Ethics in Accounting

Question one: who are the stakeholders and why?

In the Deciding, Who Receives the Swine flu vaccine case study, theshareholders include the Center for Disease Control and Prevention,the individuals whom the CDC has given the priority to receive thevaccine, and the companies given the responsibility of distributingthe vaccine, such as Goldman Sachs and Citigroup, among others. Thesethree parties are the shareholders because each has a mandate or anobligation and choices to make only that the available option resultsin an ethical dilemma.

Question two: One of the Stakeholders facing an ethical dilemmaand how the dilemma can be solved using both the consequentialist anddeontological approach.

The CDC has the mandate of ensuring the distribution of the vaccineand has to choose who receives and who does not and it is thesechoices that put them in the dilemma. Does the action of giving thevaccine to those in the targeted groups result in injustice? Besides,would an attempt to exercise fairness result in increased deathsamong those at risk? The consequentialist approach emphasizes on theconsequences when determining whether an action is good or bad(Mintz, &amp Morris, 2008). Using the consequentialistapproach, the CDC should give the individuals at high risk as thiswould reduce the number of causalities. Reducing causalities which isa good outcome justifies the action of administering the vaccine toonly those at risk. On the other hand, the deontological approachbase their judgmental of an action being either good or bad on asense of duty or on the thinking process (Mintz,&amp Morris, 2008). Instead of acting by inclination,the deontological view encourages one to act out of a sense of dutyor in adherence to the moral law. When using the deontologicalapproach to solving the ethical dilemma that the CDC is in, one hasto establish a maxim from which they will come up with a principle,access whether it makes sense or not. Besides, one has to explorewhether or not they are comfortable living in a world where theprinciple is used in every realm of life. For instance, the CDC mayhave the maxim that they are mandated to help those in great riskfirst. When this maxim is generalized, it makes sense as everyonewould like to live in a place where the weak are catered for first.

Question three: the downside to using these approaches.

The downside of using the consequentialist approach is that it makesit hard to come to a conclusion on the consequence to be considered.For instance, in this case, should one use the consequence onequality to all people or the possible causalities? Besides, how doesone decides on which consequence and stakeholders to give priority?For instance, what if the group chosen by the CDC is vaccinated, butthe disease ends up killing people who hold crucial positions suchas soldiers, police, president, judges and the likes. On the otherhand, the deontological approach fails in its unbending adherence tothe rules such that it prevents the ability of a person to pass ajudgment on a decision. Besides, this approach invokes a fiduciaryinstead of the moral law which is against its founding principles.For instance, the CDC does not have a legal duty to care for theinterest of others first as opposed to that of its staff.

Question four: How the dilemma can be solved using a practicaldecision making model

The ethical dilemma facing CDC can be solved using the Mintz,&amp Morris, (2008) ten steps approach as follows.

  1. Framing the ethical issue

In this case, the ethical question is: should the CDC choose theperson to save, leaving the lives of other people in danger?

  1. Gathering the facts in the case

The swine flu vaccine is inadequate hence, not everybody can get it.

There are certain groups of people who are more at risk ofcontracting the disease compared to others. This includes theindividual offering medical emergency services, the pregnant mothers,and the young children.

  1. identifying the stakeholders and their obligation

The CDC has the role of determining who receives the vaccine and whodoes not.

The persons in the targeted groups have the obligation of either totake the vaccine or not.

  1. Identification of the applicable accounting ethical standards relevant to the situation

Fairness. A cost-benefit analysis should be done to access the impactof the disease on both those at higher risk and those not at higherrisk.

Honesty. The CDC should disclose the information that the peopletargeted have a high risk of contracting the disease while the resthave low risk.

5. Identifying the operational issues involved in the situation.

Is the public concerned with the distribution of the vaccine?

Is the government questioning the act of assigning the role ofdistributing the vaccine to private companies?

Is there a public concern over those chosen to receive the vaccine?

Is there something that can be done if some of the people in thetarget group refuse to take the vaccine?

6. Identification of the accounting, as well as the auditing, issuesapplicable in the case.

In case the swine flu is not contained, the country will be affectedeconomically in terms of the loss of the future generation.

The citizens who fail to get the vaccine may fail to pay their taxesarguing that the state discriminated against them when they needed itthe most.

There may be street demonstrations over the distribution of thevaccine that may cause a destruction of properties.

The economy may be disrupted in case the flu is not contained.

7. Listing of allthe available alternatives both those that can be done and those thatcannot.

Doing nothing. Let the body responsible for manufacturing the vaccineproduce enough of it for all people.

Give the vaccine on the first-come-first-serve basis.

Go ahead and give the vaccine to the people that are more prone tocontracting the disease.

8. Comparing and weighing the alternatives

Doing nothing means that the flu will infect more people hence, morecasualties before it is contained.

Giving the vaccine on the first-come-first-serve basis means thatonly a small group will be vaccinated although everyone will besatisfied with the fairness of the process.

Giving the vaccine to the few people at risk will prevent a rapidspread of the vaccine, but may bring discontentment among those whowill not receive.

9. Deciding on the course of action

Give the vaccine to the person with the highest risk of contractingthe flu. While the public discontentment may be dealt with later, thelost lives and the rapid spread of the flu may be catastrophic to theentire population.

10. Reflecting on the decision

Justice is adouble-edged sword as it cut both sides. Giving vaccine to those whodeserve them the most is an injustice to the rest, and they may beprompted to react negatively. While the CDC does not have controlover how the rest of the people react, it has control over the spreadof the disease in those at high risk.

Reference

Mintz, S. M.,&amp Morris, R. E. (2008).&nbspEthicalobligations and decision making in Accounting: Text and cases.New York, NY: McGraw-Hill/Irwin.

Ethics in Accounting

ETHICS IN ACCOUNTING 8

Ethicsin Accounting

Ethicalconduct is exceedingly critical in almost every undertaking. Inaccounting, ethics is very significant and requires individualsentrusted with the operations of an organization show high standardsof conduct with respect to the different aspects of business. Forinstance, accountants are required to show ethics through ensuringtransparency in their undertakings. In the accounting field, theestablishment of SOX helped in dealing with ethical issues. Thisreport will apply SOX in discussing ethical concerns raised inCooperSterling Corporation scenario.

Accordingto the SOX Section 402, no organization is capable of making personalloans to officers as well as directors of public companies withlimited exceptions and ordinary course of business, the loans shouldbe within the normal market terms (Hamilton et al., 2008). From theCooperSterling Corporation case, this section was ignored becausewhen the company went public and its headquarters were moved toMadison Avenue in New York, Donald also was forced to move to NewYork City but since he could not afford the lifestyle of the newenvironment, he arranged for CooperSterling to provide him with aloan having zero interest so as to purchase a new wardrobe and anapartment. As such, it was unethical for the organization to provideDonald with a zero interest loan since it was against the provisionsof the SOX under section 402. In case Donald was to be provided withthe loan, the company should have applied the normal market terms,where it could have used the market interest rates.

Section306 of the SOX prohibits officers and directors of a publicly-tradedorganization from engaging in the trade of shares during 401 (k)blackout periods, and any profits that become realized resulting fromtrade during this period may be recovered by the organization orthrough shareholder derivative lawsuit (Hamilton et al., 2008). Fromthe CooperSterling Corporation case, Donald violated this sectionsince when SEC decided to carry out an audit, most new employeeswere not in a position to sell their stock because their stock weresubject to selling blackouts of CooperSterling stock in their 401 (k)plans. However, Donald decided that he must sell $25,000,000 of hisstock prior to the end of the SEC audit in case the value diminished.This violated this section because no officer or director of apublicly-traded organization should trade during the 401 (k) blackoutperiods. Therefore, Donald conducted unethically in this caseaccording to this provision.

UnderSOX, section 302 requires the Chief Financial Officer (CFO) and theChief Executive Officer (CEO) of a publicly-traded organization topersonally certify the accuracy of the financial reports filed withthe Securities Exchange Commission (SEC) (Hamilton et al., 2008).However, this was a different scenario when it came to theCooperSterling Corporation. In the CooperSterling case, Donald, theCEO, was not ready to certify the accuracy of the financial reportsfiled with SEC. The moment Donald realized that SEC was going to beinvolved with auditing he decided that SEC could not do anything tothe organization in case there was no evidence. So, he ordered thedestruction of all accounting records to do with MadCo throughshredding so as to ensure that no evidence was available to show theinaccuracies of the financial reports. This was unethical because asthe CEO, he could have personally certified the financial reportfiled with SEC because he was not ready to certify the accuracy ofthe financial reports, he went against this provision.

Anotherethical concern that emerges in the CooperSterling Corporation caseis that of membership in the audit committee. In order to realizeindependence in the audit committee, section 301 of the SOX indicatesthat no consulting, advisory, or other compensatory fee fromcorporation should be given to the committee members except the usualboard pay. The second part of this section argues that an auditcommittee member should not be an affiliated person and should alsonot be an executive officer. From the CooperSterling case, when thereis suspicion concerning the undertakings and transactions of Donald,he indicates that he knows there are no problems because he is partof the audit committee. Being a member of the audit committeeviolates the provisions of this section because Donald is the CEO ofthe organization, which implies that he would influence theindependence of the auditors. Thus, according to the provisions ofthis section, the CEO does not conduct himself ethically by being amember of the audit committee.

Underthe SOX provisions, section 406, it is important for a company toreport if it has a code of ethics for senior financial officers andreport changes in the code in case a company does not have a code ofethics for senior financial officers, it has to indicate the reasonsfor not having the code of ethics (Hamilton et al., 2008). In thecase of CooperSterling Corporation, it emerges that there is no codeof ethics for the senior financial officers. This emerged as MargeretOlson, a senior staff accountant, speculated that Donald was actingunethically or illegally. Therefore, the management of theorganization has conducted unethically according to this provision bynot having a code of ethics for the senior financial officers of theorganization, and not providing the reasons for lacking the code ofethics.

Also,according to section 806 (a) of the SOX provides for protection foremployees of publicly-traded organizations. The section provides thatno company or any officer, employee, contractor, subcontractor, oragent of a company under section 12 of the SEC Act of 1934 (15 U.S.C.78l), or under section 15(d) of the Securities Exchange Act of 1934(15 U.S.C. 78o(d)) may discharge, suspend, demote, threaten, harass,or in any other manner discriminate against an employee in the termsand conditions of employment due to any lawful act done by theemployee. From the CooperSterling case, Margeret Olson became firedby the CEO due to writing a letter that stated that if there wereproblems in the company, the auditors of the company would take careof it. This violated the provisions of SOX, which was unethicalconduct.

Accordingto section 401 of the SOX provisions, it is important that all offbalance sheet transactions, obligations, and arrangements becomereported in a manner that is not misleading. This helps in ensuringthat organization officers conduct themselves ethically andresponsibly in handling of off balance transactions. However, in thecase of CooperSterling, handling of such matters is misleading. Thisis because in the organization, the CEO does not want to clearlyindicate the appropriate performance of the organization, but insteadwants the off balance sheet transactions to be reported in amisleading manner. For instance, he arranges a deal for his salaryincrease and bonus, which are to be tied on the general revenue ofthe company and the stock price of the company. This is misleadingand emerges as unethical according to the SOX provisions.

Section802 of the SOX Act helps in dealing with companies that becomeengaged in illegal destruction of documents since this is unethicalas it attempts to prevent litigations from being carried outeffectively. According to this section, criminal sanctions areprovided for entities that engage in illegal destruction of documentsbefore the commencement of litigation. From the CooperSterlingCorporation case, Donald and auditing firm ordered the destruction ofall the accounting papers for the past two years in an attempt toprevent SEC from finding any evidence from the organization’sfinancial reports. This is an unethical conduct as per the section asit tends to tamper with the litigation process.

Accordingto SOX Act, Section 409, each public company is required to discloseon a current and rapid basis, any additional information concerningthe company’s financial conditions. This is an important aspectsince it helps in ensuring that there is accountability andtransparency based on the current financial conditions of thecompany. According to the CooperSterling Corporation case, theorganization failed to disclose its additional information in acurrent and rapid basis concerning its financial conditions this canbe seen through the CEO in conjunction with the CFO forming a specialpurpose entity, which they would use in indicating that the parentcompany is profitable. This is unethical because through the specialpurpose entity, the organization changes its financial condition, butthis is not revealed to the stakeholders.

Furthermore,under section 303 of the SOX Act, SEC is directed to adopt rules thatwould make it illegal for any director or officer (or any under theirdirection) to influence or coerce the audit to make it misleading.This is critical because it would help in ensuring that the auditingis not tampered with and thus reflects the truth of the financialcondition of the company being audited. From the CooperSterlingCorporation case, this is not the case because the CEO plays a bigrole in influencing the audit so as to make it misleading. Forinstance, the CEO and the lead auditor are good friends which implythat the CEO can easily influence the audit through friendship. Also,the CEO himself is in the audit committee, which is an indicationthat he can be capacity to influence and mislead the audit.

Inaddition, under the SOX provisions section 304, in case thefinancial statements become restated as a result of misconduct, theCFO and CEO should return bonuses or other incentive-basedcompensations for the period of 12 months following the firstissuance of the report (Hamilton et al., 2008). In the case ofCooperSterling, SEC decided that the 2015 results for the companyneeded to be restated because the audit firm and the company failedto report the off-the-book transactions to MadCo. This is anindication that there were misconducts emanating from the CFO andCEO, and thus the CEO and the CFO should return bonuses or any othercompensation that is incentive-based for the period of 12 monthsfollowing the initial issuance of the report.

Inconclusion, from the CooperSterling Corporation case, it is apparentthat the CFO, CEO and the audit firm that carried out auditingservices for the company engaged in unethical conducts, which areprovided for in the SOX Act. Most of the undertakings of theseofficials were punishable under the provisions of the Act. As the SOXAct indicates, it is wrong for the company directors or officials tobe involved in undertakings that would directly affect the investorsof the company. In the case under considerations, the CFO and CEOwell knew what they were doing would result in direct impact to theinvestors, who did not have any knowledge. This is unethicalaccording to the provisions of the SOX ACT for instance, arrangingfor a special purpose entity so as to always record profitabilitydespite the situation, was unethical.

References

Hamilton,J., Trautmann, T., &amp Commerce Clearing House. (2008).Sarbanes-Oxleymanual: A handbook for the Act and SEC rules.Chicago, IL: CCH Inc.