Unit 6: 2F.

Module 1
F.1. Business
Ethics
Introduction
to Ethics
F.1. Business Ethics
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Introduction to Ethics
Ethics is a field of moral philosophy that studies:

• Concepts of right and wrong

• What people ought to do versus what they are required to do

Business ethics:

• More narrowly addresses ethical considerations but borrows from the broader concepts of moral philosophy

• By-product of corporate culture and attitudes toward corporate responsibility

• Often focuses on duties to stakeholders

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F.1. Business Ethics
Page 6-3 | LOS: 2F1a
Business Ethics
Business ethics addresses the moral features of commercial activities, including transactional rules, societal norms, and codes
of conduct.

• Rules for the fair exchange between two parties, including:

─ What is required (legal compliance with law or regulation)

─ What ought to govern behavior (ethical theories of right and wrong)

• Societal, institutional, and cultural rules of commerce:

─ Moral beliefs of people in business settings

─ Best practices in commercial transactions

─ Worker participation in management

─ Theories of justice

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© Becker Professional Education Corporation. All rights reserved. copied, reproduced, republished, or displayed in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, or otherwise, without the prior written permission 4
of Becker Professional Education Corporation or the copyright owner.
F.1. Business Ethics
Page 6-3 | LOS: 2F1a
Business Ethics
• Internal policies of corporations, focused on the responsibilities of directors and employees, that outline:

─ Rules and expectations concerning social responsibility

─ Accountability of business behaviors to corporate decisions (as demonstrated in organizational charts)

The copyright in this material is owned by Becker Professional Education Corporation, or where specifically indicated, by the original creator of the material. None of this material may be
© Becker Professional Education Corporation. All rights reserved. copied, reproduced, republished, or displayed in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, or otherwise, without the prior written permission 5
of Becker Professional Education Corporation or the copyright owner.
Ethical Decision
Making
F.1. Business Ethics
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Ethical Decision Making: Ethical Concepts
Each of the following ethical concepts contributes to the foundation that guides the principles of ethical decision making
beyond compliance with rules of conduct.

• Fairness

─ The concept of fairness represents the uniform application of rules, standards, and criteria in similar circumstances

• Integrity

─ Integrity is understanding, accepting, and choosing to act in accordance with principles of virtue that include honesty
and fairness

─ While ethics are external, integrity is internal

─ Integrity links ethics and moral action

The copyright in this material is owned by Becker Professional Education Corporation, or where specifically indicated, by the original creator of the material. None of this material may be
© Becker Professional Education Corporation. All rights reserved. copied, reproduced, republished, or displayed in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, or otherwise, without the prior written permission 7
of Becker Professional Education Corporation or the copyright owner.
F.1. Business Ethics
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Ethical Decision Making: Ethical Concepts
• Due Diligence

─ Organizations and individuals practicing due diligence will discharge their responsibilities with competence and rigor

• While good faith acceptance of the work of others is appropriate, verification establishes a basis for the reliance on the
work of others that is foundational to ethical conduct

• Fiduciary Responsibility

─ A fiduciary responsibility is a duty to act solely in the interest of another party

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© Becker Professional Education Corporation. All rights reserved. copied, reproduced, republished, or displayed in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, or otherwise, without the prior written permission 8
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F.1. Business Ethics
Page 6-5 | LOS: 2F1b

The copyright in this material is owned by Becker Professional Education Corporation, or where specifically indicated, by the original creator of the material. None of this material may be
© Becker Professional Education Corporation. All rights reserved. copied, reproduced, republished, or displayed in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, or otherwise, without the prior written permission 9
of Becker Professional Education Corporation or the copyright owner.
Business Fraud
F.1. Business Ethics
Page 6-5 | LOS: 2F1c
Types of Fraud
Fraudulent Financial Reporting

• The intentional misstatements or omissions of amounts or disclosures in the financial statements that are intended
to deceive financial statement users (lying).

• Examples of fraudulent financial reporting include:

─ Manipulation, falsification, or alteration of account records or supporting documents from which financial
statements are prepared

─ Misrepresentation in, or intentional omission from, the financial statements of events, transactions, or other
significant information

─ Intentional misapplications of accounting principles related to amounts, classifications, manner of presentation,

The copyright in this material is owned by Becker Professional Education Corporation, or where specifically indicated, by the original creator of the material. None of this material may be
© Becker Professional Education Corporation. All rights reserved. copied, reproduced, republished, or displayed in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, or otherwise, without the prior written permission 11
of Becker Professional Education Corporation or the copyright owner.
F.1. Business Ethics
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Types of Fraud
Misappropriation of Assets

• Theft of an entity's assets is called misappropriation of assets or stealing.

─ Can involve management, employees, and/or third parties

─ May involve stealing assets directly or causing an entity to pay for something that was never received

• It is more likely to occur when an organization has inappropriate segregation of duties.

─ Authorization, recording, custody, and reconciling should be performed by different employees

The copyright in this material is owned by Becker Professional Education Corporation, or where specifically indicated, by the original creator of the material. None of this material may be
© Becker Professional Education Corporation. All rights reserved. copied, reproduced, republished, or displayed in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, or otherwise, without the prior written permission 12
of Becker Professional Education Corporation or the copyright owner.
F.1. Business Ethics
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Types of Fraud
Common examples of asset misappropriation:

• Cash Theft

─ Easiest form of theft due to the fungible nature of the asset (i.e., relatively easy to conceal and carry)

─ Usually occurs when cash is maintained in places that are not sufficiently secured, such as an unlocked cabinet or safe
with a commonly known combination

• Inventory Theft

─ Often occurs due to insufficient controls over access to inventory locations

The copyright in this material is owned by Becker Professional Education Corporation, or where specifically indicated, by the original creator of the material. None of this material may be
© Becker Professional Education Corporation. All rights reserved. copied, reproduced, republished, or displayed in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, or otherwise, without the prior written permission 13
of Becker Professional Education Corporation or the copyright owner.
F.1. Business Ethics
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Types of Fraud
Common examples of asset misappropriation:

• Payroll Fraud

─ Ghost Employees: Fictious employees who are fraudulently maintained in the payroll systems

─ Payroll Diversion: When payment is made to a legitimate employee but the payment is intentionally redirected to an
unauthorized individual

• Also referred to as direct deposit fraud

• Purchasing Fraud

─ Fake suppliers or ghost vendors can be established where an individual diverts cash to an unauthorized account

The copyright in this material is owned by Becker Professional Education Corporation, or where specifically indicated, by the original creator of the material. None of this material may be
© Becker Professional Education Corporation. All rights reserved. copied, reproduced, republished, or displayed in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, or otherwise, without the prior written permission 14
of Becker Professional Education Corporation or the copyright owner.
F.1. Business Ethics
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Types of Fraud
Common examples of asset misappropriation:

• Accounts Receivable Fraud

─ Lapping: Occurs when an employee withholds funds received by a customer for personal use and fails to
apply these receipts to the customer's receivable balance. The unrecorded receipt is covered by applying a
subsequent receipt to the previously unrecorded account.

─ Kiting: Occurs when a check drawn on one bank is deposited in another bank and no record is made of the
disbursement in the balance of the first bank until after year-end. Kiting results in an intentional overstatement
of cash as it is reflected in two different bank accounts.

─ Skimming: Occurs when individuals deposit customer payments into their own accounts before it is recorded
by the organization.

The copyright in this material is owned by Becker Professional Education Corporation, or where specifically indicated, by the original creator of the material. None of this material may be
© Becker Professional Education Corporation. All rights reserved. copied, reproduced, republished, or displayed in any form or by any means, including, but not limited to, electronic, mechanical, photocopying, or otherwise, without the prior written permission 15
of Becker Professional Education Corporation or the copyright owner.