Pham Toan Vu is chief accountant for the Bank of Australia.Through vigorous marketing the bank has grown rapidly, but there issome evidence of a decline in the quality of the loans it ismaking. The bank seems to be getting business that is rejected byother banks. Because of strict credit control procedures, the bankhas had very few bad-debt problems in the past. It hastraditionally maintained a provision for doubtful debts of about 5%of loans receivable.

For the year ended 30 June 2018, however, Pham is convinced thatthis provision should be increased to about 10% of loansreceivable. If Pham’s advice is accepted, the doubtful debt expensewill be about $200 million higher than normal. The managingdirector of the bank dismisses Pham’s opinion.

Pham is deeply hurt by the managing director’s personal attacks,but insists that the matter be considered by the bank’s auditcommittee. The bank’s auditors, an international firm, express someconcern about the difference of opinion, but eventually decide tosupport the managing director on the ground of ‘his experience inthe banking industry’.

Pham, however, strongly believes that the bank’s financialstatements will be misleading if the provision is not increased.She is also fearful that the managing director’s lending policiesare irresponsible, with implications for the survival of thebank.

Required :

Apply the AAA model of ethical decision making to this scenario.The analysis should include references to the ‘Code of Ethics forProfessional Accountants’ where appropriate.