Reference no: EM133112554

Ethical Dilemma

Mary Rogers graduated from Deakin and joined a financial advice firm. She succeeded in passing the three month probation period, and she now works full-time with a vibrant team. It is a fast paced work environment, and Mary is valued as someone who is able to work well under pressure. During the induction, the Chief Executive Officer (CEO) commented: "Well done. You are now officially part of the company. Our firm strongly believes in honesty and cares for clients like they are our family. I believe you have the same vision as ours and I look forward to work with you closely".

Mary has been assigned to a major client who has been with the firm for nearly 30 years. This client has highly complicated finances, but given Mary's track record and resilience, she is considered to be capable of meeting their needs. Her primary duty as the financial adviser is to frame a budget for the client, taking into account all their needs and their complicated finances, which demands a great deal of technical knowledge.

It hadn't been easy, but Mary managed to frame a half-yearly budget within a tight deadline. She received much praise from management for being able to work well under pressure and meet a tight deadline, and they were also impressed with the quality of the work. Although she works independently, she still receives mentoring and support from a supervisor overseeing the work, and Mary is encouraged to ask the supervisor for help when needed.

As the end of the next financial year approached, Mary is once again assigned to prepare a new budget report for the same client. This time she feels far more confident in understanding the client, and in her ability to get the job done at a high standard. However, she recently noticed that there was some misinformation and misunderstanding regarding the client among the senior management. From what she could gather, it appears there has been some confusion regarding how the financials of the client were recorded and classified over the years, which means there may be some overlooked issues.

Mary is called to an emergency meeting, where she finds outs that that her supervisor has been dismissed and immediately reassigned to a different client, with no clear reasoning behind this decision provided. There is no replacement supervisor to oversee Mary's work, and now it is her sole responsibility to manage the client. Mary must now manage to complete the work alone and independently, with an informal promise of promotion and higher pay should she meet management expectations.

Upon commencing the work, Mary is shocked to discover that some of the financial information of the client was based on loose interpretation of the revenue recognition criteria contained in the standards and
regulation, and because this client had been with the firm for nearly 30 years, no one had bothered to challenge the practice. In other words, the financial information of the client was based on creative interpretation of the rules, and therefore not in full compliance with the current enforced version of the legislation.

Mary also discovers that this particular client has a close connection with many members of the firm, and some of these are even family ties. Although the financial information of all other clients are prepared through strict application of regulation and standard, an exception was made for this particular client as the discretion in revenue recognition allowed their financial performance to appear more favourably. Despite her genuine attempts to question and challenge this practice, the accountants of the firm are of the view that they are technically following the guidelines correctly, and that they were afforded discretion to interpret legislation to suit the needs of the client.

When raising her concerns with the CEO who had welcomed her during the induction process, the CEO responded: "This client has been an important part of our firm's history and reputation, we treat all of our clients like family and this is our core value. All clients have unique needs, and it is important that we listen to them carefully and be accommodating to their needs. We should not worry about technical matters, but rather, our longstanding relationships with clients are what has helped us become an industry leader. I know you share these values as well, I trust you will do right by our respected client. "

Mary finds that the management of the firm are not very proactive. Furthermore, it is clear that everyone wishes to not have their name on any of the paperwork in relation to the client. Meaning that legally in writing, it is only Mary's name which is assigned to the client and their financials. If something were to go wrong, then she would be the sole person responsible to face any repercussions. It is clear that senior management expect Mary to simply do her job rather than raise concerns.

Mary feels that if she were to provide financial advice to the client based on questionable financial information and records, then it is possible that the client is not getting the true and complete picture about their financial performance. The client, however, has been very happy and appreciates the work the firm has done for them over the past 30 years.

PART A:

In responding to the case, you must do the following:

1. Outline and detail the ethical decision-making model of your choice from the four models covered in the unit (1. Longstaff GDM, 2. Hartman, 3. Baird, or 4. AAA). 

2. Justify why you have chosen this model (as opposed to the alternate models) as the approach to resolve the ethical dilemma.

3. Apply the chosen model to the case.