Test of Professional Competence in Management Accounting: What's the Difference between an Ethical Issue and a Business Issue? This Question Seems Straightforward Enough, Yet Recent T4 Exam Results Have Shown That Many Students Find It a Tough One to Answer by the T4 Case Study Writer

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The T4 assessment matrix indicates that 10 marks are available in the exam under the "ethics" criterion for identifying, discussing and advising on ethical issues raised in the unseen material. But candidates in every sitting have been confused about what constitutes an ethical issue and what distinguishes it from a business issue.

Before I clarify the difference and explain what the exam requires with regard to your discussion of, and advice on, ethical issues, it's useful to consider CIMA's code of ethics. This sets out the following five fundamental principles for professional accountants:

* Integrity. Be straightforward and honest in all your professional relationships.

* Objectivity. Do not allow bias, conflicts of interest or the undue influence of others to override your judgement.

* Professional competence and due care. Maintain your knowledge and skill at the level required, to ensure that a client or employer receives competent services based on current developments in practice and legislation, and act diligently in accordance with the available technical and professional standards.

* Confidentiality. Respect the confidentiality of information acquired as the result of professional and business relationships, so neither disclose any such information to third parties without proper and specific authority (unless there is a legal or professional right to do so) nor use the information for your personal gain or that of third parties.

* Professional behaviour. Comply with relevant laws and regulations, avoiding any action that discredits the profession.

The T4 exam requires you to specify what the ethical issue is in a given scenario; explain why you consider it to have an ethical dimension; and provide detailed guidance on what action could be taken to address that issue, both immediately and in the longer term, along with your justification for that advice.

Between one and three marks are available for identifying an issue and justifying why you think it has an ethical dimension. Because of this mark allocation, you would be well advised to find a second ethical issue and repeat the process. A further five marks are available (up to three per issue) for giving detailed and justified recommendations. Demonstrating a good understanding of what an ethical issue is and why, together with providing sound advice, should therefore earn you up to 10 marks under the ethics criterion.

So what is the difference between an ethical issue and a business issue? There is a fine line, especially when some of the ethical issues included in the unseen material get "mixed in" with the business issues. In general, a business issue is one that affects an organisation's performance, profitability or cash flow and which needs to be addressed in order to improve the company's efficiency. By contrast, an ethical issue is one where the performance of the business (and often its profitability) is being prioritised above the wellbeing of its employees or what is considered to be good practice.

Let's consider an example of a problem with both business and ethical aspects from the May 2012 exam, which concerns a toy firm called Jot (bit.ly/T4May2012). The company is having trouble with its IT systems, which means that incorrect invoices are being sent to customers.

Here is an edited extract from the unseen material: "The finance and IT director is concerned that Jot's different IT systems are not integrated, which has caused data duplication and conflicts. Some customers have queried and not settled their invoices, as the volume of products invoiced for does not agree with the volume of products received. This is causing some conflict between the finance department, which is chasing overdue trade debtors, and the sales department, which is trying to keep customers satisfied. One of the problems is that Jot appears to have invoiced customers for a number of products that have been supplied as replacements for faulty or damaged goods. …