Ethics in Accounting

Daniel Potter, a staff accountant for one of the Big Eight Accounting firms, has discovered that one of their biggest clients is increasing their net worth by over estimating one of their properties by $1,900,000 (Business & Professional Ethics, 2007). Rules stipulate that it is the responsibility of the auditor to report any type of discrepancy that would change the company's net worth by more than one percent, and in this case it would change by seven percent. Naturally, Daniel includes his findings during his audit, along with his recommendation that the company lowers the actual worth of the property to its actual value of $150,000. Since Daniel is working for a reputable company that has the reputation of being honest and ethical, he feels that making the legal decision in this matter by disclosing his findings is the only way for him to represent his profession accurately. The problem is, though, that the owner, after reviewing the reports, has told him that he has to take out all of his observations on the property, and that his suggestions need to be taken back. Daniel refuses, loses his chance for a bonus and a promotion, and the owner changes the records anyway just so that Baker Greenleaf can keep the company as a client. Now, Daniel has a serious decision to make. He can remain quiet, accept the consequences of being honest, and continue working. He can step up and report the actions of his superior to a partner counselor or the personnel manager, which are all employed by the owner. And finally, he could go to the Senator that is trying to make the accounting profession regulated by the government, which would give him fuel for the fire. Before making a decision which could not only affect him personally, but the entire accounting profession as well, he has to consider all the steps for making an ethical decision.

There are various stakeholders involved in this issue, and they all have something to lose if the truth is revealed. Daniel is the first, and if he pursues the matter farther it is very likely that he will lose his job, and he would have a hard time obtaining another job because of a bad reference from Baker Greenleaf. Baker Greenleaf is also a stakeholder in this dilemma because if Daniel comes forward with the information, it would become known to the public that yet another accounting firm is acting in an unethical and dishonest way. The firm would also lose the large company as a client, which would lower their overall profits. The final stakeholder that has to be considered in this decision is the accounting professional itself. If the Senator of the State, who is lobbying to make accounting regulated by the government, finds out about the actions of the company, then all the accounting firms and owners would suffer. Of course, there are other stakeholders involved such as shareholders and creditors, as well as the general public, but their involvement in this issue is of lower importance. The primary stakeholders within the firm and the company, and that are directly affected by the decision, have to be considered most.

Daniel has to begin with analyzing the impact upon the primary stakeholders by using the 5-question method (Business & Professional Ethics, 2007). The profitability of Daniel, the firm, and the company will be negatively impacted if the information is released, so a decision based on this would point to withholding the truth. The legality of keeping the information to him is obvious, so by using this step the decision would be to disclose the information. The next two questions, which are is the decision fair and right, would also point to the fact that the information has to be known by all the stakeholders involved. The last step of this process is whether the decision made would further sustain the firm, or in this case, the accounting profession. The firm would lose money, and the accounting profession would gain, so this question can be answered with either decision made. In this particular dilemma, the 5-question analysis process shows that Daniel should divulge the information for the benefit of the majority of the stakeholders involved.

The next step in the decision process that has to be too considered is philosophical approaches to ethical decision making. Consequentialism, Deontolgy, and Virtue Ethics theories are all useful in this case. Consequentialism states that any decision should be made based upon the overall consequences of the entire stakeholder's involved (Stanford Encyclopedia of Philosophy, 2006). A decision made based on this form of analysis would state that for everyone involved it would be best for Daniel to step up and report his findings, continue his fight to remain ethical, and bear the consequences of his actions. Deontolgy states that a decision has to be made based on rights, duties, justice, and the action involved rather than the consequences (New World Encyclopedia, 2008). When considering this form of decision making it is obvious, that once again, Daniel must disclose his findings and be willing to follow his rights and duties that are outlined by being a professional CPA. The final philosophical approach to be taken is virtue Ethics, which states that the traits of human character are essential for responsible living (The Free Dictionary, 2010). Basic morality, when applied to this approach, states that Daniel has to step forward with the hidden information in order to maintain the morality expected of everyone, especially professionals in any field. All three philosophical approaches used suggest that Daniel has to share the information that he has, no matter what the personal consequences may be.

Daniel, when considering all three philosophical viewpoints along with the 5-question method, and by using his own ethical and moral values, is shown that the only true decision that can be made is for him to divulge the information that he knows, even when it means the loss of a client for his company, the possible loss of his job, and giving the senator more information to use in his battle. The reputation of the accounting profession, along with his personal values, are at stake here and the only way for Daniel to maintain the level required of his position is to stand up for what he believes, and defend that decision with the steps involved in any ethical question.

The majority of the primary stakeholders involved in this decision will be negatively impacted financially. Daniel will lose an income, whether he loses his job or not. The firm will lose an important client and will have declining profits. The company involved will lose shareholders and possibly be brought up on criminal charges for fraud. However, in the long term, Daniel will have maintained is integrity and honesty, the company will not be held liable for the company's illegal actions, and all the minor stakeholders will now the truth about the company that they had been backing with money or products. When making an ethical decision of any kind, all approaches of ethical decision making must be considered. Daniel knows what the accounting profession requires of a CPA, and even though his current career is in jeopardy, and the possibility of the Senator using his information to change laws, he has to follow through with his original assessment of the company that he audited. Not only is this the expected action of a professional accountant, it will also show the public that not all accountants are unethical and selfish, and thereby raising the overall perceptions that the public holds about accountants and the majority of the professionals that pride themselves with being honest, ethical, and dependable.

Business & Professional Ethics Approaches to Ethical Decision Making.Axia College
Business & Professional Ethics The Dilemma of an Accountant.Axia College
New World Encyclopedia Deontology Ethic.newworldencyclopedia.org
Stanford Encyclopedia of Philosophy Consequentialism. plato.stanford.edu
The Free Dictionary Virtue Ethics encyclopedia2