Ethical DecisionMaking Models

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• Topic 5
• Ethical Decision-Making Models

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The Complexity Of Making Ethical Decisions

• Different stages of moral development
• Requiring trade-offs between stakeholders
  interests
• Multiple alternatives with unclear outcomes
• Different decision criteria and standards leading
  to inconsistent decisions
• Need for using decision-making models

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The Usefulness Of A Decision-Making Model

• A useful tool for decision-making activities
• A framework for systematic analysis
• Resulting in actions with better justifications
• Decision-making models
• The American Accounting Association Model
• The Laura Nash Model
• The Mary Guy Model
• The Independent Commission Against Corruption
  Model

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Jonathans Dilemma

• Jonathan newly joined DEF International, a
  big trading company in HK, as chief accountant.
  His subordinate, Tom, a professional accountant
  and the accounting manager of the company as well
  as the brother of his fiancee, Mary, had access
  to cash held by the company and was responsible
  for preparing both the receivables and payables
  accounts. During the year, Tom experienced a
  major financial problem.
• While reviewing the companys financial
  statements, much to Jonathans surprise, he
  discovered that Tom had manipulated accounting
  records and had been involved in teeming and
  lading in which he delayed the recording of
  receipts from debtors and sped up the recording
  of payments to creditors. This was to conceal
  the fact that he had withdrawn a substantial
  amount of money from the company without
  approval. When Jonathan discussed this with Tom,
  he was asked to keep the secret as the disclosure
  would ruin Toms career. When Mary knew of the
  case, she strongly urged Jonathan to help her
  brother and promised she would repay all the
  amounts owed to the company for Tom immediately.
• Should Jonathan blow the whistle and
  disclose Toms misconduct?

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The AAA Model (7 Steps)
Step 1 Determining the facts Step 2 Defining
the ethical issues Step 3 Identifying major
principles rules Step 4 Specifying the
alternatives Step 5 Comparing values and
alternatives Step 6 Assessing the
consequences Step 7 Making your decision
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The AAA Model (7 Steps)
What Tom had fraudulently withdrawn money form
the co. Who Self, Tom, Mary, Company
shareholders, Other staff, Accounting
profession, Where In the company When When
Tom experienced a major financial problem How
Withdrawn money by manipulating accounting
records
Step 1 Determining the facts Step 2 Defining
the ethical issues Step 3 Identifying major
principles rules Step 4 Specifying the
alternatives Step 5 Comparing values and
alternatives Step 6 Assessing the
consequences Step 7 Making your decision
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The AAA Model (7 Steps)
Primary Stakeholders Self, Tom, Mary, My
company shareholders, Other staff, Accounting
profession Ethical issue Whether I should keep
the secret for Tom?
Step 1 Determining the facts Step 2 Defining
the ethical issues Step 3 Identifying major
principles rules Step 4 Specifying the
alternatives Step 5 Comparing values and
alternatives Step 6 Assessing the
consequences Step 7 Making your decision
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The AAA Model (7 Steps)
Principles Integrity Accountability
Honesty Fairness Truthfulness Loyalty
Care for family Rules HKSA Prof. Ethics
Statements 1.203 1.290C Companys code of
conduct corporate culture Theft Ordinance
Step 1 Determining the facts Step 2 Defining
the ethical issues Step 3 Identifying major
principles rules Step 4 Specifying the
alternatives Step 5 Comparing values and
alternatives Step 6 Assessing the
consequences Step 7 Making your decision
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Alternatives a) Keep the secret and do
nothing b) Keep the secret and help Tom to cover
up his act by manipulating the accounting
records c) Keep the secret and let Mary pay back
the company as soon as possible d) Keep the
secret, ask Tom to resign and review the
accounting procedures to prevent similar
incidents from happening again  e) Refuse Toms
request and report to the management/ICAC f) Resig
n from the company and.
The AAA Model (7 Steps)
Step 1 Determining the facts Step 2 Defining
the ethical issues Step 3 Identifying major
principles rules Step 4 Specifying the
alternatives Step 5 Comparing values and
alternatives Step 6 Assessing the
consequences Step 7 Making your decision
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• Alternative (b) violates major principles and
  rules, and may even break the law
• Alternatives (a) (f) can not solve the problem,
  the acts compromise values such as honesty,
  loyalty
• Alternatives (c) (d) can not commensurate with
  moral principals such as loyalty, honesty,
  fairness truthfulness, responsibility and
  integrity
• Alternative (f) abides HKSA Ethics statements
  1.203 1.209C and meets the requirements of
  company rules and major moral principals and
  values

The AAA Model (7 Steps)
Step 1 Determining the facts Step 2 Defining
the ethical issues Step 3 Identifying major
principles rules Step 4 Specifying the
alternatives Step 5 Comparing values and
alternatives Step 6 Assessing the
consequences Step 7 Making your decision
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The AAA Model (7 Steps)

• Report Toms fraud
• Short Term
• I may be promoted by the top management
• Companys assets/funds will be preserved
• Will hurt Mary and her familys feelings, and
  jeopardize my relationship with Mary
• Will ruin Toms career prospects, he may face
  prosecution
• Long Term
• Satisfied for not to trade-off my personal values
• Tom may change for the better
• Mary may eventually understand and forgive me
• Cultivate a healthy and ethical corporate culture
• Promote the reputation of the profession
• Entrust the publics confidence in the profession

Step 1 Determining the facts Step 2 Defining
the ethical issues Step 3 Identifying major
principles rules Step 4 Specifying the
alternatives Step 5 Comparing values and
alternatives Step 6 Assessing the
consequences Step 7 Making your decision
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• Not report Toms fraud
• Short term (if Toms act is not discovered)
• Strength my relationship with Mary
• Tom can keep the job, and not be prosecuted
• Compromise my professionalism of not being
  independent and objective
• Substantial financial loss to the company
• Long term (if Toms act is discovered)
• I may face disciplinary action taken by the
  profession body and ruin my own career prospects
• Affect the corporate culture. Impair companys
  reputation
• May taint the reputation of the profession
• May affect public confidence in the profession

The AAA Model (7 Steps)
Step 1 Determining the facts Step 2 Defining
the ethical issues Step 3 Identifying major
principles rules Step 4 Specifying the
alternatives Step 5 Comparing values and
alternatives Step 6 Assessing the
consequences Step 7 Making your decision
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The AAA Model (7 Steps)
Balance the consequences achieved in step 6
against the primary principles and values
evaluated at step 5, and select the alternative
that best fits

• Step 1 Determining the facts
• Step 2 Defining the ethical issues
• Step 3 Identifying major principles rules
• Step 4 Specifying the alternatives
• Step 5 Comparing values and alternatives
• Step 6 Assessing the consequences
• Step 7 Making your decision

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• I have discovered that Tom, my future
  brother-in-law, had stolen money form the company
• He had withdrawn money by manipulating accounting
  records
• My fiancée, Mary, promised to repay all
  outstanding amount immediately

The Mary Guy Model (10 Steps)
Step 1 Defining the problem Step 2
Identifying the goal to be achieved Step 3
Specifying all dimensions of the problem Step 4
Listing all possible solutions to the
problem Step 5 Evaluating each alternative
Next five steps ...
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Whether to disclose Toms fraudulent activity to
the company
The Mary Guy Model (10 Steps)
Step 1 Defining the problem Step 2
Identifying the goal to be achieved Step 3
Specifying all dimensions of the problem Step 4
Listing all possible solutions to the
problem Step 5 Evaluating each alternative
Next five steps ...
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What Tom had fraudulently withdrawn money form
the co. Who Self, Tom, Mary, Company
shareholders, Other staff, Accounting
profession Where In the company When When
Tom experienced a major financial problem How
Withdrawn money by manipulating accounting
records
The Mary Guy Model (10 Steps)
Step 1 Defining the problem Step 2
Identifying the goal to be achieved Step 3
Specifying all dimensions of the problem Step 4
Listing all possible solutions to the
problem Step 5 Evaluating each alternative
Next five steps ...
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Alternatives a) Keep the secret and do
nothing b) Keep the secret and help Tom to cover
up his act by manipulating the accounting
records c) Keep the secret and let Mary pay back
the company as soon as possible d) Keep the
secret, ask Tom to resign and review the
accounting procedures to prevent similar
incidents from happening again  e) Refuse Toms
request and report to the management/ICAC f)
Resign from the company g)..
The Mary Guy Model (10 Steps)
Step 1 Defining the problem Step 2
Identifying the goal to be achieved Step 3
Specifying all dimensions of the problem Step 4
Listing all possible solutions to the
problem Step 5 Evaluating each alternative
Next five steps ...
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• Alternatives (a), (b), (c), (d)
• Pros strengthen relationship with Mary Tom can
  be protected
• Cons financial loss to the company unfair to
  other staff taint the reputation of the
  profession compromise rules, values.
• Risk (unintended consequences)
• (a) (b) - high chances for the auditors to
  find out in an audit. Tom can not be
  longer protected as intended.
• (a) my own career prospects might be ruined
  for being disloyal
• gt High risk, costs are greater than benefits
• (b) I might be even prosecuted for conspiracy
  
• gt Higher risk, higher costs
• (c) chances for being caught is reduced gt low
  risk, costsbenefit
• (d) chances for being caught is reduced, but
  Tom will loss his job
• gt low risk, costs are greater than benefits

The Mary Guy Model (10 Steps)
Step 1 Defining the problem Step 2
Identifying the goal to be achieved Step 3
Specifying all dimensions of the problem Step 4
Listing all possible solutions to the
problem Step 5 Evaluating each alternative
Next five steps ...
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The Mary Guy Model (10 Steps)

• (e) Pros companys assets/funds will be
  preserved fulfilled my responsibilities and meet
  the professional and legal requirements,
  satisfied personal values protect reputations of
  my company and the accounting profession
• - Cons hurt Marys feelings, jeopardize
  our relationship ruin Toms career prospects,
  he may even be prosecuted
• - Risk (intended/unintended consequences)
• gt no risk, benefits greater than costs
• (f) Costs higher than benefit, problem is
  unsolved
• gt higher costs

• Step 1 Defining the problem
• Step 2 Identifying the goal to be achieved
• Step 3 Specifying all dimensions of the problem
• Step 4 Listing all possible solutions to the
  problem
• Step 5 Evaluating each alternative

Next five steps ...
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Alternative (a) high risk, high cost gt
eliminate Alternative (b) higher risk, higher
cost gt eliminate Alternative (f) higher
cost gt eliminate
The Mary Guy Model (10 Steps)
Step 6 Eliminating too costly alternative Step
7 Ranking feasible alternatives Step 8
Choosing the alternative to maximize values Step
9 Developing an overall solution

• Step 10 Committing to the choice made

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• Alternative (e) benefits are greater than costs
  (utilitarian), fulfill professional legal
  requirements, preserve major principals and
  values
• Alternative (c) costs and benefits are equally
  distributed (justice) trade-off values such as
  honesty, integrity, fairness may break
  professional and Cos code
• Alternative (d) low risk, high cost

The Mary Guy Model (10 Steps)
Step 6 Eliminating too costly alternative Step
7 Ranking feasible alternatives Step 8
Choosing the alternative to maximize values Step
9 Developing an overall solution

• Step 10 Committing to the choice made

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The Mary Guy Model (10 Steps)
Alternative (e) disclose Toms misconduct can
maximizes the most important values such as
integrity, honesty, truthfulness, loyalty to my
company and to the profession, fair to other
honest staff and shareholders. The alternative is
also likely to achieve the goal without misgiving
Step 6 Eliminating too costly alternative Step
7 Ranking feasible alternatives Step 8
Choosing the alternative to maximize values Step
9 Developing an overall solution

• Step 10 Committing to the choice made

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The Mary Guy Model (10 Steps)
Combine top ranking alternatives for each
dimension to develop an overall solution
Step 6 Eliminating too costly alternative Step
7 Ranking feasible alternatives Step 8
Choosing the alternative to maximize values Step
9 Developing an overall solution

• Step 10 Committing to the choice made

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The ICACs ETHICS PLUS Model

• Facts
• Self-study case analysis
• Ethical Issue
• Whether I should keep the secret for Tom?

• ETHICS Six steps
• E stablishing facts and identify ethical issues
• T aking stock of all stakeholders
• H aving an objective assessment
• I dentifying alternatives and assess effects
• C omparing and evaluate alternatives with
  reference to PLUS
• S electing course of action

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The ICACs ETHICS PLUS Model

• Self
• Tom
• My company, shareholders and other staff
• Mary
• Accounting profession

• ETHICS Six steps
• E stablishing facts and identify ethical issues
• T aking stock of all stakeholders
• H aving an objective assessment
• I dentifying alternatives and assess effects
• C omparing and evaluate alternatives with
  reference to PLUS
• S electing course of action

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The ICACs ETHICS PLUS Model
Refer the self-study case analysis

• ETHICS Six steps
• E stablishing facts and identify ethical issues
• T aking stock of all stakeholders
• H aving an objective assessment
• I dentifying alternatives and assess effects
• C omparing and evaluate alternatives with
  reference to PLUS
• S electing course of action

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• Keep the secret and do nothing
• Keep the secret and help Tom to cover up by
  manipulating records
• Pros
• Protect Tom from prosecution, losing job and
  license (short term)
• Strengthen my relationship with Mary (short term)
• Cons
• Compromise my professionalism and personal values
  such as honesty and fairness. If manipulating the
  records, I might be prosecuted
• Substantial financial loss to the company and its
  shareholders
• Damage companys reputation and affect our
  corporate culture
• Taint the reputation of the profession, affect
  public confidence
• Costs are greater than benefits

The ICACs ETHICS PLUS Model

• ETHICS Six steps
• E stablishing facts and identify ethical issues
• T aking stock of all stakeholders
• H aving an objective assessment
• I dentifying alternatives and assess effects
• C omparing and evaluate alternatives with
  reference to PLUS
• S electing course of action

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The ICACs ETHICS PLUS Model
c) Keep the secret and let Mary pay back the
company ASAP Pros.. Cons d) Keep the secret,
ask Tom to resign and review the accounting
procedures to prevent similar incidents from
happening again Pros.. Cons.. e) Refuse Toms
request and report to the management. Pros. Cons
f) Refuse Toms request and report to
ICAC Pros.

• ETHICS Six steps
• E stablishing facts and identify ethical issues
• T aking stock of all stakeholders
• H aving an objective assessment
• I dentifying alternatives and assess effects
• C omparing and evaluate alternatives with
  reference to PLUS
• S electing course of action

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The ICACs ETHICS PLUS Model

• P rofessional code of conduct/company rules a)
  b) c) d) e) f) g)
• HKSA Professional Ethics Statement 1.203 x x
  x x v v v
• .......................... 1.290C
  x x x x v ? v
• Company code of conduct, company rules x
  x x x v x v
• L egal requirements
• Companies Ordinance s121
  x x v v v v v
• Theft Ordinance
  v x v v v v v
• Common law requirements v x ? v v
  v v
• Uncompromisable self values
• honesty, integrity, fairness, loyalty
  x x x x v v ?
• S unshine test
• Open discussion of the issue with all parties x
  x x x x x x
• Disclose the decision without misgivings
  x x x x v v ?

• ETHICS Six steps
• E stablishing facts and identify ethical issues
• T aking stock of all stakeholders
• H aving an objective assessment
• I dentifying alternatives and assess effects
• C omparing and evaluate alternatives with
  reference to PLUS
• S electing course of action

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The ICACs ETHICS PLUS Model

• ETHICS Six steps
• PLUS Four standards of behaviour
• P rofessional/ Trade-related/ Corporate code of
  conduct
• L egal requirements
• U ncompromisable self values
• S unshine test

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The Laura Nash Model (12 Questions)
All precise facts need to be considered What
Who Where When How

• To articulate ideas of responsibilities involved
  and to lay them open for examination.
• It helps sort out perceptions of the problem and
  improve the nature and range of alternatives
• Q1 Defining the problem accurately ?
• Q2 Other side of the fence ?
• Q3 How did this situation occur ?
• Q4 Loyalties and to whom ?
• Q5 Intention in making this decision ?
• Q6 Intention versus likely results ?

(Next six questions.)
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From Toms View You are his future brother-in-law
and you have to help him From other staffs
view Unfair to them if Toms fraudulent activity
is not addressed From shareholders
view Deceitful disloyal to them if help Tom to
cover up his act From other members of
professions view Taint the reputation of the
profession if help Tom to cover
The Laura Nash Model (12 Questions)

• To articulate ideas of responsibilities involved
  and to lay them open for examination.
• It helps sort out perceptions of the problem and
  improve the nature and range of alternatives
• Q1 Defining the problem accurately ?
• Q2 Other side of the fence ?
• Q3 How did this situation occur ?
• Q4 Loyalties and to whom ?
• Q5 Intention in making this decision ?
• Q6 Intention versus likely results ?

(Next six questions.)
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The Laura Nash Model (12 Questions)

• Consider all background information
• Tom suffered major financial loss
• Tom withdrawn a substantial amount of money from
  the company
• He manipulated accounting records and had been
  involved in teeming and lading
• My fiancée, Mary, asked me to help her brother to
  cover up his act and promised to repay all
  outstanding amounts immediately

• To articulate ideas of responsibilities involved
  and to lay them open for examination.
• It helps sort out perceptions of the problem and
  improve the nature and range of alternatives
• Q1 Defining the problem accurately ?
• Q2 Other side of the fence ?
• Q3 How did this situation occur ?
• Q4 Loyalties and to whom ?
• Q5 Intention in making this decision ?
• Q6 Intention versus likely results ?

(Next six questions.)
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Consider and weigh values The company
Revenue, Reputation,
Corporate culture The profession Reputation,
Ensure publics confidence The public
Generally accepted moral principals Self
Personal belief and values Mary Care and
commitment
The Laura Nash Model (12 Questions)

• To articulate ideas of responsibilities involved
  and to lay them open for examination.
• It helps sort out perceptions of the problem and
  improve the nature and range of alternatives
• Q1 Defining the problem accurately ?
• Q2 Other side of the fence ?
• Q3 How did this situation occur ?
• Q4 Loyalties and to whom ?
• Q5 Intention in making this decision ?
• Q6 Intention versus likely results ?

(Next six questions.)
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• Justify the action
• Intention for reporting
• Protect companys assets/funds from
• stolen
• Fulfill my responsibilities as a chief
• accountant
• Personal belief integrity, honesty
• Promotion

The Laura Nash Model (12 Questions)

• To articulate ideas of responsibilities involved
  and to lay them open for examination.
• It helps sort out perceptions of the problem and
  improve the nature and range of alternatives
• Q1 Defining the problem accurately ?
• Q2 Other side of the fence ?
• Q3 How did this situation occur ?
• Q4 Loyalties and to whom ?
• Q5 Intention in making this decision ?
• Q6 Intention versus likely results ?

(Next six questions.)
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• Are good intentions well-served?
• Toms acts will be stopped
• I will be promoted
• or
• The top management may trust Toms words against
  mine.

The Laura Nash Model (12 Questions)

• To articulate ideas of responsibilities involved
  and to lay them open for examination.
• It helps sort out perceptions of the problem and
  improve the nature and range of alternatives
• Q1 Defining the problem accurately ?
• Q2 Other side of the fence ?
• Q3 How did this situation occur ?
• Q4 Loyalties and to whom ?
• Q5 Intention in making this decision ?
• Q6 Intention versus likely results ?

(Next six questions.)
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Consider all effects on all possible
stakeholders Self Tom Company (shareholders
other staff) Mary The profession
The Laura Nash Model (12 Questions)
Q7 Injuries to whom ? Q8 Discussing with the
affected parties ? Q9 Your position over a long
period of time ? Q10 Convincing to your primary
stakeholders ? Q11 Symbolic potential of your
action ? Q12 Exceptions to your stand ?
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The Laura Nash Model (12 Questions)
Cannot engage all primary Stakeholders for
discussion

• Q7 Injuries to whom ?
• Q8 Discussing with the affected parties ?
• Q9 Your position over a long period of time ?
• Q10 Convincing to your primary stakeholders ?
• Q11 Symbolic potential of your action ?
• Q12 Exceptions to your stand ?

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• Satisfied for not to trade-off my
• personal values
• Cultivate a healthy and ethical
• corporate culture
• Protect the professions reputation
• Mary may eventually understand and forgive
• Tom may change for better

The Laura Nash Model (12 Questions)
Q7 Injuries to whom ? Q8 Discussing with the
affected parties ? Q9 Your position over a long
period of time ? Q10 Convincing to your primary
stakeholders ? Q11 Symbolic potential of your
action ? Q12 Exceptions to your stand ?
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The Laura Nash Model (12 Questions)
Can your decision survive disclosure and public
scrutiny Yes As the decision for report will
benefit the interests of my company, my
profession and the general public
Q7 Injuries to whom ? Q8 Discussing with the
affected parties ? Q9 Your position over a long
period of time ? Q10 Convincing to your primary
stakeholders ? Q11 Symbolic potential of your
action ? Q12 Exceptions to your stand ?
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The Laura Nash Model (12 Questions)
Perception of others Understood for the
companys long-term benefits Misunderstood
disloyal to my fiancée self-interest
promotion
Q7 Injuries to whom ? Q8 Discussing with the
affected parties ? Q9 Your position over a long
period of time ? Q10 Convincing to your primary
stakeholders ? Q11 Symbolic potential of your
action ? Q12 Exceptions to your stand ?
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The Laura Nash Model (12 Questions)
Rationalization for deviating If Tom agreed to
disclose his fraud to the top management of the
company
Q7 Injuries to whom ? Q8 Discussing with the
affected parties ? Q9 Your position over a long
period of time ? Q10 Convincing to your primary
stakeholders ? Q11 Symbolic potential of your
action ? Q12 Exceptions to your stand ?
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Blending Various Decision-Making Approaches

• Different models Common decision algorithm but
  slightly different road maps
• Arriving at an ethical decision with a two-step
  approach
• Step One Understanding the ethical problem
• Step Two Thinking through the issues involved