D ET ECTING ACCOUNTING FRAUD
Chapte r 2: Ethics at Wo rk
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Cha pter 2 Ethics a t Wo r k SOLUTI ONS1 True/ Fa ls e Ques ti ons : 1. False Ex planati on: Virtue ethi cs focuses on ch ara cter tr a it s of a virtuous person a nd thus offers no strict rules on how to act. 2. False Ex planati on: Virtue ethi cs is agent center ed, while consequenti ali sm is concerned with the effe cts of an acti on. 3. False Ex planati on: Business ethi cs is a t ype o f appli ed e thi cs. Meta ethi cs is conc erned with wh at const it utes the good and t he bad, while business et hics deals wit h the ethi cs of particular si tuations and withi n a particular discipl ine . 4. False Ex planati on: This i s one of the li mi ts of conseque nti ali sm . Alt hough it judges an acti on b y the consequen ces, it is un able to predict ev er y poss ibl e consequenc e. 5. False Ex planati on: Utilit arians judge acti ons b y th e uti li ty the y pr oduce, thus it is a form of consequenti ali sm . 6. True
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Ex planati on: This i s the hall mark of deontol o g y. 7. False Ex planati on: This i s the goal of vi rtue ethi cs . 8. False Ex planati on: The purpose of the audit is t o giv e a n independent opi nion on the financial statements . 9. False 1
Solu tio n s for th is ch ap ter p ro vid ed b y Ka te Jack so n , P h .D. s tu d en t in Theolo gical E th ics, B o sto n Co lleg e.
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Chapte r 2: Ethics at Wo rk
Ex planati on: The rights a pproach is o ften co mbi ne d with t he duti es approac h si nce a ri ght often produc es a r eciproc al dut y. 10. True Ex planati on: A specific transacti on c an c ause a sp ecific pe rson to have the right t o have a loan repaid.
Fi l l- in-the - Bla nk Qu es ti o ns : 11. Kant 12. max im iz e 13. all ocated 14. need 15. chara cter 16. Arist otl e 17. uti li tarianism 18. hedonis m 19. stakeholders 20. t elos
Mul ti pl e - Cho ice Ques ti o ns : 21. a Ex planati on: Utilit arianism is a form of consequ e nti ali sm t hat refers to all the approa ches in the stud y of mor ali t y that evaluate conduct or a cti ons i n terms of the conse quences that t he y produce. Answers b. and c. ar e inc orrect b ecaus e the y do no t refer to the consequ enc es of an acti on. 22. b Ex planati on: According t o Kant’s cat e gorical i mp erati ve, the end does not just if y the means.
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Chapte r 2: Ethics at Wo rk
Answers a, b, and c are a ll consi stent wit h Kant’s cate goric al i mperati ve. If Kant t hou ght the end jus ti fied the mea ns, he would have b een a consequenti ali st. 23. c
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Chapte r 2: Ethics at Wo rk
Ex planati on: According to t he virtue theor y of eth ical behavior, the most i mportant aspect of morali t y is found withi n an indi vidual’s char acte r. Answer a is i nco rre ct bec ause deontol o g y emphasi z es dut y Answer b is incor rect b e uti li tarianism emphasiz es consequenc es 24. b Ex planati on: An unwavering comm it ment to dut y is t he hall mark of deonto log y. Answers a, c, and d are a ll associated wit h virtue. Accordin g to Arist otl e, v irtues are developed b y habit , adh e ring to the me an betwe en ex tremes, and behavior r elated t o human flourishi ng. 25. a Ex planati on : Anne would be usi ng some o f the consequen ces o f her p ossi ble response to guide h er beh avior. 26. b Ex planati on : S he would be using he r sense o f dut y (in thi s case t ell ing t he truth ) to guid e her behavior. Dut y is t he guidi n g principl e o f de ontol og y. 27. a Ex planati on : Thi s t ype of thinki ng is consi de r ed a shortcomi n g of cons equenti ali sm . At ti mes, it can permit egr e gious acts i n the name of the gre ater good . 28. a Ex planati on : Another li mi t of consequenti ali sm is that the scope of the consequenc es is often unclear. 29. b Ex planati on : Autonom y i s not a cardinal virtue. The ca rdinal vi rtues ar e: coura ge, t emper ance, wisdom , and jus ti ce. 30. c Ex planati on : S elf-defense rights w ere not i denti fied b y S te rba
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Chapte r 2: Ethics at Wo rk
S terba identified a cti on rights, in persona ri ghts, in rem ri ghts, and re cipi ent rights.
Fo r Di scuss io n : 31. R eponses will var y. He r e are som e possi ble rea ct ions:
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Chapte r 2: Ethics at Wo rk
Possi b le Virtu e
Possi b le Desc rip tion
Honest y
P reparin g finan cial state ments t hat fairl y repres ent t he enti t y’ s fina ncial posi ti on and the result W orking s of hard its operati and with onsa ccura c y to get a job done; fini shing a task on e is given S peaking out a gainst une thi cal busi ness practi ces; r efusin g to pre pare f raudulent financial st atements. Knowing wh en to s peak out
Dili genc e C ourage
W isdom Fairness Generosit y
Not having favorites ; ke e ping all users o f financial st atements i n m ind S pending ti me on mentor ing less ex perienc ed accountants.
C onsi deri ng the cult ivati on of virtues, si nce virtue ethi cs is about t he virtuous person, often virtue ethi cs is taught b y ex ampl e and/or through narrati ve. A wa y to t e ac h busi ness vi rtues mi ght be throu gh a stor y about a virtuous ac countant. S tudents m a y ele ct t o writ e a tale about a virtuous accountant that t each es lessons about ho w a virtuous person m a y respond t o difficult ethi cal busi ness di lemmas. Arist otl e thought vi rtues were cult ivated throu gh habit . In thi s vi ew, small and re gula r behaviors shap e cha ract e r. To cult ivate the virtue of generosit y, fo r ex ampl e, one mi ght st a rt on a small -scale b y givi n g a doll ar to a homeless pers on on the street, brin gin g brownies to giv e out at work, or bein g genero us wit h one’s tim e b y ge nuinel y askin g and li sten ing to how a co -work er is doi ng. Al so i n thi s vi ew, one does not ma gicall y be come a coura geous whist le -blower, fo r ex ampl e, but rather the v irtue of cour a ge is fost er e d through d a y-to-da y cou ra geous a cts, s uch as speaking out a gainst gossi p, admi tt ing when one makes a mi stake, and o ff ering on e’s suggesti ons at a work me eti ng.
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32. R eponses will var y. He r e are som e possi ble rea ct ions: Those who asse rt that vi rtues in b usiness are r elate d to vi rtues in p ersonal l ife ma y support their answers with s ome of the foll owing b eli efs: virtues ex ist in unit y; vi rt ues are d eveloped
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through h abit ; a person’s li fe cannot be compartm e ntaliz ed, but m ust be treated as an int egr ated whole. If som eone beli ev es vi rtues ar e developed throu gh habit , as Arist otl e thought, t hat person i s li kel y to assume th at vi ces i n one’s person al l ife will lead to vi ces in one’s business pra cti ce. For ex ampl e, if a husban d li es to h is wife, he will become habit uated to l yin g, maki ng it easie r to li e on bala nce sheets. C onve rsel y, the husband who is a good comm unicator an d who is alwa ys honest with hi s wife is m ore li kel y to communi cate well and value hon est y in the workplac e. Others ma y re gard on e’s personal l ife as di sti nct fr om one’s professi onal l if e. This group ma y beli eve that p ersonal and pr ofessi onal li ves have an im perm eab le barrie r and/or are gove rned b y enti rel y different, and thus unrela ted, virtues. For instan ce , one ma y beli eve that int im ate relations hips require a tot all y diff er e nt set of virtues than busi ness relations hips, and thus these ar e unrel ated. And/or one ma y not thi nk virtues are a cquired through h abit and so l yin g to one’s spo use does not make it easi er or more li kel y that on e will li e on balance sh eets. S ome ma y thi nk that the virtues ex ist i n unit y b ec ause the y belon g to one a gent. In thi s vi ew, it i s unl ikel y th at one is ver y honest and at t he same tim e lacks co ura ge. For ex ampl e, one could not be ver y honest wit hout co ura ge be caus e cour a ge is necessa r y to t ell the truth i n difficult s it ua ti ons. Also, being honest can help t o foster cour a ge as a comm it ment to honest y i nspi res coura ge. Others ma y thi nk it is enti rel y possi ble to possess some virtues and som e vi ces because th e y re gard the v irtues as unrelat ed. This group ma y choose s eem ingl y dispar ate virtues to m ake thi s case. For ex ampl e, a pe rson who is honest, bu t not just,
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such as a mana ger who is v er y hon est about hi s or her biase s against certain empl o ye es.
33. R eponses will var y. He r e are som e possi ble rea ct ions: S ome ma y thi nk int enti on matters in s o far as a ri ght a cti on is not t rul y ri ght unl ess i t i s mot ivated b y good int ent ions. Others ma y thi nk int enti on matters ins o far as a wron g a cti on is permiss ibl e if it i s for the right r easons. Thi s logi c follows the sa yin g, “The end just ifies the means.� S ome ma y thi nk int enti on is im portant, but t hat i t does not determi ne if an acti on is right or w ron g.
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A strict consequenti ali st ma y b eli eve that onl y co nsequences count, s o eve n if one’s int enti ons are comi n g fro m a good pla ce, it is on l y the outcome that m att ers . For ex ampl e, someone wants t o im prove the business of a grou p of farme rs and gives th em a popular gr ain seed that unint enti onall y wipes out all their crops. Although the pe rson me ant well , the consequenti ali st m a y ass ert that t he consequ enc es indi cate that t he person acted wron gl y. ( Issues of int ent also brin g up noti ons of culpabili t y, which are b e yond the s cope of this chapter. Ho weve r, it is im portant t o note that t here is a dist inction between causal culpabil it y—c ausing the destructi on of crops, in t his case —and mor al culp abil it y, i.e. the ex tent to which one is morall y responsi ble for th e destructi on of the c rops.) To the strict deontol ogist , an acti on per formed out of a sense o f dut y h as m ore moral value than the same acti o n taken bec ause of its l ikel y consequen ces in t hat specific sit uati on. Virtue ethi cs is most able to t ake int o account i nte nt because it is conc erne d with t he chara cter o f the whole p e rson and with all of that person’s ch ara ct er tr ait s.
34. R eponses will var y. He r e are som e possi ble rea ct ions: The best answ er wil l first define happiness. On e definiti on of happiness is t hat i t i s a t ype of p ersist ent, pe ace f ul j o y (as oppos ed to an e cstatic, manic, eupho ric, and fleeti n g feeli n g). This ba ck groun d jo y rem ains constant d uring tempor ar y disappoi ntm ents and difficulti es. For some, a cti ng ethi call y is ac companied b y h ap piness even when acti n g ethi call y is hard. Fo r ex ampl e, standing up for a co -worke r w ho is being picked on m a y not m ake one popularatworkanditmaynotbeeasy, but i t m a y also be ac companied b y a s ense of calm andsatisfactionknowingthatone acted ethi call y. W ron g acti ons m a y b e a
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ccompaniedby greatanxiety,suchaswhen one is i nvolved in a w eb of li es or wh en one ch eats on a test. Others wil l t hink that the costs of right acti on ma y be too gr eat. For ex amp le, it does not feel good to become a pariah at work fo r stan ding up for a c o -worke r who is picked on. It i s poss ibl e that s ome ma y thi nk that the y would feel happie r if the y ch eat ed on a test rath er than fail ed a class and ha d to repeat i t .
35 (a). R eponses will var y. H ere are som e possi ble rea cti ons:
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For some, thi s ex ampl e is t he quint essential reaso n wh y dut y ethi cs are vit al. Here, th e mana ger ’s sen se of dut y overrides he r ne gati ve fe eli ngs for the empl o yee, enabli ng th e empl o ye e to re ceive the deserved p romoti on base d on ti mel y and a ccu r ate work over the last two ye ars. Thus, t his ex ampl e il lust rates wh y dut y and reason are cruci al t o busi ness practi ce. Others wil l feel sli ghted that t he promoti on is not i nspi red b y the mana ger ’s opini on that the empl o ye e is a li keable an d con ge nial worker. Th ese peopl e ma y want t o be promoted bec ause the boss has a posi ti ve att it ude towards them, and not because th e boss i s following protoco l, rules, and dut y. 35 (b). R eponses will va r y. Her e ar e som e possi ble rea cti ons: For some, the man a gin g partner’s abil it y to off er a promoti on in s pit e of her biased feeli n gs will show great i ntegrit y and fairn ess. Le tt ing reason and not emot ions guide he r decisi ons wil l be looked upon b y som e as ver y ethi cal. Others wil l not be im pr essed that t he bos s gav e the promot ion only be cause sh e felt dut y-bound to do so. The y will thi nk that her lack of auth enti c and gen uine enthus iasm for the empl o ye e undermines th e mora li t y b ehind her acti ons. These people ma y thi nk that abidi n g b y rules and duti es ar e not enough to m ak e som eon e an ethi c al person and that the boss shoul d feel t he genuine d esire to give the promoti on.
36. R eponses will var y. S ome things to consi der i nclude pa y disc r epan cies between men and wome n; promoti ons for men and women; t he presen ce of a ‘glass ceil ing’ for wome n; how maternit y leave is t re ated for father s and mot hers in the wor kplace; and soci al ex pectations of men and women in t he workplac e. For instanc e , ar e wome n and men someti mes hel d t o
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different standards of dr ess in t he busi ness world ? Are they held t o diff erent st and a rds of beh avior? Is there a dif fer enc e betwe e n how co -work ers pe rc eive a lon g respons e from a woman versus a long respons e from a ma n? If ther e is a diff eren c e, which att it ude is rew ar ded? Is ther e a differen ce o r a pe rceiv ed differen ce in t he w a y wo men and men appro ach t aking risks i n busi ness? If ther e is a dif feren ce, whi ch appro ach is reward ed? Is th ere a differ ence o r a perceiv ed diffe ren ce in t he wa y women and m en promote themselves? If there is a dif fer ence,
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which approa ch is re war ded? Is ther e a dif fer enc e or a pe rc eived diff eren c e betwe en ma le and female st yles of man a ge ment? If so, which st yle is most li kel y to be r ewa r ded or resp ected ?
CASE STUDY: Peter Ma do ff, Bro ther o f Berna rd Ma doff and Fo rmer Chi ef Co mpl i a nce Offi cer a nd Senio r Ma nagi ng Directo r o f Berna rd L. Ma doff Investment Securiti es , LL C a (i). S takehol d er
Cons eq u en ce
P eter Madoff
Temporar y gain of wealt h, lux urious li fest yle, pr esti ge; Foll owed b y lon g- term m one y loss , im prisonment, embarr assm ent, separati on f rom fami l y, despis ed b y cli ents & form er La w abidi n g tax pa ye rs P aid t ax es when friends Madoff did not IR S
IR S was hi nde red from perfo rming it s lawful dut y; publ ic mone y w as los t
S ou rce U.S. Att orne y P r eet Bhar ara said, “He will now be jailed well int o old age, and he will forf eit virtuall y ev er y penn y h e has. ”
IR S -C I A cti ng S pe cial A gent i n C harge Toni W eirauch s aid, “One of the consequen ces of the c oncealm ent is t hat t he IR S was hi nde red from performin g it s lawful dut y, thus harming ou r nati on’s
D ET ECTING ACCOUNTING FRAUD
Thousands of investors who wer e def rauded
Chapte r 2: Ethics at Wo rk
Lost m one y, someti mes lost most of their reti r ement savings & had to return to work; fooled, che ated, lied to
law abidi ng tax pa yers, along with t he defraud ed victim s.” S pecial A gent R obert L. P anell a said, “Durin g toda y’s ple a, P eter Madof f admi tt ed to hi s role in a fraud schem e that harmed the savin gs o f thousands of investors.”
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Empl o yees
Economi c securit y lost , benefits lost , In abil it y to su pport fami l y
S pecial A gent R obert L. P anell a said that Madoff “und ermine[ d] the financial well -b ein g of w orkers.” Madoff also “ Fail ed to pr otect t he int egrit y of empl o ye e be nefit pl an assets….”
R egulators
W ere all tricked int o beli eving falsehoods; wer e unable to perfo rm their jobs appropriatel y
“Madoff cre ated numero us false compl iance docum ents i n which he stated that he had pe rfor med compl iance r eviews of th e tradin g in the BLM IS IA business o n a re gula r basis , when, in re ali t y, th e reviews were n ever p erfo rmed. T he false statements were d esi gned to m isl ead re gulators, audit ors, S eeIA above quote. and cli ents”
Auditors
W ere all tricked int o beli eving IA [ Inv estm ent Advis or falsehoods; wer e unable to perfo rm y] their jobs cli ents Bern ard L. M adoff appropriatel y Inv estm ent S Thought t he y w ecurities (BLM IS ) ere investi ng in an cli ents eli te, thrivi ng compan y gain His wife Marion S hort-term
Dau ghter S han a
of mone y; long-te rm loss of mone y and li fe- st yl e, sep arati on from fathe r/husband, severe embarr assm ent
“The numerous false stat ements i n the Forms ADV cre ated the f alse appear anc e that BLM IS ’ s IA busin ess had a small number of hi ghl y sophi sti cated cli ents and far f ewe r assets under man a gement than w as actuall y the cas e.” “The gove rnment has ent ered int o a sett lement wit h Madoff’s fami l y that requires the forf eit ure of all of his wife Marion’s and dau ght er S hana’s ass ets and assets belon gin g to ot her fami l y members.”
S ee above quote.
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S hort-term gain of mone y; long-te rm loss of mone y and li fe- st yl e, sep arati on from fathe r/husband,
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severe embarr assm ent a (ii). Based on th e cons equ enc es discussed above, it se e ms as if all stakeholders suffer ed negati ve consequ enc es. The posi ti ve consequen c es for Mado ff and his f a mi l y wer e enjo ye d in t he short -term onl y. Based on the util it arian noti on to choose th e acti on that gives the great est good to the gr eatest num be r, Ma doff shoul d not have com mi tt ed his crimes. a (iii ).
Egoism is a t yp e of consequenti ali sm t hat j udges acti ons b y the b ene fits for onl y on eself. Accordin g to t he a rticle, Madoff w as onl y conce r ned about hi mself and hi s favorites : “DO L-E BS A Ne w York R egional Dir ector J onathan Ka y said, ‘ Toda y’s pl ea is a testament to t he good wo rk and st ron g coll abor ati on among mul ti ple fed er al a genci es. This agenc y r emains co mm it ted to protecti ng wo rker ben efit pl ans from t h ose who would defraud th em for p erson al gain.’ ” S pecial A gent P anell a said that P eter M adoff “personall y ben efited f ro m proceeds gained as a r esult of these false st ate ments.” Man y people suffe red fo r Mado ff’s na rciss ist ic acti ons: “ Manhatt an U.S. Att orne y P reet Bhar ara s aid, ‘P eter M ad off enabl ed the lar gest fr aud in hum an his tor y…. W e are not yet finished call ing to accou nt ever yone responsi ble f or the epic f raud of Be rn ard Madof f and the epic pain of his m an y victim s.’” If P eter M ado ff had consi de red the con sequences for people other than himself , he ma y have acted dif fe rentl y.
b (i). R esponses should take the foll owing int o a ccount:
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Duty
How Mad of f Fell S h ort of Hi s Duty
Fulfill his comm it ment to conduct revie ws
“He c ertified that pe riodic reviews establis hed the firm’s compl iance with i nternal and r e gulator y rul es. In fact, P ete r Madof f con ducted no revie ws. He
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Honest y
C ivi c responsi bil it y
Chapte r 2: Ethics at Wo rk
certified that his ex ami na ti on of the firm’s tradin g process establi shed it s int egrit y. H e did not — inde e d, he could not —conduct a n y such ex ami nati on:” “He mad e a pr etense of c ompl iance; he was reall y about compli cit y.” (J anice K. Fedar c yk) “Madoff cre ated f alse an d mi sleading B LM IS compl iance docum ents.” “False reports that w ere f il ed with t he U.S. S ecurities and Ex chan ge C omm iss ion (S EC )….” “The numerous false stat ements i n the Forms AD V creat ed the f alse appe ara nce that B LM IS ’s IA busi Evading taxness….” es: P eter Madoff rec eived ap prox im atel y $15,700,000 from Be rnard L. Madof f and his wife and ex ecute d sham promi ssor y notes t o make it appea r that t he transfers wer e loans, in o rder to avoid pa yin g tax es; Madoff gav e approx im atel y $9,900,000 to f ami l y members, and in orde r to avoid pa yin g t ax es, ex ecuted sham promi ssory n otes to m ake it app ea r that the transfe rs of these funds wer e loans; Madoff did not pa y tax es on approx im atel y $7,750,000 that he rec eiv ed from B LM IS ; Madoff r eceiv ed approx im atel y $16,800,000 f rom Bern ard L. M adoff f rom two sham t rades, and disguised the pro ceeds o f the trades as lon g-t erm stock transacti ons i n orde r to take advant a ge of th e lower tax rate for lon g-t e rm capit al gains; Madoff ch ar ged approx im atel y $175,000 in personal ex penses to a co rporate Am erican Ex press card and did not r eport th ose ex penses as income. Madoff also a rran ged for his wi fe to have a “no - show” job at B LM IS f ro m which she re ceived between approx im atel y $ 100,000 to $160,000 per ye a r in sala r y, a 401(k ), a nd other bene fit s to which she was not enti tl e d.
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Fairness
Chapte r 2: Ethics at Wo rk
“Madoff a gre ed with ot hers to send the $300 mil li on that remained in t he IA a ccounts to pref err ed empl o ye es, fami l y memb ers, and f riends”
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Dut y to take car e of his empl o ye es
Chapte r 2: Ethics at Wo rk
R obert L. P an ell a said th at Madoff, “ F ail ed to pro tect the integrit y of empl o ye e benefit pl an assets and personall y bene fited fro m proceeds gained as a r esult of these fals e statements . ”
b (ii). R esponses ma y v ar y. S o me students m a y ar gue th at reason and dut y wer e not su fficient to prevent Madof f from u nethi cal behavior and tha t companies need mor e o versight and/or there shoul d be str icter laws gove rning ac c ounti ng pra cti ces and /or we need b ett er compl iance of the l aws al read y in pl ac e. Othe rs ma y m aint ain t hat Madoff l acked a moral compass and a cha racte r stron g enou gh to w it hstand th e temptation to enrich him self. Others ma y ar gue that he did not consi der the cons equenc es of hi s acti ons. c (i). R esponses will var y, but s hould i nclude that conse quenti ali sm accounts for the far reachin g repe rcussi ons of Madoff’s spe cific acti ons and deontol og y do es no t. C onsequenti ali sm identifies all of the stakeholde rs affe cted b y Mado ff’s f ra ud as well as the far- re achi n g consequ ences. On the other hand , deontol og y fo cuses on t he unwave rin g comm it ment to principle and dut y, in t his cas e, for ex ampl e, the moral i c (ii).
mperati ve to be honest at all ti mes.
S ome students m a y find consequen ti ali sm m ore p ersuasive fo r the r eason t hat it forces one to consider the f ar - re achin g consequ ences to a ll the stakeholders. S ome ma y thi nk the consequen ces a re the most egr e gious p arts of t he act, whil e othe rs wil l t hink s kirtin g obli gati ons ar e the wors t parts of the c rime. The y ma y b eli eve that a comm it ment to t he moral i mperati ve to alwa ys tell t he truth would be st prevent t his ki nd of off ense. c (iii ).
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S ome students will thi nk one s ystem i s best fo r all cases, whil e othe rs wil l t hink each iss ue need s it s own s yste m. There a re also t hose who ma y b eli eve that wh en d.
fac ed with an ethi cal di lemma, one s hould anal yz e it in t erms of all three f rame works.
D ET ECTING ACCOUNTING FRAUD
Chapte r 2: Ethics at Wo rk
R esponses ma y v ar y, but shoul d include the fo ll owing: (An sw ers are in b old ) Usin g the American A c cou n tin g Association E th ical Decisi on -Mak in g Mod el : 1. Determi ne the facts —wh o, what, when, wh ere, an d how? W hat do we know or ne e d to know, if possi ble, that wil l help define the pr oblems? Wh o ? A ch ief comp li an ce of f icer w ork in g f or Mad of f Wh at? S ecu rities f rau d , tax f rau d co n sp iracy, falsif yin g b ook s an d record s , an d mak in g f alse state men ts to in vestors Wh en ? 1996-2008 Wh ere? B ern ard L . M ad off In vestmen t Secu ri ties ( B L MIS ), New Yor k , NY. How ? “Mad of f created f alse and misl ead in g BL MIS comp li an ce d ocu men ts, as w ell as f alse rep orts that w ere f il ed w ith the U.S . S ecu rities an d E xch an ge Co mmiss ion (SE C) that ma terial ly miss tat ed the nature an d scop e of BL MIS ’s In vestmen t Ad visory (IA) bu sin ess.” 2. Define the ethi cal i ssue. a) List the signi ficant st ake holders S ee an sw er to Case S tud y Qu estion a (i) ab ove b) Define the ethi cal i ssues Make sure p recisel y wha t t he ethi cal i ssue is; for e x ampl e: conflicts i nvolving ri ghts, questi ons over lim it s of an obli gati on, etc. S ecu rities f rau d , tax-frau d con sp iracy, f a lsif yin g b ook s an d record s, mak in g f alse state men ts to i n vestors , lyi n g to f amil y an d f riend s 3. Id enti f y major principl es, rules, or values. For ex ampl e, int e grit y, q uali t y, resp ect fo r person s, and profit. Hon esty, f airness, in tegrity, d u ties to e mp loye es 4. S pecif y th e alt ern ati ves. List the major alt e rnati ve courses of acti on, includ ing those that r epres ent som e form of compromi se or point between si mpl y doin g or not doing som ethi ng.
D ET ECTING ACCOUNTING FRAUD
Chapte r 2: Ethics at Wo rk
In thi s case, it d oes n ot see m that a moral co mp romise w as p ossi b le —it is n ever p er miss ib le to misrep r esen t one’s co mp an y, or to ch eat and steal f ro m on e’s cli en ts. 5. C ompare values and alt er nati ves. S ee if a clear d ec isi on is evident. Determi ne if the re is on e principl e or va lue, o r co mbi nati on, which is s o compelli ng that the proper alt ernati ve is c lear —for ex ampl e, corr e cti ng a d efe ct t hat i s alm ost certain t o cause loss of life. All majo r ethical f ra mew ork s w ou ld ap p ear to lead to th e con clu sion that th e ch ief co mp li an ce of f icer sh ou ld n ot tu rn a bli nd eye to th e f rau d .
D ET ECTING ACCOUNTING FRAUD
Chapte r 2: Ethics at Wo rk
6. Assess t he consequ ences. Id enti f y short and lon g, a nd posi ti ve and negati ve consequenc es for th e maj or alt ernati ves. The comm on short -run focus on gain or loss needs t o be meas ured a gainst lon g-run consi der ati ons. This step wil l often revea l an unanti cipated r esult of major im portance. S ee a n sw er to Case S t u d y Qu estion a (i) ab ove 7. Make your de cisi on. Balan ce the consequen ce s against you r prim ar y pr inciples or values and s elect t he alt ernati v e that best fit s. It is l ik ely th at all approach es w il l l ead to th e d ecisi on that th is f raud w as morall y w ron g and sh ould n ot b e co mmitt ed .
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D ET ECTING ACCOUNTING FRAUD
Chapte r 2: Ethics at Wo rk