Accounting Questions

Week 3 Homework Questions:

1. Explain what it means to behave ethically. Have you encounter any ethical dilemmas in your life (e.g. in the workplace, etc.)? What did you do in the situation?

Behaving ethically means to act in a manner consistent with what society perceives to be ‘good’ values. Specifically, in order to behave ethically one must exhibit an obedience to moral principles such as honesty, fairness, in an attempt to respect diversity, dignity and the rights of individuals.

One ethical dilemma that a friend and I recently experienced was when we were at work and we found $250 lying on the groud. In this situation, I handed the money to my manager immediately, acting in accordance my own moral code. But for someone else, this might have proven to be a tough decision between doing what is right, and acting for one’s own interests.

1. Carlon et al, 2016, Financial Accounting: Reporting, analysis and decision making, 5th Edition, Chapter 1: BBS 1.8 (p. 91)

1. Who are the stakeholders in this situation?

In this situation, the stakeholders are the banks and the other creditors (who will receive the financial statements of Mobile Phones Pty Ltd).

1. What are the ethical issues?

Dishonesty and intentionally misleading others are two ethical issues which arise in this case. Specifically, the managing director’s instruction to issue the misleading financial statements in the company’s annual report to banks and other creditors highlights his intention to lie and provide false information to these stakeholders. As a result of the misstatement overstating assets contained within the financial statements, banks may have a false perception of the business’ success and this could prompt them to loan larger amounts of money to Mobile Phones Pty Ltd more willingly. Thus, the possible issuing of the misleading financial statements poses a significant ethical issue as it would evidence the company’s attempt to use dishonesty and deceive others for its own benefit.

1. What would you do as the chief financial officer?

As the chief financial officer, I would encourage the managing director Jack Frost to correct the errors with the financial statements so that they are no longer misleading, in order to ensure that Mobile Phones Pty Ltd is participating in ethical business conduct.

3. Please read the following article http://www.smh.com.au/business/us-anticorruption-body- charges-bhp-billiton-over-beijing-olympics-hospitality-20150520-gh692q.html 

Based on the article, identify the ethical issues and discuss why the activities are alleged to be inappropriate. (LINK NOT WORKING).

4. With reference to APES 110 Code of Ethics for Professional Accountants, discuss the ethical issues that may arise in each of these cases.

CASE 1

You are financial director of a large multinational organisation and have been made aware of information about a takeover bid to acquire a competitors firm. A family friend is considering selling shares in this rival organisation and has asked you, as an expert in the industry, for advice on this matter. What would you do? Which principles are affected and how?

This case significantly affects a number of principles contained within the code. Firstly, the principle of objectivity and the requirement that professional judgements must not be compromised due to conflict of interest is affected by this case. In order to comply with the APES 110 Code of Ethics the need to disregard one’s personal interests in order to provide clients with professional evidence and judgements becomes evidences. The principle of professional competence which holds that accountants must attain and maintain professional knowledge for clients extends this notion. Additionally, the principal of professional behaviour is affected. If I convinced my family friend to sell the shares in order to assist my own organisation in its ‘takeover bid’ and stakeholders found out, this could significantly discredit the image of my organisation. Therefore, in this situation, I would do my best to provide my family friend with professional advice just like I would any client, and I would disregard my own organisation’s interest in the matter, in accordance with the APES 110 Code of Ethics for Professional Accountants.

CASE 2

You are a certified public accountant who has recently joined a small company that processes food. The company is effectively run by one director. The other directors are non-executive and all have close personal relationships. As a key member of the finance team you have discovered that some employees are being paid cash in hand and not via the formal payroll. You also have suspicions that some of these people are being employed illegally and you have no records of their formal employment documents or contracts. What would you do? Which principles are affected and how?

In this case, the fact that the employees are being paid cash in hand and are being employed illegal evidences an illegal business practice and consequently, I would take action in order to uphold the ethical principle of professional behaviour contained within the APES 110 Code of Ethics for Professional Accountants. This principle specifically requires accountants to comply with relevant laws and regulation, and as such, I would notify the business and inform them about the consequences of such illegal employment (breach of law), thereby encouraging them to adopt a more ethical business approach and comply with the law. If no such improvements were made I would then take action against the business.

Week 4 Homework Questions

Chapter 1:

E1.6 (b) and (c)

Cheong Pty Ltd had three major business transactions during 2015.

1. The owner of Cheong Pty Ltd, Cheong Kong, purchased a computer for personal use and charged it to his expense account.
2. Cheong Pty Ltd wanted to make its 2015 profit look better, so it added in sales that occurred on the first two days of 2016.

In each situation, identify the assumption or principle that has been violated, if any, and discuss what should have been done.

b) In this transaction, the fact that individuals should not use business money for personal purchases is the principle that has been affected. By charging the computer purchased for personal use to the business expense account, Cheong Kong has violated this principle and instead, he should have used his own money/income to purchase this computer.