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OJ:) Introduction 1/

In thischapter, \~re·h.igWight the 'Significanoe of professional ;iudgmen tin ac(Dun,ting andxontrast the process. of .conven tional decision making with a. structured decisionmaking model known as the AAA model. The Ai\/\ model is an iethical decision-makingmodel usedby individuals to htlp themarrive at ethicalanddefendable-decisions, The"~'\i\ model and its various componears are described in detailand its application is illustratedwith auextensive example, I-Io1,.'rTever,being·(1ware of decision models and Irn.mymg how to use rhern does not me-anthon ethical decisions will always be. made. Decisinn w;aking isinfhrenced by a number of situational and

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environmental factors, such aspersonal preferen ces and the pressures of time and stress. Altbough the process of following a decision-making modelcannor guarantee an ethical dedsro~,it is likely to miaimise the likelihood of making an.ina ppropriate decision.

Routine versus non-routine decision making 1/

Straightfort .... ard problems are resolved by makmgroutine decisions based. on predeterrnined p,okey or procedure. For example, niles of professional cond urt dictate how accountantsshonld respond when. clients understate their taxable income. These types of decisions.areknownas routine or mechanical decisions: and form the-bulk of workplacedecisions. However, many problems- are not srraightforward and require decisions that are unique andnon-recurting •• ilhout dear-cut solutions . Thesetypes of decisions are known -as non-routine decisions and- although they· fetm only a small percentage of the- overall number of decisions made m the workplace, I:hey usua.ll;' carry IDe gre"[test significance. Nen-soutiaedecisions can arise in a number of-ways, these Indnde the resolution of new and unfamilierproblemsand a genuine moral. dilemma involvingcompeting mterests or claims ... Although routine decisions aredetermined by reference to predeterminedpolicyor procedure, the non- recurring na ture of non-murine decisions-means mat predetesminedpolices. or prcceduresare unlikelyto exist. Therefore, determining non -r routine decisions is best done by'foUm"'m,ga structured procedure known as a decision-making model.

The process of conventional decision making 1/

Decision-making models; such as the.one presented in figure 4d > provide a systematic . framework to .arrive 'at the best COUISe. of action, The decision- making modelpresented ill figureLI, generally known as the conventional decision-makingmodel, is-based on

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assumptions.cfrationalay, ' .. vhich means, as rational human beings peoplewill seek !:he' best course-of action after taking into accounr all.known-variables, The process of conventionaldecision makieg.comprises three levels, The fiBSt level is.eoncernedwithiderrtifying and,da.rifying the problem. TIle second level outlines the steps to ln4kin,g an informed decisien. The third level deals with.implementing and evalua ring the ,~ed$iO'[] . to assess its effectiveness and to seewhat can be learned from the exercise. The eight identifiable steps in conventional decision making are briefly describedin this section; and illustrated.with anexample jnvohrmgthe purchase of an asset (seeIapractice The conventional decision. making process - an .illnstration"}, Familiarising yourself with the process of conventional detision'makingi:5: importantbecause.it forms. the basis of the AA}\',ethicru,decisian -making model.which isdiscussed in detail later in this chapter.

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Level 1: Problem ldentiflcatlon II Step 1: Define the problem

The ohsclJ:rity of problem' identification is ,<I .maior obstacle to 'effecti""E decision making. Problerns.rarelycome with warning signs that ide6tii}' themselves-as.problerns.and, in ma.ny cases, what may often be a problemto one person. may not be a problem. to another, Accurately defining the problem i~argnably- the most importan! step ofthe decision-making process because it establishes the reasonts) for makinga decision and. it ensures the rightanswer to the right problem, Although problem identification is-subjective, people mustacknowledge that :ploblems e~-ust and be -alerted to their existence. The remaining steps-depend on the decision maker identifying the right problem.

Level 2: The decision task 1/ Step2~ Establish the decision, criteria

. VI/hen the problemis defined, the decision maker must thenseletr the criteria pertrneut tosolving.the problem. The eriteria selected in this step are used 'in the following: steps toe-valuate the different options that will resolve the problem. Establishing the .criterie relies on the. decision maker's interests, values. and personal preferences. For :example, work-related prQ:blemsmay rely on, criteria such.sscomphanee with company policy, confidentiality and maximising revenue, 'white person al .issues may ITly on veri terra such as . fairness ,and respect foi' colleagues.

Step3~ WeJght the criteria.

The criteria _established in the previous step are rarely equal in. importance. The decisionmaker, therefore" must evaluate the.significanceof the criteria by establishing an order .of priority andweighting them byaiiocating-a numerical score. This numerical weighting is arbitrary and represents the id£l_th'e significance. of the various criteria awarded by the-decision maker. Forexarnple; if compliance.with the law is more Important- than profit maximisation, then compliance will be: awarded a higher weighting-than profit.

Step 4: Develo1P altema~ive courses of aetlcn

Atthis poinl the decision maker identifies-all. possible alternative courses of action. that-are likely to s\Kteed in Jesqkil1g "thepmp]em. No-attemptismade to evaluate the <11 terna tives ut this stage.

Step. 5.: Anal-ysethe alternatives

Ha hug identified. a number of alternatives, 'the decision.maker is now.in a position to .;1'&SC:S5 the diffetem courses of action. The decision makermust critically analyse and evaluate each al ternative course Of action by givinga rating for each. criterjon developed.and.prioritisedin the-second and thirdsteps. In straightforward-decisions

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such as asset purchases.someretiugs '\-\111 be objective, suchas performance and reliability, because these evaluations can be based en informationprovided by the manufacturer and mdependerrt test results" However some ratings will be based on personal judgment. andare therefore .subjective, such ~5, style and appearance. Despi te the 1<1r.1;, of objecti .... ny~ assessment is necessary to 'compare the alternatives. Due to tile complex na ture. of.non -routine decisions, some eri teria may be difficult to quantifyby.simple rating. Norretheless.each akernative must be evaluated.against the criteria in terms of its strengths, weaknesses, advantages.jiisadvantages, benefits and 'harms.

Step 16; Sle~e ct th e best a lternatlva

The finalstep in' the decision' task is to select ~. courseof action by.chOQsingthe alternative that pro duces the greatest overall value, In thi.~ step;. the alternative courses of action are assessedby assigning a totalscore for each. criterion, The lota] score f01' each criterion isdetermined by multiplying the weigh ring determined in st€p3 and the rating determmed in step 5. The scores fOJ each criterionare then summed to determine the overall value for each alternative course .ofaction. The' alternative 'w:ithtbe greatest overall Value is the best choice. Insemecases. the-best

'. alterna tive is not always clear beca use 'the overall scores .for different alternatives are similar. In thesecircumstances, a. compromise is sometimes necessaryparticularly when the ratingsare difficult to quantify, At thri.s po-int, you should refer to 'In practice: The conventional decision-making process - an illustration' for a demonstration of the steps discussed thus.far,

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The cnnve ritiona:1 declslon-maklng precesa ,_, an ill ustratien ,A:s,~ume David, after: careful consideration.iof his iennual work-plan, has . decided to purdrase'a.new computel·. The problem confronting David (ste_p 1) is that he is, unsurewhich brand lie should buy . Contemplating 'his needs. Da'iid has identified four criteria (compatibility, qualitj; price and portabiliv.i) that he believes are important to this.decision (step 2)., Thesecriteria, -presen ted in order of imp ortance, are weighted: accordingly The weighting begins-with a score-of 4 for compatibilitythrough to 1 for-portability (step J), David has investigated a number of recommended brands and identified two options that serve ills needs, Brand A. andBrand 13: (step 4). David examines the features. of both brands of computer and assigns:a ratingbetween I and io (lowest to highest) for-each criterion (st~p 5). The • .,~eight:;;, ratings and. tctal.valuesare.prcs t: ided in table 4.1 on the following page,

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The' toral value for each criterion is determined by multiplying the weighted criteria with theassigned rating, A variation in the assigned ' scores (weights or ratings) will alter' the total value and possibly the decision, The. best alternative 'is determined by summing the total values for each criterion. In this example, Brand B produces the greatest overall. value and is therefore the preferred choice of the two alternative computers (st?'p 6). Even though computer Brand A rates more highly inquality and portability, -Brand B is 'superior in compatibility and price, 'resulting in the greatest

overall ,gain .. The mechanistic process of decision rnakirrgvassociated with this mudd makes it appealing for resolving simple problems. However, this, 'model isequallyapplicable in solving morecomplexproblems involving difficult choices. Although defining-and. 'iNeighting the criteria may b_e> difficult at tunes, it remains an important pan of the decision- making process .and should not he ignored in favour of lesssophisticatedrnethods of decision making.

Level 3: Problem resolutien and.evaluattan /I Steps 7 and 8: Implement and evaluate. the decision

An effectivedecision must be conveyed and implemented, otherwise the decision will fail. Soundimplementa tion is just-as imp ortant as the decision stseff. The decision mustbe. appraised to, determine' 'whether the pro blem has been resolved ,and to provide feedbackon its progress. Since many decisions are made based em imperfect informationseme decisions will inevitably be wrong. Evaluation enables ,peop:Je to Ieamfrornfhe .experience and, improvetheir decision-making skills . .In an ideal world, if the problem is not resolved.fhe decision-makingprocess-should Be repeated un til a satjsfa~Jo[_y remedy is, attained.

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Ont- rhemethat emerges thtOUgJl0U t tru~ book is fueneedfur accorrntents -to exetcise,iudgmenta.lld.:ll1ake decisioru,; Far example, financial accountants continually deal w:it_b .measurement, :re.c,og~lition and- disclosure issees .. '\1 tl1ou,$h one.purpose o-f a>ccqUil tint€'ttal'rdil-f~~- is to _ reduce - il$emro:hher of decisions req uiredin theprep-

aration of financial repQ.i:"ts;,B'-en the- mQst COllJprehensI"re 3.ccotJ.qtingBtamci'-lrdsr~quire some Judgment. It is impracticable foraccoumingstandards foQ· covereverj possible cirenmstance; _ thet,efo-l',€:,(jud~gment is needed in reLrting- the relevant stan,dard In the-particular ci~C:l.lmstanee5 ofth,e-problelu; Decision Inabng is evident in all fields of aQ(QJ.JIj]_tin_~g,_,not ;u:st financial iI.tooWiting.· Eor e~IIHjle,ih':~lld:it1ng, ,ace;glinttant5 are ((}_D t_inuaUymaking ciec:is.io,]}s. on sample aize, matehalitYCBnd the reliability of- audit evidence, Management accountants make=decisions '[ertLe-ruing_ ·the:alIncat1oiloof ,COJsts,0verheaJ rec(I,very' rates and capital budgeting: Irrespective ·of their revel ofleSpo[lsihility, or th(l:iir fieldof employmeELt;a.0COlillntallts~weml a· g-re3:~ deal of time, making decisions" which -are then used: to evaluate their Jlerfo-rmilp0e.

BrQQKS (:W04) dai:fn;_s~ that ft'l-\l fiil:a-ndal sc!,!ndals illVoh'il)gzccoQlltants ate the result -of methodological ·etrors;Ln:gtead~mo8t scandals . are theresulteferrers in. judgment: S"mne:ca0caunt-ants"· .errors in judg;meat'Temlt fmm: the sheer C01Tlpkutr" .of fu€PIQ bkm at' hand, but most are caused oy thela.ckof attestion g~veutQeth~ ical and profe.ssiJJnal»ill'ues $uch ~$hon~sty, ·int;egrity,clbjec:tl_",jt}s· dl.!~ (jaie, .(:6itnG€lltiiility;anti:the corrrmirrnent.to the inteFic,sts ot ~othe'rs be-iQi.eiheir' O"WKil, In many cases such errorsare accidental, but irrespective of the Gause of sucherrers; the reselts are a:h",rays: foes-arne. A lack. of attention to etbical vahres, jn most cases, .brings the-·gne.a:ttest harm to- those mossreliant on the; accountant's j'udgmen-t, typically dientB, ,empJloyetS'an{t ulti.J:Uat~l}c, thepublJc. i'1s ~pla;med in oha;pter _3:,; con- . tin(l~alI:eVHat.io,ns of ethica] fransgressidrt:s by accountantswill eve:n}tnaUy lead to a liNttikenm;g. of st){iet~/S- belief thatacceuntarrts act in thepublie.interest; whichwill aeverselyimp:act . the oredibjl-ity~o_f th'e: <lce.ounfing profession. :Q.uestions concernmgpubJic;:confiden;::e;u:e·.xcardy directed at the acooarntant's 'ability to do.hiscr 'her jJ}b .. ](npp~rl-y but tkeabiLi __ ty tQ~E_x-e;rcis~ pIOperju.dgn_ie_nt'm_d~fficult or ~QIi(Iplex situations:

In.dQ_,ilp_ter~3~ we defined anecceuntanras.a professional who is an authority on the'suhje-cland application ofaccennting to remedy the problems presented: by clients -- or empkiyers, IL~oe,s"_~'ith91.l1L-:sayjng that ,expeit ImowleJ:i:{e mace-punting is .3;. regIlisrte forprofessional juqgm'enrbuj:-the"aJ:qui?ItiO:ri_ofk:Qowh::dge is' 9t1l:Vthe fustst~p- to b_c:~{,-Pming aprof<'l§sional A prgte$sidmll must be ahl€t6 identifr:an,(l sobre complex, unstructured problems. Accountants, as professionals, must h::ave'

. Professional judgmenta.nd decision making in accountingz/

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the+ability to solve problems where TDutine :or mechanical solutions are not apparent. It is not enough to QffeJ' clients.or employers-a menu of alternatives from which te choose; accoumants are expected to make recommendations-and act on them ,_ Therefore, prefessional judgment is the process of making -a decision that is carried out with objectivity, int~gJity and in recognirion .of the responsibilities to those affected by the judgment. Professional judgrnent,like decision making, iL11.'O]V';;:£ malill1g a choice from a rnrmber of alternative 'COUI~e$ ofaction to resolve a problem or achieve a desired result. For-the purpose ofthis chapter, the terms professional .. judgment .and decision making are used interchangeably.

As the .in:9fessiQn· evolves, accountants will-move Furth erfrorn their traditional. role of gathering" measuring, recording and then audiring information, and closer to shouldering the burden of risks tMt comewith leadership and making key decisions, However, the problem " .... -ith an accountingindustry that is-obsessed with

. growth, and an ever-increasingrange of servicesthat appear to compromise independence, is, that it brings .. new and unfamiliar challenges; thesethreaten to exceed the: capabilities and resources of accountants, who are expected-to meet tl1os:e demands. It is under these conditions that poor judgment often results; consequently; accountants wilt face many new challenges that will test their judgment s,kiU~.Aq:o~htants, asprincipals, must develop strong leadership skills-and the ability to: make' decisions thatdeal with iliffirult trade-offs:

Ethlca II deci sion rnaki ng /1

In general, a.C'OuIcS€ of action-is justified when. there are-better reasons in favour of it than there are againstrt, In, ethical 'decision making, this means showing, that there are more orbdter ethical reasons in favour of a. course of action than against it ,Therefore; the chiefdifferences .between decision making and ethical decision making-are-theanemien.given toethical values in the decision task-and the 'aim of finishingwitha decision that will he judged.as-ethical because it is supported by princjples -0£ goodc;Qnduet. Ethical decision making is therefore the. 'process of iden tifying a problem, generating altematives-and choos,ing-; among them SD. that alterrratives selected maximise the most important ethical values while achieving the intended goal' (Guy 19'90, p. 39).

ill the workplace; -people: often resolve' difficult problems usin~ easily understood decision rules, Decision rules..or rilles of thumb, are appeill.i-Il}! in difficult circumstancesbecause they reduce the complexity of decision makingby reducing the ·'lllllilher·ofalternatives that mustbe'consnfered, Fo:r example, the' test of materiality

states that a misstatement of 5 per cent ill Xe;:):5 1 s deemed immaterial.Based on this "decisionrule.audirers.are.no longer required toconsider and make judgments-on everymisstatement, oniy misstatements greater than 5 per cent. i_-\lthbugh decision

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rules may not always give the best results, they are often justified on the basis that they give adequateorsatisfactory results. The problem 'with decision rules is that they can ignore the moral (OIDPQUent of decisionmakingand, are thereforeinadequatefor dealing INith eiliic<lIproblems.

Ethical de"C"l:s1011 . .making is more than just making-a choice; it involve's critical thinkisg that acknowledges a,nlllge~ of vi ews -and VaJtH":S that occasionallyconflist. In these circumstances, ethical decision making is: difficult because it invQlyes .making a' choice from a numberof equally acceptable courses of action, In other "ford's, the ethical dilemma does not present one dear course of action, but a choice between 1:'i-\'0 ormore "rig.l:!t> courses of action or, alternatively> a choice between two.or more <wrong' courses.of action, Choosing-the lesser of two.evilsor the greater of" two advantages is unlikelv to satisfv evetvone and could invite

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expressions of dissent, However, by adopting-:a structured approach to ethical

'makiag.fhe decision maker is better placedto defend.tlreir decisionwith reasoned "and soundethical }l,Iagm~rtt,

The hierarchy of ethical declslonrnaklng //

In accounting as 'well as business, ethical decisions.can be viewed as ahierarchy consisting of three distinct levels. The first and simplest {brm of ethical decision making: is Iawful decisionsthat are governed' by legally binding rules. Inmost cases, lawful decisions will lead to' ethical decisions; however, this may not always-be the case. Some- Jaws are outdated and may no! reflect current societal values, Onsome issues; laws may he' silencoreven.permit question;lble behaviour such as gambling and prostitution, Therefore, to. suggest that lar->;'''ful decisions are ah;yays ethical decisions is incorrect; it is more accurate to claim that the law sets the minimum acceptable standard for. decision making and occasionally the decision maker must [oak beyondthe-lawtcarriveat an ethical decision.

Professional obligations .. and duties espousedin the codes of conduct form, the basis for the nei x "L level of ethical. decision' making" These types of decisions arenot legally binding but are . based on a commitment to professionalism that is buil t on serving the' public in terest, This form of decision making goes beyondmere C0n1- pliancewith the law.and is based on a.professional and ethieally binding commitment 'to the prtnciplesof professicnal conduct 'at-the expense of self-interest, Accounting .isclearly placed in this level of the hierarchy and the principles of prefessional 'conduct should he the first checkpoint in any situation involving proI~$sional conflict. Therefore, when faced with moralconfusion, the' accountant. should turn to the Joint Coderif Professional 'Conduct (the joint code) forguid.ance, The jointcode and professional responsibilities were discussed in detail in chapter 3.

The joint code js patticularly useful. in resolving straightforward pro blerns of a ~profession1l1 nature, However, there are manyinstanees where a convenient rule is not always available ami. even if a rule is. available, ir'.may appe4t" 1'0 beinadequate

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to deal withcorrsplex i5Sue5. In this_situation, the accountant mav need, to turn to the next and highest level of decision making-s- the-level where decisions are 11111de within a defined sense of right and ,,\'rong'> which is, based on moral, values and. philosophiral reasoning, such as the normative theories Oot ethics discussed in chapwr'2, Inpractical.terms, making such decisions is best achieved by a'followiag structured procedure-known as an ethical decision-making model, which iucorporatesrncral.principies. An etbicaldecisicn-making model, like the }L_A,.j\ model, discussed in the next.section, .is.a procedural model that directs.thedecisionmaker to take account of the norms and .rules pertaining- to the situation _ and' 'to give-a moral perspective to the problem andthe alternative courses of action and their implications. In brief, it is a systematic method ofobtaining a resp-onsible and ethical decision.

Ethica I de-cis lon-rnaklng models II

According' to-the American Accounting Association (A.AA.} _ (199G), accountingeducaters play an important role inalerting students toethical dilemmas-thar they may confront, as-professionals. However, until recently, the extent to which ethics was taught- to accounting.students was constrainedby the dearth of ethics cases and teaching ma,te'rrai:{)ivaiiclble. ThIS prompted the A-L,,- to develop a book of cases re-lating to professional conduct-and ethical issues in each ofthe funttiQrtal disciplines 'Of accounting (bA--\ 1990)., The-book, Ethics in the aceountingcusriculum ,- cases.and roadi~g), contains, real-world cases, .supported by analysis.and discussion u,sin;g an ethical d:edsiorI~maJking model, which has since.been.known as the AAA IDJ)dd.

'The A __ A:iIL mode], based on the ethical decision-making mudd developedby Langenderferand Rockne;ts (1989:}~ .is a seven-step ethical decision-makingnrodel that students can -adopt in theirprofessjonel lives for the resolution of ethical dilemmas. The - purpose of the sevea-step mode] is-- to deveillp ca;sysr,emal~(_ approach to making decisions that [an be used in _any situation that has ethical implications. 111. 2002, the Australian accounting professionofficially adopted the AA~ model. Cf'A Australia and the.Institute of Chattered Accountants in Australia published them odd ID---,-!~ joint guidance note entitled, G N 1 ~Jemb.eTs in Business Guidance Statement. Thepurpose fif the guidance note is topro--...ide members witha __ framework (j/J,,_/iA model) to resolve ethical problems. P-aragr-aph 3.1 refers members to section A.6 Resolution of Ethical .Conflict 'Of the-joint code, lNhicb, statesthat; when faced with a. significant ethical conflict, members should first follow-- the established po[ides of-their employer . .If this does not-resolve the pi'9b1eIn or the employee's policies .do not extend to the particular problem, members should consider applyingan ethical decision-making model such as the i\_;_o\.:\ mood. The-guidance .note is-non-mandatary and advisory only, but using - the mo del ensures that members can -adequatelydefend and justify their decisions by showing that it was, made in a sy~rematicmMlner\vhich dea'rly .refleeted a

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consideratkin of their duties. all d the: consequences of differen t actions in particular circumstances (sec_tion3..2).'13~fu_t;ec_ansjdering the l\.J!J""A. model, we will first explorew r hat it means to fnIlCi\'" the established policies of the employer.

The 'ethics daetsion tree / /

Theprocedures for dealing withethical conflictwithin an organisation are outlined. in section A.6 Resolution 'of Ethical Conflicts of the joint code. \Vhen empJ oyees are challen ged with an ethical issue; they should first follow the established poli.ciesof their employer to tryand resolve the conflict. If esrabljshedpolicies fail 'to resolve thedilemma, employees should discuss the 'problemwith their immediate superior, .Ifthe immediate superior is believed to be involved in the confhct or satisfactory resolution cannot be achieved, the problem should be presented to the next highermanagerial Ie=el.Tf the next-higher superior is thechief executiveofficerj orequivalent, the acceptable Tevie',.\~ing.autho['ity lTIBY he .a'~roup such as" the audit committee, executivecommittee, board of directors, board of trustees orowners. Contact with people above the immediate superior should normally beinitiated only with the;sureri()r>$_k:n~nvledge; this assumes of course that the superior is notinvolved in the dilemma ... If the ethical conflict remains unresolved, et:nplo),ees'mig,hthave 110 other reooursefhan to resign from their em plover, in Order to disassociate themselves. from the ~ unethical activity Consistent 'with the: process described above, the American Insutute.ofCertified Public Accountants (AICPA) C10D2) has deydqp'e:da-:_:deti~jon tree (.~e~e ligm'e_'4:2) toIielp accountants walk tbrough theprocess ofrescivfng an ethical issue at work.

TheW. model / /

Although there is no generallyaccepted fermula for ethical decision making that can -easily be bas-ed on a determinate set of rules, there are important dements that distllplish ethic;:llJeclsion making from routine .decision maidn"g. These in elude the careful consideration' of the 'moral.val ues -(ethical principles) that are relevant to the myriads of alternatives and. 'an awareness of the range of interests involved in ~:etific decisions. io\na]ys~g- the elements is best done by breaking. up the 'problem into smaller components to identify ·1heefui-eal. implicationsof the decision. In this section, we discuss the /\._._IJ...l'" model .of ethical decision making and its variaus xomponents, The.')e};:en ,steps that comprise the .~!J..A ethical decision-making model are displayed in figure i,3an(!. discussed in detail ill this section. \'\lhen reading the commentary below, yQu.should observe the similarities in the i'1:/:\il. model with the process 'Cif conventional decision making discussed earlier in this chapter; noting that the key difference between cconventional decision making and ethical decisionmaking is. the attention given to ethical values: and principles.

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Step.l::Whatarethe facts of the case?

The first step in the decision-making process.isto determine the C::lll,Se of the dilemma by learning-how and why the dilemma occurred, Unlikestep I.of the conventional decision -rnakingrnodel, .which aims to define the problem." accurately; . thismedel aims to learn as muchas possible about the d:i]emma. Defining the ethical issues ics undertaken in step L ill important part of the problem-finding process is to enquire mto the history of the dilemma. Considering the 'history of thedilemma 'will moreIikelydetermine the root of the-issues, In identifrmg- [he tatts it is importanttoask the' rightquesticns, otherwisekey issues. may be overlooked ora decision may be the Tight answer to the wrong problem. Questions om-maUl' asked in I his , step include.' 'I.-\Trm? '·",bat? V\/here?r"Vhen? and Howi Informed and 'ethical decisions require' full knowledge .of' the facts; therefore, the purpose' of these questions isto assemble as much information as 'possible, it is not IDTtiJ all the major facts are identified.that the dilemma can be clarifiedandaccurarely defined

The. reliability of the facts and impartiality are-cruciat to the quality" of the decision. Collecting da ta, should be neutral, and not based on loyalties. If personal prejudices, Ioyalties mother barriers enter at this point, thedefinition ofthe issues in step 2: will be dl_':;h)[tecl and. irrelevan t inform ation gathered. Impartiality is achieved by collecting as.many facts as possible and br- viewingthe.situation from the perspectives 'oJ various key stakeholders, By soliciting the opinions-of varjous stakeholders, the decision maker can develop a sense of balance with the issue. In practice.people often.avoid gathering informatioafrern other patties because they feel itis time consuming, inconvenient 'Or uncomfortable .. 'No matter how difficult, this rsan 'important task that should riotbeoverlooked,

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Step 2: What are theethlealIssues in the ,case?

This questioncomprises t .... \~O components. First, the- primary stakeholders are identified,' and second, We -ethical issues .Inns t be 'clear 11' defined . Each component is, discussed separa te1"r in this section.

S~ep2 3: L iSt the prima ry stake hcld'e rs

Stakeholders are defined-as people or . entities that are affected .by the actions or . decisions of another, Decisions are seldom made in a V:fCU urn - a nurn her of par - ties including the' decision maker are often inyolved 'in the dilemma, In this . step" the decision maker Is obliged to identih,' '<.111 affected parties. Stakeholders can include shareholders, management, employees sand the loq!.! 'community, The' analysis of the ~takeboldeIS.should not be-restricted to human beings, the notion of .stakeholders . extends tiJ' the environment as' well as, institutions . such as, governments and professional a;ss,oC!<ltjons, .

.step ·2b: D,efine the:etihiCaf,issue's

The 'res ohnion of a .straightforward problem is. a relatively snnp le exercise, because it is a .matter of choosing the right course of action, In contrastcissues or dilemmas do not have. a single right answer buca number of competingalternatives without dear resolution. Therefore, an ethical.issue arises. whenthe.alternative courses of action give ri~t;: to positive and negative consequences. Identifying arid labelling ethical issues' -and the oompeting Jnterests ofrhQse affected by them is·an important part 0 f the Te501uti0I1 process. In this step'it is important tQthink abcntethicalissues asalternativeoaurses of action ·withcompeting interests between the stalceholders in te:r-msof benefits, harms, rights, duties, principles.and claims .. Porexample, in aCyoImtihg, the right to know on the part of investors may conflict with the. entity's Tight to confidentiality As an ethical. issue, this is normallyexpressedas the.investors' r:ight to know' versus the entity's right 10 confidentiality .

Step 3.: Wh at are tile norms, pnn dples an d values re latedto the case? Unfortunately, the terms ]norm.s, principles and values ate not defined, but in general they represen.ntandatd-s, rules a:nd' bdiets thatguide atceptableand morany 'gO'Od'C9Uduct The terms norms, principles and values ' are interchangeable and for the remalndenof thischapter they will simply be referred to as values. Examples of valuesinclude the profit motive, .harrn, inregritwlovalty.and respect for individuals. The ethical issues identifted instep 2 are stated in terms of competing interests, which may not explicitly enunciate the values. In this step, decision makers must consider and identify the values associatedwith the ethical issues and explain their effect on the individual, company, sQciety and the profession. It is impertarit to iaentit}' these items so that they are clearly stated fotthe comparative analysls.required in step·5.

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Langenderfer and Rockness.(l989)an,d the l\A;\ (199.0) provide: little gui.dance ::in defining-and explaining values, 5Q we turn to nib er sources to guide :uS in this part ofthe decision process . .i\lary Guy (1990, Pcp. 14:-19) identified 10 core values' that provIde the benchmarksfor ethical decision making.According.to.Guy (}990), the evaluation of ethical issues inrespecrof the to core values :helps clarify the ethics of adilemma and the implication:'} of alternative 3Idions.Gu(s 10 core values (carit;g, honest;v,~a:out1ta:b'IJity, promise, keeping, pursuit of excellence, loyalty, fa irness; -integn'ty)respe,tr for others, and responsibk citizenship) are briefly described infigur€ 4Aand can be:': used 'toidentify the values required in this step of the A~A,_ model.Tn addition to GiIY'S 10 cote values, the :guidance statement fGN 1 Mern-

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bers in Business. Guidance. Statement) .stres~esthe importance of app]ying' the fandamentalpriaciples of professional conduct to resolving-erhicalfssues. To this' -end, the principles of professional conduct shonid.be considered alongside Guy's

10 Gore values i.~'hen dealing with this step of 'the A!\i\ model The fundamental principles ofprofessional conduct, discussed in detail in chapter 3, have been reproduced ill figare45 for your-convenience.

FJGURE 4.4 Mary GU!:j's 1000revalues

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St~p 4: What are the alternative courses of actlnn?

In this sEep, decision makers 'snquld Jist the major alternative courses of action' that 'rvitl resolve the problem, including alternatives that may involve compromise. Ma.ny ethical problems-normally involve, choices. If yo u carmo t list more than 1""'-0

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alr€rn~tiyes;, you are probably not thinking hardenough. It is important to list more than .-'iNO options- irrespective of the method used to arrive ata decision, This is because twooptions of tell representthe extremes, The solution is never black or white and YO_l!lshould think in terms of cornprernise even if compromise does not i'Gnfoxm toyo ur personal notion of what is. ri:l:lh t:

Step 5: What Is the best eeurseof action that is consistent with the norms, princtp'lesand values identified in step3?

A.:t this point, all altetllatives.,are. considered inligh~' of the values identified in step}, In this step, the.decision maker should pause and, reflect on the values to dett'fmme,'whethe.r onevalue, or a combination ofvalues, isso compelling that the pr-opeTa]teTn~~tive is dedr. For example; correcting adefect in a preduct that is almost certain to cause aIoss of life is paramountifthe decision maker is torespect theright to life or health and s<ifety. One problem in this step is that values often wntlict. In this situation the decision maker musrlistthe 'Value's in the order in which they are to -De honowed. Ideally, the decision maker will determin ~ the rnost important values' and in later steps, weigh the probable impact of each alternative ' on the values-and choose the: altemetivethatrnasimises theessential values. Unfortunately; there is no objective measure for ranking values but with p.ra.ctice··a pattern , may emerge. Ethical decision making maximises the most imp 0. rtant values while.acknowledging that trade-offs.are inevitable (Guy 1990).

St'ep,6: What are thecensequences of each pGss.iblle course ofac1t~on? Focusing.on the consequences of alternative courses. 0 f .action can eften reveal an unanticipated result of major importance .. Therefore, each alternative ide_ntffied irr step 4 should be. evaluated not only in terms of its values.but also in terms of its short-term. long-term, positive and negati\'e consequences. In effect, this -step. requires an eva~ua:tion of the consequences from two' perspectives, First, whether theconsequences uphold or violate the values identified instep 3, and second, how thedecision is likd:rt,D _affect themajor stakeholders. This question brings to light the: potentialbarm.physical or emotional, that rnavoccur to stakeholders.

Problems-arise when the: evaluation of the alternatives deperid~ onnon-quantifiable outcomes. Consequently, ~ep 6 has been criticised for its lack ofmeasutability (A:L-\ 1990). As statedin chapter 2,· not-all consequences have an ea;s;ily determined unitarv or monetary value and assessing the outcomes becomes difficult. One solu-

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tiQJ:l is to weigh the consequences similar ttl the method shown in the process of conventional decision m~king. The l:\_'_~i\ {199.o) suggest· a scoring system ranging from +3 to ~3 .. :-lumericalweighting isimpcrtant to give relatiye,~signijjcan£e to outcomes, principles and nontls,AqditiQnall!,~ the decision maker must also consider the likeliliood that each plausible-course of action' will succeed QX fail, The likelihood -of an outcome is a sign of its significance .. For example, the Ioss of a major client is a serious loss. However, if such an outcome is impwbable, then its overall importance is diminished ..

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Ste,p7: What is the deCision?

The. final. step requires the decision maker to balance theconsequences for each course of action and select aaapprnpriatealternative. If adecisionwas not reached. in step 5, then no principle or value wasdeterminative, Therefore, the alternative' that produces-the highest overall ga.in in terms of its consequences should be the choice, Properly identifying and evaluating the consequences in-step 6 is critical to selecting .a course of action, in. step 7.

The seven-step model is a useful device for working-through a dilemma in an orderly-manner and ensuring that the decision maker 'identifies and considers 4U of the important.issues , .. rhen"fn.alysing the case. In the-resolution of an ethical dilemma, it is irnportan t to address the seven steps in the order that they .are pzesented.To do_-othenvis€.may result in faulty analysis and an inappropriateconelusion. A comprehensive.example illustrating the. application ofthe A",o\_,:\model is presented below in 'In practice: Change the bottom line: You should read this case 'Carefully to-appreciate the difficulties in resolving problems of an' ethical nature.

IN PRA[TICE

Change the bottom line

Key p~l:tkipallts

Susan I\,'Iarrinazzo ~·l'v[anagernen t Accountant Harry Pitzsimrnons - Divisional Manager

Facts of the .case

Susan.is the m-anagement accountant working in the plastics-divisionof a large multinational conglomerate. In accordancewith 'the organisation's decentralised operating model, Susan worksfor Harry. Harry is the divisional manager for plasticsand has a \:>ackgro.und .inengineering ..

Susan's responsibi lities . include' the' preparation of a -monthly management pack: that b provided-to the divisional manager and forwarded to the .organ.isation' snational office' tog~ilier v vith the divisional manager's monthly review,

Theplastics market has- reached a "mature stage and- the division's results have been stable for a numberofyears, In.addition, the industry is under threat from increasing competition.as a result of lower berriers to entry and ~changes in technology. Susan's latest monthly management pack reflects thecontinaaticn in the decline in thedivision'sprofit margins and nogrowth insales,

Harry. is anxious about the plastics division's future. For J.' number of months.rthe division has failed torneet the organisation's benchmark rate of .renrrn. Harry has heard from a reliable source.that the national office is seekingtodivest the plasncs division or, iu theabsence of a sale; abandon the division, The divisionemploys 35 people.

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Susan has, tried to e."t-p'1:[in "to J{arry that the u9l-t.]gn,aJ orfice::d~t~trni]leJ; toe: I =acceunting policses for incomerrecegnitiost a,n,Q. asserdepreciation, Hafty replies :i:hat he is too busy to delve into theaQ:,:o\.Hlting·'mumoo ~jumbdtSusa]),

is .again iE)stq.lcted tom~:ke the c}ya:ngesQr:~hemay he fired,

W'ha tshould Susan do? .

Application-of the A .. Uefhlcal ded.sion-maki,ngiDodd. Step 1 : lfh..-tt' al2f t:h ~fa.c.ts of tbe ,Q4se?

• SI~~jI1, <t rpq_nagem:ent accountant in rue plastic~ division is respo~.si:h]e/{Qr . the preparation "91 a 'moofhly m<l:I1!1'gernentptltK-' that" is'- providedtuthe' -, divisicnal manage.r and the :na ticnal. office,

• Thepla:::;tiCs;di\'Y§,lQli1 hss failed to trfc_¢tthe~Drgaci:]i,?a1io{l'Y benchmark rate . of return tor -anumher of months,

• The pla.s;t.ics"dit'islo.ll employs 3.5 people, The di[viskm is up for sale, failing '1~Thid1, . thedi;,'isimi . "V ill tte',-a.handoned.

Harry has~ instructed Susan to chal1ge "the a,ecouflfrrrg treatment Tot unearned inceme-andto lower d'epred3ition.expens,es,

Tbe.naricnal.office sets the ,a'~QQunting, policies for: income re£;QgnitiOll' and a5set· deptedatitln.

.• Susarrrep.ortsdirectiy- to Harrv; Harry 'Goes not have an a ... counting.back-

ground.He has threatened.to fir~ .sU5.,an if$'he f~ilstJ.)'.d.l.angethe:,numbem. . 5tltp 2fi.:: LisJtht pnmm-y: qtakenoldets

• SusanMartmazzc

~ H-arry Fitzsimmons

~ Directors of the Qtgaqisation

·$hareJ::u-;ilder;s .ofi:heotganhation ·Cxedit.QISOJ the 'Organisation ·plaqtics·di""_-isiO"_[l.employ~es

'Sup'2b; D_tfine. theethft(lf !~ssues

• Susari'sresp:-Gl1sihiJi.ty to Harry-versus her indepeHdence,andol*~ctivi ty

• .sU:i~'S re'~fton:s:.ib.ility 10 protect theinterests oftih.-e.compX!llY 'IRa, .share-

huilders versus herTitspun~j:bi~ity ttl: furry .

Susan's wish. to help pmtectdre employment. of the division's empleyees versus her duty to protect the in terests of the" -PIgan]sa:tiQn and, sQ;J.tEHQklers

• t:n{eral1,:StlsJn~s'p:roblem is how to Ie-spanO: .to Harqr'sm,sttuctiDflS.

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Step 3:: l1,:'haf an, the norms, principles,: ana-values related tothecose?

• Integrity (Susan may not supply information that is.misleadiag.or falsog) Obiectivity {The interests of Susan's: employershould not affecther judgment} ., Independence.jSusan may not bend the rules despite the Fressure applied byher superior: ;,

• Technical aedprofessional standards (Susan.shouldcarry out her work ill accordance with technical and professional standards relevanttothat 1N91k, including the national. office accounting policies.)

Step 4: lVIwt lire the alternativecourse: ofadiori?

• Susan can do nothing,

Susan can try to-raise the issue-with.rhe.accounting staff at thenational office-as an 3lCspunting issue.

• Susan can try to raise the issue with managernenr at the national office as an unresolved. issue between Harry and herself,

• Susan can resign.

Susan can try once more to explain 1:0 Harry that accounting policies

• cannot he changed at a .divis ion level. Susan Can foflow Harry's.instructions.

Step 5: l'Vhatis the best course of action thatis consistent Hrith the-norms, prin-ciples. a nil values ident~fieil in. step 3?

• Susan (an do nothing .~ may 'lead [0 her dismissal even. though to do nothirrgi.s consistent with the principles

'Susan can try to 'mise the i ssuewith the 3lCC:l:JlXn tingttaffat the national office asanaoeounting.issue - maybe consistent with the principles but it may not resolvethe iSSUe with Harry and may lead to her dismissal

• Susan can try to raise Jtheisstl€ with managernenrat.nationaloffft« asanumesolved issue'berween Han'}" and herseif- tills maybe consisten t with tb.epritlciples bu t may have 4 detrimental impact on Susan's or Harry's career aspirations.

• Susan Gan resrg:n - may lead In therequired d:l'i][~es:bejng made .to the .. pack tp the 'detriment of the, organisation' and shareholders.

• Susan. can try once more; to explain to Harry that accounting policies cannot be changed at a division level - consistent with the principles and affords tbeopparumttvfar resolution with 'Harry (e.g. it uiAY be mat the income recognition for sales should be brought forward} ..

• Susan can follov .. ~ Harry's instnrcticns -.afaillu'eto complywiththe principles.

Step 6: H·'hat are the eonseouences-of ead: possibie coutseo] action?

• Susan .can do nothing: J

may lead to personal cos ts due to Swan's dism issal, In the: interim,

Harry's _recomm. ~de~ chan~es may be made to the pack, to the detriment ot the orgamSllllon ana shareholders

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will result in.Susan complying with the fundamental principles and with her responslQ,ll:tty to th c: organisation and shareholders

if the 'pack remains unchanged, may Ieadto the re(hilldancybf staff in the division,

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office as an aconmting issue.

lilTIy to confirm that Susan can DIlly change the accounting treatment.of income .and depreciation where there: are appropriate grounds to do-se' will 11 at resolve the iss lie between. Harry and Susan,

· Susan can try ,to raise the issue 'with managementat the nationalofficeas

an imtesolved 1SS1W between Harry-and nej[sdf

may have CI, detrimentaleffect Oil Harry's career aspirations:

may result in Susanbeing rewardedfor herobjectivity and independence altesnatively, maj'- have a detrimental effect en Susan's career aspirations. with the-organisation.

• Susan can resign. has.a personal cost

U1ilyxesuh in Harry'srecommended changes being made- to thepack, to: the detrimentof the, organisati orr and shareholders,

Susan can 'try once more to explain to- Harry that aC.tou;r:nt:ing'poucies cannot be changed, at a division level:

may resolve the .issue between Harry and Susan

may ca use Harryto refuse to 'iNithd:rawtb:e: instruction and instigate disciplin,a:ry action against Susan.

Susan cap follow Harry's instructions:

m,.arGl:Use the: pack to be f.dse' and misle.ildi'ng

may diminish the usefulness.of the.pack if it is .no longer comparable to previous results "and the resultsof other divisions

mayresult in.a reduction in cirgam~atl,o)1, and.shareholderwealth:

Step 7:' ~'Vhati5 the decision?

Inthelight of the -analysis, SUEan couldadopt the following plan. First, Susan CCJIli try once more to explain to Harrv that the .national office determines accounting policies ana that a change in accourrtingpoficy must bed:isdo,s;ed in the statutory accounts. If this fails, to resolve the issue, then Susan could explain toHarry that-she 'INOUi:d need to ra.ise the matter as an accounting issue with the accounting department in the national office, If this fails to resolve the issue ana if Harry commencesdiscipiinary action against Susan, then Susan.should explain the basis.ofher actions m'VIiting.tQ Harryaadte management at the national office.

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The' AM model: a critique II

Some: people treat ethical dilemmas a;s.·l,uires.Qlv:able conflicts. Bigi"Vlng.them .irresolvable-status, ethieal.dilenrmas are placedm the: <too halrd'"basketinllie hope' that they-",cil]. eventually fade. However, most so-called unresolvabledilemmas can be resolved by employing a model ofethical decision making. To this .end,lhe/\....A.A rhode! helps. to dispel the rnvth thatethical problems are unresolvable, As stated earlier, most-ethical dilemmas require a choice among: several equally acceptable alternatives. The A/L;\model assists the decision maker to \' . .ork th.rough the maze ofissuesand selectthe alternative rhat.maxirnises the values central to the dilemma.

According to Armstrong ( 199Q), gsmg:the- A~~ rna delto resolve ethical conflicts 'will increasethe likelihood that the decision maker will address moral topics, that might have been. omitted witlmlott this tool. Therdore,th:e advantage-of using 'ill. 1TI()dd rather than a decision rule: is 'that it encourages the decision .maker to fully analyse the -, problem and to consider the alternatives and coriseq uences from .an ethical perspective. The /\'/:\.A model achievesethical analysis by incorporating normative principles of ethics, (discussed in chapter 2) in the structure of the.model, The A_.!J,,;.A,. model blends non-consequential. considerations (steps 3 and 5, which deal with norms, principles, and values) with consequential considerations (s;tep6 -uti.Litarian analysis). Using multiple ethical 'considerations (tonsequentialand non- consequential) .is a strength oaf the model because takilfl,g,acCQunt ohlre'<two sy-stems, oh,:thkaJi analysisprovides insights from a number of perspective.'), which is )~;etLerany·nocach.ievable from a::sing~eth.eory As statedin chapter 2,.a ra",ge. of thecries.provides different perspective's on the problem, 'which is HI:.ieJ.y to improve . the awareness and understanding of the issues.involved in the-dilemma. In the end,

. an ethical outcome is likely,

However, the strength ofem.p16s:in'g two systems of ethical. analysis is. lost when the seven-step process lacks synthesis. In.step 5, the decision maker-is asked to make' a decision ·onthe values without .consideration of consequences, At this point; the decision process n:my terminate and the model is es.s,entiaily nonconsequential. If a decision isnot reached jn.stepS, consequences-are then added to theprocess .in s:tep6 1:0 make a finaJ decision in step 7. The alternative with the .greatestoverall value in terms of its con5Jeq uences is me preferred course of action.

The implicationofending with an assessment of the outcomes is-that wnsequences ""'ill u1titnatdy dominate the choice, Therefore, the AAA method of solving conflict is essentially utilitarian. According to Armstrong (1990) ,Cine erhicalconsiderarion should not-dominate another; this .is arguably an. inherentweakness.in the model,

Another strengthof the model lies ill ltseaseof apphcation- it is 11 practical application ofnormative theo ries, of ethics. (Armstrong 1990). Mathison (198.8) contends thatabstractphilosophieal concepts.such as utilitarianism, rights and justice theories are irrelevant to. the' n eedso f managerial decision makers. According to Mathison.. these concepts are learned in the classroom but then discarded in

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rea]-w-oik'i MathisonI than abs!!, tions provi are no lOllt

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Ethical c l'he:appli( decision. Q envuonrne decision m factors, Th: 'provide a 1: are !7iNO xr 'ethics of 1±

Arguabl: ethics, Per: menr as IT According person'sca theory i s b moral. den, of three le' interest.at level 3" thopinion 0: dependent 'resolve the

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n~il-,\tOTld;tpplicatiOlJS. The 1'\ .... "\.:\ model overcomes the limitationidentified by Mathison'by presenting ethical-con .. iderarions in the farm of .ethical inquiry rather than abstract concepts. Restating the ethical considerations in the form afquestions provides apractical approach to ethical problemsolving. In this way, theories' .a[{,nO longerabstract concepts but questions used in' ~thicJl analysis.

In . conclusion, ifaproblem should arise, evidence of, ethical commitment by-an organisation could act as a.subsrarrtial defence against bitter accusa tionsof misconduct. From this perspective, .structured ethical decision making- and subsequent behaviour is good risk management. In turn, ethical cemmitment enhances staff morale, which helps an organisation to recruit and retain, skilled employees and n:duceabsen1eeism.

Ethical decislenmaklngln practice 1/

The application of a: decision-making model does not guarantee .an <ethica] decision, Decision making is lar;ge1y a functionofindividual characteristics and.the -envlronmerrt in ,,'/hichfue~d.~ cision maker works and! fivie~. 1]]: this, sense, T;1 tiona] .decisionrnaking is constrained by a number :of psychologicaiand environmental! 'factOlFs, The-purpose of this section 'isto highlight the forces that shape decisions.to provide a better. understanding ofhowandwhy decisions are-actually made. There .are two critical factors that shape an individual's choices ill theworkplace' fhe <ethics, of the iadividnal.and '~he environment in which.rhe individual works,

Arguably, the greatest infllJl~eI1c:e',on decision making is the individual's personal ethicaPersoaal ethjcs.isdefined as the decision maker's levelof moral developmentasmeasmed by lKohlb€'rg/s theory of moral -rta£orriuK,and development. According to Kohlb erg {l9p9 J, a :stage of moral development .is a measure of a person's cap acityto .i lid~g.e ,yh'!t is m'oi:'al]ly right. A ddailed analysis of Kohlberg's theory is beyond the scope ofthis chapter (refer to chapter' 2.for a discus-sian of moral development theoryj.Jn brief, however, Kohlberg'l>,stagett;;mlework consists of three levels of moral de,~dQpment .. At level 1, people are likely to' act [win selfinterest, at level. 2 they .are influenced by peers- and organisation policy, and. at level 3, they placeincreased value on the rights of others re"gardiessof general' opinion or poJicy, Asa rule, tM higher people's' moral development, the less dep.endent they arena outside influences-and hence the more likely" they are to resolve the problem autonomously.

As employees, individuals must contend 'with ol!gomg pressures caused by d.<illy work 'activities, and. commitments, The, demands' of 'maintaining international competitiveness, imprevingprodnctiviry; and adapting to change-s in technology ha:ve greatly increased workplace. stress and time pressur-es. Consequently the. environment has become ;1'ma_tor influence on 'workplace decisions, In general, questionable decisions can resultfrom an eneironmeruclouded by pressure and stress.Such.an environment often leads. topoor productivity, dissatisfaction.riimiaished creativity and poor qj1;Olity decisions thatwould n,0:t have been made -under

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less stress fur circumstances. Similarly, the quality of th~ decision may also beaffected by how mach time- the decision maker has ill which to makethe decision, Time pressures-are sigttillcant because the decision maker may considerfe • ver, factors and alternatives, and. have restricted the time in which to gather information. The problem with the current environment 1'5 that accounting professionals-are constantly lN6rking under pressure. Rather than simply accept sub-optimal decision making, accountants _ must jearn how to make decisions under difficult conditions.

Although moralcognition provides the-initial determination of a right or appropriateaction; it is not sufficientto explain OF predi.ct behaviour. Forexample, a stressful w{")rk environment may-cause a person to ahandon their _persoi131 values in favonr of decisions that are consistent with workplace. vai ues, Therefore; the extent to which an individu.al \\-,JII make a decision consistent with theirpersonal values "NiH depend on. how well they canresist the pressure of the work environment. According to Rest (1986) a person Inuit have sufficienrperseverance, _ego strength and implementafion skills to be able to follow through on his or neT intentions.

In conclusion.theapplication of an ethical decision model does not guarantee a· morally sound-decision but a. structured approach ensures that the decision is .reached in a rational manner with coherenr justification. \\1l.ether the individual adapts the ethical course isaseparate issue and will often depend on the ethics of environment in which the individcal works, However, if the facters that affect decision making are recognised. and understood, then the decision maker is better placed to. resistadverse influences.

Summary II

Ethical decision making is more than abelief in . the. importance of ethics; it requires an ethical sensitivi ty to the implications of choices, the. abili ty to- evaluate ambiguous and incomplete facts, identify and .prioritise moral clairus.i.and the strength .of character to implement the decisioneffectively, The ~A_,-\"'\_ model pro-: vides a framework. within which- ethical issues can be idet;Jtified, analysed and resolved .. Ultimately, how-eyer, eke applica Lion ofthese steps. is. often infloenced by individual, environmental and contextual factors. In the next chapte:r; 1Ne consider the role of decision making in' corporategovernance systems - In particular, the roles and responsibilities of the board of directors and senioemanagement.

Key terms//

i~ ... A .. _1\. model. ... p. 88 Consequential ... 'p. J08 Decision rules, .. 1'. 94 Decision making .... p. £14

Decision-n Ethical dec Ethical dec E thical dec:

Ethical issu Mechanical Non-conse Non-routin NOII:nS ... , f Personal etl Principles'. Prefessiona Routine deStakeholder Values- ... p.

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"ethics; it evaluate and the ldel pro~'sefland eneed.by c{Jwsjq.er .ular, the t.

Dec:i.s.i9n~rii<lk:il1g)ilo_dd .. ' .. p. 88 FthicaJi decision .... p:. 9:i

EthiclI:! derision maki:n:g .... p. 94'

Ethical de(tsion~makingTIlD-dd ... r. 96· Ethical issue ... p, lOQ

Klechanical deeisioas p. 88

No.n~'O::)'I]_,~eg:uential p.lUS

Non~r.putine,de~{sioi:ls. ,,_. p. 88· ~otm;s ..... p'. lOll

Persona] ethics ... p. 10:9 Principles ... p. laC!:

PrO:fess1t;maljurigrnent ..... p, 94 Routine decisions ... P .. 88 SuK'elrolders: ... p"l O(N

Values ... p; 10.0

Oues.ti ons i I

4.:11 Define deci-Sicmmaldng. and describe-the- differenceb etween routine-and non ~

murine ,decisions.

4:2: :OutlID~ . the. ste-p~ .involved irithe precess of t~:mVentio_tiaideds.i.£In making . 4.3 .'I,'Vhy-is deA1Ding the prj),blem as .importantas thededsion task itself?

4.4 Refer lo"1n pra-ctice: ThecarrvellitlDn.al.detisioR~milin£"-prGGe$s - an

illus.U'ation' .on pag~ 91. J;udh~r inve.stigati.on by David r.e:veaJ,en, thef611o'i~cing loti5riliatiob..

Cdter.ion

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ReqUIred

Bas-ed Qll the above info rrna:tio'[l;which com puler should David bU}f? "\7]]:y? 4.5 Describe- the signifi-ca:nceof ethical.decisicn miking. in . .a;cGountirrg.

4. 6 \~lhat is an ethlml dedsiun?' Giv~ an exampleofan ethical. decision and ·ei.--plaih ," ... hy you thjnk it is. 2bnethical deas.:icth.

4~ ( Describe fhehielarc:fir cfethical. decision.making ..

4bS lNhyshauld. an indiv.iduaYi~pe.rsonal code of ethics demand more than mere (qmp}:i~lllQe wi th Iaws .arid'[e:gJJ1atiQn~.?

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4.9 Describe. the strengths.andweaknesses of the A .. .\..:'l. modelas a tool ib'r ethical decision making.

4.:1.0 "Vhat are personalethics.and how do the}' influence ethical decision m,aking?'

4.11 VI/nat arethe potential implications . of stressand poor timernanagement on decision making?

4 . .12 Explain the relationship between the normative theories: of ethics, principles of professional conduct, the conventional decision-making model, and the AA..A ethical decision-making model.

4.13 Troy; a trainee aecountantcdiscovered 'that his; superior was pilfering funds, through thecompany's petty cash account His superior issecrmd Uri charge to tb;e CEo.AJis.!Ume Tmywa'nts: todeal with problem internally. \Vhat'a[e his options?

4.14 Felix Chan, an audit partner, is responsible for SL,,{ support staft~ Felix noticed thatIom, 'One of his staff, was.regularly arriving late for. work (up to 3Q minutes pet' day). but was signing his time sheets as arriving atwork on time. Feli.x issued a-memo to aU staffstatingthat their hours of employment (9.00 am to 5.0:0 .pm} must be respectedatall times and that tardiness would not be tolerated. The next morning all staff, including Tom, arrived at.votk'on time. Felix waspleased withfhe Outcome 'Of his action, That same day, Felix's .secretary left the office promptly'(![t5.00 pm, as did all his staff. HoWe\7CI, many

. tasks that 'would normally be completed before his secretary went. heme were left for the next day. \'\~en Felix questioned his.secretary.on this matter.he replied, "working hours finish-at S.OOp ill . Goodbye ! "felix was. stunned by 'his reaction.

...

Required

a ',\:'hat problemfs), if any, can you jdentifywith Felix's decision to enforce punctuality?

b \,V1iatwoilld you have done.ifyon were Felix?:

4.:15 'Gli{dys,a senior .accountant.works with-Dan, t1h~CEO>i; nephew. Due-to recentpersonal hMdship~, Dan has been. drinkingregularly atthe local hotel, Dan's drinkinghas notaffected his work duties until recently: Gladys has noticed that he has become Iessdiligentin hisapproach to work; and it is affecting Gladys's performance, \Vhen Gladys approached Dan about this problem, he broke down andadmitted. to' Gladys that he has a drinking problem.After some discussio n, Dan made GLad ys promise norto tellanyo ne abo UL his drinking problemUladys. believes that telling the CEO'v,co uld be thebestoption for Dan. Should GladysinIorm Dads uncle, theCEO?}u.5tify your .ah{w,er by considering Guy's ]JJ (ore values,

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CASE S

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CASE STUDY

Ha Ifful'l or half empty

_As- with- many of his auditstaff cotmterpartsacress the country, Bill Turner sp'ent the last day of the ye:arperformmg-inventmyobs'ervation procedures. Hisassignment that 31 December included taking test.measurements at if client's - grain storage-tower in a $IJ]aU regional tpwn, Em had measuredgrain inven-

torieson two previousaudits and was the in-charge accountant.on this audit.

B:il1's observationsof the quantity of the gsainfellIt) per cent below the Client's records.i.Bill's attention was .drawn tc jhe discrepancy in the 1"1'-0- measurements.of ""vbat·was jn the tower because, in his judgment,' such a gap_ was significant - enough to be material, The resulting difference b etween the inventory-as reported by the client and the auditedamount was enough to' causea significant. drep in net income, .Em documented his findiagsin the working papers an d proposed anadjusting en try fo r the difference,

Qpqn-ddv-mg-further into the rna tter,Bill determined that-a di3crepancy in the grain inventoryhad also surfacedtwo montha.previously. The quantity of grain inventory, as repottedbya government inspector at the-time •• ras also-lower thaIl that" on the' dien es.-recmch_ The difference on the irwentory valua tion, however; was not' as great as thatinBill's tests, Still noadjustment to the client's recordswas made. This info rm a 60n was also documented in thewerking papers.

Prior to ~isrussi]1_g the-discrepancy with the-client, Bill toldGreg, tnee'rlgag~ment.partrrerzabout the.problem. Greg, who had substantial experience in the industry, advised Bill that this would be: a. sensitive issue with the client: He alsopointed put that the gr,ain inventories are notoriously difficult to measure, with the potential errors as large as Iflper cem.Cregpromised that he would handle-the matterpersonally and itheI'ef~re told Bill not to discuss the discrepancy with the .clien t. The P artner kept the inventory '~:orki~g: papers.

After completion of fhe-fieldwork.Bill.returned to theoffice to wrap' up his work on the engagement. The- inventory- working papers were -still nut in the file. Upon Bill's.inquiry-the.partner handed him a new fret of ' iN or kingpapers, These working papers, which had been dated- as of the: audit date, hadbeen signed off by~Gfeg and. substanti-ated the book amount Bill's subsequent questioning of the p<_trtnerTevea!ed that G.reg had personally perfonned additional work on the grain Inventory after the- .clien t's year-end, Based on his ownevidence ga thering, the partner had substitutedhis "Own work papers for the documentation thatBill prepared, No evidence remained of Bm's proposed adjustments.An unqualified opinioa-was subsequently issued.

Required

What should Hill do? Answer this question usiag .the.seven-step "-~A 'ethical

decision-makingmodel. .

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FURTHER RESOURC.ES AND WEBSIlES Ii

. Armstrong, Ivi::S;. Ket:z.,. JE-& Owsen, D 2003,' Brhioseducation maccQunting:. moving toward. ethical motivation and ethical behaviour', Iournal i{{A.cmuntir[g Education, vol, 21, issue 1, pp.. 1' ..... 16:

Bellns.D 1980, Time. management/or pro_fessiona4? Pr6tessiona.l Development .Institute, University of North Texas, NQrth Texas.

Bommer, M, Gratto, C, Gravander, T.& 'Iurtle.M 19:[l7, ~I\ behaviouralmodel ofethical and unethical decision m;iking;,}oumal alBusi:ness Ethics, yolo "6, pp. 26.~80.

Collins, K& Kiilough, L 1989, 'lvlana_gin,~ stress in public il'Qcounting:}aurnaI of iLc:countanq, May, pp.92-K

Collins, 1(r..·11993, 'Stress' and departures from the public aammtiIJ.g professiorra study of gender differences', iLccountii1gHonzoJ1S,vo1. 7, no. I, pp. 29-38.

Ford, RC& Riohanfsen, \\1), 1994,'Ethital decision nmloog:a review of empirical Iireratnre, ].aumal of Business Ethics, vel. p, no, 3, pp. 2('6,-:21-

lo,sephson Institute of Ethics 2002, Making ethical decisions, viewed 15b.by 2003., ""\"'f._iosephsoni.nstilute"org:

N.rsh,.L 1981,: 'Ethics without the- sermon'; Ha rvard Business Revifflv; vol, 59., pp. 79~90. Reiter, SA,1996, 'The Kohlberg-Gilfigancontroversy: lessons for accounting-ethics education: CrititflLPer:5pectlvesailA.aourrnri;&., vol; 7, pp. 35-54.

St IaraesEthicsCentre, zOO3-, Ethica.l decision making, viewed 27 September :2003., www.ethics.org.au.

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<II.

REFERENCES 1/

American Accounting Association 1990, Bthics in "t.~i: atr:"~u.nting curriculum - cases and read-. ir,gs, ed, v,rV~T 11ay, American Accounting Association, Sansom, Florida.

-American Institute of Certified PubhcAccouutanrs l002, Ethics decisicn tree for CP,~ in_ Irusiness and industry, viewed 20 November 2003 ~ "''1.~"\.;:aicpa. org.

Armstrong; r..'1B 1990, <Professional ethics-and accounting educatiom acritiquc of the ~~s~ep method: Busines« emil: Pr-ofe5sifYnni Ethics Iournal, 'lot '9'. !I6~ 1 & 2, pp. 181-9 L

Brooks; lJ 2004; Bu.silus5,·and.·iJ'rIJf8sional ,fih ics _fot directors, -execuii ~'''')j. i"nd .1C.~ unianrs,

3rd edn,So"utb ~ V>le'Stem, Cirtcinna[i, Ohio,

CPA lillstralia. and Ike InstitureofChartered Accountants inAListraHil_2CH12.Toiri.t code of PfOfessional -condnct, AIembe-ts' hafldblJO~, CPAal'ld the' Institute :Qt Chartered Accountants' in Australia, Mdo.o\:I,I:ne,

CP/\Australia and the Institute of Cll.art~reo:f Accountants inAnstralia, 2002 [ojnt Guidance Notes, 'GN lI>.lembers-in Busmess.Guidance Statement, Is]:llied August 2J]i02"Vfembcrs' Jwndbook: CPA and the Institure of Chartered Accoarrtants in Australia; Melbourne.

Guy, 10.4 19'90, Ethical decision 'mak~ng in :ev:erJ'day ,~,·:ork 'ituli.tW)~, Quorum Books, NeT'\! YOLk.. Kohlberg, L 196'9, <stage andsequence; the cognitivedevelcpmentel approach to so.;:ialization; in DA Goslin (ed~),Bandb(fQfco/sQ'ci£dizatiQn tn,eorYlmd'.resear.ch,Ra.nd i\lcNallr .. Ne','rycrrk pcp. 347--:480.

Langenderfer, HQ .&- Rockness,. T\-V' 1989, '.Integrating erbics into-the accoutrtingcurriculurm -issues, problems, and solutions; I5sUfS. in ACE01inting Education; vel, 4; 3J:G.l,FP- 58...,8Q.

Mathison, DL 19$,8, "Business ethics. Cases and decision wode.ls:a c:aU forrelevancy in. the dassroom: /durnal o_f Busines: Ethics, vol, 7., pp: 777 ..... 82,

Rest, JR 1986\ lvfumI development; advance: if) .. l'.ese,ircrl and. theo ry. t'rae_geI, New YOrk.

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