Relevant to ACCA Qualification Paper P1

WORK ETHICS
Many business decisions have ethical elements to them. This is
because of the impacts of those decisions, and the fact that
outcomes are likely to affect stakeholders in different ways and will
express different ethical values.
In this article, two of the main decision-making frameworks from the Paper
P1 Study Guide are examined. In particular, this article clearly explains the
two frameworks mentioned in Study Guide Section E1 (d) namely the
American Accounting Association (AAA) model, and Tuckers 5-question
model. In each case, we start with an explanation of the model before
showing how it might be used in a case situation.
THE AMERICAN ACCOUNTING ASSOCIATION (AAA) MODEL
The American Accounting Association (AAA) model comes from a report for
the AAA written by Langenderfer and Rockness in 1990. In the report, they
suggest a logical, seven-step process for decision making, which takes
ethical issues into account.
The model begins, at Step 1, by establishing the facts of the case. While
perhaps obvious, this step means that when the decision-making process
starts, there is no ambiguity about what is under consideration. Step 2 is to
identify the ethical issues in the case. This involves examining the facts of
the case and asking what ethical issues are at stake. The third step is an
identification of the norms, principles, and values related to the case. This
involves placing the decision in its social, ethical, and, in some cases,
professional behaviour context. In this last context, professional codes of
ethics or the social expectations of the profession are taken to be the norms,
principles, and values. For example, if stock market rules are involved in the
decision, then these will be a relevant factor to consider in this step.
In the fourth step, each alternative course of action is identified. This
involves stating each one, without consideration of the norms, principles, and
values identified in Step 3, in order to ensure that each outcome is
considered, however appropriate or inappropriate that outcome might be.

Then, in Step 5, the norms, principles, and values identified in Step 3 are
overlaid on to the options identified in Step 4. When this is done, it should be
possible to see which options accord with the norms and which do not. In
Step 6, the consequences of the outcomes are considered. Again, the
purpose of the model is to make the implications of each outcome
unambiguous so that the final decision is made in full knowledge and
recognition of each one. Finally, in Step 7, the decision is taken.
Scenario for the AAA model
An auditor uncovers an irregular cash payment and receives an
unsatisfactory explanation for it from the clients finance director. He
suspects the cash payment is a bribe paid to someone but cant prove it. The
client then offers to pay the auditor a large amount of money if he pretends
not to have noticed the payment. The amount of money offered by the client
is large enough to make a significant difference to the auditors wealth.
Should the auditor take the money?
Step 1: What are the facts of the case?
The facts are that the auditor has uncovered what he believes to be a bribe
and has, in turn, been offered a bribe to ignore or overlook it.
Step 2: What are the ethical issues in the case?
The ethical issue is whether or not an auditor should accept a bribe. In
accepting the bribe he would be acting illegally and would also be negligent
of his professional duties.
Step 3: What are the norms, principles, and values related to the
case?
The norms, principles, and values are that auditors are assumed (by
shareholders and others active in capital markets) to have impeccable
integrity and to assure that the company is providing a true and fair view of
its financial situation at the time of the audit. Auditors are entrusted with the
task of assuring a companys financial accounts and anything that prevents
this or interferes with an auditors objectivity is a failure of the auditors duty
to shareholders.
Step 4: What are the alternative courses of action?
Option 1 is to accept the bribe and ignore the irregular cash payment. Option
2 is to refuse the bribe and take appropriate actions accordingly.

Step 5: What is the best course of action that is consistent with the
norms, principles, and values identified in Step 3?
The course of action consistent with the norms, principles, and values in Step
3 is to refuse the bribe. The auditor would report the initial irregular payment
and then also probably report the client for offering the second bribe.
Step 6: What are the consequences of each possible course of
action?
Under Option 1, the auditor would accept the bribe. He would enjoy the
increase in wealth and presumably an increase in his standard of living but
he would expose himself to the risk of being in both professional and legal
trouble if his acceptance of the bribe was ever uncovered. He would have to
live with himself knowing that he had taken a bribe and would be in debt to
the client, knowing that the client could expose him at any time.
Under Option 2, the auditor would refuse the bribe. This would be likely to
have a number of unfortunate consequences for the client and possibly for
the future of the clientauditor relationship. It would, however, maintain and
enhance the reputation and social standing of auditors, maintain public
confidence in audit, and serve the best interests of the shareholders.
Step 7: What is the decision?
The ethical decision is Option 2. The auditor should refuse the bribe.
TUCKERS 5-QUESTION MODEL
This model is conceptually slightly different from the AAA model but is
nevertheless a powerful tool for determining the most ethical outcome in a
given situation. It might be the case that not all of Tuckers criteria are
relevant to every ethical decision. If it were used when considering the AAA
model scenario above, for example, there is no indication of the
environmental relevance of the auditors decision. In addition, the reference
to profitability means that this model is often more useful for examining
corporate rather than professional or individual situations.
Applying Tuckers model requires a little more thought than when using the
AAA model in some situations, however. This is because three of the five
questions (profitable, fair, and right) can only be answered by referring to
other things. So when the model asks, is it profitable?, it is reasonable to
ask, compared to what? Similarly, whether an option is fair depends on
whose perspective is being adopted. This might involve a consideration of

the stakeholders involved in the decision and the effects on them. Whether
an option is right depends on the ethical position adopted. A deontological
perspective may well arrive at a different answer than a teleological
perspective, for example. In order to see how Tuckers model might work in
practice, we will consider two decision scenarios, one fairly clear cut and one
that is a little more complicated.
Tucker: Scenario 1
Big Company is planning to build a new factory in a developing country.
Analysis shows that the new factory investment will be more profitable than
alternatives because of the cheaper labour and land costs. The government
of the developing country has helped the company with its legal compliance,
which is now fully complete, and the local population is anxiously waiting for
the jobs which will, in turn, bring much needed economic growth to the
developing country. The factory is to be built on reclaimed brownfield land
and will produce a lower unit rate of environmental emissions than a
previous technology.
Is it profitable?
Yes. The investment will enable the company to make a superior return than
the alternatives. The case explains that these are because of the cheaper
labour and land costs.
Is it legal?
Yes. The government of the developing country, presumably very keen to
attract the investment, has helped the company with its legal issues.
Is it fair?
As far as we can tell, yes. The only stakeholder mentioned in the scenario is
the workforce of the developing country who, we are told, is anxiously
waiting for the jobs. The scenario does not mention any stakeholders
adversely affected by the investment.
Is it right?
Yes. The scenario explains that the factory will help the developing country
with much needed economic growth, and no counter - arguments are given.
Is it sustainable or environmentally sound?
Yes. The scenario specifically mentions an environmental advantage from the
investment. So in this especially simplified case, the decision is clear as it

passes each decision criteria in the 5-question model. In more complex

situations, it is likely to be a much more finely balanced decision.
Tucker: Scenario 2
Some more information has emerged about Big Companys new factory in
the developing country. The brownfield land that the factory is to be built on
has been forcefully requisitioned from a community (the Poor Community)
considered as second class citizens by the government of the developing
country. The Poor Community occupied the land as a slum and now has
nowhere to live.
Is it profitable? Yes.
The same arguments apply as before.
Is it legal?
It appears that the government of the developing country has no effective
laws to prevent the forced displacement of the Poor Community and may be
complicit in the forced removal. While the investment may not be technically
illegal, it appears that the legal structures in the host country are not
particularly robust and are capable of what amounts to the oppression of the
Poor Community.
Is it fair?
While the issue of the much needed employment remains important, it must
be borne in mind that the jobs are provided at the cost of the Poor
Communitys homes. This apparent unfairness to the Poor Community is a
relevant factor in this question. The answer to is it fair? will depend on the
decision makers views of the conflicting rights of the parties involved.
Is it right?
The new information invites the decision maker to make an ethical
assessment of the rights of the Poor Community against the economic
benefits of the investment. Other information might be sought to help to
make this assessment including, for example, the legality of the Poor
Communitys occupation of the site, and options for rehousing them once
construction on the site has begun.
Is it sustainable or environmentally sound?
Yes. The same arguments apply as before.

USING THESE MODELS IN SUMMARY

In the exam, candidates may be asked to assess a situation using one of
these models. Although some marks will be available for remembering the
questions in the model used, the majority of marks will be assigned for its
application. If the situation is relatively complex, exam answers should
reflect that complexity, showing, for example, the arguments for and against
a given question in the model and also showing this in the final decision. In
most situations, the models can be used as a basis for identifying the factors
that need to be addressed. In only the most clear-cut cases, or when the
case provides a minimum of information, will the decision be straightforward.
In summary, these two models can be used to ensure that ethical
considerations are included when making important decisions. Both models
contain distinct steps or questions that encourage the decision maker to
recognise the ethical issues in a decision. The AAA model invites the decision
maker to explicitly outline their norms, principles, and values, while Tuckers
model allows for discussion and debate over conflicting claims (eg between
different beliefs of what is fair and right). Both are potentially useful to
senior decision makers and hence their inclusion as an important part of the
Paper P1 Study Guide.
Written by a member of the Paper P1 examining team

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Last updated: 20 Apr 2015