Read the Harry Markham Loyalty Dilemma Case Study (MIT Sloan) and write an analysis. The goal is to demonstrate critical thinking in your analysis; you do not need to become an accounting expert to critically analyze this case study. In your analysis, be sure to include
1. A summary of the issue.
2. Use of at least one critical thinking strategy or tool to analyze the situation and highlight key facts. Be sure to identify the tool you select and describe its use.
3. A recommendation to resolve the situation, along with reasons why you recommend this solution.
Answers
Answer:
Explanation:
1)
Harry Markham's Loyalty Dilemma (A) Harry Markham, a pension fund investment advisor, is torn about whether to tell the board of trustees of the pension fund he is advising that he believes the value of their projected liabilities are actually much larger than what the actuaries say they are.
2)
Pros:
•Board of trustees will be happy.
•He and his firm will not be fired.
•Strengthen the political support for the plan.
Cons:
•Violates the ethical issue.
•Violates the professional standards of CFA Institute and in turn he will be considered disloyal to CFA standards.
•Not considered accounting illusion.
•Unable to make a sound investment.
•Harms the interest of clients.
3)
FRAMEWORK FOR ETHICAL DECISION MAKING
•Recognising the ethical issue/Core issue.
Solving the dilemma of whether he will raise the liability concerns or not for a sound investment decision considering all the factors and quotes of ethics and professional standards as per the requirement of CFA Institute.
•Getting the facts
In evaluating the liabilities actuaries followed the rules set forth by GASB which called for discounting the cash flow of pension liabilities at the expected returns on asset that has been set aside to fund the liabilities.
-An 8% discount rate was used by actuaries which resulted in the 'nonsense valuation'.
-In fact 3% or 4% rate was appropriate according to economists and financial analysis.
-Differing rates lead to differing calculated liabilities which may harm any of stakeholders.
•Evaluating the alternatives
•Making a decision
•Taking action plans