Ethical Decision Making in Finance: AAA Seven-Step Model Case Study

This document presents a detailed case study applying the American Accounting Association (AAA) seven-step model to analyze an ethical dilemma involving a Chartered Accountant associated with a misleading statement. The analysis systematically progresses through the seven steps: establishing facts, identifying ethical issues and stakeholders, determining relevant principles, rules, and values, identifying alternative courses of action, comparing principles to alternatives, analyzing consequences, and finally, making a decision. The case explores various scenarios and potential actions, evaluating their ethical implications and consequences for all stakeholders involved, including the accountant, the employing organization, and other users of the misleading information. The document emphasizes the importance of integrity, professional competence, and due care in ethical decision-making within the finance profession. The solution concludes with a decision based on a well-informed ethical judgment.

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The American Accounting
Association (AAA) seven-step mod
The AAA seven-step model provides a framework through which an ethical dilemma can be analyzed to reach
an ethical conclusion or decision. The seven question in the model are:
1.Establish the facts of the case
a) This step means that when the decision-making process starts, there is no ambiguity about what is
under consideration.
b) The leading questions about the facts will revolved around What? Who? Where? When? How?
c) Essentially, efforts are made to identify what we know or need to know, if possible, to clearly define
the problem.
Example
A Chartered Accountant in business is being associated with a misleading statement.
Facts that are important to know and are already known to reasonably conclude that the statement is
misleading. Parties involved in preparing, discriminating, using and making decision based on such
misleading statement. Maximum time available to conclude about the statement.
2.Identify the ethical issues in the case
a) This involves listing the significant stakeholders of the case and defining the ethical issues.
b) A complete account of key ethical issues and dilemmas is developed that helps in resolving the
problem comprehensively.
c) All threats to compliance with fundamental principles are identified and explained.
Example
A Chartered Accountant in business is being associated with a misleading statement.
Who will directly benefit or lose due to such misleading statement. Chartered Accountant’s responsibility
towards employing organization versus truthful representation of facts. Self-interest and advocacy
threats faced by the Chartered Accountant.
3.Identify the principles, rules and values related to th
case
a) This involves placing the decision in its social, ethical, and, in some cases, professional behavior
context.

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b) As professional accountants, the Chartered Accountants are bound by the Code of Ethics prescribed
by the professional body. They are also required to fulfil social expectations. Therefore, prescribed
Codes and social expectations of the profession are taken to be the principles, rules and values.
Example
A Chartered Accountant in business is being associated with a misleading statement.
The major principles involved in this case are: Integrity, professional competence and due care,
confidentiality and morality.
4.Identify each alternative course of action
a) This involves compiling a complete set of major practical alternatives or likely decisions one can
make in a given situation. These alternatives should not consider the norms, principles, and values
identified in Step 3.
b) It is expected that in these alternatives one may feel or see some form of compromise or point
between simply doing or not doing something.
Example
A Chartered Accountant in business is being associated with a misleading statement.
The course of actions Chartered Accountant has, are: (a) let the misleading statement go to the intended
users, (b) only inform his/her supervisors about the misleading statement (c) only allow his/her name to
be associated once the statement is corrected to his/her satisfaction, (d) inform the relevant regulator
about the misleading statement being associated with him/her, and (d) publicly disclose the fact that
the he/she is associated with a misleading statement.
5.Compare principles, rules and values to alternatives
a) The principles, rules and values identified in Step 3 are overlaid on the alternatives identified in Step
4.
b) All alternatives are assessed (initially made without any consideration of principles and values) on
the basis of principles and values.
c) It gives an idea as to how compelling any one or combination of principles and values are against
each alternative.
Example
A Chartered Accountant in business is being associated with a misleading statement.
The course of actions Chartered Accountant has, are: (a) let the misleading statement go to the intended
users, (b) only inform his/her supervisors about the misleading statement (c) only allow his/her name to
be associated once the statement is corrected to his/her satisfaction, (d) inform the relevant regulator
about the misleading statement being associated with him/her, and (e) publicly disclose the fact that the
he/she is associated with a misleading statement.
Integrity appears to be the most compelling principle against each course of action available in this case.

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6.Analyze the consequences of outcomes
a) This step is an analysis of implications and consequences of each possible alternate course of action.
b) Implication and consequences should be analyzed in all respects: short and long run, positive and
negative.
c) This step addresses the problem of human preference or focus on short run benefits/harms over
long run.
Example
A Chartered Accountant in business is being associated with a misleading statement.
The benefit and harm to him/her and other stakeholders and impact on environment against each course
of actions identified are:
(a) let the misleading statement go to the intended users – it benefits the objectives of the employing
organization, other user may make wrong decisions and Chartered Accountant is saved from adverse
impacts on his/her career in employer organization
(b) only inform his/her supervisors about the misleading statement – no correction measures are taken
by supervisor causing same consequences as given in “a”. Or corrections measures are taken by
supervisor impacting the objectives of employer organization and career of Chartered Accountant in
employer organization, but helpful for other stakeholders to take better decisions
(c) only allow his/her name to be associated once the statement is corrected to his/her satisfaction –
same consequences as given in “b” above when correction measures are taken
(d) inform relevant regulator about the misleading statement being associated with him/her – adverse
impact on employer organization and Chartered Accountant’s career in employer organization, but
helpful for other stakeholders to take better decisions
(e) publicly disclose the fact that the he/she is associated with a misleading statement – Almost same
consequences as given at “d”.
7.Take the decision
a) After performing the steps that cover facts, analysis and available options, the final decision requires
application of professional judgment. Professional judgment is an application of accumulated
knowledge and experience gained during initial professional development and through continuing
professional development.
b) The decision taken in this step should demonstrate that the selected course of action is a well-
informed ethical decision and appropriately balances the consequences against primary principles or
values.
Example
A Chartered Accountant in business is being associated with a misleading statement.
After complete analysis he/she allows his/her name to be associated once the statement is corrected to
his/her satisfaction.

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American Accounting Association Model
The American Accounting Association (AAA) published a case book, Ethics in the Accounting Curriculum:
Cases and Readings, in May 1990. Each case is analyzed using a seven-step model, shown below
1. Determine the facts
What? Who? When? Where? How?
What do we know or need to know that help define the problem?
2. Define the ethical issue
List the significant stakeholders.
Define the ethical issues.
3. Identify the major principles, rules and values
(For example, integrity, quality, respect for persons, profit)
4. Specify the alternatives
List the major alternative courses of action, including those that represent some form of compromise
or point between simply doing or not doing something.
5. Compare values and alternatives – see if clear decision
Determine if there is one principle of value, or combination, which is so compelling that the proper
alternative is clear.
6. Assess the consequences
Identify the short and long, positive and negative consequences for the major alternatives. The
common short-run focus on gain or loss needs to be measured against the long-run considerations.
This step will often reveal an unanticipated result of major importance.
7. Make your decision
Balance the consequences against your primary principles or values and select the alternative that
best fits.
Source: Courtesy of the American Accounting Association