Resolving Ethical Dilemmas You Make the Call!

Transcription

1 Resolving Ethical Dilemmas You Make the Call! Dave Co(on, CPA, CFE, CGFM Co(on & Company, LLP Alexandria, Virginia

2 Why do we need this session?! Shouldn t it be easy to remain ethical?! What are some barriers to sound ethical decisionmaking?! How can these barriers be overcome?! We are all well-educated and highly trained accountants and auditors, so all we should really need is a good program, checklist, process, or model to guide us Ethical Decision Models Generic AICPA Ethics Decision Tree for CPAs in Government AAA/VSCPA Ethical Decision Model Rest s Model of Ethical Action Kohlberg s Theory of Cognitive Development AICPA Conceptual Framework 1

3 Ethical Decision Models: Generic Follow your organization s ethics policy Failing that, work up your chain of command until resolved Failing that, take additional steps you deem necessary Failing that, reconsider your continuing employment with this organization 2

4 Ethical Decision Models: AAA/VSCPA 1. Determine the Facts 2. Define the Ethical Issues 3. Identify Major Principles, Rules, and Values 4. Specifiy the Alternatives 5. Compare Values and Alternatives: See if Decision is Clear 6. Assess the Consequences 7. Make Your Decision Theoretical Framework Rest s Model of Ethical Action Four Components of Ethical Reasoning 1. Identification of an Ethical Dilemma awareness that a situation may affect the welfare of others. 2. Ethical Judgment evaluation of outcomes that ought to occur. 3. Intention to Act Ethically value assessment of the right choice versus other decision alternatives in formulating an intention to act. 4. Ethical Action/Behavior carrying out the ethical action. Source: Auditors Ethical Reasoning: Insights from Past Research and Implications for the Future, Journal of Accounting Literature, 2003, By Jones, Joanne; Massey, Dawn W.; Thorne, Linda. 3

5 Theoretical Framework Kohlberg s Theory of Cognitive Development Post-conventional Level Conventional Level Pre-conventional Level Individual decides what is right or wrong using universal ethical principles such as the common good and justice Individual is concerned about expectations of significant others and relies upon rules and laws to determine what is right or wrong Individual decides what is right or wrong based on consequences Level of Sophistication Source: Auditors Ethical Reasoning: Insights from Past Research and Implications for the Future, Journal of Accounting Literature, 2003, By Jones, Joanne; Massey, Dawn W.; Thorne, Linda. Theoretical Framework Kohlberg s Theory of Cognitive Development Principles-Based Standards Just do the right thing Rules-Based Standards Situational Ethics Just follow the rules Just Don t get caught Level of Sophistication 4

6 AICPA Conceptual Framework Identify Ethical Threat Is Threat Significant? NO YES Identify and Apply Appropriate Safeguard(s) Is Threat Eliminated or Reduced to an Acceptable Level? NO Consult with Other Experts Is Threat Eliminated or Reduced to an Acceptable Level? NO YES YES Proceed with Professional Service Do Not Proceed with Professional Service; Consider Disassociating with Client or Employer For example " In 2014, Co4on & Company was awarded a 5-year, $52 million contract to audit the United States Navy s financial statements " VERY high-profile audit " Fees would be about 20-25% of C&C annual revenues " Does this engagement impair (or create the appearance of an impairment of) C&C s independence or objecvvity " To answer that quesvon, we did a detailed Threats & Safeguards analysis using the AICPA s and the GAO s Conceptual Frameworks 5

7 Primary Safeguards Audit Report U.S Navy Fees Primary Safeguards Fees Audit Report Ongoing Oversight of the Audit U.S. GAO Financial Statements U.S Navy 6

8 Many Models, Frameworks, Theories Pick one that works for you But, remember EVERY one of these starts with one essential step: Many Models, Frameworks, Theories Pick one that works for you But, remember EVERY one of these starts with one essential step: Recognizing that there is an ethical issue involved in your actions or decisions 7

9 Let s Just Practice Ethical Dilemmas: Case Studies Ethical Case Studies! Read each case study! Formulate your conclusion on each! Mark your conclusion on the case study and on the cover/summary page 8

10 Ethical Dilemmas #1 New Age Soccer [ ] A. There is no real problem here. Keeping informal track of scores did not formally violate any rules. [ ] B. This is a problem. By agreeing to participate in the league, these parentcoaches committed themselves to following the rules. Ethical Dilemmas #2 DUE-Due-Diligence [ ] A. There is no problem here. Since the adjustments are below your numerically defined materiality level, you have no obligation to insist that the corrections be made to the financial statements. [ ] B. This is a problem. Although the adjustments are below your numerically defined materiality level, you have an obligation to insist that the corrections be made to the financial statements so that the user can be fully informed. 9

11 Ethical Dilemmas #3 How Green Is Your Reputation? [ ] A. There is not really a problem here. Pat is clearly the most qualified person GAO has to lead this evaluation and Pat s reputation for scholarly and unbiased analysis has never been questioned. [ ] B. This is a problem. Although, Pat is clearly the most qualified person GAO has to lead this evaluation and Pat s reputation for scholarly and unbiased analysis has never been questioned, if users of GAO s report became aware of Pat s spouse s lobbying activities and the contributions to environmental activist groups it may not look good. Ethical Dilemmas #4 Office of Redundancy Office [ ] A. There is no problem here. Congressman Buster s comment, taken in total, merely indicates his continuing support for ORO s work. [ ] B. This is a problem. Congressman Buster may have been trying to get you to change your conclusions. 10

12 Ethical Dilemmas #5 PEAK Performance [ ] A. Juno s reasoning seems sound. There s no need to require restatement of prior year financial statements. [ ] B. Juno s reasoning is flawed. You need to inform PEAK that they need to restate the prior year financial statements. Ethical Dilemmas #6 Non-Attest Services for GMO [ ] A. This non-attest service would impair your firm s independence and should not be undertaken unless RY&C resigns as GMO s auditors. [ ] B. This is not the type of non-attest service envisioned by Rule 101 or the yellow book, so there is no problem accepting the assignment. [ ] C. This non-attest service can be undertaken as long as supplemental safeguards are met. [ ] D. This non-attest service can be undertaken as long as supplemental safeguards are met and GMO s audit committee approves the service. 11

13 Ethical Dilemmas #7 SOX Compliance at Electronic Village Corporation [ ] A. There is no problem here. You and your firm have not done anything improper. [ ] B. This is a problem. You should not accept the engagement on these terms. Final Thoughts to Ponder! We are CPA s and accountability professionals first and foremost! Our first obligation is to serve the public interest! Serving the public interest and prospering are not mutually exclusive, BUT! If serving the public interest ever conflicts with prospering,! Our choice must be to serve the public interest 12

14 Winter Seminar Resolving Ethical Dilemmas You Make the Call! Dave Cotton, CPA, CFE, CGFM Cotton & Company, LLP Alexandria, Virginia 13