An Analysis of the Relationship between IFAC Code of Ethics and CPI

Code of ethics has become a significant concept as regards to the business world. That is why occupational organizations have developed their own codes of ethics over time. In this study, primarily the compatibility classification of the accounting code of ethics belonging to the IFAC (The International Federation of Accountants) is carried out on the basis of the action plans assessing the levels of usage by the 175 IFAC national accounting organizations. It is determined as a result of the classification that 60,6% of the member organizations are applying the IFAC code in general, the rest 39,4% on the other hand, is not applying the code at all. With this classification, the hypothesis propounding that “The national accounting organizations in highly corrupt countries would be less likely to adopt the IFAC ethic code than those in very clean countries,” is tested using the “Corruption Perception Index-CPI” data. It is determined that the findings support this relevant hypothesis. New articles in this journal are licensed under a Creative Commons Attribution 3.0 United States License. This journal is published by the University Library System of the University of Pittsburgh as part of its D-Scribe Digital Publishing Program, and is cosponsored by the University of Pittsburgh Press. Volume 5 No 2 (2015) | ISSN 2158-8708 (online) | DOI 10.5195/emaj.2015.81 | http://emaj.pitt.edu Ayşe İrem Keskin, Elçin Yılmaz Işık Emerging Markets Journal | P a g e |41 An Analysis of the Relationship between IFAC Code of Ethics and CPI Ayşe İrem Keskin Elçin Yılmaz Işık


Introduction
The issue of ethics has increasingly become an important field of study as regards to the business behavior in enterprises.A number of companies, various educational institutions and occupational organizations show a high level of interest to the subject.When ethics is considered to be the code of conducts internalized by the society, it becomes evident that it is necessary for all the organizations which interact with their close circles to act sensitively in terms of ethical standards.Taylor (1975) defines ethics as an "inquiry into the nature and grounds of morality"; Barry (1979), on the other hand, defines the concept as "the study of what constitutes good and bad human conduct, including related actions and value." The fundamental function of the code of ethics is to influence people in their decision-making processes to show a tendency to take decisions which are acceptable by the organization (Ferrell and Fraedrich, 1991).The code of ethics incorporates the responsibilities that the company management has towards its shareholders, in other words, briefly the environment they act in; and provides standards indicating what is within the line of "right and acceptable course of conduct" definition.
When the international accounting code of ethics is reviewed, The International Federation of Accountants (IFAC) contributes to the development, adoption and implementation of high quality ethical standards for the accountants through the International Ethics Standards Board for Accountants' (IESBA) support (IESBA, 2).IESBA's long-term objective is to converge the rule of code of ethics, which is valid for the accountants, with the standards published by the regulators and standard setters.Convergence to only one set of standards may well increase the quality and consistency of the services provided by the accountants all over the world, and improve the efficiency of the global capital markets (IESBA, 1).
The code of ethics for the IESBA accountants is composed of three major parts: (IESBA, 5)

General Application of the Code
• Professional Accountants in Public Practice

Literature Review
It can be deduced from the literature review that the codes of ethics are prevalently used in businesses and subjected to research as regards to many aspects (Farrell and Farrell, 1998).While Hite et al. (1988), Schlegelmich andHouston (1989), Pelfrey and Peacock (1991) refer to the content and scope of the code of ethics in their studies, certain other scholars scrutinize the level of usage of code of ethics by companies on country basis (Farrel and Cobbin, 2000).Pelfrey and Peacock (1991) have found out in their studies that 50% of the companies within Fortune 500 in the U.S.A. have their own codes of ethics.This rate is expressed to be 41% for Europe by Langlois and Schlegelmilch (1990), and 50% for Australia by Farrel andCobbin (1996) (Farrel Farrel, 1998).Langlois and Schlegelmich (1990) have compared 600 European companies with their American counterparts in their studies, and explicated that the code of ethics in Europe started to be used later than their counterparts in the U.S.A., and there are certain indications suggesting that the European codes were inspired from the American codes of ethics.Aydınlık and Dönmez ( 2006) have drawn the conclusion from their studies they conducted in Turkey that the codes of ethics are being used in low rates within the country.
When relevant studies are examined, various other studies, through which the codes of ethics are scrutinized with respect to socio-cultural perspective, are acquired.Cohen, Laurie and Sharp (1992) have underlined the impact of the socio-economic and cultural factors on the acceptance and national application of code of ethics.Similarly, Clements, Neill, Stovall (2008) examined the impact of the socio-cultural factors on the decision to apply the codes of ethics relevant to the International Federation of Accountants-IFAC in the accounting organizations of countries on the basis of Hofstede's study, which includes cultural dimensions, as well.In another study, on the other hand, even though the countries have similar moral values, the challenges they come across in the developing international environment while taking decisions in the inter-cultural management because of the practical differences are underlined and a model is proposed for the inter-cultural ethical dichotomies (Wines, Napier, 1992).
Another area of analysis is relevant to the language of the codes of ethics.Attention is drawn to the fact that the grammatical structures used in the codes create a powerful sense of obligation and constitute an impediment to take decisions with free will.It is further elaborated in this study that the written codes shall not include complicated messages other than those aimed to be communicated (Farrell, Cobbin 2000).
Another point of view for the codes of ethics, on the other hand, is framed on the comparative analysis of the codes of ethics belonging to national occupational  Farrell (2000) includes the analysis of ethical environment of the international accounting occupation.The objective of the research, which is based on the mainstreaming research model, is to determine the importance the national occupational organizations attribute to ethics, as a group.
Yet another research is on the comparison of the English translations of the code of ethics proposed by the occupational organizations of 28 countries and provision of a general perspective as regards to the code of ethics (Shachaf, 2005).This relevant study reveals the principles of code of ethics regulated as 20 different categories.The most frequently used ones of these codes are professional competency, honesty, confidentiality, and free and equal access to information.
Another study about the subject is on the analysis of the international accounting code of ethics.This study is carried out through 158 national accounting organizations.80 of these organizations have been applying the IFAC codes as they are (with a slight modification under certain circumstances), and 78 of them have chosen not to use the IFAC code as a model.After making the necessary distinction, the researchers tested the hypothesis that countries with lower income levels are less willing to apply the IFAC code.The findings did not support the hypothesis.The reason for that is propounded to be the fact that applying the IFAC code was way less costlier for a country with low income level than creating a new code of ethics (Clements, Neill, Stovall, 2009).
As to the concept of corruption Macrea (1982, 678) defined it as an agreement that leads to exchanges between two people (supplier and demandant).According to Macrea, this agreement has an impact on the distribution of resources immediately or in near future, and includes abuse of common responsibilities or public resources for an individual desire.Stapenhurst (2000) and Worldbank (1997) defined corruption in the simplest term as personal gain or abuse of public force to gain favor for a group to which the perpetrator is affiliated.Tanzi (1998) mentioned that it should not be deduced from this definition that there is not any corruption in the private sector activities.He further asserted that there is evident corruption in processes such as recruitment or purchasing especially in large-scale private enterprises.
Worldbank (1997) stated that corruption always results from the policies, bureaucratic traditions, political development and social histories of the countries.

Research and Empirical Results
The classification of countries applying the IFAC code, which is one of the variables in Following that, the Corruption Perception Index-CPI is incorporated into the study.In this analysis, the national occupational organizations applying the IFAC code as it is or with slight modifications and other organizations which do not apply the IFAC code are compared on the basis of the corruption perception index.In this sense, an analysis is carried out in order to determine whether there is any difference in the application of the IFAC code by the countries taking place in the upper and lower levels of the corruption perception index.
The data as regards to the application of the IFAC code of ethics by the occupational organizations are acquired from the IFAC's website.Statement of Member Obligations-SMO Action Plan covering the years of 2013-2014 is benefited to obtain the relevant data.This action plan can be deemed to be a continuation of the previous surveys conducted in the field and is composed of 7 chapters.The 4 th chapter, IESBA Code of Ethics, is used in this study.IESBA Code of Ethics data are gathered from 179 member and associate organizations.Some of these organizations apply the IFAC code, while others do not.Action plans are studies prepared and declared by the national accounting organizations themselves.
Although it is determined whether the IFAC code is used by the organizations through benefiting from the action plans; the organizations are grouped via taking the classifications, including the level of usage of the IFAC code by the organizations as a reference.These classifications are presented in the aforesaid surveys in the IFAC website.
Transparency International's corruption perception index (CPI) of 2014 data are also categorized.4 of the countries within the 179 member and associate member organizations are not evaluated in the CPI.These countries are Brunei Darussalam, Fiji, Palestinian Territory Occupied and Cayman Islands.Therefore, occupational organizations belonging to these four countries are excluded from the list in the analysis of the relationship between the CPI and Code of Ethics.As can be seen from Table 1, 75 of the 175 IFAC member occupational organizations apply the IFAC rules without modifications.31 national accounting organizations are presented in Table 2.These national accounting organizations apply the IFAC ethic codes with slight modifications.Although the 54 organizations, which are IFAC members, presented in Table 3 have their own ethic codes, they plan to converge their codes to the IFAC code or change their ethic codes completely with the IFAC code in the long term.7 accounting organizations are presented in Table 4.These organizations use their own ethical requirements and have different approach to the usage of IFAC code of ethics.None of the 8 accounting organizations presented in Table 5 applies the IFAC code or plans to converge its code to the IFAC code or use the code completely on future dates.The rate of the occupational organizations completely applying the IFAC rules in totally 175 occupational organizations is 42.9%.The rate of the ones applying the IFAC ethic codes with slight modifications is 17.7%.The rate of the organizations that have used their own ethical requirements with a process to eliminate differences between their ethical requirements and the IFAC code of ethics is 30.8%.The rate of the organizations that use their own ethical requirements and have different approach to the usage of the IFAC code of ethics, on the other hand, is 4%.The rate of the organizations that do not apply the IFAC code or plan to converge their codes to the IFAC code or use the code completely on future dates is 4.6%.Consequently, the total number of occupational organizations generally applying the IFAC code is 106.This constitutes 60.6% of all the occupational organizations.The total number of occupational organizations that generally do not apply the IFAC code is 69 and constitutes 39.4% of all the occupational organizations.All national accounting organizations are classified in 5 categories according to the Corruption Perception Index prepared by the non-governmental organizations (NGO) named as the "Transparency International the Global Coalition against Corruption."These 5 categories are acquired through dividing a 100-points scale into 20points sections.The first category between 0-20 point intervals is identified as "highly corrupt."The second category of 20-40 points is identified as "corrupt."The third category of 40-60 points is identified as "neither clean nor corrupt."The fourth category of 60-80 points is identified as "clean."And finally, the fifth category of 80-100 is identified as "very clean." Table 6 shows the results of the chi square 2 which examines whether the decision to apply the IFAC ethic code is influenced by the national corruption.The hypothesis of the research is "The national accounting organizations in highly corrupt countries would be less likely to adopt the IFAC ethic code than those in very clean countries".It is observed that there is a statistically significant (p=,002) relationship between the usage of the IFAC Code by the national accounting organizations and corruption.Accordingly, the national accounting organizations in highly corrupt countries would be less likely to adopt the IFAC ethic code than those in very clean countries.

CONCLUSION AND RECOMMENDATIONS
The number of national accounting organizations that apply the IFAC ethic code has shown an increase compared to the past years.The number of these organizations is detected to be 106; therefore it is observed that 60.6% of the organizations apply the IFAC code completely or with slight modifications.69 of the national accounting organizations, on the other hand, do not apply the IFAC ethic code.The relevant organizations constitute a rate of 39.4% in the grand total.
Increasing usage of the IFAC ethic code by different accounting organizations in the future is within the bounds of possibility.
The hypothesis, which is articulated as "The national accounting organizations in highly corrupt countries would be less likely to adopt the IFAC ethic code than those in very clean countries," is supported by the research results.
Rules, laws and similar regulatory structures in countries, where the corruption level is observed to be lower, gain further acceptance in societies.This has provided an opportunity for the creation of ethical rules in the occupational organizations of the countries and application of these ethical rules as necessary.As a result, we believe that the acceptance of regulatory mechanisms such as IFAC code and its becoming functional for

Table 1 : Accounting Organizations that Completely Apply the IFAC Code of Ethics An
Analysis of the Relationship between IFAC Code of Ethics and CPI Page |44| Emerging Markets Journal