Ethics and Governance: Application of Ethical Frameworks and Models

This report analyzes a case study involving ethical dilemmas in a business context, focusing on the actions of senior management and a management accountant. It applies various ethical theories, including egoism, utilitarianism, and deontology, to evaluate the behaviors of the individuals involved. The report then uses the AAA Ethical Decision-Making Model to guide the decision-making process in the case. Furthermore, it examines the APES 110 Code of Ethics, highlighting the fundamental principles and potential threats to professional accountants, and suggests safeguards to maintain ethical conduct. The analysis covers the application of these frameworks to the specific circumstances of the case, providing insights into ethical considerations in business and the importance of ethical decision-making.

ETHICS AND GOVERNANCE

Executive Summary
The term ethics denotes the guidelines to deal with what is good and bad as comprised
of the moral, virtues and legal norms. The ethical theories designed over the years are
focused on various aspects such as actions, outcomes, interests and others. These aid an
individual to be aware of the conduct in situations of ethical conflicts. The ethical models like
that of AAA Ethical Decision making model provides a systematic procedure to formulate
and implement ethically sound decisions. The APES 110 Code of Ethics is a collection
guidelines for the professional accountants to enable them to serve the society in an efficient
manner.

Contents
Introduction................................................................................................................................4
Part A: Application of the theories of ethics..............................................................................4
Part B: Using an ethical decision-making model.......................................................................6
Part C: Using APES 110 Code of Ethics...................................................................................7
Conclusion..................................................................................................................................8
References..................................................................................................................................9

Introduction
A business organisation is a conjunction of various resources from the society namely
capital, natural resources, manpower and renders its services to the members of the society
itself. Hence, it is imperative to take into account their interests and concerns in the business
strategies and functions. The ethical principles, theories and legal framework together
facilitate the management of the enterprise to serve the society in the efficient manner (Chan,
Fung & Yau, 2010). These principles serve as a foundation within which the enterprise must
carry out their profit making and other objectives.
The following report covers the various aspects of the ethics and governance in the
business context. The coverage would be with the aid of the analysis of various ethical
theories. In addition the study of the AAA ethical decision making model and the APES 110
Code of ethics would be carried, in the form of the application on the given case
circumstances.
Part A: Application of the theories of ethics
Some of the key highlights of the case are stated as follows. Mr Goodrich belongs to
the senior management of the organisation and is the COO. The organisation has recently
discovered that the workers of the entity are not paid in terms of the wages and other awards
over the last few years and thus the company has failed to fairly present the financial results
as per the applicable statutes. While Mr Goodrich is interested in hiding the facts, Arnold the
management accountant of the entity is suggestive of the disclosure to the authorities. The
analysis of the behaviour of Mr Goodrich and Arnold in light of the various ethical theories is
presented as follows.
Theory of egoism and Mr Goodrich behaviour
According to the ethical theory of egoism, an individual is entirely responsible for the
the pursuance of one’s self-interests and there is no obligation to advance the interests of
others (Rachels, 2012). Thus, if an individual is engaged in pursuing his or her self interest,
the said behaviour is regarded as ethical according to the above theory (Broad, 2014). On
application of the ethical theory of egoism on the behaviour of Mr Goodrich, it can be stated
that he is willing not to disclose the underpayments as the same will hurt the sentiments of
the various stakeholder groups and that can lead to him losing his position of the COO. Thus,
he is clearly concerned of his self-interest. Some of the other personality traits are that he is a

tough result achiever and does not bother about the adherence to the laws when it comes to
achievement of results as the COO of the enterprise. Thus, according to the theory of ethical
egoism, the above behaviour is ethical as the same leads to the pursuance of the individual
interests.
Theory of utilitarianism and Mr Goodrich behaviour
In contrast to the ethical theory of egoism, the utilitarianism principles focus on the
wellbeing and happiness of everyone associated and the society as a whole (Mill, 2016). The
theory states that an action would be considered as ethical if the same is considerate of utility
of maximum people and not just the individual interests (Lyons, 2015). On application of the
above principles it can be stated that the behaviour of Mr Goodrich is unethical as the same
does not provide any utility to the other stakeholders such as the investors, workers,
regulators and the company itself. The profits are overstated because of the underpayments,
the regulators are deceived and the workers are not paid as per their legal rights. Thus, there
is no consideration of the interests of others.
Theory of utilitarianism and Arnold behaviour
The actions of Arnold are further analysed according to the above stated utilitarian
principles. It is significant to note that as Arnold becomes aware of the issue, he works out
the magnitude in terms of amount involved and stresses on the disclosure of the same to the
authorities as a genuine error. He further states that arrangements must be made to clear the
pending dues of the workers and the same would lead to fair reporting of the financial
picture. His behaviour is regarded as ethical as he prioritised the stakeholder interest above
his individual interest of chances of losing the job. He makes suggestion that would benefit
not only the company but the stakeholders too.
Theory of deontology and Arnold behaviour
The theory of deontology is focussed on the performance of the duties irrespective of
the outcomes of the same (Hursthouse & Crisp, 2013). The theory states that the acts would
be regarded as ethical if the respective obligations are complied with and thus is not focussed
on the results (Reamer, 2013). According to this, the conduct of Arnold is ethical because
being the management accountant of the entity it is his duty to prepare and present the
financial statements that are free from material misstatements and present the picture of
business operations truthfully. Hence, Arnold depicts dedication in performance of duties

incidental to his job role and insists on disclosing the true financial picture. He further works
out the details of the issue comprehensively to enable management efficient decision making.
Part B: Using an ethical decision-making model
The aim of the development of the ethical decision models over the years is to provide
guidance to the management of the entities in decision making process, such that the said
strategic decisions are efficient and worthy for various stakeholders (Ho, 2012). One of the
popular ethical decision model is AAA Ethical decision making model that can be used by
Mr Goodrich to address the situation presented in case study. The steps involved are listed as
follows.
In the first step, the facts must be clearly stated, which in the given case study are that
the less than the prescribed payment is made to workers of entity.
In the second step, identification of the ethical issues is done, which is in the given
case are whether to disclose the underpayments to the Fair Work Commission or not.
In the third step, the applicable norms, principles and statutes are identified, which in
the given case are the labour laws, financial reporting and corporate governance framework.
In the fourth step, the means which can be opted to address the ethical dilemma are
recognised. There are two means that are identified. The first option is to accept the
underpayments as genuine error and make arrangements for the payments. The second option
is to not to disclose it and continue the on going practice.
In the fifth step, the norms are matched with the options. It can be rightly stated that
the corporate governance principles and financial reporting requirements match with the
disclosing option,
In the sixth step, the results are identified that the courses of actions would lead to. It
can be stated that if the organisation admits the underpayments and arranges the amount for
payment, it would benefit everyone. In contrast to this the non disclosure would lead to legal
actions against the company and management.
In the seventh step, the best decision is taken which in the given circumstances is to
disclose the issue and make arrangements to address it. Hence, Mr Goodrich must take the
ethical decision as per the above listed steps of the AAA model.

Part C: Using APES 110 Code of Ethics
The APES 110 Code of ethics has been formulated by the Accounting Professional &
Ethical Standards Board Limited (APESB) for the professional accountants whether in
practice or in business (APESB, 2010).
The fundamental principles that must be followed by Arnold if he were the member of
CPA Australia are that of the integrity, professional behaviour, confidentiality, objectivity
professional competence and due care (APESB, 2010). The section 100 of the code states that
the above principles must be followed while discharging the professional duties and maintain
the essence of the profession. Thus, by the virtue of these principles, it is the duty of Arnold
to facilitate the fair reporting of the financial information.
However, Arnold must evaluate the potential threats that undermine his professional
duties and conduct. The section 100 of the code further states that the threats can be divided
into five categories namely the Intimidation threat, Self-interest threat, Self-review threat,
Familiarity threat, and the Advocacy threat (APESB, 2010). In the given scenario, Arnold is
facing the self-interest threat. By self-interest threat it is meant that financial or another
interest of one member of the organisation can affect the efficient discharge of duties of
professional accountants. The self interest of Mr Goodrich has affected the professional
duties of Arnold. In addition to the above, Arnold is also exposed to the intimidation threat.
By intimidation threat it is meant that the pressure whether actual or perceived undermines
the professional independence of the professional accountants and they are as a result not able
to render the professional services objectively. When the members are in business, the section
300 additionally highlights the possible threats. The key threats faced by Arnold as listed in
section 300 are the forced to mislead the regulators, act contrary to professional standards and
regulations, and issue materially misstated reports. Further, on examination it is found that
the intensity of threat faced by Arnold is high because it is directly coming from COO Mr
Goodrich who is a powerful senior manager of the entity.
The code further lays down the safeguards that professional accountants can adopt to
secure their position and profession. The safeguards are provided to facilitate the
management of the threat to bring the same to the acceptably low levels and the maintenance
of the essence of the fundamental principles and profession. The safeguards available to
Arnold as elaborated in various parts of the code are listed as follows. Professional assistance
can be obtained from members of other professional bodies or the same body as prescribed in

the section 100. Further Arnold can engage in consultation with another senior member such
as the CEO and CFO of the organisation. Section 300 also elaborates certain safeguards as
mentioned below. Independent experts from other professional bodies such as the lawyers
can be consulted to devise best means to address the situation. A formal dispute resolution
process can be organised to avoid the litigation procedures. If after taking the above
mentioned steps as well, the threats cannot be brought to an acceptably low levels, an
examination is imperative to be done of the fact that whether the professional duties can be
carried out effectively as per the applicable frameworks in the said circumstances. If the
examination outcome is that the same is not possible, the professional accountant is
recommended to dissociate himself from such a professional arrangement to secure his
interest and professional standards. Thus, as Arnold is facing the high pressure from COO Mr
Goodrich himself as the latter is not willing to disclose the underpayment issue, he is
recommended to communicate the same to the CEO and CFO of the organisation as soon as
possible. If there is no fruitful outcome from the same, he is suggested to resign from the said
professional assignment and report the same to the authorities concerned.
Conclusion
The conclusion of the above discussions is that the organisations cannot succeed in
long term without the consideration of the ethical and moral principles in context of the
associated stakeholders’ interest. The work explored the applications of the ethical theories to
the individual behaviours of the case study given. It is concluded that the ethical theories
guide to identify what is morally right or wrong. The work also studied the AAA model
which is helpful the managers of the dynamic business environments to implement ethical
strategies of business operations. In addition to the above, the work also involved the
discussion of the APES 110 code of conduct. The said discussion shed various aspects in
relation to the safeguards, duties and threats faced by the professional accountants.

References
APESB. (2010). APES 110: Code of Ethics for Professional Accountants. Melbourne, VIC:
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Chan, K. C., Fung, H. G., & Yau, J. (2010). Business ethics research: A global perspective.
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Hursthouse, R., & Crisp, R. (2013). Normative virtue ethics. Ethica, 645.
Lyons, D. (2015). Utilitarianism. Wiley Encyclopedia of Management, 1-4.
Mill, J. S. (2016). Utilitarianism. In Seven masterpieces of philosophy , UK: Routledge, 337-
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