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

For the year ended 30 June 2018, however, Pham is convinced that this provision should be increased to about 10% of loans receivable. If Phams advice is accepted, the doubtful debt expense will be about $200 million higher than normal. The managing director of the bank dismisses Phams opinion.

Pham is deeply hurt by the managing directors personal attacks, but insists that the matter be considered by the banks audit committee. The banks auditors, an international firm, express some concern about the difference of opinion, but eventually decide to support the managing director on the ground of his experience in the banking industry.

Pham, however, strongly believes that the banks financial statements will be misleading if the provision is not increased. She is also fearful that the managing directors lending policies are irresponsible, with implications for the survival of the bank.

Required :

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