Ethical Decision Making Threats and Safeguards

This assignment provides a comprehensive study on ethical decision making in accounting, focusing on threats such as COO intimidation and underpayment misconduct. It outlines the importance of knowledge on ethics theories, decision-making models like AAA, and awareness of principles, threats, and safeguards for professional accountants. The study also highlights the need to act as whistleblowers and inform relevant authorities when faced with unethical situations.

ACCT20080 Ethics and Governance (Term 2)
Assessment 1 – Individual Assignment
Case study: From bad to worse
Submitted by:
Muditha Sampath Bandara Ekanayaka (12067793)
Central Queensland University
Brisbane Australia

Executive Summary
Ethics play a vital role in contemporary business environment and organizations when it comes
to decision making where it is considered with utmost importance all around the world. Being
ethical is encouraged by various codes of ethics, professional bodies and business ethics acts
simultaneously with corporate governance as well. In this report considering a given scenario
and its ethical implications a study has carried out with the objective of explaining the ethical
implications using theories & models such as Teleology, Egoism, Utilitarianism, & Deontology,
AAA model for ethical decision making & APES 110 (Code of Ethics for Professional
Accountants).
Upon the identification the relevant facts, background of the ethical dilemma & related
theoretical aspects of the case has been studied with regard to the ethical teachings & theoretical
findings of accredit scholars. Based on the AAA ethical decision making model an ethical
decision has been developed evaluating the alternatives available. Relevant fundamental
principles, its respective threats & available safeguards were assessed in respect of the
implications related to code of ethics for Professional Accountants APES 110 in order to provide
the recommendations by evaluating the alternatives.

Introduction
Business Ethics can be defined as the morals, values & standards on which the business
operations are performed and decisions are made.
The discussion of various theories related to ethics has begun long time ago & numerous
scholars have contributed to such theories. In the current context of corporate world it uses
various theoretical approaches to analyze the business ethics & its related aspects. Business
ethics are closely linked with individual ethics and those ethics are based on philosophical ethical
theories. From prevailing philosophical theories, both consequentialistic & non-
consequentialistic theories such as theory of teleology, egoism, utilitarianism, deontology have
used for the below study in order to analyze the ethical implications of the given case.
And there are various ethical decision making models which the professionals can apply and out
of which the AAA model has obtained a considerable attention in ethical decision making. The
code of Ethics for professional Accountants to act ethical namely APES 110, consist of five
fundamental principles of integrity objectivity professional skill and due care, confidentiality and
professional behavior. And there are various threats influencing those fundamentals such as self-
interest threat, self-review threat, and familiarity, advocacy and intimidation threat. And there are
proposed safeguards for those threats by the APES110.
Part A
01.
According to theory Egoism act is deemed to be right if an individual selects the option which
produce the highest utility for he/she where there are no other alternatives which surpasses
selected option’s utility. (Feldman, 1978). Concept Egoism determines rightness or the
acceptability of an act or a behavior in respect of the consequences it produces for an individual.
(Ferrell, Freadrich, & Ferrell, 2014). When Mr.Godrich making the decision not to reveal the
error to anyone or not to compensate the underpaid workers he only considered the risk of facing
an insolvency. With that decision he ensured that company will not be affected from any future
harm which could result from attempting to rectify the error made by them & he completely

neglected the affected party-underpaid workers in his decision making as soon as he heard about
the risk of insolvency. In that perspective it can be argued that Mr.Godrich has acted as an egoist
who makes decisions with the intention of maximizing his self-interest.
Deontological ethics (from the Greek to deon, meaning duty, obligation), is an ethical theory based on
concepts of duty and rights that can be demonstrated by reason alone and exist independent of
experience. This set of unchanging formal and normative moral principles need to be applied in order to
confer moral value on any ethically relevant deed
A person can be characterized as an egoist if an individual possesses characteristics such as
power and authority, pleasure, reputation & someone who is interested in maximizing self-
interest. (Ferrell, Freadrich, & Ferrell, 2014). By having a big office with expensive equipment
and furniture along with his authoritative commanding behavior to his subordinates he shows his
superiority & power. Further, his satisfying and prominent career has built him a reputation
within the organization as well as outside world by which he is considered to be an achiever.
02.
As per utilitarian school of thoughts ethicality/morality should be evaluated of an action based by
conducting cost benefit analysis where it is considered ethical if its consequences surpasses
negativities of the outcome. (Guy, Everett, Earp, Farias, & Savulescu, 2015)
Upon the identification of the issue Mr.Godrich has requested a full financial plan with options
available which is a characteristic of a utilitarian to access the all available options & its impacts.
According to utilitarianism theories, it pursues greatest good for greatest number of people
(Ferrell, Freadrich, & Ferrell, 2014). But as soon as he heard about the risk of company being
bankrupt he didn’t consider the other options available. But according to utilitarianism an
alternative should be selected after evaluating the utility of all options & only if there is no other
alternative with higher utility (Feldman, 1978). Consequently he gave the priority to the
company and its survival which is not the way a utilitarian would have solved the issue because
he completely neglected the victimized party from their misconduct.

A utilitarian who measures the utility based on calculations, does not restrict the utility only to
material benefits (Bentham, 1948). Therefore it could also be argued, Mr.Godrich might have
considered the job security of all the employees of the company including underpaid workers &
himself in case of company has to face a bankruptcy if the underpaid workers are fully
compensated. In such instance Mr.Godrich might have evaluated the greater good of the greatest
amount of people affected by the decision. But to substantiate such argument there are no
conclusive evidence in Mr.Godrich’s behavior where he focused only on company aspects in
rectifying the issue.
03.
According to utilitarianism it suggests that efficiency & greatest happiness level lie at the basis
of human morality. Therefore each act is right if it increases the satisfaction & happiness.
(Vitolina, Sumilo, & Cals, 2016). The basis of the morality & legislation is the greatest
happiness of greatest number of people. (Bentham, 1948). Upon identifying the mistake
company had made, as the Management Accountant, Mr.Arnold had started to quantify the
impact of the whole issue prior to informing the COO by which Mr.Arnold can be recognized as
a utilitarian. Using systematic approach to access the cost & benefits of an ethical decision to all
affected parties is a key characteristic of utilitarianism. By conducting such analysis he/she
calculates the total utility of the end result of all the alternatives available & identify the
alternative which generates the greatest good. (Ferrell, Freadrich, & Ferrell, 2014).
As per the report & the explanations of Mr.Arnold with regard to the alternatives available he
has given the weightage & importance to the option where the company should compensate the
underpaid workers. Even if chosen solution is associated with a risk of company going bankrupt
Mr.Arnold was willing to take the risk by suggesting solutions to such risk since he believes it
will bring the greatest good for greater number of people. It characterizes Mr.Arnold as a
utilitarian.
Act utilitarianism defines that a person should take actions which leads to greatest good of
greatest number of people in each & every situation. (Welch , 2014) Act utilitarians accesses
specific actions separately ignoring the general rules & principles in order to identify the
alternative which maximize the greatest good (Ferrell, Freadrich, & Ferrell, 2014). In general
practice within corporate world everyone perceive facing the risk of being insolvent as an

unacceptable risk. But Mr.Arnold being an act utilitarian was ready to take the risk of becoming
insolvent in order to produce the greatest utility/good for the people affected.
04.
Deontological theories suggest that in order to access the ethicality or the rightness of a decision
it should evaluate extent to which that behavior/decision is conforming to moral principles.
(Ferrell, Freadrich, & Ferrell, 2014) Therefore when referring to the behavior of Mr.Arnold in
assisting the decision making process of the COO, cannot be considered as a deontologist due to
several reasons.
When suggesting the most suitable alternative by Mr.Arnold he has given a greater weightage to
the alternative by which company should compensate the underpaid workers. But he did not
ignore the fact that company may have face insolvency as a result of compensating the
underpaid. Further upon identifying the risk of going bankrupt Mr.Arnold has consequently
identified available solution to minimize the probability of being affected from the risk. E.g.
making arrangements with workers & banks. Hence it can be argued that he has clearly evaluated
the consequences & its impact which can result from such ethical decision & it is contrary to the
deontological theories. As per the deontological school of ethics it suggests the basis for the
assessment of the rightness or unfairness of an action is the certain rules in place & act is
considered it conforms to such rules. (Chatterjee, Sarker, & Fuller, 2009) If Mr.Godrich is to
follow deontological character istics he would have suggest to compensate the workers who were
underpaid without considering the consequences & impact it has on the company.
Part B
Step 01

What are the facts of the case?
Due to an error made by HR department the company employees have been short paid in respect
of wages, leaves & superannuation for the past two years. The mentioned misconduct is
associated with legal implications, hence needs to be resolved prudently. Since the misconduct
pertains to a considerable time period (two years) greater financial risks are also involved.
Step 02
What are the ethical issues?
The primary stakeholders of the ethical issue are employees, and Client .
The ethical issue is whether falsify data on more important issues according to Marshall’s
request with the objective of remain firm’s profitability and growth. rectifying the issue by
compensating the employees for their actual entitlement,
Or hide the issue identified & conducting operation as per the normal practice in order to prevent
from compensating employees & facing other regulatory & financial issues.
Step 03
What are the norms, principles & values related to the case?
Mary Guy has suggested 10 core principles to facilitate ethical decision making. In order to make
an ethical decision by being honest & loyal it is vital to be truthful & not mislead any party
affected from the decision. Accountability & fairness is also very important in making the
decision since he/she should willing to admit error & accept responsibility for the consequences
of their decisions. Integrity is imperative when making decision since it requires the individual to
avoid conflict of interest and to act fairly depending on the situation without being biased. To
become a responsible citizen of a society one lives in, he/she should comply with societal values
as well as should conform to the laws. (Guy M. , 1990)
Step 04
What are the alternative courses of actions?

Option 01. Hiding the mistake made by the company by expecting no one will discover it in the
future.
Option 02. Admit & reveal the error to the Fair Work Commission, underpaid employees as an
innocent error in order to obtain time to solve the problem & to make the compensations without
facing the risk of going bankrupt.
Step 05
What is the best course of action that is consistent with the norms, principles, and values
identified in Step 3?
According to the norms, principles & values identified in Step 03 the most ethical alternative is
to admit the error to regulatory body, victimized employees & banks in order to make
arrangements to fix the problem without facing unendurable financial impact.
Step 06
What are the consequences of each possible course of action?
Under option 01 company will have the opportunity to operate without incurring any unexpected
financial losses or huge cash outflows. But it is associated with future risk of someone
discovering the error.
Under option 02 company will have to endure financial issues in the coming future since it does
not have the capacity to compensate $7 million as one lump sum payment. Even though
company is able to make arrangements with related parties the impact of such cash out flow will
impact for considerable time period for its operation. But it mitigates the risk of getting caught
with a misconduct & facing legal issues.
Step 07
Make the decision

The best alternative is option 02 where company can admit the error & making arrangements
with related parties in order to rectify the issue without being affected from the consequence.
Part C
4. Threat to Preparation and reporting of information
Ken Smith has noted that valuation of inventory does not follow the set accounting standards.
Apes 110 require that Ken Smith should report this independently and truthfully without any
internal or external influence.
Self-interest threat may arise as the Audit firm will have to act as per the wish and orders of the
client so as to secure the contract in the next financial year otherwise the client will seek another
firm.
As a member of a professional body and as the management Accountant of a well-established
organization, Arnold is bound to be compliant with APES 110 since it is his responsibility to act
ethically. The APES 110 does not act as rules and regulations to be ethical but as a guiding
framework consisting of principles, possible threats and applicable safeguards. The APES 110 is
inclusive of five fundamental principles namely; integrity, objectivity, Professional competence
and due care, confidentiality and professional behavior which Arnold should be compliant with.
(APESB, 2010)
Alex has obligation to be straightforward and honest in all professional and business
relationships for his employees . Therefore , he should not overruled his employees on small

matters which are not significant and should not respond to Marshall’s unreasonable demands.
He should be dealing fair and truthfulness.
When considering the objectivity , in order to make an ethical decision Alex should not consider
the pressure comes from Mashall to. His judgment should not be biased to Marshall since he is
an company owner and his decisions should not to compromise conflict of interest.
As per the first ethical principle of Integrity, Arnold should be transparent about the misconduct
of under payments to the employees by being honest and straightforward. Arnold should act for
the betterment of the public and he should not betray the affected parties by hiding the truth from
relevant authorities and affected employees as per Mr. Godrich’s instructions.
When encouraging the second ethical principle of objectivity by Arnold, in order to make an
ethical decision he should not consider the pressure comes from Mr.Godrich to hide the facts
from the affected parties. His judgment should not be biased to company since he is an employee
& his decision should not be affected from conflict of interest.
As a Management Accountant and a member of CPA Australia, Arnold should apply all his
professional and technical knowledge in solving the issue for the betterment of the affected
party. As a Management Accountant he was initially failed to provide a better service since the
employees were underpaid for so long without noticing due to an error, but he should take
corrective actions as per the relevant standards and guidelines as a professional Accountant.
If Arnold is to encourage the principle, Confidentiality, he should not keep all the related
information regarding the misconduct publically available. This should be maintained even if his
current employment ceases. But in respect of the given scenario, there are exemptions available
for Arnold to act against confidentiality as per the section 140 of code of ethics. He could either
act as a whistle blower to let the industrial relations regulators be aware of the injustice happened
to underpaid workers and he has a professional duty to disclose the relevant information by
complying with the technical and ethical standards.
Arnold should maintain a professional behavior as per the code of ethics. If he is to hide the error
of underpayment to the relevant authority of Fair work commission, banks and employees, he is
bringing disgrace to his profession as a Management Accountant by having a fraudulent act and

intentions. Arnold should respect the respective laws, standards and being ethical, he should
disclose the mistake and should take corrective actions as soon as possible.
But when Arnold trying to comply with the above discussed ethical principles, there can be
various threats prevail against them such as self-interest, self-review, advocacy, familiarity and
intimidation. These threats should either be eliminated or put down in to an acceptable level by
applying safeguards to them or Arnold should take out his self from this fraudulent situation as
soon as possible.
The decision that Arnold has to make might be based on his self-interest. He might be influenced
by his own self-interest on securing his job by not revealing about the underpayments to the
relevant authorities or he might be concerned about the organization being bankrupt which
directly impact his job security. The self-interest threats can influence the integrity and
objectivity of Arnold.
There is a chance of Arnold being influenced by his own self review threat. In order to escape
from the mistake he has done together with the others in the organization, he could have review
his own work and decisions not to reveal the truth, and might justify his actions as protecting the
company from being bankrupt. If Arnold is influenced by self-review threat that could be an
impact on his objectivity and professional due care since if complying with the ethical principles
Arnold should act in accordance with the professional guidelines without taking biased
decisions.
Arnold could be faced with an advocacy threat if the truth about underpayments have been
revealed and if he tries to defend the company by providing fraudulent facts to make the
company the innocent party in order to protect the company being insolvent or to protect his job
by defending himself from the undue influences coming out from the COO. This threat would
impact on objectivity and professional behavior principles as well as integrity of Arnold.
Arnold could be subjected to familiarity threat if he could pay more attention to the work
relationship he is having with the COO rather than considering the public interest of the affected
employees. He could take biased decisions and this will threaten his objectivity and professional
due care principles.

The final threat which is intimidation threat act as a real kind of threat. As per the given scenario
the COO has threaten Arnold that, if he does not keep quit he would definitely lose his job. At
Arnold’s end, there is high chance of being trapped by COO’s unwanted pressure and the
intimidation threat will impact on all five ethical principles and mostly on Arnold’s objectivity.
In order to get rid of the above discussed threats and to make an ethical decision for the greater
good, Arnold should take defensive safeguard actions with immediate effect. First of all Arnold
should have a better understanding on his ethics and the possible threats. As a professional
Accountant he could execute the AAA model on decision making. He could obtain a second
opinion from a professional body or from a person in a senior position in the same company.
Arnold could act as whistle blower and inform the relevant Fair work commission about the
underpayments. As a member of CPA Australia, Arnold should not engage in unethical act
going against the APES 110.
Arnold should take possible actions to minimize the threats to acceptable level. If nothing helps
he could obtain legal advises. If all the attempts failed, Arnold should resign from the
organization to get rid of the threats to the ethical decision making.
Conclusion
As per the findings of the study it has revealed that as a decision maker it is very important to
have a proper knowledge on theories related to ethics which would facilitate the decision making
process when confront an ethical dilemma/issue. Further decision making models such as AAA
model is very useful in arriving at the most ethical decision where each & every person faces
ethical dilemmas/issues in day to day activities as a human being as well as part of an
organization. The awareness of the principles, its threats & available safeguards when making an
ethical decision is essential to a Professional Accountant who is bound by such principles where
it will bring good to him/her as well as to the society as whole.
he should not keep all the related information regarding the misconduct publicly available. This
should be maintained even if his current employment ceases. But in respect of the given
scenario, there are exemptions available for Arnold to act against confidentiality as per the
section 140 of code of ethics. He could either act as a whistle blower to let the industrial relations

regulators be aware of the injustice happened to underpaid workers and he has a professional
duty to disclose the relevant information by complying with the technical and ethical standards.
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