Ethics and Governance: Application of Ethical Frameworks and Codes

This report provides an analysis of ethical principles and their application within an organizational context, focusing on a case study involving a COO facing ethical dilemmas related to wage payments and financial reporting. The report examines the application of ethical theories, including utilitarianism, deontology, and egoism, to the behavior of key individuals within the case study. It evaluates the actions of the COO, management accountant, and HR manager through these theoretical lenses, assessing their adherence to ethical standards. Furthermore, the report utilizes the AAA Ethical Decision-Making Model to guide the COO toward making an ethically sound decision, outlining the steps involved in identifying the problem, analyzing the facts, and evaluating potential courses of action. Finally, it explores the APES 110 Code of Ethics for Professional Accountants, highlighting the fundamental principles of integrity, objectivity, professional competence, confidentiality, and professional behavior, and how these principles apply to the case study. The report aims to provide a comprehensive understanding of ethical frameworks and their practical implications in business environments.

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ETHICS AND GOVERNANCE

Executive Summary
The concept of ethics is inseparable part from the individual behaviours as well as the
organisational operations. The ethical theories like that of the deontology, utilitarianism, and
egoism guide the individuals to address the various ethical dilemmas. Further, each of the
theory is based on separate principles and beliefs and thus actions are evaluated with
application of one theory at a time. In addition, the ethical models serve as a guiding
framework to the senior managers of the entity to formulate the business strategies and
address particular business challenges. The professional accountants are mandatorily required
to follow the principles of the “APES 110 Code of Ethics for Professional Accountants.”

Contents
Introduction................................................................................................................................3
Part A: Application of the Ethical Theories...............................................................................3
Part B: AAA Ethical decision-making model............................................................................5
Part C: APES 110 Code of Ethics for Professional Accountants...............................................7
Conclusion..................................................................................................................................9
References................................................................................................................................10

Introduction
Ethical principles refer to the contemporary societal standards, set of values, moral
principles and norms, that set the benchmark to deal with right and wrong (Broad, 2014). The
various ethical theories are formulated taking into account the various ethical principles,
using which the individuals can choose to do the right thing while facing the ethical
dilemmas. Similarly business ethics are comprised of the organisational standards, legal
frameworks and corporate governance principles that guide the business organisations as well
as the individuals therein to maintain a better connection with the stakeholders while facing
the moral or ethical problems (Crane, Matten, Glozer & Spence, 2019). The following work
is an attempt to the study the various ethical concepts such as the ethical theories, models and
the APES 110 Code of ethics. The study would be done with the help of a case study and
analysis of the behaviour of different characters therein.
Part A: Application of the Ethical Theories
Explanation of the ethical theories
It is imperative to study the ethical theories so that a strong foundation for challenging
situations can be established in the entity (Dion, 2012). Over the years, a range of
philosophers have discussed and devised various theoretical ways to understand the morality
and ethics in various circumstances. Two of the most popular ethical theories are that of
utilitarianism as developed by Jeremy Bentham and Deontology as established by Immanuel
Kant. The concept of utility forms the basis for the ethical theory of utilitarianism and the
theory is depictive of the most influential consequential ethical philosophy. The principles of
the theory state that when an action leads to the production of greatest net benefit to the
stakeholders as a whole, the same would be regarded as ethical (Barrow, 2015). Thus, the
theory is focussed on the outcome of the actions and the same must bring happiness or utility
to society as a whole. In contrast to this, the ethical theory of deontology is based on the
actions and intentions of the agent. The principles of the theory state that if the actions are
carried in course of the fulfilment of the duties, the same would be ethical; however the
associated outcome is (Harrison, 2015). Thus, according to the principles of deontology, one
should conduct the duties religiously that is without the intention of deception, coercing or
committing fraud to others. One of the additional normative theories that are completely
different from the above mentioned is the ethical theory of egoism. The theory stresses on the
significance of the self-interests and when one does so, the acts are regarded as ethical

irrespective of the impact of the same on the interests and wellbeing of the other stakeholders
(Overall, 2016). Thus, when an agent acts for his or her interests only, the said acts would
still be considered as ethical under this theory.
Application of the ethical theories
1. Application of ethical theory of egoism on behaviour of Mr Goodrich
The analysis of the behaviour of Mr Goodrich on the basis of the ethical theory of
egoism leads to the observation that his behaviour is ethical as the same is on the lines of the
long term personal interest of Mr Goodrich. Some of the noteworthy instances of his
personality and conduct are that he is a tough result achiever. His focus is to achieve the
estimated profits and is not much bothered about the compliance of the laws. Not only has he
asked Amanda, the HR manager of the organisation to sign the non-disclosure agreement in
context of the issue but also denies the disclosure options suggested by the management
accountant Arnold. Hence, it can be seen that Mr Goodrich is always engaged in pursuance of
the self-interests and does not want to lose his prestigious position of the COO and goodwill
among the investors, and hence is reluctant to disclose the issue of the short payments to the
workers to the regulators.
2. Application of ethical theory of utilitarianism on behaviour of Mr Goodrich
On application of the ethical theory of the utilitarianism, it can be stated that the
behaviour of Mr Goodrich is against the principle of the utilitarianism. While Mr Goodrich is
concerned about his position of the COO, he is not concerned about the benefits of the others.
Mr Goodrich is more adaptive to the non disclosure of the short payments, and because of the
said option neither the workers are receiving the entitled share of the payments as per the
legal rules, nor the investors are depicted the true financial position due to the overstatement
of the profits. Hence, while the individual interests are taken care of by the conduct of Mr
Goodrich, the utility and wellbeing of others is overlooked.
3. Application of ethical theory of utilitarianism on behaviour of Arnold
On application of the ethical theory of utilitarianism on the behaviour of Arnold, it is
worth noting that Arnold has been considerate of the benefit of not only the organisation but
also of the workers, investors, and regulators. He puts forwards the option of disclosure in
front of the COO Mr Goodrich along with the incidental steps to be taken. Not only did he

worked out the extent of the issue in numbers, but also devised the financial plan to address
the same. These actions are regarded as ethical as per the theory of utilitarianism.
4. Application of ethical theory of deontology on behaviour of Arnold
On application of theory of deontology on the conduct of Arnold, it can be stated that
the conduct of Arnold are very well within the ambit of ethical principles of deontology, as
Arnold is dedicated for the performance of his duties. The fact that he made the suggestion
that supports the transparent reporting and payment of the pending dues is suggestive of the
fact that Arnold does not have any intentions to be deceptive towards the organisation as well
as the other groups of the stakeholders. In the capacity of the management accountant, he
stresses on fair reporting of the issue.
Part B: AAA Ethical decision-making model
The AAA Ethical decision has been developed by the American Accounting
Association with an aim to direct the management of the contemporary business
organisations construct ethically sound decisions that are necessitated to survive in long run
(Bobek, Hageman & Radtke, 2015). The model is in the form of the seven steps that must be
followed in sequence. Mr Goodrich can take the help of the said model, to reach an ethical
decision as follows.
STEPS APPLICATION ON CASE STUDY
Step 1: The establishment of the facts and
defining the problem in clear terms
(Kidwell, Fisher, Braun & Swanson, 2013).
For the first step the facts of the case are
that the organisation has failed to pay the
legally prescribed wages to the workers
which includes different awards as well.
Step 2: This step comprises of the
examination of the facts and identify the
matters that are placed on the stake.
Mr Goodrich should examine the various
facts that the short payments have affected
the interests of the workers and regulators.
Further, the investors are not disclosed the
real profits of the enterprise, which is the
chief duty of a business organisation.
Step 3: In this step, the issue must be
viewed in the light of the applicable social
and legal principles. Thus, an identification
Mr Goodrich should identify the incidental
statutes. Some of the statutes and principles
that are related to the issue are the rules of

of the norms is required before moving to
the next step.
the Fair Work Commission Act and the
applicable financial reporting rules.
Step 4: This step involves the studying the
various courses of actions that may be used
to solve the ethical problem.
There are two course of actions that are
open for Mr Goodrich to use. He can choose
to either continue hiding the fact of the short
payments until it is discovered by the
regulators themselves. The next action
belongs to the opposite direction that is
disclose the same truthfully to the
authorities and asks for the time to arrange
for the back pays.
Step 5: The fifth step involves the
equalizing the courses identified in step 4
with the ethical norms as recognised in step
5.
Mr Goodrich must match the actions and the
norms. On matching, it can be highlighted
that while disclosure option goes with the
financial reporting and corporate
governance framework, the case is opposite
with the non-disclosure option.
Step 6: The step 6 calls for the reflection on
the consequences.
On reflection practice by Mr Goodrich, it
can be stated that there are high possibility
of the issue being discovered by the
authorities. Further, if the facts are
discovered by the regulators, the
organisation as well as the management
would have to face the serious
repercussions.
Step 7: This is the last step and one takes a
decision in the same.
Mr Goodrich should take the decision of
unfold the issue of the short payments to the
workers and arrange for timely payment of
the same.
Part C: APES 110 Code of Ethics for Professional Accountants
The issuing body of the APES 110 Code of Ethics for Professional Accountants is the
Accounting Professional & Ethical Standards Board Limited (APESB). The purpose of the

said code is to establish a systematic standard of ethical behaviour expected of a member of
CPA Australia (APESB, 2018). Thus, a conceptual framework has been provided to the
members to facilitate the identification, evaluation and address threats so that the
fundamental principles of the code can be complied with at all times while in professional
engagements.
The following section highlights the basic fundamental principles of the code. If
Arnold were the member of the CPA Australia, he would be required to comply with the
conceptual framework in the form of exercising professional judgements while rendering his
professional services, and be alert to various information and circumstances. There have been
listed five fundamental principles of ethics in the section 110 for the members as listed
follows (APESB, 2018).
 Integrity: Arnold as the members is required to be straightforward and honest in all
professional and business relationships.
 Objectivity: Arnold being the member of CPA Australia must not let the bias,
conflict of interest or the undue influence to compromise his professional judgements
and duties.
 Professional Competence and Due Care: It is the duty of Arnold to maintain the
prescribed professional standards by acting diligently.
 Confidentiality: It is further the duty of the professional member Arnold to maintain
the confidentiality of the information gained during the professional relationships.
 Professional Behaviour: One of the duties of Arnold is to exercise compliance with
the relevant laws and regulations and should ensure that the actions do not bring the
discredit to the profession.
Section 120 of the code states that the members should identify the threats that are
relevant to the compliance with the fundamental principles, must act for the evaluation of the
threats and ensure the elimination of the threats or reduction of them to an acceptable level
(APESB, 2018). The section 120 states that the threats can belong to one or more of the
following list- “Self-interest threat, Familiarity threat, Self-review threat, Intimidation threat,
and the Advocacy threat.” The self-interest threat to the fundamental principles arises from
the inappropriate influence by a financial or the other interest of a member of an organisation,
which holds the potential to influence the judgement or behaviour of a member. Familiarity
threat is when a long or close relationship with a client, makes a member quite considerate

for their interests, which is unfair. The self-review threat is one where a member fails to
appropriately evaluate the work of previous judgements or another member on which his
work is to be relied upon. Intimidation threat comes into existence when the member is not
able to exercise his or her duties objectively because of the undue influence, actual or
perceived pressures on the member. The advocacy threat arises when there is a promotion of
position of the client or employing organisation to an extent that leads to the compromising
the objectivity of the member. In the scenario presented, Arnold is facing majorly two kinds
of threats namely the self-interest threat and the intimidation threat. Mr Goodrich is
exercising the undue influence over Arnold such that he is not able to exercise his functions
of the professional member objectively and fairly. Arnold is being asked to not to reveal the
short payments to the authorities. Further he is threatened in terms of his career.
It is imperative to note that depending on the facts and circumstances, there can be
two ways for addressing the threats as mentioned further. The threats can be either eliminated
by removing the circumstance that create the threat, or when the said step is not possible, by
declining or ending the specific professional assignment. However before ending the
professional engagement, various safeguards must be evaluated, and if the same are not
enough, the professional relationship can be ended. The safeguards that are available to
Arnold are listed as follows. The safeguards refer to an individual action or combination of
actions that can be adopted by the member for the reduction of the threats. Section 360 deals
of the revised code deals with the safeguards available to deal with the noncompliance with
the laws and regulations. Arnold has already made the management alert of the issue, the
same can be further discussed other senior members of the organisation and those charged
with governance such as the CEO and CFO of the company. A consultation on confidential
basis can be obtained by Arnold within the Firm, or a Professional Body, a Network Firm, or
with legal counsel, for the matter concerned. The safeguard steps must be taken in a timely
manner. Thus, the matters of concern can be disclosed to an appropriate authority even if
there is no legal requirement to do so. In addition, Arnold can adopt for the withdrawal from
the engagement from the said professional relationship. \
Conclusion
The matters of ethics are an important pre requisite for the business organisation to
function and succeed. The above work explored the various aspects of ethics with the help of
the case study. The various features of different ethical theories have been evaluated to

understand the differences in the same. Further, the AAA ethical decision model has been
studied to conclude that the management can make use of the same to systematically reach an
ethical decision. The APES 110 Code of Ethics for professional accountants has been studied
as well to conclude that the members must follow the guidelines and principles, to ensure the
public trust in the profession.

References
APESB. (2018). APES 110: Code of Ethics for Professional Accountants. Melbourne, VIC:
Accounting Professional and Ethical Standards Board.
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decision context, and gender on the ethical decision making of public accounting
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citizenship and sustainability in the age of globalization. UK: Oxford University
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