Moral reasoning and action in business

Read the case below and answer the questions that follow:

As the young, newly appointed Senior Manager of a chemical plant, James learns that a team of internal auditors from his firm's home office will conduct an audit on his factory in two days. He prepares his staff as best he can. The day before the auditors arrive, five of his assistants who worked with Mandla for 15 years discovers some disconcerting news. It appears, he says, that Mandla , a 64 year-old veteran of the plant, has been systematically altering accounts for years. Month by Month, Mandla has been shipping products to customers without billing them and then billing customers without shipping anything. It clearly showed that he did not comply to the rules and regulations of the business.
James is stunned. Seeking an explanation, he learns that the practice has nothing to do with fraud. Mandla hasn't been lining his own pockets; he was simply trying to be helpful. His goal was to smooth out the cyclical nature of the the orders so that, month by month, the figures sent to the home office appear level and consistent, with no peaks and valleys. On balance, James finds no money has been lost or gained; it all balances out in the end. And while the amount is not immense, the funds affected amount to perhaps five percent of the plant's annual earnings.
In one sense, Mandla's adjustments have benefited James, who has already been complimented by higher-ups for his astute forecasts and for meeting his targets so accurately. He, therefore, felt it necessary to protect Mandla's unethical practices. But James also knows that if these practices were to come to light, Mandla would be fired instantly and he himself, though ignorant of the practice until now, might have some tough explaining to do. After all, for years Mandla has been fudging records and misstating corporate revenues to management, shareholders, and the IRS.
James was afraid that he might also lose his job and decided if no proper explanation was given for Mandla's actions. He then decided to meet with the assistants that uncovered the altering of accounts and instantly promised them that he'll see that they would be rewarded for not disclosing any of Mandla's actions. They agreed to show James, who was an authority, that they were loyal.

QUESTIONS
1) There are various criteria that ethicists use to evaluate the adequacy of moral reasoning. Discuss by drawing appropriate examples from the case.
2) What are possible arguments that belong to six stages of moral development? Decide which stage each scenario belongs to and explain why.