M4

• Ethical dilemma


  A situation a person faces in which a decision must be made about the appropriate behavior
• Steps in resolving ethical dilemma

  1. Obtain the relevant facts

  2. Identify the ethical issues from the facts

  3. Determine who is affected by the outcome of the dilemma and how each person or group is affected

  4. Identify the alternatives available to the person who must resolve the dilemma

  5. Identify the likely consequences of each alternative

  6. Decide the appropriate action
• There is a special need for ethical behavior by professionals
• Consultant's options when discovering client's industry is more technical than realized and not competent in certain areas

  • Accept the engagement and do the best he can
  • Decline the engagement and recommend a more competent consultant
  • Accept the engagement but disclose his limitations to the client
• David Lawyer sets up a small loan company specializing in loans to business executives and small companies, while spending full time with his law practice
• Ethical implications of David Lawyer's act
• Frank Doran, a senior audit manager, is assigned to the audit of Machine International, a large wholesale company that ships goods throughout the world
• Frank determines that Machine International uses a method of revenue recognition called "bill and hold" that has recently been questioned by the SEC
• The engagement partner concludes that the accounting method has been used for more than 10 years by the client and is appropriate, especially considering that the client does not file with the SEC
• Frank argues that the revenue recognition method was appropriate in prior years, but the new SEC ruling makes it inappropriate in the current year
• The partner is unwilling to permit Frank to include a statement in the working papers that he disagrees with the partner's decision
• Six-step approach to resolve the ethical dilemma

  1. Obtain the relevant facts

  2. Identify the ethical issues from the facts

  3. Determine who is affected by the outcome of the dilemma and how each person or group is affected

  4. Identify the alternatives available to the person who must resolve the dilemma

  5. Identify the likely consequences of each alternative

  6. Decide the appropriate action