Quiz 2: Cognitive Processes and Ethical Decision Making in Accounting


Moral Development: Moral development refers to the change in morality of the individual during the different stages of life cycle. Morality means how one people behave and respects other. Facts: D an audit team member has discovered a discrepancy in audit which she has not noticed during the physical verification of inventory. As per D's view the discrepancy is not so significant. D and some other members of the team decides not to report because she if it is reported now than D's mistake would be highlighted that he has not reported it earlier. But B another member finds the deficiency should be reported to J the in charge of the engagement team so that it may not cause serious problem later. 1. As per the Kohlberg model of moral development, Stage 3 states about the Fairness to Others either in the group, family or workplace. There should be fairness among the group members and at the work place. All facts should be disclosed truly and fairly, there should not be any misstatement of facts. In the present case D should make the disclosure of the discrepancies noticed during the audit to J the senior audit in charge as it would be unfair to hide the facts which may cause harm to the client. And as per the Kohlberg's model also all facts should be disclosed truly and fairly. So the decision taken by the majority of the members of the audit team is incorrect and B's decision should be followed. Every work group has certain norms which may be related to performance of work, allocation of resource or appearance. Work performance norms has various rules which defines how the work is to be done, how it is to be reported, to whom it is to be reported, and how it should be presented. The given case also related to the work performance norms as it should be in norms of the company to disclose all the audit observations to the client truly and the audit should be done as per the norms. It any matter was left mistakenly then it should be disclosed later on when observed. 2. B should effectively express its view point among of disclose of the audit discrepancies to J among all its team members because it they do not disclose the discrepancy and J comes to know about it from other sources or discrepancy may be more serious then noticed by D then, it could greatly affect the client business and even the auditors reputation as it may degrade the quality of their audit. B should try to converse D that non-disclosure of the discrepancy is more harmful than the disclosure of discrepancy later. As if D disclose the facts that it would not be harmful to the client as the problem can be more serious than D might be thinking. D and the other team members may raise the objection that the problem is not so serious and hence the non-disclosure will not have any impact on the client's work performance and even the quality of their audit. But B should make them understand that it is the duty of the auditor to disclose all the discrepancies noticed during the audit to the client and some problems might be like it is not serious now but it may pose a serious threat to the company in future if not disclosed now. So they should disclose the discrepancy to J.

Moral reasoning is the conduct of human behavior which determines the action to be right or wrong. It is a process of thinking whether the action done is right or wrong. Ethical reasoning means determining the human conduct is right or wrong. Mr. X the father has falsely influenced public about the balloon boy incidence, which is convicted as a crime and in restitution he agreed to pay some amount. It is required to identify the stakeholders and effect on them in the given situation: 1. Public: General Public was fooled by the fake reality television show which must not be displaced before proper due diligence by media. 2. Media: Incidence by Mr. X leads to reality television show which later on proved to be fake, media should not make the show before proper finding. 3. Mr. X (father): By falsely influencing public he earned the false publicity which even lead to payment of restitution by him. There has been violation of Stage 5 of Kohlberg's model for moral development which states Social Contract as everything should be done as per the public interest. Public interest should be valued above all. In the given case X has hoaxed with the public, media for his personal interest. He has not taken care of the public interest. By thinking about the payment of restitution also so that he could not get prosecution punishment he is thinking of himself only. None of his decision is in the interest of society as a whole. Hence, he is violating Kohlberg's fifth principal. No, the punishment of payment of compensation in lieu of prosecution is not justified as he has done a severe crime of playing with the public emotions by misleading them, this kind of immoral behavior cannot be compensated just by payment of restitution. It addition to compensation he must be punishable with some imprisonment so that he could not play with the public interest next time.

Liability: A person or a business concern needs to be socially or legally responsible for the issue in consideration. It is a state of being legally responsible for something or to someone. Facts of the case: G and A runs a small business of salad dressing where G takes care of the operational part while A runs the creativity side. Due to their secret recipe their business earned a huge growth in a few time. They hired M their college friend and a CPA as the CFO of their company. M made a five year plan where he wants the company to grow and make it public. A is strict on following the FDA requirements for food safety as they do not want to lose their market reputation. M has assured A several times that company is following the FDA requirements properly. In one of the inspection some listerias were found in the product due to which inspector wants the product to recall. A want to recall the product because he do not want to let down its company's reputation. But M says that it would not be profitable for the company to go for recall as company would suffer huge loss and would create a problem for the company in going public. A want to maintain its product quality and companies reputation and do not care about the profits but G is silent on the issue and is in favor of the company going to be public. A has asked M, to give him previous FDA reports and go through all reports and finds that there were various reminders about the sterilization of equipment and other things by the inspector but M has not disclosed the same. M just want to focus on earning profit and instead of recall want to pay all fines and continue the business without working on product's quality. Now, A along with G and M attends a meeting with the FDA inspector and discuss all the FDA issues. 1. FDA inspector can have an argument with A about the non-follow up of the reminders about the product quality. A may give the reason that due to weakness in their team running or some people having different work objectives, but now all the issues has been sorted and everyone is made clear about the prime objective of the company to improve and give the best quality product because they can suffer losses in earning but not a loss of their reputation. In future also no complaints about the quality will be notice. They would try to offer new, innovative and the best quality of product. 2. For A company's reputation is a stake, he could not lose the reputation of the company even at the cost of earning profit. While for M the financial officer of the company and G the only thing that matters is the profit and he want profit and make the company public even if company may lose its reputation for that. They want to pay fine and penalty and do not care about the product quality but this may give the profit in short run but is not profitable for the company in long run. As company grow only on the basis of its product quality and market reputation in long run. Therefore, the company's reputation is at stake for all the parties. 3. A can convenes M and G by showing them the position of the company in long run. A should tell them by maintaining the reputation and product quality company might face the losses presently or it may not become public as per M's strategy but it will survive in long run and due to its product quality and the maintained reputation its profitability graph will always keep on growing. But if they do no maintained the reputation it may become public but the value of its market share will never increase and may result in losses in long run. 4. The most powerful response to the reasons is about the long run profitability of the business and the price of market share. The argument should be made with M and G about the recall option to be adopted so that company's reputation can be maintained and company can earn sufficient profits in long run.