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Topic 5 Ethical Decision-Making Models

Topic 5 Ethical Decision-Making Models. The Complexity Of Making Ethical Decisions. Different stages of moral development Requiring trade-offs between stakeholders’ interests Multiple alternatives with unclear outcomes

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Topic 5 Ethical Decision-Making Models

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  1. Topic 5 Ethical Decision-Making Models

  2. The Complexity Of Making Ethical Decisions • Different stages of moral development • Requiring trade-offs between stakeholders’ interests • Multiple alternatives with unclear outcomes • Different decision criteria and standards leading to inconsistent decisions • Need for using decision-making models

  3. The Usefulness Of A Decision-Making Model • A useful tool for decision-making activities • A framework for systematic analysis • Resulting in actions with better justifications • Decision-making models • The American Accounting Association Model • The Laura Nash Model • The Mary Guy Model • The Independent Commission Against Corruption Model

  4. Jonathan’s Dilemma Jonathan newly joined DEF International, a big trading company in HK, as chief accountant. His subordinate, Tom, a professional accountant and the accounting manager of the company as well as the brother of his fiancee, Mary, had access to cash held by the company and was responsible for preparing both the receivables and payables accounts. During the year, Tom experienced a major financial problem. While reviewing the company’s financial statements, much to Jonathan’s surprise, he discovered that Tom had manipulated accounting records and had been involved in ‘teeming and lading’ in which he delayed the recording of receipts from debtors and sped up the recording of payments to creditors. This was to conceal the fact that he had withdrawn a substantial amount of money from the company without approval. When Jonathan discussed this with Tom, he was asked to keep the secret as the disclosure would ruin Tom’s career. When Mary knew of the case, she strongly urged Jonathan to help her brother and promised she would repay all the amounts owed to the company for Tom immediately. Should Jonathan blow the whistle and disclose Tom’s misconduct?

  5. The AAA Model (7 Steps) : Step 1 : Determining the facts Step 2 : Defining the ethical issues Step 3 : Identifying major principles & rules Step 4 : Specifying the alternatives Step 5 : Comparing values and alternatives Step 6 : Assessing the consequences Step 7 : Making your decision

  6. The AAA Model (7 Steps) : What – Tom had fraudulently withdrawn money form the co. Who – Self, Tom, Mary, Company & shareholders, Other staff, Accounting profession, Where – In the company When – When Tom experienced a major financial problem How – Withdrawn money by manipulating accounting records Step 1 : Determining the facts Step 2 : Defining the ethical issues Step 3 : Identifying major principles & rules Step 4 : Specifying the alternatives Step 5 : Comparing values and alternatives Step 6 : Assessing the consequences Step 7 : Making your decision

  7. The AAA Model (7 Steps) : Primary Stakeholders Self, Tom, Mary, My company & shareholders, Other staff, Accounting profession Ethical issue Whether I should keep the secret for Tom? Step 1 : Determining the facts Step 2 : Defining the ethical issues Step 3 : Identifying major principles & rules Step 4 : Specifying the alternatives Step 5 : Comparing values and alternatives Step 6 : Assessing the consequences Step 7 : Making your decision

  8. The AAA Model (7 Steps) : Principles: Integrity; Accountability; Honesty; Fairness; Truthfulness; Loyalty; Care for family… Rules: HKSA Prof. Ethics Statements: 1.203 & 1.290C Company’s code of conduct & corporate culture Theft Ordinance Step 1 : Determining the facts Step 2 : Defining the ethical issues Step 3 : Identifying major principles & rules Step 4 : Specifying the alternatives Step 5 : Comparing values and alternatives Step 6 : Assessing the consequences Step 7 : Making your decision

  9. Alternatives: a) Keep the secret and do nothing b) Keep the secret and help Tom to cover up his act by manipulating the accounting records c) Keep the secret and let Mary pay back the company as soon as possible d) Keep the secret, ask Tom to resign and review the accounting procedures to prevent similar incidents from happening again  e) Refuse Tom’s request and report to the management/ICAC f) Resign from the company; and……. The AAA Model (7 Steps) : Step 1 : Determining the facts Step 2 : Defining the ethical issues Step 3 : Identifying major principles & rules Step 4 : Specifying the alternatives Step 5 : Comparing values and alternatives Step 6 : Assessing the consequences Step 7 : Making your decision

  10. Alternative (b) violates major principles and rules, and may even break the law • Alternatives (a) & (f) can not solve the problem, the acts compromise values such as honesty, loyalty…… • Alternatives (c) & (d) can not commensurate with moral principals such as loyalty, honesty, fairness truthfulness, responsibility and integrity • Alternative (f) abides HKSA Ethics statements 1.203 & 1.209C; and meets the requirements of company rules and major moral principals and values The AAA Model (7 Steps) : Step 1 : Determining the facts Step 2 : Defining the ethical issues Step 3 : Identifying major principles & rules Step 4 : Specifying the alternatives Step 5 : Comparing values and alternatives Step 6 : Assessing the consequences Step 7 : Making your decision

  11. The AAA Model (7 Steps) : • Report Tom’s fraud • Short Term • I may be promoted by the top management • Company’s assets/funds will be preserved • Will hurt Mary and her family’s feelings, and jeopardize my relationship with Mary • Will ruin Tom’s career prospects, he may face prosecution • Long Term • Satisfied for not to trade-off my personal values • Tom may change for the better • Mary may eventually understand and forgive me • Cultivate a healthy and ethical corporate culture • Promote the reputation of the profession • Entrust the public’s confidence in the profession Step 1 : Determining the facts Step 2 : Defining the ethical issues Step 3 : Identifying major principles & rules Step 4 : Specifying the alternatives Step 5 : Comparing values and alternatives Step 6 : Assessing the consequences Step 7 : Making your decision

  12. Not report Tom’s fraud • Short term (if Tom’s act is not discovered) • Strength my relationship with Mary • Tom can keep the job, and not be prosecuted • Compromise my professionalism of not being independent and objective • Substantial financial loss to the company • Long term (if Tom’s act is discovered) • I may face disciplinary action taken by the profession body and ruin my own career prospects • Affect the corporate culture. Impair company’s reputation • May taint the reputation of the profession • May affect public confidence in the profession The AAA Model (7 Steps) : Step 1 : Determining the facts Step 2 : Defining the ethical issues Step 3 : Identifying major principles & rules Step 4 : Specifying the alternatives Step 5 : Comparing values and alternatives Step 6 : Assessing the consequences Step 7 : Making your decision

  13. Balance the consequences achieved in step 6 against the primary principles and values evaluated at step 5, and select the alternative that best fits The AAA Model (7 Steps) : Step 1 : Determining the facts Step 2 : Defining the ethical issues Step 3 : Identifying major principles & rules Step 4 : Specifying the alternatives Step 5 : Comparing values and alternatives Step 6 : Assessing the consequences Step 7 : Making your decision

  14. I have discovered that Tom, my future brother-in-law, had stolen money form the company • He had withdrawn money by manipulating accounting records • My fiancée, Mary, promised to repay all outstanding amount immediately The Mary Guy Model (10 Steps) : Step 1 : Defining the problem Step 2 : Identifying the goal to be achieved Step 3 : Specifying all dimensions of the problem Step 4 : Listing all possible solutions to the problem Step 5 : Evaluating each alternative Next five steps ...

  15. Whether to disclose Tom’s fraudulent activity to the company The Mary Guy Model (10 Steps) : Step 1 : Defining the problem Step 2 : Identifying the goal to be achieved Step 3 : Specifying all dimensions of the problem Step 4 : Listing all possible solutions to the problem Step 5 : Evaluating each alternative Next five steps ...

  16. What –Tom had fraudulently withdrawn money form the co. Who – Self, Tom, Mary, Company & shareholders, Other staff, Accounting profession Where – In the company When – When Tom experienced a major financial problem How – Withdrawn money by manipulating accounting records The Mary Guy Model (10 Steps) : Step 1 : Defining the problem Step 2 : Identifying the goal to be achieved Step 3 : Specifying all dimensions of the problem Step 4 : Listing all possible solutions to the problem Step 5 : Evaluating each alternative Next five steps ...

  17. Alternatives: a) Keep the secret and do nothing b) Keep the secret and help Tom to cover up his act by manipulating the accounting records c) Keep the secret and let Mary pay back the company as soon as possible d) Keep the secret, ask Tom to resign and review the accounting procedures to prevent similar incidents from happening again  e) Refuse Tom’s request and report to the management/ICAC f) Resign from the company g)…….. The Mary Guy Model (10 Steps) : Step 1 : Defining the problem Step 2 : Identifying the goal to be achieved Step 3 : Specifying all dimensions of the problem Step 4 : Listing all possible solutions to the problem Step 5 : Evaluating each alternative Next five steps ...

  18. Alternatives (a), (b), (c), (d) • Pros: strengthen relationship with Mary; Tom can be protected • Cons: financial loss to the company; unfair to other staff; taint the reputation of the profession; compromise rules, values…. • Risk (unintended consequences): • (a) & (b) - high chances for the auditors to find out in an audit. Tom can not be longer protected as intended. • (a): my own career prospects might be ruined for being disloyal • => High risk, costs are greater than benefits • (b) – I might be even prosecuted for conspiracy • => Higher risk, higher costs • (c) – chances for being caught is reduced => low risk, costs=benefit • (d) – chances for being caught is reduced, but Tom will loss his job • => low risk, costs are greater than benefits The Mary Guy Model (10 Steps) : Step 1 : Defining the problem Step 2 : Identifying the goal to be achieved Step 3 : Specifying all dimensions of the problem Step 4 : Listing all possible solutions to the problem Step 5 : Evaluating each alternative Next five steps ...

  19. (e) – Pros: company’s assets/funds will be preserved; fulfilled my responsibilities and meet the professional and legal requirements, satisfied personal values; protect reputations of my company and the accounting profession • - Cons: hurt Mary’s feelings, jeopardize our relationship; ruin Tom’s career prospects, he may even be prosecuted • - Risk (intended/unintended consequences) • => no risk, benefits greater than costs • (f) – Costs higher than benefit, problem is unsolved • => higher costs The Mary Guy Model (10 Steps) : Step 1 : Defining the problem Step 2 : Identifying the goal to be achieved Step 3 : Specifying all dimensions of the problem Step 4 : Listing all possible solutions to the problem Step 5 : Evaluating each alternative Next five steps ...

  20. Alternative (a) – high risk, high cost => eliminate Alternative (b) – higher risk, higher cost => eliminate Alternative (f) – higher cost => eliminate The Mary Guy Model (10 Steps) : Step 6 : Eliminating too costly alternative Step 7 : Ranking feasible alternatives Step 8 : Choosing the alternative to maximize values Step 9 : Developing an overall solution Step 10 : Committing to the choice made

  21. Alternative (e): benefits are greater than costs (utilitarian), fulfill professional & legal requirements, preserve major principals and values • Alternative (c): costs and benefits are equally distributed (justice); trade-off values such as honesty, integrity, fairness; may break professional and Co’s code • Alternative (d): low risk, high cost The Mary Guy Model (10 Steps) : Step 6 : Eliminating too costly alternative Step 7 : Ranking feasible alternatives Step 8 : Choosing the alternative to maximize values Step 9 : Developing an overall solution Step 10 : Committing to the choice made

  22. The Mary Guy Model (10 Steps) : Alternative (e): disclose Tom’s misconduct can maximizes the most important values such as integrity, honesty, truthfulness, loyalty to my company and to the profession, fair to other honest staff and shareholders. The alternative is also likely to achieve the goal without misgiving Step 6 : Eliminating too costly alternative Step 7 : Ranking feasible alternatives Step 8 : Choosing the alternative to maximize values Step 9 : Developing an overall solution Step 10 : Committing to the choice made

  23. The Mary Guy Model (10 Steps) : Combine top ranking alternatives for each dimension to develop an overall solution Step 6 : Eliminating too costly alternative Step 7 : Ranking feasible alternatives Step 8 : Choosing the alternative to maximize values Step 9 : Developing an overall solution Step 10 : Committing to the choice made

  24. The ICAC’s ETHICS PLUS Model : • Facts: • Self-study case analysis • Ethical Issue: • Whether I should keep the secret for Tom? • ETHICS : Six steps • E stablishing facts and identify ethical issues • T aking stock of all stakeholders • H aving an objective assessment • I dentifying alternatives and assess effects • C omparing and evaluate alternatives with reference to PLUS • S electing course of action

  25. The ICAC’s ETHICS PLUS Model : • Self • Tom • My company, shareholders and other staff • Mary • Accounting profession • ETHICS : Six steps • E stablishing facts and identify ethical issues • T aking stock of all stakeholders • H aving an objective assessment • I dentifying alternatives and assess effects • C omparing and evaluate alternatives with reference to PLUS • S electing course of action

  26. The ICAC’s ETHICS PLUS Model : Refer the self-study case analysis • ETHICS : Six steps • E stablishing facts and identify ethical issues • T aking stock of all stakeholders • H aving an objective assessment • I dentifying alternatives and assess effects • C omparing and evaluate alternatives with reference to PLUS • S electing course of action

  27. Keep the secret and do nothing • Keep the secret and help Tom to cover up by manipulating records • Pros: • Protect Tom from prosecution, losing job and license (short term) • Strengthen my relationship with Mary (short term) • Cons: • Compromise my professionalism and personal values such as honesty and fairness. If manipulating the records, I might be prosecuted • Substantial financial loss to the company and its shareholders • Damage company’s reputation and affect our corporate culture • Taint the reputation of the profession, affect public confidence • Costs are greater than benefits The ICAC’s ETHICS PLUS Model : • ETHICS : Six steps • E stablishing facts and identify ethical issues • T aking stock of all stakeholders • H aving an objective assessment • I dentifying alternatives and assess effects • C omparing and evaluate alternatives with reference to PLUS • S electing course of action

  28. c) Keep the secret and let Mary pay back the company ASAP Pros….. Cons… d) Keep the secret, ask Tom to resign and review the accounting procedures to prevent similar incidents from happening again Pros….. Cons….. e) Refuse Tom’s request and report to the management…. Pros…. Cons… f) Refuse Tom’s request and report to ICAC Pros…. The ICAC’s ETHICS PLUS Model : • ETHICS : Six steps • E stablishing facts and identify ethical issues • T aking stock of all stakeholders • H aving an objective assessment • I dentifying alternatives and assess effects • C omparing and evaluate alternatives with reference to PLUS • S electing course of action

  29. P rofessional code of conduct/company rules: a) b) c) d) e) f) g) • HKSA Professional Ethics Statement 1.203 x x x x √ √√ • ……………………………………….......................... 1.290C x x x x √ ?√ • Company code of conduct, company rules x x x x √ x √ • L egal requirements • Companies Ordinance s121 x x √ √ √ √√ • Theft Ordinance √ x √ √ √ √ √ • Common law requirements √ x ? √ √ √ √ • Uncompromisable self values: • honesty, integrity, fairness, loyalty…… x x x x √ √? • S unshine test • Open discussion of the issue with all parties x x x x x x x • Disclose the decision without misgivings x x x x √ √ ? The ICAC’s ETHICS PLUS Model : • ETHICS : Six steps • E stablishing facts and identify ethical issues • T aking stock of all stakeholders • H aving an objective assessment • I dentifying alternatives and assess effects • C omparing and evaluate alternatives with reference to PLUS • S electing course of action

  30. The ICAC’s ETHICS PLUS Model : • ETHICS : Six steps • PLUS : Four standards of behaviour • P rofessional/ Trade-related/ Corporate code of conduct • L egal requirements • U ncompromisable self values • S unshine test

  31. The Laura Nash Model (12 Questions) : All precise facts need to be considered: What Who Where When How • To articulate ideas of responsibilities involved and to lay them open for examination. • It helps sort out perceptions of the problem and improve the nature and range of alternatives Q1 : Defining the problem accurately ? Q2 : Other side of the fence ? Q3 : How did this situation occur ? Q4 : Loyalties and to whom ? Q5 : Intention in making this decision ? Q6 : Intention versus likely results ? (Next six questions….)

  32. From Tom’s View You are his future brother-in-law and you have to help him From other staff’s view Unfair to them if Tom’s fraudulent activity is not addressed From shareholder’s view Deceitful & disloyal to them if help Tom to cover up his act From other members of profession’s view Taint the reputation of the profession if help Tom to cover The Laura Nash Model (12 Questions) : • To articulate ideas of responsibilities involved and to lay them open for examination. • It helps sort out perceptions of the problem and improve the nature and range of alternatives Q1 : Defining the problem accurately ? Q2 : Other side of the fence ? Q3 : How did this situation occur ? Q4 : Loyalties and to whom ? Q5 : Intention in making this decision ? Q6 : Intention versus likely results ? (Next six questions….)

  33. The Laura Nash Model (12 Questions) : • Consider all background information • Tom suffered major financial loss • Tom withdrawn a substantial amount of money from the company • He manipulated accounting records and had been involved in ‘teeming and lading’ • My fiancée, Mary, asked me to help her brother to cover up his act and promised to repay all outstanding amounts immediately • To articulate ideas of responsibilities involved and to lay them open for examination. • It helps sort out perceptions of the problem and improve the nature and range of alternatives Q1 : Defining the problem accurately ? Q2 : Other side of the fence ? Q3 : How did this situation occur ? Q4 : Loyalties and to whom ? Q5 : Intention in making this decision ? Q6 : Intention versus likely results ? (Next six questions….)

  34. Consider and weigh values The company: Revenue, Reputation, Corporate culture The profession: Reputation, Ensure public’s confidence The public: Generally accepted moral principals Self: Personal belief and values Mary: Care and commitment The Laura Nash Model (12 Questions) : • To articulate ideas of responsibilities involved and to lay them open for examination. • It helps sort out perceptions of the problem and improve the nature and range of alternatives Q1 : Defining the problem accurately ? Q2 : Other side of the fence ? Q3 : How did this situation occur ? Q4 : Loyalties and to whom ? Q5 : Intention in making this decision ? Q6 : Intention versus likely results ? (Next six questions….)

  35. Justify the action • Intention for reporting : • Protect company’s assets/funds from • stolen • Fulfill my responsibilities as a chief • accountant • Personal belief: integrity, honesty… • Promotion The Laura Nash Model (12 Questions) : • To articulate ideas of responsibilities involved and to lay them open for examination. • It helps sort out perceptions of the problem and improve the nature and range of alternatives Q1 : Defining the problem accurately ? Q2 : Other side of the fence ? Q3 : How did this situation occur ? Q4 : Loyalties and to whom ? Q5 : Intention in making this decision ? Q6 : Intention versus likely results ? (Next six questions….)

  36. Are good intentions well-served? • Tom’s acts will be stopped • I will be promoted • or • The top management may trust Tom’s words against mine. The Laura Nash Model (12 Questions) : • To articulate ideas of responsibilities involved and to lay them open for examination. • It helps sort out perceptions of the problem and improve the nature and range of alternatives Q1 : Defining the problem accurately ? Q2 : Other side of the fence ? Q3 : How did this situation occur ? Q4 : Loyalties and to whom ? Q5 : Intention in making this decision ? Q6 : Intention versus likely results ? (Next six questions….)

  37. Consider all effects on all possible stakeholders Self: Tom: Company (shareholders & other staff) Mary: The profession: The Laura Nash Model (12 Questions) : Q7 : Injuries to whom ? Q8 : Discussing with the affected parties ? Q9 : Your position over a long period of time ? Q10 : Convincing to your primary stakeholders ? Q11 : Symbolic potential of your action ? Q12 : Exceptions to your stand ?

  38. Cannot engage all primary Stakeholders for discussion The Laura Nash Model (12 Questions) : Q7 : Injuries to whom ? Q8 : Discussing with the affected parties ? Q9 : Your position over a long period of time ? Q10 : Convincing to your primary stakeholders ? Q11 : Symbolic potential of your action ? Q12 : Exceptions to your stand ?

  39. Satisfied for not to trade-off my • personal values • Cultivate a healthy and ethical • corporate culture • Protect the profession’s reputation • Mary may eventually understand and forgive • Tom may change for better The Laura Nash Model (12 Questions) : Q7 : Injuries to whom ? Q8 : Discussing with the affected parties ? Q9 : Your position over a long period of time ? Q10 : Convincing to your primary stakeholders ? Q11 : Symbolic potential of your action ? Q12 : Exceptions to your stand ?

  40. The Laura Nash Model (12 Questions) : Can your decision survive disclosure and public scrutiny Yes As the decision for report will benefit the interests of my company, my profession and the general public Q7 : Injuries to whom ? Q8 : Discussing with the affected parties ? Q9 : Your position over a long period of time ? Q10 : Convincing to your primary stakeholders ? Q11 : Symbolic potential of your action ? Q12 : Exceptions to your stand ?

  41. The Laura Nash Model (12 Questions) : Perception of others Understood: for the company’s long-term benefits Misunderstood: disloyal to my fiancée self-interest: promotion Q7 : Injuries to whom ? Q8 : Discussing with the affected parties ? Q9 : Your position over a long period of time ? Q10 : Convincing to your primary stakeholders ? Q11 : Symbolic potential of your action ? Q12 : Exceptions to your stand ?

  42. The Laura Nash Model (12 Questions) : Rationalization for deviating If Tom agreed to disclose his fraud to the top management of the company Q7 : Injuries to whom ? Q8 : Discussing with the affected parties ? Q9 : Your position over a long period of time ? Q10 : Convincing to your primary stakeholders ? Q11 : Symbolic potential of your action ? Q12 : Exceptions to your stand ?

  43. Blending Various Decision-Making Approaches • Different models : Common decision algorithm but slightly different road maps • Arriving at an ethical decision with a two-step approach • Step One : Understanding the ethical problem • Step Two : “Thinking through” the issues involved

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