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Ethical issues and stakeholders obligations for aircraft engine repair

Accountants are frequently faced with situations where they must make critical decisions that will effect many people. Having a plan for how to analyze these situations will help you to make better decisions.

The first step is to recognize that you are faced with a situation where there are ethical issues involved. For this, you have to rely on your own ethical compass as well as standards and statements from professional organizations and from your employer. In this particular situation, you already know that the issue presented involves an ethical dilemma.
To continue your analysis, identify the stakeholders -- those who have an interest in the outcome of the decision. Put yourself in their situation and try to understand their perspective. What are the ethical perspectives of each major stakeholder? What codes of conduct apply? What laws apply?

Once you understand the responsibilities and obligations of each stakeholder, analyze the various alternative choices available. What are the consequences of each alternative? Now choose the best from among the alternatives you identified.
Here is the situation I would like you to analyze. This is a true story.

"A Chief Executive Officer (CEO) of a $20 million company that repairs aircraft engines received notice from a number of its customers that engines that it had recently repaired had failed, and that the company's parts were to blame. The CEO had not yet determined whether his company's parts were, in fact, the cause of the problem. The Federal Aviation Administration (FAA) had been notified and was investigating the matter.

What complicated the situation was that the company was in the midst of its year-end audit. As part of the audit, the CEO was required to sign a letter saying that he was not aware of any significant outstanding circumstances that could negatively impact the company -- in accounting terms, of any contingent liabilities. The auditor was not aware of the customer complaints or the FAA investigation.

The company relied heavily on short-term loans from eight banks. The CEO feared that if these lenders learned of the situation, they would pull their loans. The loss of these loans would force the company into bankruptcy, leaving hundreds of people without jobs. Prior to this problem, the company had a stellar performance record."

Write a paper analyzing this ethical situation according to the model described above. When you list the alternative choices and their consequences, be sure to include both possible outcomes of the FAA investigation -- whether the company was responsible, or whether the company was not at fault.

Solution Preview

Given the facts of the case, the situation which results to the ethical dilemma is whether to disclose that there is a current Federal Aviation Administration or FAA investigation on the allegation that the company's spare parts products were the direct cause of the failure of aircraft engines which if proven true would financially devastate the organization and can even result to bankruptcy. However, if the situation is disclosed and the allegation is proven false, the negative financial impact and destruction of the company's image would be difficult if not impossible to reverse.

Given this ethical dilemma, non disclosure, if the FAA investigation corroborates the complaints and notices by a number of customers would mean negative financial impact to the following ...

Solution Summary

The solution examines the ethical issues and stakeholders obligations for aircraft engine repair company.

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