Capitalism Corporations And Social Contract: Ethical Decision Making

Ethical Egoism

Discuss About The Capitalism Corporations And Social Contract.

In the given case, it is apparent that if Joey does not misrepresent the financial statements of the organisation (i.e. Tube), then the banks would not extend financial assistance to the company and thus the company can potentially face bankruptcy. As a result, there would be loss of jobs of many people and potentially his own also. However, if Joey does comply with Mary’s request, then his report would be misleading the bank into lending to a company which is not financially sound. This could potentially lead to loss incurred by the bank if it is not able to recover the money.

Failure to comply with Mary’s request could lead to loss of job. In that situation, Joey could default on the outstanding mortgage obligations which could result in liquidation of his house. On the other hand, incorrect representation of financial position and performance of the company could bring disrepute to the profession. Infact it could adversely impact the relevance of profession considering the role of trust and integrity. This  could hurt the future prospects of the accounting and audit professionals.

Ethical egoism refers to a normative position in ethics whereby it is advocated that moral agents must act in their own interest or should serve self-interest. This concept is in sharp contrast with ethical altruism whereby moral agents tend to have an obligation towards helping others (Collins, 2012).

For the given situation, if ethical egoism is to act as the decision making principle, then Joey  should act in a manner which tends to serve his own interest irrespective of whether the interest of other stakeholders is met or not. It is apparent that Joey’s self-interest is served by complying with Mary’s request and thereby presenting a false report to the bank officials. This would ensure that the company would get the bank loan and hence there would not be retrenchments nor liquidation. As a result, Joey would continue to be paid and not fired from his job. This will allow her to meet his mortgage obligations and maintain the status-quo.

It is imperative to first define the ethical decision in accordance with utilitarianism. As per this ethical principle, it is expected that the moral agent should act in a manner which tends to produce the “greatest good for the greatest number of people” (Ghillyer and Ghillyer, 2012). For the given situation, it is apparent that there are two decisions namely to falsify the financial performance of the company or the present the true picture of the company. The appropriate decision under utilitarianism would be one where the cost benefit analysis would be favourable.

In case the report is falsified, the company would get the financial assistance and hence would result in jobs being saved. Additionally, this would extend the benefit to the respective families of the employees who are offering their services to the company including Joey. The cost under this option could be the potential loss than the bank would incur if the company is not able to repay the financial assistance for modernization. However, it might be possible for the bank to recover some of the money from liquidating the machines. Further, despite the default, the bank might not file bankrupt assuming that the exposure would be limited. Hence, the costs seem to be contained especially in the short run.

Utilitarianism

On the other hand, in case Joey decides the other alternative, in the short term, there would essentially be no benefit as there would be significant retrenchments along with potential liquidation that the firm might enter into. Thus, significant number of jobs would be lost including his and this impact would extend to their families and also the economic system. For instance, in case of Joey, loss of job could result in loan default and hence liquidation of house.

Considering the above analysis, it is apparent that the correct advice based on utilitarianism would be to falsify the report to the bank so that the much needed financial assistance for modernisation is provided to the company.

In this case, the advice has to be tendered based on deontological ethics. The core belief of this ethical theory is that people should not be used as means but rather an end in itself. Also, it is essential that the concerned person should act in a manner that the same could act as a universal law (Collins, 2012).

In the given case, if Joey decides to falsify the report for the sake of his own interest or organisation’s interest, then as per deontological ethics, in such situation, the others should also act in this manner. However, if every accountant starts safeguarding their respective organisational interest in this manner, then there would be mayhem in the financial system as loan defaults would be huge. Consequently, the banks would be very reluctant to lend even to genuine businesses and hence expansion of genuine businesses would be adversely impacted. Additionally, the accounting and auditing profession would also lose their relevance considering that the trust of the client is paramount for maintaining the utility of these professions. Hence, it is apparent that falsifying the report would not be an ethical course of action in this case as this is not an action which can be converted into an universal law.

Considering the above, the appropriate advice as per deontological ethics would be to present a report which truly represents the financial performance and position of the company.

The deontological ethical theory would be the most appropriate considering the fact that in the recent past there have been various instances where the integrity of auditors and accountants has been compromised. As a result, the action should be such that the profession and the trust of the users should not be adversely impacted. Also, if Joey compromises on this one instance, he would be expected to compromise in the future as well which does not auger well (Ghillyer and Ghillyer, 2012).

Accounting has been in practice since the Mesopotamian civilisation where it was used as a recording transactions means and served trade transactions. A major breakthrough in accounting was achieved in 1494 when Pacioli put in place the double entry system which forms the basis of modern accounting. Accounting as a field has seen major developments in the 19^th and 20^th century owing to the expanded use of accounting not only as a recoding tool but rather as a tool for decision making (Boyns & Edwards, 2011).

Deontological Ethics

A key development in this context was an event named Industrial Revolution which triggered in England and thereby led to emergence of the first global financial capital i.e. London. The advent of industrial revolution led to setting up of manufacturing factories and hierarchical organizations which fuelled the initial demand for accountants as book keeping gained more importance. The work of the accountants in this era was quite complex owing to the sudden spurt in the organisational size and the transformation of accounting from a mere book keeping activity to providing input in order to reduce the costs associated with manufacturing for maximising profits (Drury, 2016)

This becomes evident from a record available belonging to 1812 which highlights that the cotton textile mills deployed cost records for the determination of types of manufacturing costs (namely direct and indirect). As the demands from the accounting field grew, the need was felt to develop accounting as a full-fledged separate profession. As a result, on July 6, 1854, 55 Glasgow based accountants which represented the Institute of Accountants made a petition to Queen Victoria so as to accord a separate professional status to accounting. At the time, accounting was intermingled with other disciplines such as actuaries or solicitation. As a result of this, the designation “Chartered Accountant” found way into the accounting profession (Boyns & Edwards, 2011).

The challenging work environment also led to hosts of academic breakthroughs which started becoming popular through the medium of books. A case in point was “Factory Accounts”, a publication which was started in 1887 by an accountant and introduced various new concepts such as marginal costing. It is noteworthy that this was not the only publication and there were several publications at the time responsible for disseminating knowledge at the time. Additionally various professional organisations were also formed in the different parts of the globe which were dedicated to the profession of accounting and aimed at providing answers to various challenges existing at the time (Heisinger, 2009).

As the industrial revolution spread to other nations in Europe, US and Japan, a need was felt to codify the accounting standards so that dedicated subject matter and knowledge can be created and can also serve towards evolution of field. This quest gained ground in the 20^th century when globalised agencies such as FASB and IASB were put in place so as to serve the purpose of codification. Also, in the late 20^th century, various accounting theories have also been developed to facilitate research on the subject. With the increase in globalisation at the end of 20^th century, the harmonization of accounting standards became necessary which has led to efforts such as conceptual framework which has minimised the differences between accounting standards used globally (Drury, 2016).

The various developments in accounting and underlying regulation is the result of the changing needs of the society. This is apparent from the limited role that accountants played in the era preceding the industrial revolution when it was used mainly for recording of trade transactions. However, due to industrial revolution , big factories came into existence which produced not only for the domestic market but also for the foreign market (namely colonies), Since these factories were driven by profit motive, hence the accountants were needed to advice on lowering cost which led to their expanded role (Boyns & Edwards, 2011).

Post the independence of the developing countries, there was increased globalisation and hence it was felt that the global accounting standards should have a common accounting framework which was named as conceptual framework. Also, in the latter half of the 21^st century, the environment concerns became significant since the accounting standards at the time exclusively focused only on economic or financial performance. Thus, the need was felt for social responsibility accounting which aimed at including the environmental along with social impact of the businesses. These initiatives were in the form of Triple Bottomline, Global Reporting Initiative and similar other initiatives (Heisinger, 2009). However, towards the turn of the century, there were a host of corporate scandals and the need for better corporate governance was felt. As a result, various changes have been introduced in the accounting profession to minimise the underlying risk of such events as besides the financial loss suffered by the shareholders, these incidents adversely impacted the relevance of the accounting discipline (Mansell, 2013).

The various accounting theories have also adapted to the changing societal needs.  In the 19^th century, the accounting theories were essentially descriptive and were more process oriented. Also, these were backward looking and lacked a forward looking focus since it was not required at the time. Besides, the objective of the accounting was enhancing profitability and thereby the theoretical underpinnings focused to capture various costs in order to improve the same. This is in sharp contrast with the accounting theories in the latter half of the 20^th century which focused on providing explanations rather than just highlighting the changes. Also, positive theories focused on listing how the accounting practices should be and are normative in view. Further, the focus of these new theories was on the future roles in the wake of the ongoing challenges which are being faced (Drury, 2016).

References

Boyns, T. & Edwards, J.R. (2011) A History of Management Accounting, New York: Roultedge Publications

Collins, D. (2012) Business ethics. Hoboken, New York: John Wiley & Sons.

Drury, C. (2016) Cost and Management Accounting: An Introduction. 6^th ed. New York: Cengage Learning.

Ghillyer, A. & Ghillyer, A. (2012) Business ethics now  New York, New York: McGraw-Hill.

Heisinger, K. (2009) Essentials of Managerial Accounting. 4^th ed. London: Cengage Learning.

Mansell, S. (2013) Capitalism, Corporations and the Social Contract: A Critique of Stakeholder Theory Cambridge: Cambridge University Press.