Reference no: EM13246243 , Length: 2083 Words

TASK 1 CASE STUDY: Pressure to participate in fraudulent activity

Outline of the case

Helen Brady is a promising young accountant (ICA) who has just been promoted to manager of a mid-size firm XYZ Accounting. As part of Helen's promotion she has been given a large client Major Business Ltd and the partners of Helen's firm have advised her that if she can keep the client happy she may be offered a partnership promotion.

Helen has worked hard and been very thorough in preparing the financial statements for Major Business Ltd in accordance with accounting standards. She holds a meeting with the business owners to discuss the results which are showing significantly higher profits than previous years.

The client is not happy with the amount of tax they have to pay due to higher than usual profits. They advise Helen that she needs to ‘find' additional expenditure to reduce the yearly profit and to move some purchased plant and equipment off the balance sheet and into repairs and maintenance expense in the income statement. When Helen attempts to object to the suggestion, the client states that ‘XYZ Accounting do this every year and that Major Business Ltd is their biggest client'.

Helen is feeling uncomfortable after the meeting with the client and approaches her senior partner who dismisses Helen by saying ‘keep the client happy'.

Questions

Decision making framework - how to resolve ethical problems

Consider the following decision making framework below and answer the key questions.

1) Gather the relevant facts and identify the problems

- Do I have all the facts relevant to the situation?
- Am I making assumptions? If so, could facts be identified to replace these assumptions?
- Is it really my problem? Can anybody else help?

2) Identify the affected parties
- Who are the individuals, organisations and key stakeholders affected?
- In what way are they affected?
- Are there conflicts between different stakeholders?
- Who are my allies?

3) Consider the ethical issues involved
- Have I referred to APES110 Code of Ethics?
- What are the professional, organisational and personal ethics issues?
- Would these ethical issues affect the reputation of the accountancy profession?
- Would these ethical issues affect the public interest?

4) Identify which fundamental principles are affected
- What are the threats to compliance with the fundamental principles of:
- Integrity
- Objectivity
- Professional competence and due care
- Confidentiality
- Professional behaviour
- If so, are the treats to compliance with the fundamental principles clearly insignificant?
- At what point should I seek guidance from external sources such as ICAA

5) Consider and evaluate alternative courses of action
- Outline the possible courses of action I could take
- Test the proposed course of action. Answer the following questions:
- What are all the consequences associated with the proposed course/s of action?

- Is there any reason why the proposed course of action should not stand the test of time?
- Would a similar course of action be undertaken in a similar situation?
- Would the suggested course of action stand to scrutiny from peers, family and friends?

7) Implement the course of action and monitor its progress What course of action is recommended?

TASK 2 ARTICLE

Read the following article then complete the task.

Why good employees do bad things

The potential costs of unethical behaviour are extremely high. It can badly hurt a company's reputation - and sometimes ends in a lawsuit.

Still, year after year there are cases ranging from minor fraud at a small business to giant accounting scandals that have rocked the business world.

In the new white-paper Why Good People Sometimes Do Bad Things: 52 Reflections On Ethics At Work, Rotterdam School of Management professor Muel Kaptein explores the behavioural and psychological reasons why people step over the line. Here are a few of his key insights on how lapses occur, and what businesses can do to promote a more ethical culture.

1. Organisations and people develop tunnel vision. Setting and achieving goals is an essential part of any successful business. When employees have challenging and measurable goals, they've been shown to work harder, be more persistent and have better self awareness.

When a goal becomes a fixation of a person or company, everything else (including ethical considerations), can fall by the wayside.

When Enron offered large bonuses to employees for bringing in sales, they became so focused on that goal that they forgot to make sure they were profitable or moral. We all know how that ended.

Being conscious of the type of goals being set, the behaviours they encourage, and putting them in a larger context is an important skill.

2. The power of names makes unethical behaviour seem trivial. When bribery becomes "greasing the wheels" or accounting fraud becomes "creative bookkeeping," what's at least wrong and possibly criminal is brought down closer to the level of a joke between friends.

Nicknames separate actions from their moral implications, making each subsequent instance seem less important until it becomes a normal practice.

Staying alert to these euphemisms and making ethical divisions crystal clear can arrest such behaviour before it escalates.

3. How good behaviour leads to bad. Counterintuitively, doing the right thing can lead to bad behaviour in the future. One phenomenon Kaptein mentions is the compensation effect.

When people have been model employees for a long time, they feel as though they've banked up a kind of "ethical credit". Research from Nina Mazar and Chen-Bo Zhong found that people who have just bought sustainable products tend to lie and steal more afterwards than those who bought standard versions.

Another issue is the "free rider" problem. That refers to situations where the norm is ethical, and the total damage of bad behaviour is limited. Someone might think "If nobody in an area pollutes, they won't notice if I do it just this once."

4. Deadlines can cause moral blindness. Time pressure is inevitable in the workplace. Many people seek it out and do their best work in such situations. However, it can have negative ethical consequences.

In research cited by Kaptein, a group of theology students were told to preach the story of the good Samaritan, then walk to another building where they'd be filmed. Along the way, they encountered a man in visible distress.

When given ample time, almost all helped. When they were deliberately let out late, only 63 per cent helped. When encouraged to go as fast as possible, 90 per cent ignored the man.

Focusing on a deadline blinds people to those around them and to the consequences of their actions. Making time for reflection needs to be a priority for organisations.

Task

The article above highlights the reasons that employees behave unethically. Describe the workplace conditions and management behaviour that would promote ethical behaviour. Reference at least four sources in your description.