Accounting Assignment
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ACCT544-PowerPointChapter2.pptxChapter 2
Cognitive Processes and Ethical Decision Making in Accounting
Questions for Consideration
What is the role of virtue in auditors’ ethical decision making?
What would you do if your attitudes and beliefs conflict with your intended behavior?
Ethical Judgment
“Every act is to be judged by the intention of the agent.”
~ (Unknown author)
Ethical judgment is not enough, the decision maker must carry through with the ethical action.
Kohlberg’s Stages of Moral Development
Lawrence Kohlberg’s six stages of moral development are divided into three levels of moral reasoning
Level 1 – Preconventional
Level 2 – Conventional
Level 3 - Postconventional
Kohlberg’s Model
Suggests that people continue to change their decision priorities over time and with additional education and experience.
Individual’s moral development can be influenced by corporate culture, especially ethics training.
Stage sequence is universal, same in all cultures (counter to Hofstede’s cultural dimensions).
Level 1 - Preconventional
Rules are seen as something external imposed on one’s self
Individual is very self-centered
Stage 1 – Obedience to rules; avoidance of punishment
Stage 2 – Satisfying one’s own needs (egoism); follow rules only if they satisfy one’s needs
Level 2 - Conventional
Individual becomes aware of the interests of others and one’s duty to society
Personal responsibility is an important consideration in decision-making.
Stage 3 – Fairness to others; commitment to loyalty in the relationship
Stage 4 – Law and order; one’s duty to society, respect for authority, maintaining social order
Level 3 - Postconventional
Individual recognizes there must be a society wide basis for cooperation
Orientation to principles that shape whatever laws and role systems a society may have
Stage 5 – Social contracts; upholding the basic rights, values, and legal contracts of society
Stage 6 – Universal ethical principles that everyone should follow, Kohlberg believed this stage rarely existed; Kant’s categorical imperative
fits right in
Ethical Domain in Accounting and Auditing
Four key constituent groups of accountants and auditors’ domain are the:
1) Client organization that hires and pays for accounting services
2) Accounting firm that employs the practitioner
3) Accounting profession including various regulatory bodies
4) General public who rely on the attestation and representation of the accounting firm
Accountants Ethical Behavior
Accounting profession has professional standards to encourage ethical behavior
These standards, an individual’s attitudes and beliefs, and ethical reasoning capacity influence professional judgment and ethical decision making
Post conventional reasoning is the ethical position to take even though it may go against corporate culture of, “go along to get along”
Components of Rest’s Model
Moral Sensitivity – ability to identify what is moral and amoral.
Moral Judgment – ability to reason through several courses of actions and making the right decision when forced with an ethical dilemma.
Moral Motivation – influences that affect an individual’s willingness to place ethical values ahead of nonethical values.
Moral Character – having one’s ethical intentions match actions taken.
Components Interact
All processes must take place for moral behavior to occur.
This framework is not a linear decision making model, the processes instead work through sequence of “feed-back” and “feed-forward” loops.
Individual accuracy at one level does not necessarily mean accuracy at all levels
Moral failure can occur when there is a deficiency in any one component.
Cognitive Dissonance
Inconsistency between our thoughts, beliefs, or attitudes and behavior creates the need to resolve contradictory or conflicting beliefs, values, and perceptions.
Only occurs when we are “attached” to our attitudes and beliefs.
How we think we should behave is different from how we decide to behave.
Supporting Courage to Act
Courage to withstand pressures that challenge one’s commitment to act in an ethical manner
Supportive environment in the organization
Ethical top must be set by top management
Professional Judgment in Auditing
Judgment exercised with due care, objectivity, and integrity within the framework provided by applicable professional standards, by experienced and knowledgeable people.
Application of professional standards.
Principles of AICPA Code
Circular 230
PCAOB
Firm’s internal standards
Libby and Thorne: Virtues Important for Auditing
Intellectual virtues: indirectly influence individual’s intentions to exercise professional judgment
Most important: integrity, truthful, independent, objective, dependable, principled, and healthily skeptical
Instrumental virtues: directly influence individual’s actions
Most important: diligent, alert, careful, resourceful, consultative, persistent, and courageous
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Linda Thorne’s Integrated Model of Ethical Decision Making
Whistle blowing illustrated
Diem-Thi Le’s, senior auditor at Defense Contract Audit Agency (DCAA), audit opinion was changed by branch manager
DCAA violated whistleblower act
Le was ultimately put under whistleblower protection and now trains auditors
Example shows the difficulty of transitioning from knowing what the right thing to do is and actually doing it
Behavioral Ethics
Kahneman’s two distinct modes of decision making:
System 1: intuitive system of processing info; fast, automatic, effortless, and emotional decision processes
System 2: slower, conscious, effortful, explicit, and a more reasoned decision process
Integrated Decision-Making Model
1. Identify the ethical and professional issues (ethical sensitivity)
• What are the ethical and professional issues in this case (i.e., GAAP and GAAS)?
• Who are the stakeholders?
• Which ethical standards apply (i.e., AICPA Code Principles, IMA Ethical Standards, and IFAC standards)
2. Identify and evaluate alternative courses of action (ethical judgment)
• What can and cannot be done in resolving the conflict under professional standards?
• Which ethical reasoning methods apply to help reason through alternatives (i.e., rights theory, utilitarianism, justice, and virtue)?
3. Reflect on the core professional values, ethics, and attitudes to help carry through with ethical action (ethical intent)
• Consider how virtue considerations (i.e., moral virtues: intellectual and instrumental)
motivate ethical actions.
• Consider how IES 446 standards (i.e., independence, objectivity, integrity, professional skepticism) motivate ethical actions and behaviors.
4. Take action (ethical behavior)
• Decide on a course of action consistent with one’s professional obligations.
• How can virtue considerations support turning ethical intent into ethical action?
• What steps can I take to strengthen my position and argument?
Comprehensive Ethical Decision-Making Model
Frame the ethical issue
Gather all the facts
Identify the stakeholders and obligations
Identify the accounting and auditing issues
Identify the operational issues
Model (cont’d)
Identify the relevant accounting ethics standards in the situation
List all the possible alternatives of what you can or cannot do
Compare and weigh the alternatives
Decide on a course of action
Reflect on your decision
Concluding Thoughts
Requirements of Ethical Decision Making:
Ethical intent
Moral reasoning skills
Decision making process
Identifying issues
Analyze ethical issues
Affects of alternative courses of action
Courage to act
Ethical Intention
Ethical Behavior
Sensitivity
Prescriptive
Reasoning
Ethical
Motivation
Ethical Character
Virtue
Perception
Moral Virtue
Understanding
Instrumental Virtue
Moral Development
Identification of
Dilemma
Ethical Judgment
( Ethical Intention Ethical Behavior Sensitivity Prescriptive Reasoning Ethical Motivation Ethical Character Virtue Perception Moral Virtue Understanding Instrumental Virtue Moral Development Identification of Dilemma Ethical Judgment )
An Ethical Decision Making Model
Frame the ethical
issue
Gather all the facts
List the relevant
accounting ethics
standards
Identify stakeholders
and obligations
Identify operational
issues
Identify technical
accounting issues
issues
List all possible
alternatives
Compare and weigh
alternatives
Decide on a course
of action
Reflect on
how
alternative courses of
action affect
others
Reflect on your
decision
