ACC 360 Mid-Term

What are the 3 STRUCTURAL subconscious elements of decision making (biases in accounting)?

1) Attachment, 2) Ambiguity, 3) Approval. These are the decision-making elements.

What is good ethical decision-making (BAIRD ELI decision making model)?

1) Be Attentive - clarify facts and issues involved (identify facts & assumptions, identify values in tension/conflict). 2) Be Intelligent - identify the stakeholders (anyone who is affected by or can affect the objectives of the organization, each lens has a tendency to prioritize a certain type of stakeholder). 3) Be Reasonable - use the values of the ethical lenses (identify options, choose best path of action to resolve the scenario). 4) Be Responsible - communicate your final decision through an action plan (what is the best course of action-the case of the troublesome tickets). 5) Return to Awareness - evaluate and reflect on results (what malpractices and irregularities occurred in this case, what internal control mechanisms could have been put in place to prevent this incident from happening).

Where do out ethics come from?

1) Biases - towards people like self, 2) Social Norms - which can be helpful and harmful.

What are the causes of unethical behavior?

1) Blind spots, 2) Temptations, 3) Vices.

What are the 4 functions of accounting (larger purpose of accounting)? Accounting is about 4 functions, we must check biases of self-serving temptations.

1) Decision Making Function, 2) Control Function, 3) Communication, 4) Historical Function.

What is the theoretical evolution of each ethical theory?

1) Deontological Theory (Plato, Kant, Ross), 2) Justice Theory (Hebrew prophets, Augustine, Rawls), 3) Consequentialist Theory (Aristotle, Mill, Nussbaum), 4) Virture Theory (Book of Proverbs, Aquinas, MacIntyre).

What are the 3 MENTAL subconscious elements of decision making (biases in accounting)?

1) Familiarity, 2) Discounting, 3) Escalation. These are the motivation elements.

What are the elements of writing a good inter-office memo?

1) Heading/Salutation, 2) Background of the Problem, 3) Statement of the Decision, 4) Reason for the Decision, 5) Forward Looking Conclusion.

What are the 5 ethical break downs?

1) Ill-Conceived Goals, 2) Motivated Blindness, 3) Indirect Blindness, 4) The Slippery Slope, 5) Overvaluing Outcomes.

What are the fundamental principles and standards of professional accounting?

1) Maintain the good reputation of the profession and its ability to serve the public interest. 2) Perform with integrity, due care, professional competence & skepticism, independence, objectivity, confidentiality. 3) Not be associated with any misleading information.

What are the 4 building blocks of ethical theories?

1) Rights/Responsibility Lens (Rationality/Autonomy), 2) Relationship Lens (Rationality/Equality), 3) Results Lens (Sensibility/Autonomy), 4) Reputation Lens (Sensibility/Equality).

What stakeholder does each lens tend to prioritize?

1) Rights/Responsibility-DUTY, prioritize those to whom one owes specific duties as individuals. 2) Relationship-POWER, prioritize those to without power, information, or access to resources. 3) Results-IMPACT, prioritize those who are directly impacted by the decisions. 4) Reputation-ROLE, prioritize those to whom one has responsibilities because of the role held in the community,

What is the basis for ethical maturity?

1) Self knowledge (what are my core values and commitments when faced with value conflicts) and 2) Self control (what is my shadow side and where can I be tempted/where are my blindspots).

What is included in the Heading/Salutation section of the memo?

1) To: Name and Title (should only be sent to those who need to know the information). 2) From: Name and Title. 3) Subject: Should be specific and concise (never leave blank).

99 Problems: Nathan's fraud was a lifestyle fraud, what is a good preventative method for this scenario?

A simple fraud awareness training program could have stopped Nathan's fraud in its tracks. A simple statement from a co-worker about Nathan's extravagant lifestyle could have made Nathan nervous enough to stop what he was doing.

The Case of the Troublesome Tickets. In class we used the BAIRD ELI decision making model to make an ethical decision: 1) Be Attentive, 2) Be Intelligent, 3) Be Responsible, 4) Be Reasonable, 5) Be Reflective.

Account Manager has spent last 3 months working on getting a large sales contract approved with client's owner, Charlie. Account Manager discussed liking baseball with Charlie. Charlie sends 2 baseball tickets to the Account Manager with a note that says, "I really appreciate all of your hard work and I know you will be able to make this deal happen for me". Account Manager is unsure whether to accept the tickets and does not want to offend Charlie by sending them back. Company policy says small gifts are generally acceptable as long as they do not cost more than $100 and aren't given in an attempt to influence the employee's behavior. The face value of tickets is slightly over $100. Manager is final decision maker on contract but does rely heavily on Account Manager's recommendations. 1st Step) Be Attentive-Identify facts and assumptions, Identify the values in conflict, define the goal outcome. 2nd Step) Be Intelligent-Identify the primary and secondary stakeholders (Primary-Account Manager, Charlie). 3rd Step) Be Reasonable-what are the boundaries of the problem as defined by each lens. 4th Step) Be Responsible-come up with best option/plan of action based on the values of each lens, communicate the final decision. 5th Step) Be Reflective-after reflection, does this final option meet your own core values.

How does ATTACHMENT (structural aspect of accounting) produce bias?

Auditors are highly motivated to remain in clients good graces and approve their accounts. (ie: clients can fire auditors for unfavorable clients, long-term relationships allow audit firms to sell more lucrative consulting services)

What is a hypernorm?

Basic values shared across cultures.

What is the historical function?

Because we have accounting records we can see progress of the company and to see what is happening now and see trends to be able to predict the future.

How does APPROVAL (structural aspect of accounting) produce bias?

Bias intensifies when people endorse others biased judgments-provided it aligns with their own bias. (ie: auditors may accept more aggressive accounting from clients than what they themselves might suggest independently)

What is the motivated blindness ethical break down?

Conflict of interest. If we have a stake in it, might be motivated to ignore. We overlook the unethical behavior of others when it's in our interest to remain ignorant. Remedy: Root out conflicts of interest. Simply being aware of them doesn't necessarily reduce their negative effect on decision making.

Results Lens

Context matters, focus on outcomes for the individual, majority rules. When determining what is ethical: The individual makes choices that contribute to their happiness (long-term). An act is ethical if: 1) Results in good consequences, 2) creates the greatest happiness for greatest number, 3) serves the greater good resulting in harmony. Key questions for the lenses: 1) What will make me happy? 2) What consequences can I tolerate? 3) What are mutually good results? Reasoning: "Win-win" Goal.

What is the difference of each ethical lense?

Each perspective is legitimate, the difference is prioritization of values. Difference is also in the reasoning process. Broader strategies of reasoning create sounder decision-making.

DealBook, Wells Fargo Warned Workers Against Sham Accounts, but "They Needed a Paycheck" article (OPTIONAL-POSSIBLE EXTRA CREDIT)

Employees were trying to meet sales goals by creating sham bank accounts and credit cards instead of making legitimate sales. Wells Fargo had learned of these actions and started to issue warnings to employees. "Risk professionals" were deployed in an effort to stamp out the illegal activity. The banks efforts were not enough. 3 years after the first false accounts were exposed publicly and authorities started investigating, Wells Fargo said it was still firing employees over the questionable accounts. Employees said WF continued to push sales goals that caused employees to break the rules in the first place. The sales goals are currently still in place and are set to be phased out over the next 3 months due to the $185M civil settlement. WF executives, including CEO, John Stumpf, denied that the misdeeds were a result of a flawed incentive structure or an aggressive sales culture. 5,300 employees have lost their job because of the scandal. WF defended itself and said they adjusted compensation structure to place less emphasis on sales goals and more on customer service over the last couple of years. They felt like they had made progress in cleaning up its act from 2011-2015. Wells Fargo said "the steps they have been taking have been effective". Employees say the steps WF took only made the occurrence less frequent, it did not stop the behavior. Employees say the problem is the aggressive sales culture has come from the bank highest levels and has been in place over decades. Employees said the sales goals were unrealistic. One particular LA branch was held up as a model of employees' cranking out huge numbers of new accounts, bankers would visit the branch to figure out the secrets behind their success. Employees say there was a dichotomy between their ethics training and the on-the-job reality. Employees said, Wells Fargo would have to be willfully ignorant to believe these sales goals are achievable. Employees worried they would lose their jobs if they did not meet their sales goals as it was part of their evaluated performance. LA times reported practice of phony accounts in late 2013, WF then stepped up its monitoring and ethics training. Bank managers had grown weary of writing up reports on potentially improper sales. It was hard to police. Some customers are closing their bank accounts and credit cards with Wells Fargo as they have lost trust in them. The CEO said he feels accountable for what has happened, but he blamed workers for "misinterpreting" sales goals. Wells Fargo agreed to develop a broad "oversight program" of its sales practices, among other measures. 4 days later the bank announced it would halt sales goals beginning January 1, the bank said it had considered this step for quite some time. The bank said, "we don't want there to be any doubt on the part of our customers that our team members have their best interests at heart". The bank is waiting a few month to halt sales goal incentives because they said they need time as it is important they get it right when making changes in compensation.

Video: Born good? Babies help unlock the origins of morality. What are our morals/ethics and where do they come from?

Experts originally thought babies knew nothing. They did experiments with puppet shows. 1st experiment: Puppet struggles to open a box, one puppet slams the box closed, the other puppet helps open the box. Do babies know the difference between right and wrong? 3/4 of the babies tested, reached (5 month old baby) or looked longer (3 months old baby) for/at the nice puppet. Babies feel positively about helpful people and disapprove of antisocial people. 2nd experiment: Puppets behaving badly, keeping ball and running away then 2nd show puppet who stole the ball trying to open the box, one puppet slams shut, the other puppet helps. 81% chose the puppet who slammed the box shut. Babies viewed the ball thief as deserving punishment. Experts believe we are seeing the beginning of morality in babies, it is built in, they have an alarming sophistication of subtle knowledge (universal moral core, part of our biological nature). 2nd experiment: The origin of bias, the tendency to prefer others who are similar to ourselves. Babies chose cheerios or graham crackers and also chose the puppet that liked the same thing (cheerios or graham crackers) that they did. When these puppets were in the box scenario, 87% of babies chose the puppet that liked what they liked regardless of whether it was the bad or helpful puppet. Babies prefer people who harm others who are unlike them. This is the dark side of morality-we are predisposed to break the world up into different human groups based on the most subtle cues. The bias to favor yourself is a very strong human bias that we are born with-it makes sense that natural selection/evolution would need us to be wary of the "other" for survival. 3rd experiment: Older kids of different ages choose how many tokens they get vs how many will go to another child that will come in later and the tokens can be turned in for prizes. The younger kids will choose to give the other kid no prizes and the expense of getting fewer prizes for themselves. Younger kids are obsessed with social comparison, they don't care about fairness, they just want relatively more. Around the age of 8, they start to choose the amount of tokens (prizes) that gives equal tokens to themselves and the other kid. Around the age of 9/10, the kids deliberately give the other kid more tokens/prizes than themselves (they become generous). The older kids have been educated, enculturated - we can learn to temper some of those nasty tendencies we are wired for (selfishness, bias), can't forget that those things are still at our core. The good and bad are a product of biological evolution. We have a mix of altruism, selfishness, justice, bigotry, and kindness.

What is the control function?

For company resources.

What is ambiguity bias (structural, decision-making)?

Full of judgment calls.

What are the tools we use when making ethical decisions?

Get feedback/opinion of others, past experience of self and others, pros v cons, rules/laws, stakeholder impacts, social/cultural/religious beliefs, rewards v costs, bottom line.

Doing business ethically can also be profitable, how do we measure ethics?

Governance, employee satisfaction, business practices, customer impact, double/triple bottom line (sustainability-people, profit, planet).

What are other examples of hypernorms?

Honesty, Predictability, Fairness, Integrity, Compassion, Responsibility.

We went through a word recognition exercise in class and some people thought they saw the word, Insect, even though it wasn't there - what is this called?

Implant Memory.

How does Bounded Awareness occur?

Inattentional Blindess leads to Bounded Awareness. Bounded awareness occurs when decision makers: 1) FAIL to SEE key information (texting while driving is dangerous), 2) FAIL to USE the information because they don't know it is relevant (have you texted while driving, don't think relevant for self as "I am a safe driver"), or 3) FAIL to CONTRIBUTE it to the group (if someone else is doing it, we don't say anything).

What is the slippery slope ethical break down?

It ties back to escalation bias. Something starts small, so don't feel is significant, therefore it can grow over time and become an issue. We are less able to see others' unethical behavior when it develops gradually. Remedy: Be alert for even trivial ethical infractions and address them immediately. Investigate whether a change in behavior has occurred.

What is the companies responsibility?

Legally to the Shareholders, Strategically to the Stakeholders. How to optimize both?

99 Problems: Nathan had easy opportunities to commit fraud, what is a good preventative method for this scenario?

Many companies, both large and small, use workaround methods to avoid a slowdown in accounting processes. Forcing users to regularly change passwords or giving an employee a smart card along with their password may be helpful. A more cost-effective method is to have employees sign an ethics statement.

The Milgram Experiment in 1961. Initial Study: Prestigious setting (Yale), Teacher/Learner in separate rooms, Teacher/Professor (Person in charge, Lab coat guy) are in the same room. Authority causes people to do things they wouldn't otherwise do. We rationalize our behavior. When experiment conducted today and the "teacher" was interviewed, he said he was just doing his job and the "learner" was capable of removing himself from the situation.

Milgram saw the implications of WWII and wanted to know how leadership influenced decision-making. Put an ad in paper and set up an experiment at Yale. People who responded to ad were told they were the "teacher" and that someone off the street was the "learner" (though the learner was actually an actor). The "teacher" was set up in a room along with the professor/person in charge (white lab coat guy), and the "learner" was on the other side of the wall in another room hooked up to a shock machine. The "teacher" was told to shock the "learner" every time they got an answer wrong, and with more shock intensity with each wrong answer. As the "learner" continued to get answers wrong and screamed out in pain, the "teacher" continued to shock the learner. The Milgrim study concluded today: 65% of people shows obedience in the initial study. 48% of people showed obedience if everything is the same except experiment was held in a low-prestigious setting. 40% of people showed obedience if everything is the same except the teacher and the learner are in the same room. 30% of people showed obedience if everything is the same except the teacher and the learner are physically touching. 22% of people showed obedience if everything is the same except the professor/person in charge is in a different room. 20% of people showed obedience if the person in charge is a non-professor (ie: same level of authority as "teacher"). 10% of people showed obedience if everything is the same except there was one other random person in the same room as the teacher.

Do Ethical lenses tell us what people should/would do?

NO, just tells us how will think about it, the values they use, all use different reasoning, but may still come to the same conclusion.

99 Problems Case: 99 problems refers to the 99 fraudulent checks. Nathan looked outward to deal with insecurities. Nathan's GPA was not high enough to get a job with the big firms, which led to the start of his frustration. White collar crime can be explained by 3 factors: 1) a supply of motivated offenders, 2) the availability of suitable targets, 3) the absence of control systems. A simple company mantra with employees, "if you see something, say something" can make a difference. Just knowing someone is paying attention can make all the difference.

Nathan Mueller was an Accounting Manager at ING insurance and stole $8 million over 4 years from the organization. A suspicious colleague tipped off management and he was questioned by ING fraud investigator's. Nathan was charged with 1 count of mail fraud, plead guilty and was sentenced to a 97 month prison sentence. Nathan's background of growing up experiencing financial strain, his low self-esteem and lack of company internal controls all lead to his ability to commit fraud. What was the fraud committed: 1) Wrote off incorrect amounts on high dollar and foreign transactions, 2) Approved checks by logging in as one of his co-workers, 3) Created a shell company to funnel money. What were the lack of internal controls: 1) No background check on acquired employees, 2) Colleagues shared logins and passwords, 3) Nathan was given check signing approval beyond what his level should be. What ethical breakdowns led to the fraud? Slippery slope. This kind of fraud is called lifestyle fraud - committed to maintain or promote ones lifestyle. How could the fraud have been prevented? Better company internal controls, if someone would have said something (it may have slowed him down or made him stop). This fraud included all parts of the fraud triangle: Opportunity, Motivation, Rationalization.

99 Problems: Nathan created a ledger specifically for his fraudulent debits, what is a good preventative method for this scenario?

Nathan had complete control of the ledger accounts that were debited. He was also the only employee who even had an understanding of the system he had in place. His fraud looked legitimate from the outside.

What is included in the Forward-Looking Conclusion section of the memo?

Needs to more than a simple summary or thank you, need to focus on connecting the audience one last time and leave the door open for further communication, stressing why this decision should matter to the audience.

What is escalation bias (mental, motivation)?

Occurs when things start small. Slippery slope dilemma. Really nervous, then no longer feel that bad and results in escalation in behavior. (ie: frog in boiling water). Now have to admit to a series of mistakes which makes it harder to stop.

99 Problems: Nathan had a high fraud risk due to his large debts, what is a good preventative method for this scenario?

Organizations can implement a hiring policy. A hiring policy should include past employment verification, background check, credit check, and education verification.

Article: No Accounting skills, No Moral Reckoning (OPTIONAL).

Our financial illiteracy is costing us much more than we realize. The German economic thinker Max Weber believed that for capitalism to work, average people needed to know how to do double-entry bookkeeping because good books are "balanced" in a moral sense. They are the very source of accountability, a word that in fact derives its origin from the word "accounting." In Renaissance Italy, merchants and property owners used accounting not only for their businesses but to make a moral reckoning with God, their cities, their countries and their families. Italian Renaissance depended highly on a population fluent in accounting. It was understood that all landowners and professionals would know and practice basic accounting. This was typical in a world where everyone from farmers and apothecaries to merchants knew double-entry accounting. The Dutch, in 1602, invented modern capitalism with the foundation of the first publicly traded company - the Dutch East India Company - and the first official stock market in Amsterdam. The spread of double-entry accounting to the Netherlands during the early 1500s made the country the center of accounting education, world trade and early capitalism. Every level of Dutch society practiced double-entry accounting - from prostitutes to scholars, merchants and even the Stadholder, Maurice of Nassau, Prince of Orange. Not only did the Dutch have basic financial management skills, they were also acutely aware of the concept of balanced books, audits and reckonings. These historical examples point the way toward achievable solutions to our own crises. If we want stable, sustainable capitalism, a good place to start would be to make double-entry accounting and basic finance part of the curriculum in high school, as they were in Renaissance Florence and Amsterdam. A population well-versed in double-entry accounting will not immediately solve our complex financial problems, but it would allow average citizens to understand the nuts and bolts of finance: balance sheets, mortgage interest, depreciation and long-term risk. It would also give them a clearer sense of what financial accountability really means and of how to ask for and assess audits. The explosion of data-driven journalism should also include a subset of reporters with training in accounting so that they can do a better job of explaining its central role in our economy and financial crises. Without a society trained in accountability, one thing is certain: There will be more reckonings to come.

How does FAMILIARITY (aspect of human nature) amplify bias?

People are more willing to harm strangers than individuals they know. (ie: the deeper the auditor/client ties, the stronger the tendency toward approving dubious accounts)

How does ESCALATING (aspect of human nature) amplify bias?

People often explain away minor indiscretions-then conceal the growing problem. (ie: in accounting, unconscious bias can evolve into conscious corruption)

How does AMBIGUITY (structural aspect of accounting) produce bias?

People tend to reach self-serving conclusions whenever ambiguity surrounds evidence. (ie: many accounting decision require subjective interpretations of ambiguous information)

Who are the primary and secondary stakeholders?

Primary-are actively involved in situation (level of involvement), Secondary-2nd in level of involvement (if delegated to someone else, person who delegated is now secondary).

Relationship Lens

Rules based on context of community, fair shot. When determining what is ethical: The members of the community together design and implement processes to assure justice for all. An act is ethical if: 1) Creates a fair system, 2) includes all members and community institutions, 3) creates awareness that they are a part of the solution. Key questions for the lenses: 1) What is equal/equitable? 2) What is fair?, 3) Is power appropriately balanced? Reasoning: Process.

Rights/Responsibility Lens

Rules based thinking, individual, follow rules. When determining what is ethical: The individual uses reason to determine the universal principles by which they should live. An act is ethical if: 1) Fulfills responsibilities and rights of the actor, 2) is done with care and concern toward others, 3) allows you to delight in your work. Key questions for the lenses: 1) What are the rules, 2) What are my rights and responsibilities, 3) How do I act in a caring way (universally)? Reasoning: Motive/Duty.

What are the categories of stakeholders (the SPICE of life)?

SPICE(E) - Society, Partners, Investors, Customers, Employees, Environment.

What are ethical dillemas?

Situations of conflicting values: Truth v Loyalty, Justice v Mercy, Short Term v Long Term, Individual v Community.

How do we make ethical decisions?

Starts with professional ethics: awareness of our own (and others') perspectives, ability to articulate ethical reasoning, ability to consider stakeholder interests, turn analysis into action plan exhibiting effective strategy.

How do we make better ethical decisions?

Strategy, Practice/Experience, Focus, Motivation, Goals.

What are the 2 systems of thought/reasoning we use?

System 1: Intuitive Reasoning-automatic, instinctual, emotional (Elephant). Primary (gut) response, what feels right. System 2: Rational Thought-slow, logical, deliberate (Rider). Secondary response, slower to work, thoughtfully applied. The Elephant and the Rider - The rider (rational thought) relies on the elephant (intuitive reasoning). It is harder to deal with the elephant (intuitive reasoning) than the rider (rational thought). The elephant is too big and isn't always aware where the intuition is coming from which can lead to cognitive pitfalls. We can respond too emotional the 1st time because it is easier to come up with an emotional response as it takes effort to engage in rational thought.

What is the Ill-conceived ethical break down?

The COBRA effect - the end result is not what was intended. We set goals and incentives to promote a desired behavior, but they encourage a negative one. Remedy: Brainstorm unintended consequences when devising goals and incentives. Consider alternative goals that may be more important to reward.

What is the best example of a hypernorm?

The Golden Rule.

What is the overvaluing outcomes ethical break down?

The end justifies the means. We give a pass to unethical behavior if the outcome is good. Remedy: Examine both good and bad decisions for their ethical implications. Reward solid decision processes, not just good outcomes.

Why Good Accountants Do Bad Audits article.

The real problem isn't conscious corruption, it's unconscious bias. We need to embrace practices and regulations that recognize the existence of bias and moderate its ill effects. Only then can we be assured of the reliability of the financial reports issued by public companies and ratified by professional accountants. Unaware of our skewed information processing, we erroneously conclude that our judgments are free of bias. Findings suggest that unconscious bias works by distorting how people interpret information. 3 structural aspects of accounting create substantial opportunities for bias to influence judgment: 1) Ambiguity, 2) Attachment, 3) Approval. 3 aspects of human nature can amplify unconscious behavior: 1) Familiarity, 2) Discounting, 3) Escalation. We can't tell whether an error in auditing is due to bias or corruption, but you can design experiments that reveal how bias can distort accounting decisions. Studies showed that experienced auditors are not immune from bias and that they are more likely to accede to a client's biased accounting numbers than generate numbers themselves. Because the reforms in SOX Act do not address the fundamental problems of bias, they will not solve the crisis in accounting in the US. It seems implausible that stricter accounting rules could eliminate ambiguity, thus they are unlikely to reduce self-serving bias.

What is included in the Background of the Problem section of the memo (aligns with step 1 of decision making model: Be Attentive)?

The statement of the problem, it should include facts (not assumptions), it should NOT contain confidential information, it should clearly identify the values in conflict.

What is included in the Reason for Decision section of the memo (aligns with step 3 of decision making model: Be Reasonable)?

This is the longest part of the memo. The reader should be able to see the ethical framework and values used to come to a decision.

99 Problems: Nathan was accidentally given authorization to approve checks up to $250,000 for 2 years before management caught it, what is a good preventative method for this scenario?

This was clearly a huge oversight. The ability to approve high-dollar amounts should be limited to employees in authorized positions.

What is the decision-making function?

To make decisions inside and outside the company.

What is the communication function?

Unified language, can compare companies side by side.

Panalba Case. In the class simulation many factors affected each groups decision making: our interpretation of our responsibility, the structure of the board, our mission.

Upjohn Corporation called a special meeting of the board to provide some guidance as to what should be done with one of the company's products, a drug named Panalba. Panalba is a fixed-ratio (containing a combination of drugs) antibiotic drug sold by prescription. Over 25 years medical researchers have objected to the majority of fixed ratio drugs. The arguments are: there is no evidence provides improved benefit over single drugs, and the possibility of detrimental side effect (including death) is at least doubled. Researchers have had difficulty providing a definitive cause-effect relationship, therefore has remained in the market. Doctors use drug as a "shotgun" approach if unsure of diagnosis. Recently, the National Academy of Science-National Research Council Panel recommended unanimously that the FDS ban the sale of Panalba as the costs associated with fixed-ratio Panalba clearly outweighed the benefits. The board assumed it is unlikely bad publicity would have any significant effect on sale of other UpJohn products. The following 5 solutions were considered by the board: 1) RECALL (most expensive to shareholders, least expensive overall option)-Recall Panalba immediately and destroy all inventories, 2) STOP PRODUCTION-Stop production of Panalba immediately, but allow the sale of existing inventories, 3) STOP PROMOTION-Stop all advertising and promotion of the drug to physicians, but still provide it to those doctors who request it, 4) CONTINUE UNTIL BAN-Continue efforts to most effectively market Panalba until sale is actually banned, 5) PREVENT BAN (most expensive for customers, most expensive overall option)-Continue efforts to most effectively market Panalba and take legal, political, and other necessary steps to prevent the FDA from banning Panalba. The UpJohn company chose option #5, took it all the way to the Supreme Court, they eventually lost and Panalba was banned by the FDA.

Reputation Lens

Values of community, role individual holds is critical in decision-making. When determining what is ethical: The community (cultural/societal) agrees on character traits including habits or intentions that represent virtuous living. An act is ethical if: 1) Consistent with good character, 2) made with awareness of emotion and mind, 3) supports and enhances meaning you have given to your life. Key questions for the lenses: 1) What actions sets a good example (to the community)? 2) What does my conscience say? 3) What virtues are required by my role or position? Reasoning: Purpose.

What is approval bias (structural, decision-making)?

We are more likely to sign off and accept something is correct instead of pushing back or questioning things. Grey areas-can open profession up to bias.

What is the indirect blindness ethical break down?

We are not the ones doing it, so it is not our issue (3rd party). We hold others less accountable for unethical behavior when it is carried out through third parties. Remedy: When handing off or outsourcing work, ask whether the assignment might invite unethical behavior and take ownership of the implications.

Why do we care about ethics as accountants?

We have a responsibility to the public.

What is discounting bias (mental, motivation)?

We prefer immediate impacts. We don't take into consideration long-term impact. Let's worry about now, not the future.

How does DISCOUNTING (aspect of human nature) amplify bias?

We tend to be much more responsive to immediate consequences than to delayed, uncertain ones. (ie: auditors may hesitate to issue critical reports because of possible immediate damage to the relationship , loss of contract, or unemployment)

What is the problem with hypernorms?

We value honesty, but may value something else more. We all have different definitions and weight them differently.

What is attachment bias (structural, decision-making)?

We want to make clients/people around us happy. We might be motivated to bend the rules a little.

What is familiarity bias (mental, motivation)?

We want to protect people we know. We don't care if the public is affected if we don't know them. (ie: The train/trolly dilemma - who should die?).

What is included in the Statement of the Decision section of the memo (aligns with step 4 of decision making model: Be Responsible)?

What will you do? In 2 sentences max, clearly & concisely state the decision.

Focusing on the ethical issues, how observant are you?

When we are given something to focus on we tend to miss other things around us (ie: whodunnit video and basketball/bear video)-Inattentional Blindness. We all suffer from focusing failures: 1) Data needed for a good decision, 2) Data in our awareness.

When evaluating our risks, when are we most vulnerable?

When we believe we are immune from making unethical decision. (When good people believe that it is easy to make good decisions).

TEDx Talk on ELI (TED Talks-Ethics Video) (OPTIONAL).

Who are you? 1) Identity is shaped by our ethics, 2) See, interpret, story tell to others, what we do, 3) Own character. 3 Strategies: 1) Pay attention (inside), 2) Have a conversation (how are you showing up in the world), 3) Choose wisely (take responsibility). What is my shadow side, where can I be tempted? Is my head and heart in sync? Is my individual and community awareness in sync? It depends-1) what you see, 2) how you value things, 3) how skilled you are in exercising prudential judgment. Need to bring the best of the 4 theories into our lives. Ask good questions, Harmonize values and live with integrity, combine truth and goodness, identify what values and principles are important to you.