Ethics and Governance: Application of Theories, Ethical Decision-Making Model, and APES 110

This article discusses the application of ethical theories, ethical decision-making model, and APES 110 in the context of a case study on ethics and governance. It covers the evaluation of behaviour of individuals as per different ethical theories, the AAA ethical decision model, and the APES 110 Code of Ethics for professional accountants.

ETHICS AND GOVERNANCE

Executive Summary
A business enterprise is a mix of various components of the society and stakeholders
and cannot operate without the consideration of the ethical, moral, and legal principles. The
ethical theories developed by various expert are focussed on various aspects to serve as a
guide to the management and the individuals to arrive at the best ethical decisions in different
business circumstances. The AAA model is a systematic framework to select the best
alternative to address an ethical dilemma. The APES 110 Code of Ethics are foundational
guide for the professional accountants to ensure the maintenance of integrity of profession
and trust of the public at large.

Contents
Executive Summary...................................................................................................................1
Introduction................................................................................................................................3
Part A: Application of the theories of ethics..............................................................................3
Analysis of behaviour of Mr Goodrich as per the theory of egoism................................3
Analysis of behaviour of Mr Goodrich as per the theory of utilitarianism....................4
Analysis of behaviour of Arnold as per the theory of utilitarianism...............................4
Analysis of behaviour of Arnold as per the theory of deontology...................................5
Part B: Using an ethical decision-making model.......................................................................5
Part C: Using APES 110............................................................................................................6
Conclusion..................................................................................................................................8
References..................................................................................................................................9

Introduction
The term ethics, as defined by the Merriam Webster dictionary is the framework that
serves as a guidance of dealing with the good and bad, while adhering to the moral principles,
legal rules, and the generic societal obligations (Merriam Webster Dictionary, 2018). Thus, a
direction can be derived from the ethical framework for the evaluation of the conduct whether
or not as a part of the business organisation, while exposed to the various kinds of ethical
dilemmas.
The objective of the following work is to undertake a research on the various ethical
theories, as developed over the years and address the business issues in the given case study.
In addition, the various aspects of the AAA ethical decision model would be explored which
serves as a guide to the management to arrive at an ethical decision. Further, the APES 110
Code of Ethics would be evaluated that is applicable on the professional accountants.
Part A: Application of the theories of ethics
Various researchers have developed different ethical theories to guide the conduct of
the individuals and identify whether the same are ethical or not. These ethical theories serves
the management as the decision making foundation to address the ethical dilemmas in an
efficient manner (Barry, 2016). Each of the theories is focused on different points and
prescribe a different decision-making style to arrive at an ethically correct decision. However,
the common set of goals that form the base for the theories are that of the beneficence, justice
for everyone, least harm, and the respect for autonomy.
Analysis of behaviour of Mr Goodrich as per the theory of egoism
One of the ethical theories is that of the egoism which belongs to the normative or the
prescriptive class of theories. The theory is further categorised into the Ethical Egoism and
the Psychological Egoism. The ethical egoism theory is based on the belief that an individual
is responsible for the pursuance of the self-interests and that no one is obligatory for the
promotion of interests of others (Rachels, 2012). Thus, the theory leads to the belief that the
best way for the promotion of the general good is everyone in engaged in the pursuance of
self-interest. The following section is descriptive of the evaluation of the conduct of Mr
Goodrich in light of the ethical theory of egoism. The case states that Mr Goodrich being the
COO of the organisation is extremely focussed on the achievement of the profits and
objectives of the entity, even if it means not complying the applicable laws for the same. He

is often regarded as a tough result achiever. The said behaviour is on the lines of being the
result achiever and garnering the support of the investors. The behaviour is ethical in terms of
the theory of egoism. As the issue of short payments is highlighted in the entity, he focusses
on the hiding of the said facts from the regulatory authorities. As Amanda and Arnold explain
the situation in detail, he takes every step to make sure that they are convinced to not to take
any steps that undermine his personal interest. He asks Amanda to sign the non-disclosure
agreement and offers her a lucrative offer so that she does not disclosed the details. Further
when Arnold is suggestive of the ways that could lead to the harm to his reputation and
position as a COO of the company, he asks Arnold to not to pay attention to measures like
making arrangements with banks, and others. Thus, it can be stated that the conduct of Mr
Goodrich satisfies the ethical theory of egoism and thus the said behaviour. Mr Goodrich tries
his best to secure his position as the COO of the company.
Analysis of behaviour of Mr Goodrich as per the theory of utilitarianism
The behaviour of Mr Goodrich is further evaluated on the lines of the ethical theory of
Utilitarianism. The theory is based on the principle of provision of utility or happiness
through a conduct to people at large (Hollander, 2016). The theory falls in the
consequentialist group of theories as a particular act is regarded as ethical if the same leads to
the outcomes that are in conjunction with the morality, generic virtues, and happiness for
everyone. Thus, this theory is opposed to the consideration of the individual interests only.
The analysis of the conduct of Mr Goodrich as per the above theory highlights the fact that
Mr Goodrich is only considerate of the individual interests and his proposed means to address
the situation that is to hide the underpayments, does not provide any utility to the other
stakeholder groups.
Analysis of behaviour of Arnold as per the theory of utilitarianism
The behaviour of the management accountant Arnold is further analysed as per the
theory of utilitarianism. The behaviour of Arnold can be stated to be ethical on the following
lines. After the discovery of the issue of the underpayment, Arnold engaged himself in the
preparation of the reports so that the exact levels of the issue can be identified in terms of the
monetary terms. He further suggests the COO of the company to disclose the same as a
genuine error to the Fair Work Commission, clear the backlog of the underpayment of the
awards and making the arrangements with the banks and other stakeholders. Thus, the
suggestion of said option is on the lines of the wellbeing and the feasibility of the various

associated stakeholder groups. Arnold avoids focussing on the individual interest that is the
chances of the loss of job and places the happiness and the utility of the stakeholders above.
Analysis of behaviour of Arnold as per the theory of deontology
Yet another popular theory is that of deontology. The said class of ethical theories
states that individuals must adhere to their respective obligations at the time of the
engagement in the decision making (Thomas, 2012). Thus, when a person will follow his or
her obligations towards the another individuals or society as a whole, the acts would be
regarded as ethical because the said theory is based on the belief that upholding one’s duty is
what is considered ethically correct (Mellahi, Morrell, & Wood, 2010). The theory is not
considerate of the outcomes of an action. The evaluation of the conduct of Arnold in the
given situation can be regarded as ethical. This is because, as an employee of the company
his duty is to fulfil the organisational obligations. One of the organisational obligations is to
prepare and present the financial data in transparent and fair manner. Thus, as Arnold is
suggestive of disclosure of the errors and making arrangements for the correction of the
same, he is adhering to his organisational duties.
Part B: Using an ethical decision-making model
The ethical decision models provide assistance to the management of the enterprises
and those charged with governance in making the efficient and the ethically sound decisions.
One of the ethical models that guide the management to address the ethical dilemmas is the
American Accounting Association (AAA) model. The said model has emerged from the
report for the AAA, as written by Langenderfer and Rockness in 1990. The model involves
various steps, by which the managers can reach a systematic, efficient, and ethical decision.
The said model guides Mr Goodrich by following the steps mentioned below.
Step 1: The step 1 of the model is comprised of the clear establishment of the facts. In
context of the case study the facts relevant are that, the workers of the entity are underpaid as
per the applicable regulations in context of labour laws. This has led to the unfair reporting of
profits.
Step 2: In this step, the ethical issues are identified in relation to the facts. The ethical
issues that have been recognised are that the stakeholder interests of workers and regulators
have not been uphold.

Step 3: This step involves the next step, the recognition of the concerned norms,
principles, and values. It can be stated that the labour laws have not been followed properly.
In addition, the financial statements are not fairly reported.
Step 4: In this step, the alternative course of actions to address the situation are
identified. The two options are recognised. The first option is not to disclose the
underpayments and continue the unfair reporting. The second option that has been identified
is to disclose the same to the authorities as a matter of genuine error and arrange finance to
pay the dues of the workers.
Step 5: This involves the matching of the applicable principles and norms with the
courses of action that are identified in the previous step. According to the corporate
governance principles, it is the duty of management to carry out the interests of the various
stakeholder groups connected with the entity. Further, they must ensure to present the results
of the business activities fairly.
Step 6: This step involves the consideration of the outcomes of the courses of actions
identified. Thus, if the organisation does not discloses the underpayments, the entity would
face the legal consequences including the management in charge of functions. If the
disclosure is made timely, the punishment and penalties can be avoided and would benefit the
stakeholders too.
Step 7: The decision must be taken in this step by Mr Goodrich. As per the
discussions conducted in previous steps, the best ethical decision is to disclose the issue
timely.
Part C: Using APES 110
Accounting Professional & Ethical Standards Board Limited (APESB) was formed in
the year 2006 and facilitated the establishment of the APES 110 Code of ethics, as applicable
on the members of the CPA Australia, Chartered Accountants ANZ, and the Institute of
Public Accountants who are professional accountants (APESB, 2010). The code is aimed to
serve as the guidelines to make the professional accountants aware of their conduct at all
times and indulge into best practices. Further, the safeguards are provided to maintain the
integrity of the profession.
If Arnold were a member of CPA Australia, he would have required to mandatorily
adhere to the code of ethics principles and practices. The section A of the code prescribes the

general fundamental principles. There are five fundamental principles as stated in the Section
100 of the code, namely the integrity, confidentiality, objectivity, professional behaviour and
professional competence and due care. Thus, if the members is engaged in practice or
employed in a business, the fundamental principles must be complied with.
Further, there has been prescribed a duty to the members to identify and evaluate the
possible threats that may arise while discharging their professional duties. Some of the threats
that may arise by the reasons of the broad range of relationships and circumstances in an
organisation are Self-interest threat, Self-review threat, Intimidation threat, Familiarity threat,
and the Advocacy threat, as stated in the section 100. The Self Interest arises from financial
or another interest that holds the potential to influence the judgement of the member. In the
given case, Arnold’s duty are affected by the self-interest of Mr Goodrich. The familiarity
threat arises when a member fails to exercise the objectivity because of the long association
or close relationship with the employer or the organisation. Arnold being associated with the
employers, is exposed to the familiarity threat. Further to state, there arises Intimidation
threat as well for Arnold in the circumstances of the given case study. Owing to the reasons
of the actual or perceived pressures of the COO Mr Goodrich, Arnold is forced to not
disclose the underpayments. Section 300 further elaborates threats that may be faced by the
members while being the part of the business. Some of the threats associated are the act
contrary to the regulation, act in a manner that is contrary to the acceptable professional
standards, intentionally mislead the regulators and issue financial reports that are materially
misstated and do not represent the picture in a true and fair manner. Arnold is exposed to all
of the above threats as per the given case. On evaluation of the threats, it is observed that the
levels of the threat is high level because of the advancement of it from a person that is those
charged with the governance. In addition, there is a high amount involved and false practices
are taking place since a number of the years.
In order to secure his position and maintain the professional standards, the code lays
down some of the professional standards that can be adopted by Arnold. Arnold must ensure
that the threats are brought to the acceptably low levels. The safeguards are listed as follows.
Arnold can obtain assistance from another professional member as allowed in the section 100
to protect the fundamental principles. Further a consultation can be organised with another
senior member of the entity that are the CEO and CFO. Some of the additional safeguards are
listed in the section 300 as elaborated below. If Arnold is not willing to indulge into formal
court action, a formal dispute resolution process can be adopted. Further safeguard is in the

form of consulting independent experts from other professional bodies. If the threats cannot
be brought to an acceptably low levels, it must be examines whether the discharge of
professional duties is possible in the said circumstances. If the same is not possible, the next
safeguard available to Arnold is to dissociate himself from such a professional engagement.
As stated in the case study, COO Mr Goodrich is not willing to disclose the underpayment
issue and making the arrangements from the banks for the back payments. In this scenario, it
is impossible for Arnold to be fairly associated with the entity. He must communicate the
same and refuse to be associated with the entity as allowed in the section 320.
Conclusion
The discussions in the previous parts lead to the conclusion that ethical principles are
inevitable part for not only the conduct of the business functions but also for the individual
behaviours to act efficiently while discharging duties and organisational operations. The
applications of the ethical theories in the business context led to the conclusion that different
theories are considerate of different principles and the same action can be both ethical and
unethical in light of different theories. The discussion of the APES 110 code of conduct
highlighted the duties, safeguards, and threats to the professional accountants associated with
the businesses. The AAA model is also discussed to guide the management on arriving an
ethically efficient decision that is considerate of the interests of each group of the
stakeholders.

References
APESB. (2010). APES 110: Code of Ethics for Professional Accountants. Melbourne, VIC:
Accounting Professional and Ethical Standards Board.
Barry, N. (2016). Business ethics. UK: Springer.
Hollander, S. (2016). Ethical Utilitarianism and The Theory of Moral Sentiments: Adam
Smith in Relation to Hume and Bentham. Eastern Economic Journal, 42(4), 557-580.
Mellahi, K., Morrell, K., & Wood, G. (2010). The ethical business: Challenges and
controversies. UK: Macmillan International Higher Education.
Merriam Webster Dictionary (2019) Ethic. Retrieved from: https://www.merriam-
webster.com/dictionary/ethic
Rachels, J. (2012). Ethical egoism. Ethical theory: an anthology, 14, 193.
Thomas, S. (2012). Ethics and accounting education. Issues in Accounting Education, 27(2),
399-418.