competitive market:
- Buyer and seller have no power to significantly affect the price of a good, so
the price is adjusted as per the demand & supply.
- Thus perfectly free market satisfies three of the moral criteria: justice, utility
& right.
b. Monopoly competition market:
- In this market there is only one seller & other cannot enter in the market so,
seller charge high price on the product than its real worth.
- There will be shortage of product, thus the buyer must pay the unadjusted
price for the product.
- Thus monopoly competition market does not satisfy the justice, utility &
right moral criteria.
a. Oligopolistic competition market:
- This market lies somewhere in between the monopoly & the perfectly
competitive market because there are some large firms or few sellers.
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- It set the high prices through explicit agreement to restrain competition and
it is to collude (act) against the interests of society, economic freedom & justice.
- The following list identifies unethical practices in oligopolistic
competition market;
i. Pricing fixing: when companies agree to set price artificially high.
ii. Manipulation of supply: when companies are agreeing to limit production.
iii. Exclusive dealing arrangements: when a company sells to a retailer only
one condition that the retailer will not purchase products from other or will not sell
outside certain geographical area.
iv. Tying arrangements: when a company sells to a retailer only on condition,
they agree to charge the same set retail price to everyone.
v. Price discrimination: charge different price to different buyers for the same
goods or services.
PRODUCT POSITIONING AND COMPETING
- Product positioning is marketing strategy that aims to make a brand occupy
a distinct position, relative to competing brands, in the mind of the customer.
- Its objective is to occupy a clear, unique & advantageous position in the
consumer’s mind.
- Product positioning must achieve three objectives:
a. Differentiate the product from competitor’s,
b. Address important buying criteria and
c. Articulate key product characteristics.
- Companies apply this strategy either by emphasizing the distinguishing
features of brand or they may try to create a suitable image through advertising.
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- There are five basic elements of brand positioning-brand identity, brand
image, brand personality, brand awareness & brand communication, are blended
with three basic elements of ethics like beliefs, values and symbol & customs.
- It is important for organizations to be ethical to build credibility and long
term brand equity.
- Ethical Positioning Index (EPI) measures how ethically a brand is
positioned. It is an ethical path i.e. matter of choice but working ethically & in the
larger interest of the brand will help reap benefits of the brand for ages.
- In market sectors which are dominated by basically similar products, an
ethical positioning can give business competitive advantages in the eyes of some
customer segments.
PRICING AND ITS CONSEQUENCES
- Pricing issues are central to the notion of fair exchange between the two
parties & right to a fair price might typically be regarded as one of the key rights of
consumers as stakeholders.
- Organization have right to price their product to earn a reasonable profit but
problem of fairness arises when they charge excessive price at the cost of
customers.
- Price is a critical element of marketing mix which produces revenue.
- It communicates to the market about the company’s intended value
positioning of its product or brand.
- Fair price is set through the mutual agreement by the buyer & seller under
competitive condition.
- Problem of fairness arises when companies have monopoly or where
consumers are unable to leave the market due to irrevocable needs for a product
like housing, food or medicine.
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- The types of pricing practices where ethical problems are likely to arise
are listed below.
a. Excessive pricing: charge of excessive price with assumption that the fair
price for goods & services has been exceeded.
b. Pricing fixing: the collusion between competing firms to fix prices above
the market rate.
c. Price discrimination: the seller sold the product at different prices but it is
illegal.
d. Predatory pricing: set the lower price than market rate to force out
competition or to eliminate the competitors from the market.
e. Deceptive pricing: the producer set the price where true cost to consumers
in deliberately hidden. For eg service fee & VAT charged by hotels.
PACKAGING AND LABELING
- Packaging is a coordinated system of preparing goods for transport,
warehousing, sale to end user. It promotes the product, facilitates for recycling &
reduces environmental damages, protect the quality & quantity of product.
- Labeling is the act of containing all the relevant information such as
ingredients, methods of using, precautions & side effects. The purpose of labeling
is to educate the users.
- Ethical issues related to packaging & labeling are as follows:
a. Misleading labels:
Business houses & marketers are misleading the consumers saying fat free, low fat
organic, cholesterol free, 100% pure juice etc but in fact that’s not the case. They
create illusions or highly exaggerates on their product.
b. Packaging graphics:
- The picture in package may not represent the actual product.
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- The product gives the examples of clearing the pimples on the face but it is
just a face wash as an ordinary shop.
- Consumers are misleading when the discrepancy between the image & the
real thing is too big.
c. Environmental friendly packaging problem:
- Many companies are using packaging materials that are harmful to the
environment. For eg. polythene, plastic etc.
- Many companies present the brand as a green but the product does not able
to hold the standard at all.
BRAND MANAGEMENT AND IMPERATIVES
- A brand is an intangible assets that communicates value about an
organization, its people & its product and design.
- Brand is a name, terms, sign, symbol or design or a combination of them,
intended to identify the goods or services of one seller or sellers & differentiate
them from those of competitors(American Marketing Association)
- Much more than a logo or design, a brand conveys positive or negative
perceptions in multiple ways, including human behavior.
- All businesses own a portfolio of brands, which is one of a firm’s most
valuable assets. At their best, brands allow consumers to reduce risk, simplify
decision making and gain greater satisfaction in their lives.
- A brand should have the three characters:
a. Emotional: why consumers act & behave the way they do-the underlying
drivers.
b. Rational: what consumer factors in their decision making process including
product features & benefits.
c. Ethical: they respect human & societal values.
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- The brand management imperatives are;
a. Fully & accurately factor the consumer into the branding equation.
b. Go beyond product performance & rational benefits.
c. Make the whole of marketing program greater than the sum of the parts.
d. Understand where you can take a brand (and how)
e. Do the right thing (ethical) with brands.
f. Take a big picture of branding effects. Know what is working (and why)
- An ethical brand enhance the firm’s reputation, such a reputation reinforces
the brand in turn. Ethical branding could provide the company with a differential
advantage as a growing number of consumers become more conscious.
- Any unethical behavior will severely damage or even destroyed the total
intangible asset. Although some company uses unethical brand imperatives such
practices may lead to harm than good in the long run.
- It is time for brands to abandon these widespread unethical brand
imperatives & adopt new imperatives that will create well-being for all the brand
stakeholders.
ADVERTISING AND COMMUNICATION
- Advertising is the practice of trying to persuade consumers or other agents to
change their behaviors.
- It is the non-personal communication of information usually paid for &
usually persuasive in nature about products, services or ideas by identified
sponsors through the various media.
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- Advertising helps to establish a positive image or a positive set of values
connected with a given product or producer.
- Nowadays most of the companies are trying to do some unethical practices
on advertising to get more profit. They are;
a. Puffery (false praise): the legitimate exaggeration of advertising claims to
overcome natural consumer doubt.
b. Deception: it occurs when marketing communication interfere with the
ability of consumer to make rational choice. It is not only telling lies but also
verbal claims.
c. Intrusive and unavoidable: we are exposed to hundred of advertisements
every day on the TV, radio, newspapers, magazines, on tickets, programs, public
space etc.
d. Exaggeration: advertisers can mislead by making claims which are not
supported by evidence. For e.g. all colleges claim as number one college.
e. Advertising and children: most of the biscuits, chocolates related
advertisements focus to children but the children have no ability to differentiate
between advertisement and programs.
EXPLOITATIVE NATURE OF ADVERTISING
- Advertising informs potential buyers of the existence of products & too
establish a positive attitude about it.
- Advertising these days are exploitative & degrading of any individuals or
group of individual.
- Many critics believe that advertising contributes to stereotyping (wrong
thinking about any people or group) particular groups.
- Any advertising clearly appearing to purposefully degrade or abuse a person
or group of persons for the enjoyment of others lacking moral, artistic or other
values is called exploitative advertising.
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- Some areas which are exploitative by advertising are:
a. Exploitative advertising and children:
- Exploitative advertising brainwashes children into becoming eager
consumers & capitalists.
- Advertising aimed at children encourages innocent children to consume fatty
& sugary food.
- The children are not able to distinguish advertising from actual programs in
the way adults do.
b. Exploitative advertising and women:
- In many of the advertising messages, women are depicted as mere sex
objects.
- In Nepal and around the world, women obsessed with how their body is
seen.
- Many shampoos advertised in Nepal says, if your hair is beautiful, rest
hardly matter.
- In advertisements of perfumes & bikes, the products are compared with that
of a woman’s body.
c. Exploitative advertising and men:
- Advertising which shows attractive men shirtless or naked and are depicted
in an overly strong manner is exploitative.
FINANCE AND VALUE
- Different countries set the different accounting standards & practices were
followed so there is difficult in comparing the financial statement for investments,
financing and for others.
- The International Accounting Standard Board (IASB) initiated the efforts
towards harmonization of the Accounting Standards and Accounting practices
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across the international boundaries. Their efforts are to make the same
understanding of the financial statement.
- In Nepal, Nepal Accounting Standards (NAS) was established in 2008 under
the provision of Institute of Charter Accountant Act 1997. These standards were
applied in all listed companies & public sector enterprises.
- The Accounting Standard Board, Nepal has taken care to avoid any
conflicting provisions in its application with the existing provisions of laws &
regulations of Nepal.
Application of Standard and ethical issues:
- In Nepal large number of public investors is interested to invest in small &
medium sized organizations.
- So the Board has been working on to develop a separate and simplified set
of accounting standards for small and medium sized entities.
- Accounting standards are formulated in order to bring uniformity in
recording of the financial transactions.
- All the Professional Accountants shall complied with relevant Accounting
Standards or Generally Accepted Accounting Principles (GAAP) while preparing
financial reports.
- Financial statements without complying with accounting standards are both
unlawful & unethical.
- For this, International Federation of Accountants (IFAC) Board has
established the International Ethics Standard Board for Accountants (IESBA) to
develop & issue high quality ethical standards & other pronouncements for
professional accountants for the use around the world.
- This code of ethics are important to comply by the professional accountants
to carried out the audit & prepare financial statements with due care to give
opinion which give true & fair view with respect to all the material matters &
present fairly in according to applicable financial reporting framework.
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- Accounting Standards are formulated mainly for the maintaining consistency
& uniformity in keeping record of financial transactions
- Professional Accountants faces different kinds of threats such as: self-
interest threats, self-review threat, advocacy threat, familiarity threat &
intimidation threat while carrying out its job. These threats brings ethical issues
thus to reduce these threats IFAC has developed the following code of ethics;
1. General Application of the code:
- Integrity - Objectivity
- Confidentiality
- Professional competence & due care - Professional behavior
2. Professional Accountants in public practices:
- Professional appointment - custody of client assets
- Conflict of interest - Objectivity of all services
- independence
- Fees & other types of remuneration - Marketing professional service
- Gift & hospitality
3. Professional Accountant in business:
- Potential conflict - Preparation and reporting of information
- Acting with sufficient expertise - Financial interests
- Inducements
For e.g. A registered auditor issued three audit reports for the same financial year
on three different dates and figures in the financial statements are also different.
One of the audit reports was issued even before the date mention in the balance
sheet.
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Consequences: the auditor was found compromising seriously the code of ethics
& the generally accepted auditing principles & thus held guilty of professional
misconduct.
RESPONSIBILITIES OF FINANCIAL INSTITUTIONS
- Financial institutions are those companies, firms, trusts who provide finance
related or money related services, scheme, wealth growth, and debt and equity
facilitation.
- Main objectives of financial institutions are to maximize their profits or
return for their shareholders.
- Their products are financial services products such as loans, deposits,
investments & mutual schemes which they sell to their individual or institutional
clients.
- Following are the main responsibilities of financial institutions:
1. Responsibility towards nation:
Financial institutions have a defined set of responsibilities defined by the nation
regarding registration, renewal, payment of tax, to obey the labor act, to follow the
HR related guideline and regulations.
2. Social responsibilities:
- Financial institutions operate the activities that benefit the society however
many companies misuse CSR activities and sometimes use it as marketing &
branding booster tools.
- But some companies have contributed vastly towards the society in which
they exist & also globally by leading by example through their creative & effective
CSR practices.
- Environmental care initiatives such as setting a carbon footprint reduction
target, replacing oil vehicles by electric vehicle, measuring, monitoring and
reducing damage to environment caused by them.
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3. Cultural responsibilities:
- Financial institution cannot ignore culture of the place & population among
which it exists and hopes to prosper.
- The financial institutions go about their business being sensitive to various
cultures & practices which has damaging implications if not cared and if taken care
of properly, FIs could reap many benefits till the foreseeable future.
4. Accounting responsibilities:
- Financial institutions are legally responsible to audit their books of accounts
by an independent auditor for truthfulness & fairness.
- The companies should follow rules and regulation of International
Accounting Standard, Nepal Accounting Standards in case of Nepal, for fair and
true representation of their financial position and performance.
CAPITAL MARKET AND ITS REGULATOR
- Capital market is the market for securities where companies & government
can raise long term funds through individuals & institutions.
- It is a market where buyer and seller trade financial securities like bond,
stock etc.
- Capital market consists of primary market where new share are distributed &
secondary market where existing shares are traded.
- Brokers, merchant bankers, underwriters, depository participants, register
and transfer agent are service provider in capital market.
- In security market, investors are termed as customers & customers may be
individuals, firms, companies & organized institutions.
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REGULATORS OF CAPITAL MARKET
- Nepal Stock Exchange Limited (NEPSE), Security Board of Nepal
(SEBON) and Central Depository System are the major regulator that are involved
in the working mechanism of capital market.
- SEBON has directed NEPSE & CDS to launch fully automated share trading
& security ownership transfer and clearance services. The NRB also plays an
implicit role in the capital market
- NRB makes arrangement for the issue, purchase and sale, transfer of
ownership & redemption of government bonds and debentures.
- Government securities are fully traded under the management and
supervision of NRB.
- In Nepal major issues raised were regarding the delay in d-mat of securities,
unclear legal provision for fund shortage handling, lack of authentic capital market
data base, needs of a proper committee for handling problem.
- A part of this SEBON has brought the long awaited three regulations:
a. Security Board Regulation-2064,
b. Stock Exchange Licensing Regulation-2064 &
c. Securities Businessperson Rgulation-2064, according to the Security Act
2063.
- Regulators seem to be doing little to attract investors so in order to improve
& upgrade proper monitoring is required.
- The scope of security market is huge in terms of capital formation &
economic growth of the country, so the role of regulators is vital & should
facilitate the market and it needs to focus more on enforcing its regulations &
policies to protect the interest of the investors & the development of capital
market.
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