1. Ethical Decision Making Model

2. Applying Ethical Decision Making models American Accounting Association model (AAA) 7 step model Purpose- to develop a systematic approach to making decisions that can be used in any situation having ethical implications

3. 7 Steps 1. What are the facts of the case? 2. What are the ethical issues? 1. Identify the primary stakeholders 2. Define the ethical issues 3. What are the norms, principles & values related to the case? Generally norms, principles and values are standards, rules and beliefs that guide acceptable and morally ‘good’ conduct. Examples of principles include the profit motive, harm, integrity and respect for individuals

4. 7 Steps 4. What are the alternative courses of action? 5. What is the best course of action that is step 3? Is there any norm, principle or value so persuasive that a resolution is obvious. For example, protecting the environment is important to avoid permanent damage and respect the rights of the communities who rely on the environment for survival

5. 7 Steps 6. What are the consequence of each possible course of action? Each course of action should be evaluated in respect to its norms, principles and values and from both short and long tem perspectives & positive and negative consequences 7. What is the decision?

6. Joint code of Professional Conduct Guidance note 1 and Sections 100.16 to 100.21 contain steps for Ethical conflict resolution similar to those outlined in the AAA model however the focus is more on the fundamental principles of professional conduct, threats & safeguards as outlined in the Joint code of Professional Conduct It outline 5 steps that should be considered 1. Relevant facts 2. Ethical issues 3. Fundamental principles related to the matter in question, including the identification of threats to those principles 4. Establish internal procedures which might represent safeguards against the identified threats; and 5. Alternative course of action

7. Code of Ethics for Professional Accountants Ethical conflict resolution 100.16 In evaluating compliance with the fundamental principles, a Member may be required to resolve a conflict in the application of fundamental principles. 100.17 When initiating either a formal or informal conflict resolution process, a Member should consider the following, either individually or together with others, as part of the resolution process: (a) Relevant facts; (b) Ethical issues involved; (c) Fundamental principles related to the matter in question, including the identification of threats to those principles; (d) Established internal procedures which might represent safeguards against the identified threats; and (e) Alternative courses of action. Having considered these issues, a Member should determine the appropriate course of action that is consistent with the fundamental principles identified. The Member should also weigh the consequences of each possible course of action. If the matter remains unresolved, the Member should consult with other appropriate persons within the Firm or employing organisation for help in obtaining resolution

8. Ethical conflict resolution cont. 100.18 Where a matter involves a conflict with, or within, an organisation, a Member should also consider consulting with those charged with governance of the organisation, such as the board of directors or the audit committee. 100.19 It may be in the best interests of the Member to document the substance of the issue and details of any discussions held or decisions taken, concerning that issue. 100.20 If a significant conflict cannot be resolved, a Member may wish to obtain professional advice from the relevant professional body or legal advisors, and thereby obtain guidance on ethical issues without breaching confidentiality. For example, a Member may have encountered a fraud, the reporting of which could breach the Member's responsibility to respect confidentiality. The Member should consider obtaining legal advice to determine whether there is a requirement to report. 100.21 If, after exhausting all relevant possibilities, the ethical conflict remains unresolved, a Member should, where possible, refuse to remain associated with the matter creating the conflict. The Member may determine that, in the circumstances, it is appropriate to withdraw from the Engagement Team or specific assignment, or to resign altogether from the Engagement, the Firm or the employing organisation.

9. Case study Use the AAA model to analyse the case And determine what Davis should do

10. The business environment

11. Role of Financial Reports GPFR provide information about a reporting entity to a wide range of parties who are unable to demand information specifically tailored to their individual requirements

12. Costs & Benefits of Regulation Costs: –Developing, promulgating and enforcing reporting standards; –Collecting and processing information in order to prepare financial reports that comply with disclosure requirements; –Auditing and disseminating financial reports; –Information search, analysis and use by decision makers;

13. Users & their information needs Users Information Needs Investors Risk & return on investment Information to assist in decision making – buy, hold or sell shares Assess ability of entity to pay dividends Employees Stability & profitability of employers Assess ability of entity to pay remuneration, retirement benefits and employment opportunities Lenders Assess ability of the entity to pay interest and loan repayments Suppliers & trade Creditors Assess ability of the entity to pay amounts owing to them Customers Assess continuance of the entity Governments & Agencies Assess their allocation of scare resources i.e. funding. Regulate the activities of the entities, determine taxation policies. Public Assess recent trends and developments in the prosperity of the entity and a range of its activities

14. Regulatory influences on corporate financial reporting Why regulate? –Justice & fairness In the absence of regulation and min standards of financial reporting, firms may fail to disclose adequate information or could possibly engage in creative accounting practices Protect investors against exploitation by insiders, maintaining fairness and eliminating fraud –Utilitarianism Contribute to the goal of achieving an efficient allocation of scarce resources ‘Common good’ or ‘economic benefits to all of equity on capital markets’

15. Costs & Benefits of Regulation Benefits: –Improved credibility of financial reporting; –Increased confidence in capital markets –Reduction in costs of using information in GPFR because if increased uniformity of accounting policy choices among reporting entities; –Better investment decisions because of improved information available to decision makers

16. Beyond GPFR - TBL TBL- Triple bottom line - refers to the three elements of social, environmental and financial accountability –Social accountability- involvement in shaping local, national and international public policy, equality, treatment of minorities, employee issues and public concern –Environmental accountability- impacts made through processes, products or services i.e.. Air, water, land, natural processes, human health –Financial accountability – financial performance Aim of TBL – to extend decision- making and disclosure beyond the domains of financial reporting so that decisions also include the impacts on natural and human capital as well as financial capital Only a few of the top 500 companies use TBL and generally the reports tend to have a bias toward disclosing only positive information

17. International Financial Reporting Standards Australian companies and other reporting entities under the Corporations Act 2001 will be required to prepare their financial statements in accordance with accounting standards issued by the International Accounting Standards Board (IASB) Accounting standards prepared by the AASB are a source of regulation governing financial reporting Also important are the UIG consensus views Both are concerned with accounting measurement & disclosure

18. Benefits of IFRS Assist the Australian economy by facilitating cross border comparisons by investors, removing barriers to international capital flow –Increasing the comparitability of financial reports prepared in different countries and providing participants in international capital markets with better quality information on which to base investment and credit decisions –Removing barriers to international capital flows by reducing differences in financial reporting requirements for participants in the international capital markets and by increasing the understanding by foreign investors of Australian financial reports –Reduced financial reporting costs for multinational companies and foreign companies operating in Australia and reporting elsewhere –Improving quality of financial reporting in Australia to best international practice

19. Financial Reporting Councils Statutory body established under the ASIC Act Responsible for providing broad oversight of the process for setting accounting standards in Aust and giving the Treasurer reports and advice on the process In relation to the AASB the FRC is responsible for: –Appointing members of the AASB –Approving and monitoring the AASB’s Priorities Business plan Budget & staffing arrangements –Determining its broad strategic direction –Monitoring development of international accounting standards –Oversee Australians auditing standard setting process –Monitor the effectiveness of auditor independence requirements in Australia

20. AASB International accounting standards are issued by the AASB (Australian Accounting Standards Board) AASB accounting standards are given authority by the Corporations Act 2001 The functions of the AASB are: –Develop a conceptual framework –Make and Formulate accounting standards –Participate in and contribute to the development of accounting standards for worldwide use; and Application of accounting standards is mandatory: –Under the enforcement of the provisions of Corporations Act 2001 with respect to disclosing entitles (those entities in which there is likely to be significant investor interest), registered schemes and companies, other than small proprietary companies in certain circumstances –Under commonwealth's state & territory legislation relating to public sector reporting entities

21. AASB International accounting standards are issued by the AASB (Australian Accounting Standards Board) AASB accounting standards are given authority by the Corporations Act 2001 The functions of the AASB are: –Develop a conceptual framework –Make and Formulate accounting standards –Participate in and contribute to the development of accounting standards for worldwide use; and Application of accounting standards is mandatory: –Under the enforcement of the provisions of Corporations Act 2001 with respect to disclosing entitles (those entities in which there is likely to be significant investor interest), registered schemes and companies, other than small proprietary companies in certain circumstances –Under commonwealth state & territory legislation relating to public sector reporting entities

22. Auditing and Assurance Standards Board Mission – to develop in the public interest, high quality standards and related guidelines for auditors and providers of other assurance services, as a means to enhance the reliability of information provided to users of audit and other assurance services Auditing standards have the force of law for the purpose of the Corporations Act

23. Authority of accounting standards Misc professional Statements APS, Conformity with accounting standards and UIG Consensus Views requires members of CPA and ICAA to comply with accounting standards. Compliance is mandatory for all members of the professional bodies Non compliance will represent a breach of the ethics of those bodies and could result in disciplinary proceedings being brought against those members resulting in a fine, expulsion from the professional body

24. Conceptual Framework for financial reporting A set of interrelated concepts that represent a formal way of thinking about a process or system under study Described as ……….. A set of interrelated concepts that define the nature, purpose and broad content of general purpose financial reporting……… Provides a formal frame of reference for: – the types of transactions and events that should be accounted for –How they should be measured –How they should be summarised and presented in the financial reports The conceptual framework of Australia will be replaced by local equivalents of the IASB's conceptual framework.) with the possible exception of SAC 1 Definition of a Reporting Entity & SAC 2 Objective of General Purpose Financial Reports SAC 3 Qualitative Characteristics of Financial Information and SAC4 Definition & recognition criteria of Elements of the financial statements will be replaced with the IASB equivalent which is substantially similar but briefer SAC4 Definition & recognition criteria of Elements of the financial statements will be replaced with the IASB equivalent which is substantially similar but briefer