The American Accounting Association: Seven-Step Ethical Decision Model

The American Accounting Association Seven-Step Ethical Choice Design Each case is analysed using a seven-step design, revealed listed below. 1. Determine the truths What? Who? Where? When? How? What do we understand or need to understand that will assist define the issue? Define the ethical problem List the considerable stakeholders. Specify the ethical issues. Determine the significant concepts, rules and worths (For example; integrity, quality, regard for persons, profit) Specify the alternatives List the significant alternative strategies, consisting of those that represent some type of compromise or point between simply doing or not doing something.

Compare worths and alternatives-- see if there's a clear choice Determine if there is one concept or value, or mix, which is so compelling that the proper alternative is clear. Assess the effects Determine the brief and long, positive and negative effects for the significant alternatives. The typical brief run concentrate on gain or loss needs to be measured versus the long-run considerations. This action will typically expose an unanticipated result of significant importance.

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Make your own choice Balance the consequences versus your main principles or values and pick the alternative that best fits. Source: Courtesy of the American Accounting Association.

Application of the American Accounting Association model John Smith, the chief financial officer (CFO) of Dropout Fones Pty Ltd, has discovered a significant misstatement that overstated assets in this year’s financial statements. The misleading financial statements are contained in the company’s annual report which is about to be issued to banks and other creditors.

After much thought about the consequences of telling the managing director, Jack Frost, about this misstatement, John gathers up his courage and tells him. Jack says, ‘What they don’t know won’t hurt them. But just so we set the record straight, we’ll adjust next year’s financial statements for this year’s misstatement. We can fix it next year when we make more profit. Just don’t make that kind of mistake again’. Required: Using AAA’s ethical decision model, work through this situation to determine what John should do.