Sources and References

Primary textbook — Mintz, S. and Morris, R. Ethical Obligations and Decision Making in Accounting, 5th Edition. McGraw-Hill.

Supplementary — Sexty, R. W. Canadian Business and Society: Ethics, Responsibilities and Sustainability, 5th Edition. McGraw-Hill Ryerson.

Online resources — Ethics Unwrapped (UT Austin): “Giving Voice to Values” series and “Concepts Unwrapped” series; CFA Institute Code of Ethics and Standards of Professional Conduct; CPA Ontario Rules of Professional Conduct; Institute of Internal Auditors (IIA) Code of Ethics.

Chapter 1: Introduction to Ethical Reasoning

Why Ethics Matters for Finance Professionals

The history of financial markets is punctuated by crises rooted in ethical failures: Enron, WorldCom, the 2007–2008 subprime mortgage collapse, Wirecard, and countless smaller scandals. In virtually every case, highly educated professionals made decisions that violated basic ethical principles — often not out of ignorance of right and wrong, but because of organizational pressure, self-deception, rationalization, or structural incentives that rewarded short-term results over long-term integrity.

This creates the central question that animates the study of professional ethics: if trained people know the rules, why do they break them? And more practically: how do you ensure that your own career is governed by a genuine commitment to ethical conduct, not merely compliance with minimum legal requirements?

Ethics in accounting and finance is not merely an abstract philosophical exercise. Professionals in these fields occupy positions of trust — they prepare financial statements relied upon by investors, advise clients on major life decisions, audit assertions made by management, and execute transactions affecting entire communities. A single ethical lapse can destroy careers, harm thousands of investors, and undermine public confidence in capital markets.

The Giving Voice to Values Framework

Mary Gentile’s Giving Voice to Values (GVV) framework reorients ethical training away from the question “what is the right thing to do?” (which most people already know) and toward the more actionable question: “once I know what is right, how do I actually do it effectively?” GVV treats ethical conduct as a skill that can be practiced and improved, not a fixed trait of character.

The GVV framework is organized around seven pillars:

The goal is to build scripted, rehearsed responses to situations where ethical action faces resistance — turning abstract values into concrete, practiced behaviors.

Chapter 2: Ethical Frameworks

Consequentialism

Consequentialism holds that the moral quality of an action is determined entirely by its consequences. The most influential consequentialist theory is utilitarianism, associated with Jeremy Bentham and John Stuart Mill, which holds that the right action produces the greatest good for the greatest number.

In financial contexts, a consequentialist might justify a small accounting irregularity if it prevents layoffs, or support mandatory disclosure rules on the grounds that they maximize overall market efficiency. The framework has intuitive appeal but faces practical objections:

• It is often impossible to accurately calculate all consequences before acting.
• It can sanction harm to a minority to benefit a majority (e.g., sacrificing worker safety to maximize shareholder returns).
• It may endorse dishonest means if they produce good outcomes (“the ends justify the means”).

Deontology

Deontological ethics (from the Greek deon, meaning duty) holds that certain actions are inherently right or wrong regardless of consequences. Immanuel Kant’s categorical imperative is the foundational deontological principle:

Act only according to that maxim by which you can at the same time will that it should become a universal law.

In practical terms, Kant’s principle asks: would the action be acceptable if everyone did it? A manager who falsifies expense reports cannot will that universal falsification become a norm (it would destroy the credibility of all financial reporting), so the action is impermissible regardless of any individual benefit.

Deontology also imposes absolute duties: do not lie, do not manipulate financial statements, do not exploit confidential information — even when consequences might seem favorable. This robustness is also its limitation: rigidly followed, deontological rules may produce catastrophic results in genuine dilemmas.

Justice and Fairness

Justice theories focus on the fair distribution of benefits and burdens in society. John Rawls’s veil of ignorance thought experiment asks what rules rational agents would choose if they did not know their position in society. Rawls concluded that just arrangements would guarantee basic liberties and permit inequalities only if they benefit the least well-off members.

In corporate finance, justice considerations appear in executive compensation debates, in the treatment of pension fund beneficiaries in restructurings, and in the design of tax policy. The question “is this fair?” often illuminates ethical dimensions that pure consequence calculation overlooks.

Virtue Ethics

Virtue ethics (originating with Aristotle) locates morality not in rules or outcomes but in the character of the moral agent. A virtuous person possesses stable dispositions — courage, honesty, prudence, justice, temperance — that lead naturally to right action across contexts.

For accounting and finance professionals, virtue ethics emphasizes the cultivation of professional character: the habit of honesty in all reporting, the courage to speak up against organizational pressure, the prudence to foresee consequences of financial choices. Professional codes of ethics (CPA, CFA, IIA) are partly virtue frameworks — they describe the kind of professional the designate should aspire to be, not just the rules they must follow.

Models of Ethical Decision Making

No single framework is sufficient for all ethical dilemmas. A practical approach combines multiple lenses:

1. Identify the ethical issue: What values are in conflict? Who is affected?
2. Gather relevant facts: What do you know, and what remains uncertain?
3. Identify stakeholders: Whose interests are at stake?
4. Apply multiple frameworks: What does each theory recommend?
5. Consider consequences, duties, and character: Are recommendations consistent across frameworks?
6. Act and reflect: What does each option signal about the kind of professional you wish to be?

Chapter 3: Behavioural Ethics

Why Good People Do Bad Things

Traditional ethical theories assume rational, deliberate decision-making. Behavioural ethics draws on psychology to explain how intelligent, well-intentioned people systematically engage in unethical conduct through psychological mechanisms that operate below conscious awareness.

Ethical Fading

Ethical fading occurs when the moral dimensions of a decision are psychologically obscured by other framings. A manager evaluating a “cost optimization initiative” may not consciously process that the initiative involves eliminating safety inspections that protect workers. By relabeling the decision in neutral or positive terms, the ethical stakes become invisible.

Bounded Ethicality

Psychologists Max Bazerman and Ann Tenbrunsel argue that people have bounded ethicality — the capacity to see ethical dimensions of decisions is limited, just as cognitive processing capacity is limited. People consistently overestimate their own ethical standards and underestimate how situational pressures influence their choices.

The Bystander Effect

When multiple people witness a situation requiring ethical action, each individual’s sense of personal responsibility is diluted — the diffusion of responsibility phenomenon. The tragic irony is that the presence of more observers makes action less likely. In organizational settings, this translates to group complacency: “Someone else will raise this issue” or “It must be acceptable if no one else has objected.”

Stanley Milgram’s obedience experiments demonstrated that ordinary individuals will follow authority figures to inflict apparent serious harm on others. Organizational hierarchies replicate these authority dynamics: junior employees comply with ethically questionable directives from senior management, rationalizing that the boss must know what is permissible.

Incrementalism: How Unethical Behaviors Become Habits

Ethical violations rarely begin dramatically. More commonly, there is a process of incremental escalation: a small misstatement becomes a pattern; a minor expense irregularity escalates over time. Each step feels like only a small deviation from the previous step, making it psychologically easier to justify. Organizations that tolerate small violations unwittingly normalize progressively larger ones.

Chapter 4: Rationalizations

Common Rationalizations and GVV Responses

The GVV pillar of rationalization teaches that ethical lapses are almost always accompanied by internal justifications. Recognizing these rationalizations — and preparing effective responses — is a core professional skill.

Common rationalizations in accounting and finance:

1. “Everyone does it” — Reference to industry norms is used to normalize unethical behavior. Response: Universal practice does not make behavior ethical; professional standards exist precisely to raise norms above the status quo.

2. “It’s not illegal” — Legality is treated as the only relevant standard. Response: Professional ethics obligations exceed legal minimums; “legal but wrong” characterizes many of history’s most damaging corporate scandals.

3. “I was just following orders” — Authority of superiors is invoked to transfer moral responsibility. Response: Moral responsibility cannot be delegated; the Milgram experiments show the danger of this rationalization.

4. “No one will find out” — Risk of detection is treated as the primary ethical constraint. Response: The likelihood of detection does not determine whether an action is right; integrity requires behaving consistently regardless of observation.

5. “The ends justify the means” — Good ultimate outcomes are used to justify unethical methods. Response: Consequentialist reasoning can be valid, but is frequently misapplied; manipulating financial statements “for the good of the company” almost invariably produces worse outcomes.

6. “I don’t have a choice” — Perceived coercion eliminates perceived moral agency. Response: There are almost always alternatives; the GVV framework helps identify them.

Chapter 5: Professional Ethics

The CPA Ontario Rules of Professional Conduct

Canadian CPAs (Chartered Professional Accountants) are bound by provincial rules of professional conduct. The preamble to CPA Ontario’s rules articulates the foundational obligation: professional accountants must serve the public interest, not merely client interests. Key principles include:

• Integrity: Straightforward and honest professional relationships.
• Objectivity: Freedom from conflicts of interest, bias, or undue influence.
• Professional Competence and Due Care: Maintaining knowledge and skill at the level required for competent service.
• Confidentiality: Not disclosing client information without authority, except as legally required.
• Professional Behavior: Avoiding actions that discredit the profession.

Independence — the appearance and reality of freedom from conflicts of interest — is particularly critical for auditors. Even the perception of a conflict can undermine the credibility of an audit opinion.

CFA Code of Ethics and Standards of Professional Conduct

The CFA Institute’s Code of Ethics requires members to act with integrity, competence, diligence, and respect in all professional interactions, placing client interests before personal interests and the integrity of capital markets before client interests. Key Standards include:

• Standard I — Professionalism: Members must not engage in professional conduct involving dishonesty, fraud, or deceit.
• Standard II — Integrity of Capital Markets: Material non-public information must not be used in investment decisions (Standard II(A)). This is the prohibition on insider trading.
• Standard III — Duties to Clients: Members must determine investment suitability, communicate fairly, and protect client assets.
• Standard V — Investment Analysis: Members must distinguish fact from opinion and provide a basis for investment recommendations.

IIA Code of Ethics for Internal Auditors

The Institute of Internal Auditors (IIA) requires internal auditors to uphold integrity, objectivity, confidentiality, and competency. Internal auditors occupy a unique position: they report to management and the board simultaneously, requiring careful independence management to prevent capture by management interests.

Chapter 6: Corporate Social Responsibility

Defining CSR

CSR exists on a spectrum from narrow to broad conceptions:

• Friedman’s narrow view (1970): The only social responsibility of business is to increase profits for shareholders, within the rules of the law. Managers who divert resources to “social” goals without shareholder authorization are effectively spending other people’s money.
• Stakeholder theory (Freeman, 1984): Firms have obligations to all stakeholders — employees, customers, suppliers, communities, and the environment — not merely shareholders. Long-term firm value depends on maintaining trust and positive relationships with all stakeholders.
• Integrated/ESG view: CSR and financial performance are not in conflict; environmental, social, and governance (ESG) factors are financially material because they affect a firm’s long-term risk and return profile.

Stakeholder Theory in Practice

Stakeholder analysis requires identifying all parties affected by a firm’s decisions, assessing their interests and power, and developing strategies that create value for multiple stakeholders simultaneously. The challenge is prioritizing when stakeholder interests conflict.

In financial settings, stakeholder conflicts arise constantly: shareholders seeking profit maximization versus employees seeking job security; creditors seeking conservative investment versus shareholders preferring risky projects; local communities valuing environmental quality versus shareholders valuing low production costs.

Chapter 7: Corporate Citizenship and Whistleblowing

Corporate Citizenship

Beyond CSR, corporate citizenship conceives of corporations as members of communities with the rights and responsibilities of citizenship — contributing to public goods, respecting community norms, and actively participating in addressing social problems. This perspective supports corporate philanthropy, employee volunteering programs, environmental stewardship, and engagement with democratic processes.

The GVV pillar of normalization addresses how corporate citizenship becomes embedded in culture rather than remaining aspirational. Firms that normalize ethical conduct and social responsibility in performance metrics, hiring, onboarding, and leadership modeling make ethical behavior the path of least resistance rather than a costly deviation.

Whistleblowing

Whistleblowers face substantial personal and professional risks: retaliation, termination, social ostracism, and legal costs. Yet they serve a critical social function — organizational misconduct that persists internally eventually imposes massive external costs (investor losses, market disruption, public harm).

Legal protections have expanded in both Canada and the United States. The Sarbanes-Oxley Act (2002) and the Dodd-Frank Act (2010) in the US provide anti-retaliation protections and, in the case of Dodd-Frank, financial incentives (10–30% of regulatory sanctions) for whistleblowers who report securities violations to the SEC. Canadian securities regulators and CRA have developed comparable programs.

The GVV pillar of voice prepares professionals to raise concerns effectively:

• Choose the appropriate channel (internal first, then external if unresponsive).
• Frame concerns in terms of business risk and professional obligation, not personal grievance.
• Build alliances with colleagues who share concerns.
• Document concerns in writing.
• Know your legal protections before disclosing externally.

Chapter 8: Insider Trading and Finance Industry Ethics

What Is Insider Trading?

Insider trading refers to buying or selling securities based on material non-public information (MNPI). Information is material if a reasonable investor would consider it important in making an investment decision (e.g., upcoming earnings surprises, merger announcements, regulatory decisions). Information is non-public if it has not been broadly disseminated to the market.

Trading on MNPI is illegal because it undermines market fairness — insiders gain at the expense of uninformed counterparties — and erodes public confidence in the integrity of markets.

CFA Standard II(A): Material Non-Public Information

The CFA Standard requires members who possess MNPI to not trade on it or cause others to trade on it. Critically, the prohibition applies even when MNPI was obtained legitimately (e.g., through a confidential client engagement), not only when obtained through fraud or theft of information.

Mosaic theory provides an important exception: analysts may trade on conclusions derived by combining multiple pieces of public information, even if the conclusion is not public. The individual pieces must each be public; it is the analyst’s synthesis that produces the investment insight.

Harvey Weinstein Case: Power, Normalization, and Ethical Failure

The widespread organizational failure surrounding Harvey Weinstein illustrates how power imbalances, cultural normalization, and collective silence enable sustained misconduct in institutional settings. The GVV pillar of self-knowledge asks professionals to examine how their personal values, risk tolerance, and position within an organization affect their capacity and willingness to raise ethical concerns. The pillar of choice reminds professionals that they always retain moral agency, even when organizational pressure is intense.

Summary

AFM 311 develops the analytical and practical tools for ethical decision-making in professional accounting and finance roles. The course weaves together classical ethical theories (consequentialism, deontology, justice, virtue ethics) with behavioral insights (bounded ethicality, rationalization, incrementalism) and applied professional codes (CPA, CFA, IIA). The Giving Voice to Values framework provides a practical scaffold for translating ethical conviction into effective action. Corporate social responsibility and whistleblowing extend ethical analysis beyond individual conduct to institutional and societal dimensions. Throughout, the central lesson is that ethical conduct is not a constraint on professional success but a precondition for it: trust is the foundational asset of every financial professional.