## **Learning Outcomes**

By the end of this article, you will be able to explain the role of ethics and scepticism in performance management. You will identify types of ethical conflicts, recognise sources of pressure leading to unethical decisions, and recommend appropriate safeguards. You will also learn to apply professional scepticism and evaluate the consequences of ethical lapses, preparing you to handle exam scenarios involving ethical issues in APM.

## **ACCA Advanced Performance Management (APM) Syllabus**

For ACCA Advanced Performance Management (APM), you are required to understand how professional ethics and scepticism underpin sound performance management. Pay particular attention to:

- Recognising and analysing ethical conflicts and pressures in PM environments
- Explaining how professional scepticism should be applied when assessing performance data and recommendations
- Identifying sources and types of pressure that lead to unethical actions
- Evaluating and recommending safeguards to prevent or resolve ethical threats
- Understanding implications of ethical breaches in exam scenarios

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Under which circumstance is professional scepticism most critical in performance management?
   a) When accepting all information provided by management at face value  
   b) When compensating for data uncertainties or management bias  
   c) When reporting routine operational statistics  
   d) When setting short-term sales targets

2. What is an example of a self-interest threat to ethical behaviour in performance management?
   a) Ignoring errors to avoid conflict with colleagues  
   b) Accepting an expensive gift from a potential supplier  
   c) Failure to attain a sales KPI  
   d) Providing objective analysis

3. True or False? The best response to ethical pressure is to comply with management wishes to maintain job security.

4. List two practical safeguards that can reduce ethical risks for a performance management professional.

5. Briefly explain what is meant by “professional scepticism” in the context of the APM exam.

## **Introduction**

Ethical conduct is fundamental to effective performance management. The ACCA Code of Ethics places high expectations on finance professionals to act with integrity, objectivity, professional competence, confidentiality, and professional behaviour. However, ethical conflicts can arise in performance management due to conflicting objectives, personal incentives, and external or internal pressures.

Professional scepticism—a questioning mindset—ensures you do not accept information or recommendations uncritically. Recognising potential ethical threats and implementing safeguards is essential for both exam success and professional conduct in the workplace.

> **Key Term: ethics**
> Moral principles guiding behaviour and decision-making, particularly in distinguishing right from wrong in a professional context.
>
> **Key Term: professional scepticism**
> An attitude involving a questioning mind and critical assessment of information and evidence.

## **Ethical Conflicts in Performance Management**

Ethical conflicts occur when competing pressures or incentives tempt individuals to act contrary to ethical principles. In performance management, these often arise due to:

- Tensions between achieving targets and personal/organisational gain
- Pressure to manipulate data or overlook control failures
- The desire to satisfy management or external stakeholders at the expense of accurate reporting

> **Key Term: ethical conflict**
> A situation where personal, professional, or organisational interests are at odds with ethical standards.

### Sources of Ethical Pressure

Finance professionals routinely experience pressures that test their ethical judgement:

- Short deadlines for targets or reporting figures
- Bonus or promotion schemes tied to financial results
- Demands from superiors to "improve" reported performance metrics
- Client, supplier, or investor expectations

These sources can lead to rationalising unethical actions, such as accepting misleading assumptions or ignoring questionable transactions.

### Types of Ethical Threats

The main ethical threats in performance management can be grouped as:

- **Self-interest threat:** Personal benefit conflicts with objective analysis (e.g., manipulating reports to receive a bonus)
- **Self-review threat:** Evaluating outcomes of decisions you previously made
- **Advocacy threat:** Promoting a position that may compromise objectivity
- **Familiarity threat:** Close relationships making it difficult to act impartially
- **Intimidation threat:** Threats, harassment, or pressure to act inappropriately

> **Key Term: self-interest threat**
> A situation where personal benefit influences, or appears to influence, professional judgement.

## **Safeguards Against Ethical Risks**

To address ethical conflicts, you must consider and implement safeguards that reduce or remove threats:

- Refuse to manipulate or misrepresent data, even if pressured
- Escalate concerns to line managers or use established whistleblowing channels
- Document all objections and maintain a clear audit trail
- If necessary, seek independent advice or support from professional bodies

Organisations should also support ethical behaviour by:

- Implementing clear policies and codes of conduct
- Providing regular ethics training
- Ensuring accessible reporting mechanisms for ethical concerns
- Rotating staff to reduce familiarity or advocacy threats

### **Worked Example 1.1**

Kieran is a management accountant at Midpro Ltd. Senior management expects him to adjust project forecasts to meet a target return, even though he knows the project is unlikely to achieve the planned results under the current assumptions.

**Question:**  
What are the ethical threats facing Kieran, and what safeguards should he consider?

> **Answer:**
> Kieran faces a self-interest threat (pressure to keep his role or bonus), intimidation threat (pressure from management), and a possible self-review threat if he later audits these numbers. He should refuse to alter forecasts dishonestly, document management's requests, escalate the issue to the ethics officer or an independent director, and consider seeking advice from his professional body.

### **Worked Example 1.2**

A performance management analyst receives a gift from a software supplier during a procurement process.

**Question:**  
Should the analyst accept this gift? Why or why not?

> **Answer:**
> Accepting the gift presents a self-interest threat to objectivity. The analyst should politely decline and report the offer, following company policy, to avoid real or perceived conflicts of interest in the procurement decision.

### **Professional Scepticism in Practice**

Professional scepticism is essential whenever reviewing performance data, variance analysis, or systems proposals. Always:

- Question unusually positive results—are there reasonable explanations?
- Seek corroborating evidence for management assertions
- Challenge foundational assumptions in forecasts or budgets
- Remain alert for inconsistent information or pressure to overlook errors

### **Exam Warning**

> **Exam Warning**
> In APM exams, do not simply accept performance data or management statements. Show professional scepticism by explicitly questioning unusual figures, assumptions, or management incentives. Failure to do so is a frequent reason for losing marks.

### **Revision Tip**

> **Revision Tip**
> When presented with a scenario involving pressure to alter reports, always identify the type of ethical threat and recommend practical safeguards as part of your answer.

## **Summary**

Ethical conflicts are common in performance management due to competing interests and pressures. Professional scepticism protects the quality of analysis and decision-making. It is essential to identify and respond to ethical threats appropriately, using documented policies and proven safeguards to maintain both professional integrity and accurate performance evaluation.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Recognise ethical conflicts and typical pressures in performance management roles
- Identify types of ethical threats and their impact on professional judgement
- Explain the importance and application of professional scepticism in PM
- Evaluate practical safeguards to address ethical threats
- Apply ethical reasoning to scenario-based questions in ACCA APM

## **Key Terms and Concepts**

- ethics
- professional scepticism
- ethical conflict
- self-interest threat

Professional ethics and scepticism in PM - Ethical conflicts pressures and safeguards