ETHICAL AND LEGAL ASPECTS OF FINANCE
Audited Accounts
All public and some private companies are legally required to have their accounts audited by independent auditors to establish their truth n fairness. An audit is the process of establishing the truth and fairness of the financial reports of a business. Owners, managers and other stakeholders need to be sure that the reports are a valid reflection of the financial position of a business.
INAPPROPRIATE CUT-OFF PERIODS
Profit needs to be matched with the costs and revenues that generated it. This is called the matching principle.
It is possible to create a false position in the reports by choosing a cut-off period where significant revenues are separated from the costs associated with them.
MISUSE OF FUNDS
An effective internal control system would make it difficult to misuse funds.
The Australian Securities and Investments Commission (ASIC)
The three key roles of ASIC are to:
· Enforce and administer Corporations Law
· Set and enforce standards for financial markets behaviour
· Ensure consumer protection and market integrity
Corporate Raiders and Asset Stripping
Corporate raiders was the name given to a group of entrepreneurs who used borrowed funds to buy under performing companies, particularly during the 1970’s and 1980’s.
Asset stripping is the name given to the process of buying companies in order to sell, at market value, assets that are undervalued on the balance sheet.
It is important to use ethical strategies when trying to achieve business goals. One strategy which is ethically dubious is asset stripping.
ETHICAL AND LEGAL ASPECTS OF MARKETING
Most people now believe that to be successful, a business needs to look beyond the bottom line, and accept its ethical and legal responsibilities.
Environmentally Responsible Products
- Since the 1960’s there’s been a growing concern about the damage of industrial activity on the environment.
- Businesses were therefore forced to change, either by demand from consumers, or by government regulations its practices.
Other Ethical and Legal Issues
There are a range of other ethical issues that arise from marketing activities which include:-
· Creation of needs - Business’ use marketing techniques to ‘create’ demand for products that consumers’ don’t really need. Another related problem is the idea of planned obsolescence, which is the producers use materials that wear out and break in the search for more sales.
· Impacts of retail developments - A shopping mall is a group of retail businesses clustered together under one roof. The size of these centres puts pressure on the smaller neighbourhood shops.
· Sugging - Is the practice of using research as a disguise for selling. Some businesses use surveys as a way of guiding customer to their products or as a way of simply getting to talk to the consumer. Other misuses of research are those studied that are commissioned by businesses with a vested interest in the results.
· Higher costs - Critics also complain that marketing activities create higher prices to consumers because of the high levels of advertising and promotions and continual development of new products. Research has shown that people are prepares to pay more for products that they feel have better quality, and are well known. Marketing responds to consumer demands, or whether it drives consumer demand.
The Role of Consumer Laws
Consumer protection laws in Australia are found in the trade Practices act 1974. The ACCC enforces the act. We now look at specific sections and discuss the impact on marketing activities.
DECEPTIVE AND MISLEADING ADVERTISING
- Under the trade practices act, advertising must be truthful and avoid any false, misleading or potentially misleading claims.
- Misleading or deceptive advertising of prices is also illegal under the act. Price reductions, price comparisons, specials and free gift offers must all be true. Businesses must also avoid the bait-and-switch advertising which attracts consumes on the promise of low prices and very few products are low prices, and once they are in there look the expensive items.
- There is a fine line between deceptive and misleading advertising and stimulating and creative advertising.
- If a product is promoted as doing something it doesn’t do then is creating a false belief and reduces consumer’s ability to make rational buying decisions.
PRICE DISCRIMINATION
The Trade Practices Act (TPA) ensures that sellers offer products at the same price to a given level of trade, regardless on what type of retailer it is.
Price discrimination is allowed if:
· Seller can prove its costs are different when selling to different retailers
· The seller makes different quantities of the same product for different retailers
· The retailer is trying to temporarily meet local competitors prices
IMPLIED CONDITIONS AND WARRANTIES
Manufactures and retailers are responsible for product safety and performance. Most manufactures provide written warranties but the TPA ensures that there is an implied warranty regardless of the written one. That is that the products must fit for the intended purpose and their description is accurate and the seller has the right to sell the goods.
RETAIL PRICE MAINTENANCE
The recommended retail price is the price the manufacturers recommend to sell the product at. However there is a law that prevents manufacturers from supplying a retailer because it doesn’t sell the product at the RRP, to allow for price competition between retailers of similar goods.
ETHICAL AND LEGAL ASPECTS IN THE WORKPLACE
Working Conditions
- Workers expect to be paid as per contract, suitable breaks, fair facilities, and career paths, flexible hrs, rewards and an environment free from discrimination n harassment.
Occupational Health and Safety (OH&S)
- 1983 Act has changed the wplace environment. Both employers n employees have to ensure that the wplace addresses issues of health n safety
- Wplace now addresses work safety, prevention, compensation n rehabilitation
- All employees are insured against work related injuries n illness.
- Employees can also take common law redress if employers are negligent
Worker’s Compensation
- Workers compensation aim to provide compensation payments for workers if they are injured as a result of work.
- The compensation system is a no-fault system, which means that the injured employee is almost always guaranteed compensation, even if the injury was their fault.
· State and Federal Agencies
- In NSW its the WorkCover Authority of New South Wales that promotes, investigates n takes action on people involved in unsafe practices
- Others are Worker’s Compensation Board and Worker’s Compensation Advisory Council and the Sporting Injuries Committee
· Common Law redress
- Provides a mechanism for injured workers to sue their employers for negligence
- Whether an employee can resort to common law will depend on the worker’s compensation laws in their state.
Anti-Discrimination
- Discrimination is treating a person less favourably than another person because of their race, sex, marital status, family responsibilities and disability.
- Under this legislation an employer cannot discriminate against employees on the grounds of the employees’ attributes (those above)
- Steps can be taken to prevent discrimination n harassment in the workplace. They are: obtain support from senior management to implement a strategy addressing discrimination, develop a written policy which prohibits discrimination, regularly distribute n promote this policy and train all level managers in handling any situations appropriately.
Equal Employment Opportunity (EEO)
- Is ensuring that all employees are treated with fairness n respect in the workplace
- Affirmative action is a program for women designed to eliminate discrimination n promote equal opportunity in relation to employment matters
- The “human rights and EEO Act” deals with recruitment, selection, training, induction, and promotion n redundancies.
- Main thrust is removing barriers in all issues in employment for people who are in a minority hence a weak position
Unfair Dismissal
- Unfair dismissal is when an employee has their employment terminated in a harsh, unjust or unreasonable.
- The Australian Workplace Relations Act lists certain factors that can be taken into account to determine if a dismissal is unfair
- Employees can lodge their complaint with the AIRC, but to do this the worker must be covered by federal award or agreement, as it’s a federal legislation.
- Another way is to go to respective unions or state authorities and have the matter settled. If its not then the employee goes to the federal stage (AIRC)
ETHICAL AND LEGAL ASPECTS IN THE GLOBAL ENVIRONMENT
Ethical Practice
TAX HAVENS
o These are economies that impose little or no corporate income tax
o For a relatively small fee a biz can set up a wholly owned subsidiary
o By manipulating payments such as dividends, interests, royalties n capital gains between its various subsidiaries, the biz diverts income from subsidiaries in high-tax countries to the subsidiary operating in a tax haven
o By recording profits in havens the biz escapes tax requirements of other countries
TRANSFER PRICING
o This is a price charged for a good or service traded among a biz n its subsidiaries
o Subsidiaries in countries with high corporate tax can reduce their tax burdens by charging a low price for their output to other subsidiaries, thus reducing the level of profits in the high taxing countries
o As a result profits earned are much lower n therefore tax liability is lower
o The transfer prices can be used to artificially reduce import tariffs n avoid quotas
MINIMUM STANDARDS OF LABOUR
o G.bizs have a responsibility to treat labour fairly n equitably
o Globalisation n economic restructuring favour flexible types of employment, many of which reach beyond labour legislation n are characterised by low incomes n high levels of insecurity
o Approaches to TNC workplace standards are:
§ Adopt local standards in pay n working conditions
§ Set one global standard in wages n working conditions
§ Set min. global standards n adopt to higher local standards
DUMPING ILLEGAL PRODUCTS
o This practice refers to the selling of products by a biz in an overseas market at a price that is lower than would have been charged in its home market
o There are 2 forms:
§ Predatory pricing – here the exporter intentionally sells a product at a loss in order to gain market share at the expense of the domestic producer
§ Sporadic pricing – here an overseas biz has produced a surplus of goods n can not sell then domestically
o Question is that should a TNC be allowed to sell a product banned by its home country overseas eg pesticides, pharmaceuticals n maybe even cigarettes
ECOLOGICAL SUSTAINABILITY
o This is concerned with achieving a balance between the use of natural resources n the production of goods n services
o Its about minimizing the depletion of non-renewable resources n the production processes used that will affect the quality of the environment
o Issues relate to water, air n land pollution – issue o
