72 Accounting: Business Reporting for Decision Making
have been made.) This means there is a big question mark over financial planners’ independence,
and many people feel that financial planners are merely salespeople and not advisers or planners as
they claim to be. For example, did a financial planner recommend an investment product because it
fit the objective and risk profile of the client, or because the financial planner would receive a large
commission?
Nowhere was this issue more apparent than in the Storm Financial collapse during the global finan-
cial crisis in 2008 where thousands of Australians lost their life savings and their homes due to the risky
nature of their very highly leveraged (high debt) investments that many of them could not possibly have
understood. Essentially, a large number of everyday people were placed into high-risk plans and prod-
ucts that simply didn’t fit their risk profiles. Despite claiming independence, Storm Financial had many
links to institutional product suppliers.
Parts B and C of APES 110 Code of Ethics for Professional Accountants illustrate how the fun-
damental principles can be applied in specific situations, namely by a member in public practice and a
member in business. A member in public practice generally carries out a range of accounting services
for a number of different clients, whereas a member in business may be an employee of a business or a
government department who has been employed in a specific position to perform tasks relating to that
position. Both parts stress the importance of accountants being aware of threats to their compliance
with the fundamental principles. The threats include self-interest, self-review, advocacy, familiarity and
intimidation. One major difference between a member in public practice and a member in business
is independence. A member in public practice, especially one providing audit services, must main-
tain independence in fact and in appearance at all times. The value of the financial statement audit is
linked closely to the credibility of that independence. A good example of where independence came
under threat was the audit of the failed company Enron by audit firm Arthur Andersen LLP. Arthur
Andersen LLP provided non-audit services as well as audit services to the company, and a number of
ex-Arthur Andersen LLP employees were employed by Enron. The impact of this situation on indepen-
dence was severe: the firm Arthur Andersen LLP no longer exists and many senior Enron employees
were fined and jailed.
The concept of providing a code of ethics has not been without criticism. Some critics argue that pro-
viding a ‘rule book’ will do little to address potential problems, and that such an approach — defining
ethics as a set of rules — will encourage a minimum standard. They argue that an approach that goes
beyond the rules is needed to encourage a culture that leads to high ethical behaviour. Despite the criti-
cisms, many entities and professional bodies have continued to issue codes of conduct to help communi-
cate minimum standards. A good example of the usefulness of a code is that published by Nash (1993),
which describes the ethical dilemma faced by James Burke, chairman of Johnson & Johnson. In 1982,
several people in Chicago were poisoned after taking a tablet called Tylenol. Despite some commen-
tators maintaining that the product tampering was localised to that area, James Burke made the decision
to pull the product from the market worldwide, at a cost to the company of millions of dollars. His res-
ponse was in line with the entity’s long-maintained ‘credo’ that its first responsibility is to the customers
who use its products. The short-term loss of the action was outweighed by the long-term positive public
response.
Ethical decision-making methods
A number of methods have been developed to help in decision making when there is an ethical
issue at stake. Some methods provide a sequential approach, and some methods simply help to identify
the issues that should be considered in the process of making a decision. An example of each of these
methods is presented in figure 2.5.
The self-evaluation activity at the end of this chapter contains an example demonstrating the use of
such models.