Ethics

1. As a controller of Australia, Alan Fazil’s duty is to audit the firm’s finance operation and disclose any finding to the audit committee. He suggested to disclosing the issue of misleading, dishonest and fictionalizing information to the Audit committee based on morally ethical codes of doing the right thing. Not bringing this matter to the audit committee would breach a social contract between him role as a trusted member of society and also breach fundamental universal principle such as honesty and integrity. However, as a result of concerning the loyalty, reputation and risks of losing contract within Australia Steel and the threat from Gray’s caution, he did not bypass Martin Gray, CEO of Australia Steel to directly disclose and report the matter to Audit Committee for the best interest of both himself and Gray. So the ethical dilemma faced by Alan Fazil is Teleological and Deontological whether for the interest of himself and Australia Steel or acting ethically follow the right and the justice. 2. Allan Fazil should report the matters of dishonesty policy and negative effects to the Audit Committee. He should be straight forward, honest and sincere in profession and business relationships based on APES 110 fundamental principles of Sec. 110 – Integrity. And he is obligated to bring the matter to Audit committee as a CPA member based on the professional act codes. In relating to ethical, it is also a right thing to report the issue of Australia Steel to the Audit committee regardless of whether anyone is trying to impeding. Doing so could bring benefits to Fazil, such as fulfilling the obligation as a CPA member and an Auditor, maintaining his professional reputation of being honest and justice and succeed in doing the right thing ethically. However, this has negative effects on his career because of bias conflict of interest and undue influence of others within the organization. He could not maintain this contract with Australia Steel as a result of disagreeing with Gray to report the matter. Losing job could be harm to himself and his ongoing career. Also, it could affect stakeholders of Australia Steel. Reporting the matter to Audit Committee can make the production operated accurately but can decrease the profitability and losing the competitive power in industries in relating to impeding the repair and maintenance policy and overstated work orders. This may lose current clients and some shareholders and negative effects on attracting business investors. 3. Three fundamental principles in APES 110 Code of Ethics for Professional Accountants Fazil would be concerned about in this case are Section 110 Integrity, Section 120 Objectivity and Section 150 Professional Behavior respectively. First one is integrity which imposes an obligation on all Members to be straightforward and honest in professional and business relationships. Integrity also implies fair dealing and truthfulness. (Code of Ethics fro Professional Accountants, June 2006, page 8) In the course of deciding what action to take in this case, Fazil should insist on his honesty and sincere in professional accounting and business relationships since he holds CPA and the controller of Australia Steel. He has the responsibility of being honesty to make problem clear such as questioning the accounting for repair and maintenance expenditure and the effects on the production department. Secondly, Section 120 the principle of objectivity imposes on all members not to compromise their professional or business judgment because of bias, conflicts of interest or the undue influence of others. (Code of Ethics for Professional Accountant, June 2006, page 9) Obviously, these bias and conflict of interest can be found in this case. Fazil would comprise her professional and business judgment. She should not be biased in his judgment even though Gray did not agree with what Fazil concerns based on his professional judgment and description of the matter with cost-conscious in production operations. Thirdly, Section 150 Professional Behavior, it imposes an obligation on members to comply with relevant laws and regulations and avoid any action or omission that may bring discredit to profession. (Code of Ethics for Professional Accountants, June 2006, page 13) In this case, Sharon should insist on complying with the relevant laws and regulations without being an accomplice to dishonest acts and benefiting from dealing with the repair and maintenance treatment and policy. As a CPA member, Sharon is obligated to comply with the accounting principles with regards to the policy and treatment so that it is not ethically right to break the code to go along with Gray’s decision. Overall, three fundamental principles of ethic codes imply that Sharon should be of greatest concern in this case. 4. From an operational perspective, this cost-control policy might not work properly, smoothly and successfully. Conflicts of interests have already occurred. Whether reporting the dishonest and misleading information has already been an issue within Australia Steel, because Fazil as an auditor could report this matter to the Audit Committee. In the future, some other matters could occur in other manners. Therefore, this cost-control policy is more likely to fail to work in the long run. From an ethical perspective, Teleological ethics emphasizes that the benefits of the consequences outweigh the costs while the ethical modification or justification happens. In this case, it is believed that the purpose of modifying the policy and overstate the information is to increase the profitability in Australia Steel, so no matter in what ways the goal is achieved, the action is ethically right. However，in the future, the dishonest and misleading information is likely to be disclosed or revealed, which have significant implications on the organizations’ business operation, reputation and image. The costs of this cost-control policy far outweigh the benefits that could maintain the profitability in a certain period. Deontological ethics refers to process of a decision or act is right or wrong regardless of the consequences. In this case, although the modified policy and information can maintain the profitability of Australia Steel and increase the competitive power in industries, the process of overstating work orders, misleading information and fostering dishonesty in the repair and maintenance policy are not right ethically. No matter how successful the consequences are; the intention and the process are not right and justice ethically. So it is not right to do under Deontological point of view. 5. Stage one is Heteronomous Morality. It refers to punishment and obedience and what the right thing to do is literal obedience to rules and authority. (ACCG323 week 7, semester 1, 2010, lecture notes. Ethics in accounting) At this stage, Fazil should be abided by the rules to avoid punishment from authorities. In the case, his concerns at this level would be solely based on the fact that he could get caught and could be expelled by the CPA profession. Since she did evaluate the repair and maintenance policy and treatment of Australia Steel and found out the negative effects on the production operations. As a result of his obedience to rules, he would not agree with Gray’s suggestion and should go along with the Audit committee. Stage 2 is Individualism, Instrumental Purpose and Exchange. What is the right thing to do is to serve one’s own or other’s needs and making fair deals in terms of concrete exchange. (ACCG323 week 7, semester 1, 2010, lecture notes. Ethics in accounting) Fazil’s concerns at this level would be based on the fact that it might harm her career. He might believe that the possibility of getting sacked if he agrees with Gray not revealing the dishonesty and fictionalization in the policy and work orders to the Audit committee, even if the overstated work orders continued to be approved and operated. Stage 3 is Mutual Interpersonal Expectations, Relationships and Conformity. What is right thing to do is living up to what is expected by people close to you and playing good role, being concerned about the other’s feeling as the need to be a good person in your own eyes and those of others. (ACCG323 week 7, semester 1, 2010, lecture notes. Ethics in accounting) Fazil’s revaluation and suggestion of the issue of repair and maintenance expenditures at this level would be based on the fact that fellow colleagues would not accept that he gave up the rules and followed Gray’s will at all cost. If he got caught, she would lose trust and respect in the eyes of her colleagues, family and friends. Stage four is Social System and Conscience Maintenance. What is right thing to do is fulfill duties to which you have agreed to society and upholding the social order maintaining the welfare of the society (ACCG323 week 7, semester 1, 2010, lecture notes. Ethics in accounting) Fazil’s decision to bring this mater to the attention of the audit committee would be based on the fact that not disclosing the overstated work orders, potential Audit adjustment and negative policy effects is against the law and would undermine the image and credibility of the profession and the code of professional ethics and values that it espouses. Stage five is Social Contract or Utility and Individual rights. What is right thing to do are relative rules usually upheld in the interest of impartiality, basic rules, values and legal contracts of a society and because they are the social contract (ACCG323 week 7, semester 1, 2010, lecture notes. Ethics in accounting) Fazil’s decision to bring this mater to the attention of the audit committee would be based on the fact that not disclosing the overstated work orders, potential Audit adjustment and negative policy effects would breach a social contract between his roles as a trusted member of society which accords her respects as an upstanding professional. Stage six is Universal Ethical Principles. What is right thing to do is that following self-chosen ethical principles which are universal principles of justice of equality of human rights as the b belief as a rational person in the validity of universal moral principles. (ACCG323 week 7, semester 1, 2010, lecture notes. Ethics in accounting) Fazil’s decision to bring this mater to the attention of the audit committee would be based on the fact that not disclosing the overstated work orders, potential Audit adjustment and negative policy effects breached fundamental universal principles such as integrity, objectivity and being truthful. Fazil appears to be at Stage 4, he is to fulfill her duties to which he has agreed by laws and as a CPA profession she is to keep the institution going as a whole. In this case, he suggested disclosing the overstated work orders, potential Audit adjustment and negative policy effects in relating to the resulting corporate climate.