Exam 4: Ethics and Professional Judgment in Accounting

Correct Answer:

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Last week Mr.Hicks sent out a finalized tax return to the Wrong client.The Wrong client called Hicks and informed him that he was sending the tax return back to him overnight.Meanwhile the Right client called Hicks and wanted to know where the tax return was.Hicks told the Right client that he sent it to the wrong address and he will send out the return the next day.The Right client was irritated and called the partner of the firm.
The partner scolded Hicks and wanted to know why he told the client he sent the return to the wrong address.The partner said he should have told the client that the return was in the 2^nd partner review or some other excuse to cover up the mistake.Hicks explained that the ethics code of conduct specifically states that he should not lie under any circumstances and he was just following his ethical duty.The partner grinned and told Hicks that the next time this happens he should consult with the partner first.
Using the ethical decision making model and ethical theories,justify the positions of the partner,Hicks or an alternative solution.
Hicks has attempted to be honest with the Right client but in an awkward way.It sounds like the return was sent to an incorrect address,not another client.Hicks should have spoken to the partner to get some advice before responding to the Right client.He has not exercised due care in his actions.Perhaps Hicks was trying to follow deontology and "rights" of the Right client.However,the way in which he went about it was short-sighted at least from the firm's point of view.In this case the ends do not justify the means.Mistakes of this kind should be dealt at the partner level.
Utilitarianism can be used to support the partner's position in that the benefits of deceiving the Right client for a short while,including holding on to the client and saving the firm's reputation,far outweigh the costs of deceiving the client.One might argue this is a situation of "no harm,no foul." However,this Act Utilitarian approach fails to recognize the utilitarian rule that clients should never be deceived.
This is a case where professional judgment was faulty.It almost seems as though Hicks acted hastily,using a Systems 1 approach,rather than in a deliberative fashion under Systems 2.He should have considered alternative ways to handle the matter rather than have a knee-jerk reaction.
Judgment occurs in a setting of uncertainty,risk,and often conflicts of interest.The KPMG framework identifies five components of professional judgment that revolve around one's mindset.The components are: (1) clarify issues and objectives; (2) consider alternatives; (3) gather and evaluate information; (4) reach conclusion; and (5) articulate and document rationale.The framework recognizes that influences and biases might affect the process as could one's knowledge of professional standards.While the framework applies more to direct conflicts with clients or on client matters,it does reflect a thoughtful process,deliberation and reflection that underlies professional judgment.Hicks failed in that regard.
While some students may argue a lie is a lie and Hicks did the right thing,consider whether this isn't one of those circumstances where other values supersede strict honesty,such as loyalty.While loyalty is typically secondary to other values such as honesty,the loyalty obligation in accounting is more to the public interest above all else,not to the client's interest ahead of one's employer and for "the greater good." Is the public interest served by telling the Wrong client his return was sent to the wrong address?
The case illustrates why Rights Theory can be so difficult to implement in practice.Students should enjoy the discussion.
This case can also be turned into a GVV case by having Hicks develop a game plan to convince the partner why what he did was the proper decision.