Ethical Decision-Making Model



OVERVIEWAccountants today face various ethical dilemmas. A series of accounting scandals in the last seven (7) years has caused accountants to closely examine the ethics of their profession. It is important that accountants are ethical in order to maintain the integrity of their profession and the businesses for which they work. This activity will examine ethics and ethical behaviour through the use of an ethical decision-making model and cases.Overall ExpectationsEIV.01 assess the role of ethics in, and the impact of current issues on, the practice of accounting.Specific Expectations EI1.01 describe the role of ethics in accounting;EI1.02 explain the need for strict standards (e.g., code of conduct) in the practice of professional accounting;EI1.03 identify and describe current issues and developments that have an impact on accounting and the accounting profession (e.g., fraud scandals, the globalization of business transactions).CASE STUDYPatty, a high school student, began a summer job working at the local park collecting a $10.00 entry at the park gate. With little training, Patty began work. After two weeks of sitting alone in her booth, it occurred to Patty that no one was watching. Since she was a little short on money, she snatched $10. The next day, she took $20 more. A few more weeks passed and Patty continued to steal small amounts of money. Suddenly, one day an accountant showed up unannounced. By counting her cash and comparing it with the receipts, the accountant found Patty had stolen more than $200. The accountant offered Patty a deal. If she gave him $100 he would not report her to the owner.Was Patty’s behaviour unethical and/or criminal?? Why? Should she be charged?Was the accountant’s behaviour unethical and/or criminal?? Why?If you were Patty what would you do? ??Business EthicsEvery day accountants and business people in general make decisions. Decision-making is the primary job of a manager, entrepreneur, accountant, etc.? Some of these decisions may involve ethical dilemmas. For example: a manager may consider laying off workers. This is an ethical decision as well as a business decision since it involves the livelihood of workers who have families to support.? Below are some definitions regarding ethics;Ethics ?- moral principles; rules of conduct in a particular group/culture; values relating to human conduct; right, wrong, good, bad.? (ex., I shall not kill, I shall not steal, respect others, do unto others as I would want them to do unto me, etc.)Ethical behaviour - legal behaviour with implications from a variety of variables including the individual, social, and corporate priorities.Ethical dilemmas - situations faced by managers every day; ?choice between alternatives in a situation that may result in personal/organizational benefit or may minimize losses to “save face”.Why should accountants behave ethically?it is required by the accounting governing bodies, and practicing professionals could lose their license if they behave unethically;new societal push for corporate responsibility in this information age;improved public image;government and professional regulation will not need to increase;employee/community pride will increase (less employee turnover);finally and perhaps most importantly, as humans we should have respect for each other and treat others as we would want to be treated.? ASSIGNMENT TASKGoogle “The Institute of Chartered Accountants of Ontario (ICAO)- Professional Code of Conduct”. Select three (3) rules that you find significant or interesting and describe the rules. Give a situation or example of how the rule would be applied.?Example:Rule 204.4 states that:A member or student shall not participate on the engagement team for an assurance client if the member or student, or the immediate family of the member or student, holds a direct financial interest or a material indirect financial interest in the client.This means that you cannot complete audits for a business if you have relatives in the business or you have investments in the business. For example, if an accountant owns shares in Canadian Tire he/she cannot audit Canadian Tire’s books. The accountant may be tempted to make things look better than they are in order to keep the share prices high. BUSINESS ETHICS IN ACCOUNTING PART TWO Ethical Decision-Making Model There are many decision-making models. Some incorporate ethics and some do not. Below is a model for ethical decision-making.MODEL Define the dilemma or problem.List the facts including the stakeholders affected.List your options or alternatives.Evaluate and test the options: Is it legal? Does it meet the ICAO standards of professional conduct? Is it right?Select an option.Reflection. What if others close to me find out about my decision? What will the Institute of Chartered Accountants do if they find out about my decision? Examples of Ethical Considerations:Rights of Workers: Do we, as part of management, try to take advantage of employees to the point that we are denying employees a real life or a safe working environment?Responsible Use of Power: Do we take advantage of third-world countries to benefit our company?Responsible Stewardship of the Earth: Do we pollute in order to improve the bottom line or to eliminate our competitors through price wars? Are our company objectives and advertising, promoting excessive waste?Non-violence: What concerns do we have about the treatment of employees?Moral Conscience: As a professional accountant you must be able to live with the decisions you make. It is your reputation, name, and ultimately your livelihood which are at risk. If a professional accountant is found guilty of professional misconduct or illegal activities, then they lose their ability to practice in Canada.IN GROUPS OF 4 CONSIDER THE FOLLOWING CASE AND USE THE ETHICAL DECISION MAKING MODEL TO ANSWER THE QUESTION:Water WorriesA prominent paint company, Rainbow Paints, started with one location and later expanded into many modern facilities while maintaining the original site. Total revenues last year were $27 billion and the company had a reputation for paying its executives huge bonuses.The original factory is located 5 km upstream from the town of Horizon and is now 75 years old. Five hundred of Horizon 25 000 residents have jobs at this plant. While the plant still passed Environmental Regulations, it is getting so old that it is not running efficiently and has been shut down twice in the past six months due to emergency repairs. Rainbow Paints and especially management at the site have never set environmental standards as a priority as too much attention would detract from the net profit, resulting in lower bonuses for management. Paint thinners are routinely flushed into the sewage system; they make their way into a pipe and get washed into the nearby river when there are large rainfalls causing storm sewers to overflow.One of the residents of Horizon is Glen Herrell, a chemist and a new executive with Rainbow’s original plant. Glen knows that he could make $100 000 in salary and up to $40 000 in bonuses if the company’s profit level remains the same as last year. Recently, at a training session, Glen learned of new testing techniques to determine the presence of a chemical known as ZZT, commonly used by paint producers and making its way into the nearby waters. ZZT has been proven to cause cancer in lab rats but its implication on humans is yet unknown. Testing included taking initial samples 3 km downstream from the plant and secondary samples near the Horizon water intake for the town’s drinking water. The results showed that the initial samples had readings of ZZT that were ten times the legal limit and the secondary samples at the highest limit of acceptability as set by provincial guidelines.Glen has come to you, the Chief Financial Officer (CFO) with the results of his testing and is torn about whether to recommend implementation of a complete overhaul of the plant. The overhaul would cost $50 million and not only would the company executives forego bonuses, the factory may be shut down and a site in Comfort Bay expanded to pick up the extra capacity. Your lawyers say that because there currently is no direct link between ZZT and human health, you cannot be held liable in a court of law under current legislation. As Chief Financial Officer (CFO), you must decide what to tell the Board of Directors and CEO about the information.INDEPENDENT ASSIGNMENT TASK:Below are two cases. Select one and complete the case study using the ethical decision making model. Follow the format of the examples already given.Scenario 1Brad Shoreman is a drummer in a band based out of Southern Ontario. He asks you to help him with his personal tax return. He believes that any cash “gigs” should not be included in his personal income because they are not traceable and the government gets enough of his money. You like their music and enjoy the free tickets supplied to you. What will you do when he demands that this revenue not be included?Scenario 2As the new accountant for the Get Gas Here Truckstop & Restaurant, an employee has told you about a common practice that occurs at the truck stop. Gas bar attendants are frequently asked by truckers to over-bill the gas component of a bill and give the truckers cash in exchange. For example, a trucker who fills up with $200 worth of gas will have the attendant bill $300 on the trucker’s credit card. To make things balance out, the trucker gets $100 cash given to them with the $200 worth of gas. The trucker then bills the trucking company they are working with for $300 for fuel costs.Scenario 3Heinz Koenig, a client of yours, has asked that you complete a confirmation of business earnings for his bank.? The bank has requested the confirmation of earnings to make a decision about whether to make a loan to the business.? You complete the confirmation of earnings but your client states that it is incorrect as it does not include the cash sales. Heinz tells you that he has taken $50,000 in cash sales “under the table” that do not appear in your accounting record.? He wants you to include these hidden sales in the bank confirmation of earnings.? In fact Heinz has stated that if you don’t change to confirmation of earnings to include the cash sales, he will change accountants.GROUP WORK ANSWER KEYDilemma or ProblemShould you explain Glen’s testing results to the CEO and Board of Directors? The dilemma faced is that you benefit personally if you decide to hide all or part of the results of the study.FactsFactory location, ageJob implicationsEnvironmental practicesPersonal implicationsZZT implicationsCost of overhaulOptionsBury the report.Only give partial factual data to the CEO with no recommendation.Only give partial factual data to the CEO with a recommendation to do minor repairs to the plant.Full disclosure of the report with no recommendation.Full disclosure of the report with a recommendation to repair/rebuild the original site.Evaluate and Test the OptionsIs it legal? All of options 2-5 are legal as there are no laws being broken.Burying the report is illegal because it does show that readings in the initial sample near the plant were ten times the legal limit.Do all humans deserve healthy living conditions?Glenn could have chosen to skew the report results to preserve his job and bonus but instead has shown you the results. You, as CFO, could consider your own bonus and your job security in short and long term. If you ignore the mess and it is found out, will you have a job? Will the firm protect you when an environmental disaster is uncovered or will they claim ignorance and use you to take the fall? What is fair and equitable? Is it fair that management take large bonuses and the company doesn’t modernize the plant? Is it fair that the river that has no voice is being exploited by a corporate entity? Is it fair that the company pick up and move to another town leaving behind a run-down plant and 500 unemployed residents of Horizon?Is it good conflict resolution to hide a problem in the hope that it will go away?Human Rights – Do the residents of Horizon have the right to a safe environment? Are you earning enough money without the bonus for your family to have a good living?Responsible Use of Power – As a person in a position of power, your human responsibility is to treat others, how you would want to be treated. This would mean trying to keep the jobs in Horizon. Responsibility to the Environment – As a resident of the area, you should consider what kind of an environment you are leaving behind for your children and family.DecisionThe ideal solution is option 5; the community would have safer water, retain its 500 jobs, ensure the safety of your job in the long run, and maintain the long-term profitability of the firm. ................
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