ACC 696 Milestone two (CH)

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Milestone two School of Accounting, Southern New Hampshire University ACC-696: Situational Ethics Accounting January 1, 2023

2 Theoretical Models: Violated The four theoretical models of ethics are Utilitarianism, Deontology, Justice (Rights) and Virtues. Utilitarianism is concerned with consequences…. the utilitarian seeks to make decisions which bring about the greatest good for the greatest number of people (Mintz, S.M & Miller, 2020) Deontology falls within the domain of moral theories that guide and assess our choices of what we ought to do, in contract to those that guide and what that kind of person you are and should be (Alexander & Moore, 2021). Justice (aka Rights) act respects you right and treats you fairly. It gives each person he or she what they deserve (Mintz, & Miller, 2020). Lastly is Virtue applying to the decision maker and to the act under consideration. It focusses on both the person engaging in the act and the act itself. General Electric (GE) violated the Justice (Rights) Theoretical model. As we have defined above, Justice gives you respect to your rights and treats you fairly. It gives each person he or she what they deserve. With GE failing to disclosing information about the nature of the profit growth in the power business of $2.5 millions to its investors (SEC Press release, 2020). This was a violation of the investors rights to know about the profits and giving the investors the opportunity to make a determination if they wanted to invest into GE or not. GE also misled the investors without explain that $1.4 billion in 2016 and $1.1. billion in the first three quarter of 2017 stemmed from reduction in cost estimates. GE also with its insurance business, long term care policies were badly underpriced and the policy holders have exceeded GE original projections for years and failed to disclose it rising claim cost and the resulting in potential for material insurance losses (SEC press release, 2020). Theoretical Models: Better Decisions

3 Utilitarianism would have made the decision that even if it is bad would bring the greatest food for the greatest number of people. Using this theoretical method with GE would have provided the information about the revenue recognition and disclosure to the investors to let everyone know that these changes are being done. GE wanted to appear the business had additional cash flow, by doing this they boosted public reported cash flow measuring by more than $1.4 millions and failed to disclose to investors it adoption and reliance on deferred monetization which increased present cash flow at the expense of future years (SEC press release, 2020). With the Utilitarianism method they would have provided the information about the adoption and the re classification of the estimated cost for the insurance policy business to show the substantial losses. Yes, this would have hurt their bottom line but it may could have saved them for the SEC filing and owing $200 million payment and the substantial decrease in their stock prices. In contracts the Enlightened Egoism you would make decisions to purse self-interest to maximize general prosperity. This choice is that the CEO Jeff Immelt would want to appear that he is doing a great job turning GE around after years of decline. Mr. Immelt was CEO of GE for 19 years. He wiped out $150 billion in market value and got GE dropped from the Dow Jones Industrial Average. He stated that he wishes he would have taken a more holistic look at the company (JadeScipioni. 2021). I believe he made decision because of his self-interest since that the stock price had plunged 30% since he took over the position and wanted to be remember that he was better than his predecessor Jack Walsh. Influences and Standards: Regulatory Activities The regulatory activities that govern General Electrics (GE) is the Security Exchange Commission (SEC). The SEC delegates this responsibility to Financial Accounting and Standard

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4 Board (FASB) which incorporates the Accounting Institute of Certified Public Accountants (AICPA) code of conduct and the use of Generally Accepted Accounting Principles (GAAP). The regulatory body has rules set that requires that members provide professional services. Each member must carry out their responsibilities as professionals, are obligated to act in a way that will serve the public’s interest and honor the public’s trust, perform all professional responsibility with highest sense of integrity, maintain objectivity and be free of conflicts of interest and observe the professional technical and ethical standards and strive to improve competence. The accountants within GE did not perform their duties as members within the AICPA o the highest level of integrity and to serve the public interest and honor the public trust. GE ethics they misled the investors by not disclosing necessary information to the public within the financial statements. The SEC which is the regulatory agency that governs all corporations who are listed within the stock market has ethical standards that must be followed for all directors, officers and employees of all companies. The SEC has 4 ethical standards Honest and ethical conduct, timely and truthful disclosure, legal compliance and confidentiality. GE violated the ethical standards and were brought to court in front of the SEC. GE had 6 violations that were mostly from GE no disclosing the material effects to their finances and misleading the investors to collect/obtain money from untrue statements (SEC press release, 2020). GE was ordered by the SEC to pay $200 million for misleading investors regarding the power and insurance businesses. The CEO and the executives knew they were not disclosing the information needed to provide the investors the best and truthful information needed to make an educated decision.

5 Influences and Standards: International Accounting Standards The regulatory activities that govern General Electrics (GE) for international is International Financial Reporting Standards (IFRS). IFRS uses the International Federation of Accountants (IFAC) Code of Ethics for professional accountants. The code of ethics has 5 principles that all professional accountants are required to comply with which are integrity, objectivity, professional competency and due car, confidentiality and professional behavior (B-15 code of ethics, n.d). IFAC is less restrictive than AICPA because it is not rules based. IFAC code of ethics has similar approaches to all of the ethical codes but the safeguards are different. With IFAC for example independence, the audit team should not have a direct financial interest in their client. With IFAC even if the auditor claims that they have safeguards in place like having another accountant check his or her work this does not eliminate the threat to independence. There will be more work that would need to be before the threat to independence would be mobilized. Influences and Standards: Emerging Technologies The emerging technology and ethics will create some ethical pros and cons. With the use of Artificial Intelligence (AI) and Machine Learning (ML) will give some stability to the accounting processes and streamline the accounting based on the query originally set from the transactions presented. This will also give the AL and ML the ability to learn and continue to process the transactions the way that were input. This also provides check and balances because the written policy for the technology cannot be changed without multiple check and balances to rewrite the change in the policy without the executives knowing who changed it and for what

6 purpose. Like for example AL and ML powered applications can learn hos tot tag and assign transactions to the right ledger account based on tagged rules (McCabe, 2021). These applications can automatically categorize expenses, flagging policy violations, spotting trends and make recommendations. If GE had AL or ML installed within the accounting system, they would have gotten an alert stating that within the financial statements certain items were not disclosed or the transactions of reporting future profits in the current year will show a trend/ analyst that in the future there will be material substantial losses. The ethical violations that GE violated with the SEC is that all directors, officers and employees shall behave honestly and ethically at all time with all people. They also violated timely and truthful disclosure. The use of blockchain would have been substantial provided would use secure transactions with GE individual ledgers. This would have all transactions encrypted so there is less chance of falsifying them, blockchain would have verified that that transactions are valid, secures the transactions with encryption and permissions and enforced the terms associated with the transactions such as net payment terms (McCabe, 2021). Having blockchain would have put more trust into the financial statements and would have held the directors, officers and employees to a high standard just based on the application for them to behave honestly and ethically. The financial statements would have been reported accurately and timely and truthfully which they violated according to the SEC filing (SEC Press release, 2020).

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8 Reference: Alexander, Larry and Michael Moore, "Deontological Ethics", The Stanford Encyclopedia of Philosophy (Winter 2021 Edition), Edward N. Zalta (ed.), URL = <https://plato.stanford.edu/archives/win2021/entries/ethics- deontological/>. B15 code of Ethics - IFAC . (n.d.). Retrieved January 1, 2023, from https://www.ifac.org/system/files/publications/files/ifac-code-of-ethics-for.pdf JadeScipioni. (2021, May 20). Former GE CEO Jeff Immelt on his controversial legacy: 'I don't want to hide' . CNBC. Retrieved January 1, 2023, from https://www.cnbc.com/2021/02/23/former-ge-ceo-jeff-immelt-talks-about-his- controversial-career.html Mintz, S. M. (2020). Modern Moral Philosophies. In Ethical obligations and decision making in accounting: Text and cases (5th ed., pp. 23–29). essay, McGraw-Hill Education. McCabe, L. (2021, May 26). Three emerging technologies poised to reshape accounting and Financial Management . Sage Advice US. Retrieved January 1, 2023, from https://www.sage.com/en-us/blog/three-emerging-technologies-accounting-and-financial- management/ SEC Press release . SEC Emblem. (2020, December 9). Retrieved Janurary 1, 2023, from https://www.sec.gov/news/press-release/2020-312 Professional responsibilities . AICPA. (n.d.). Retrieved January 1, 2023, from https://us.aicpa.org/interestareas/personalfinancialplanning/resources/practicecenter/ professionalresponsibilities