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Activity 1 - Ethics

Frame work for making ethical judgements Determine the facts (provided) Identify the ethical dilemma or issues....what is good and bad. Deals with moral duty and obligation Consider the options. Identify the alternative courses of action that you can take. Identify the parties who could be affected Consider the consequences or possible outcomes Decide the most appropriate course of action

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Ethics
Note: Ethics is about what is right or wrong. There may be more than one answer. The answer could be different based upon perception of the facts, the parties and consequences.

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Possible AIS Ethical Issues


Tax avoidance Earnings management Elimination of audit trail

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Ethical Issue Case

Consider the following case. It provides a good example of the kinds of ethical dilemmas potentially faced by accounting profession Oscar Gamble, Shields Corporation's Controller, is concerned that net income may be lower this year. As a result, he is afraid that upper level management might recommend cost reductions by laying off accounting staff. Gamble knows that depreciation is a major expense for Shields. The company currently uses the double-declining balance method for both book and tax purposes, and he is thinking of changing to the straight-line method. However, this change would be highlighted in the income statement as a cumulative effect adjustment. Instead, he is contemplating increasing estimated useful lives and salvage values. That would decrease depreciation expense (and increase income). Best of all, this change in estimate will be handled retrospectively and not be highlighted in the current or future years' income statements. Oscar thinks this approach could save his job and those of his staff.

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Ethical Issue Case (contd.)

What would you recommend to Oscar Gamble?

On the one hand, it would seem that opting for changes in salvage values and useful lives could result in investors and creditors getting less useful information about Shield's income. On the other hand, Gamble may feel he has an obligation to protect his staff.

Use the stakeholder analysis step to come to a conclusion what you should do as a professional accountant This is a typical ethical issue you would encounter when finalising accounts by preparing adjusting entries

Boss sees that profit low so wants to undertake some form of earnings management

No one right answer depends on situation

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Ethical Issue Case Solution


Specific Analysis Steps 1. Recognize an ethical situation or ethical dilemma

What is it?

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Ethical Issue Case Solution (contd.)


2. Move toward an ethical resolution by identifying and analysing the principal elements in the situation. Seek answers to the
following questions in this sequence: a. What parties (stakeholders) may be harmed or benefited?

b. Whose rights or claims may be violated?

c. Which specific interests are in conflict?

d. What are my responsibilities and obligations?

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Ethical Issue Case Solution (contd.)


3. Identify the alternatives and weigh the impact of each alternative on various stakeholders Alternatives Impacts on stakeholders H/B

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Ethical Issue Case Solution (contd.)


4. Select the best or most ethical alternatives, considering all the circumstances and the consequences

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