Case Study 1
Answer to Requirement (a)
Certain key stakeholders are involved in this case. They are mentioned below:
- The accountant, Lucia, and her manager, Freda Chuse (Freda) are the primary stakeholders in this case because of their authority or capability in how the financial report of Vroom Ltd turns out to be (Kujala et al., 2022).
- The government is the second stakeholder in this case. The government has involvement in this case because a grant of $10,000 is received by Vroom Ltd from the government so that the company get the encouragement to hire and train more apprentice mechanics.
- The tax authority of the country is the third stakeholder in this case. If Lucia defers the profit to the next year as per the suggestion of Freda, the tax authority will suffer. The company will be able to declare and file lower taxes than they should have filed by understating the profit. Therefore, declaring a low profit will affect the tax authority.
- The apprentice mechanics are the other key stakeholder group in this case as they will not receive the opportunity to be trained and employed by Vroom Ltd (Lavery, 2018).
- The auditor of Vroom Ltd is a key stakeholder in this case as the auditor will be responsible for auditing the financial statements which are misstated and it will restrict them from conducting the audit effectively.
Answer to Requirement (b)
The bonus of Freda is covered at $30,000 regardless how much profit is made by Vroom Ltd. In this circumstance, it is not possible for Freda to receive any higher amount of bonus and a profit of $3.5 million has been registered by the company. It is also not possible for the company to be qualified for receiving the government grant of $10,000 since it has made a high profit of $3.5 million. Consequently, the advice of Freda to Lucia to find a way defer the profit is based on the notion that the company will not receive any grant from the government. If the profit is understated to $3,000,000 by Lucia, the maximum amount of bonus of $30,000 will be received by Freda and the company will become qualified for receiving the government grant of $10,000. This whole circumstance will be a good bargain for both the company and Freda, as the government grant and bonus will be received by them correspondingly (Apriliana and Agustina, 2017). Another possible reason which might have worked as a motivation to Freda for understating the profit is so that a huge amount of tax is not paid by the company (Svabova et al., 2020).
Answer to Requirement (c)
The key ethical issue involved in this case is contemplation for reporting the fraudulent activities in financial reporting. Misstating the financial statements by the senior management of a company by recording financial transactions that are not in line with the applicable financial reporting standards and framework is called fraudulent reporting. This is undertaken for misleading different stakeholders and in this case, the stakeholders include the government. The main factor in business which leads to the fraudulent financial reporting is greed. In businesses, the managements get tempted to cross all ethical boundaries because of the desire to make more profits. It is the responsibility of the accountants to make sure that the desire to make more profits does not get in the way to comply with the ethical guidelines and accounting regulations (Gunz and Thorne, 2020).
In this provided case, an ethical dilemma is faced by Lucia, the accountant, to be a whistleblower for what Freda wants to do because there is a possibility of her not getting the promotion and losing her job. However, she is supposed to report any breach in the financial reporting and accounting practices to the appropriate authority (Jaijairam, 2017).
Stakeholders in Case Study 1
It is acceptable for Lucia to make sure that she records all income, expenses, assets and liabilities in the appropriate accounting period. An ethical issue is developed if other assets and liabilities are recognized by her in the current period which fail to reflect Vroom Ltd’s financial performance and position legitimately. Yet, she can use several methods for manipulating the profit figure, such as altering the method of calculating depreciation, or alternating the assets’ useful lives. Adoption of these techniques develops ethical issues in this case.
It is also an ethical issues if Freda pressurize Lucia to perform the accounting adjustments that Lucia believes should not be made, on the basis that it would misrepresent the result of Vroom Ltd for that period.
Answer to Requirement (d)
It is possible for Lucia to defer all potential expenses and accrue all potential income through passing the adjusting entries. However, Lucia should not be involved in misrepresenting the financial performance and financial position of Vroom Ltd that is aimed to mislead the key stakeholders. Therefore, it cannot be considered as ethical for Lucia to incur as many as expenses and defer revenue as this will mislead the key stakeholders of the company about its true financial position and performance. In this context, it is noteworthy to mention that these accounting practices of deferring incomes or accruing expenses are not acceptable as per the applicable financial reporting standards and principles. Therefore, it is not possible for Lucia to be ethical while deferring revenue and accruing as many expenses as possible (Donegan, Ganon and Johnson, 2017).
Answer to Requirement (a)
A stakeholder can be regarded as a person, an organization, or a group of people with an interest in a certain business or business project, and these parties have stakes in that business or project. This is because these stakeholders will be impacted by an outcome of the business or project. In addition, the decision made by a stakeholder could impact the company or the project (Leonidou et al., 2020). In this provided case, certain key stakeholders are involved because of their involvement in the business of Fremantle Fisheries (FF). These stakeholders are as follows:
- John Dorey is a key primary stakeholder in this case because he is the manager of the computerised accounting system.
- The keyboard operator is another key stakeholder in this case as he is responsible for operating the key board and putting the source codes.
- Another key group of stakeholders in this case is the employees of FF who work at the fishing boats.
- The father and two sisters are the key stakeholders in this case as they work for the company like other friends of the family.
- The Fish Marketing Board is another key stakeholder in this case as this board is used for selling all the seafood caught (Goodman and Sanders Thompson, 2017).
Answer to Requirement (b)
As a result of John Dorey’s request and the action taken by the keyboard operator leads to the creation of ethical issue around the ethical principle of professional behaviour. This particular ethical principle of professional behaviour inflicts an obligation all the accounting professionals to adhere to the pertinent laws and regulations. This principle also requires that the accounting professionals should avoid any omission or action that he/she should know or knows may discredit the accounting profession (apesb.org.au, 2022).
Ethical Issues in Case Study 1
To John Dorey, ordering the keyboard operator to add the bonuses of other employees to the bonuses of his father and two sisters is a discredit to the accounting profession. This is because it is against the accounting laws and regulations to provide one’s bonus to others in a fraudulent manner. At the same time, if the father and two sisters of John Dorey are using this privilege of earning dishonest bonuses, like making false information for earning more bonuses, it may lead to fraud as well. Therefore, the principle of professional behaviour is clearly violated.
To the keyboard operator, his professional responsibility demands him to appropriately input data of the shipping documents in the computerised accounting system and reflect the issues in case of the occurrence of any unexpected error. In this case, rather than following the dishonest request of John Dorey to provide the bonuses to his father and two sisters, he should inform the owner of FF about the whole situation. Failing to do this leads to the development of an ethical issue as he fails to follow the relevant laws and regulations. Hence, the principle of ethical behaviour is violated (Arita et al., 2021).
In addition, it is not ethical for John Dorey to create an excessive pressure on the keyboard operator to carry out the fraudulent act, or else he may be dismissed. This is an ethical issue because the employees should feel safe at the workplace and they should work at liberty for the work they were employed for without any interferences because there may be a violation of contract due to any interference (Belgasem-Hussain and Hussaien 2020).
Answer to Requirement (c)
Every time an unethical behaviour is spotted, the individual who has spotted the unethical behaviour should try to address such behaviour because of its negative impact if it is left unaddressed. In addition, if other members of the business starts to follow such unethical behaviour, it may end up disseminating to the society and end up being tough to control.
In the provided case of FF involving John Dorey and the keyboard operator, there is an unethical behaviour from John Dorey’s end as he is pressurising the keyboard operator to assist him in fraudulently increasing his father’s and sisters’ bonuses by taking advantage of his senior position in the company. The keyboard operator is under tremendous pressure as non-compliance with the order to John Dorey could lead to his dismissal from his job.
In this situation, the following steps might be adopted by the keyboard operator to prevent this unethical behaviour and to avoid being dismissed:
- He may apply for a reallocating to any other department of the same company.
- He may discuss about the unethical acts of John Dorey in the office corridor.
- He may take the decision of informing this corruption to the chief executive officer of the company.
- He may take the decision of rejecting all the invoices with no suitable number and sending them back to the organizations which sent them so that they can provide the mission numbers.
- He may take the decision of extremely tracking the sources of the shipment with or without the knowledge of John Dorey. This will lead to the equality for all employees as payment would be made to the employees on the basis of the services delivered (Kiradoo 2020).
- He may take the decision of pretending acting as per the order of John Dorey, and thus hiding the misconduct but keeping the system to run normally. It can be successful as it takes place occasionally. In addition, he will also be able to maintain a good relationship with John Dorey.
- If all the above initiatives fail, the keyboard operator should choose to resign from his job as if he agrees standing the misconduct, he may end up compromising his work ethics (Jaijairam, 2017).
References
Apesb.org.au. 2022. APES 110 Code of Ethics for Professional Accountants (including Independence Standards). Available at: https://apesb.org.au/uploads/home/02112018000152_APES_110_Restructured_Code_Nov_2018.pdf (Accessed: 28 April 2022).
Apriliana, S. and Agustina, L., 2017. The analysis of fraudulent financial reporting determinant through fraud pentagon approach. Jurnal Dinamika Akuntansi, 9(2), pp.154-165.
Arita, S., Aprayuda, R., Putra, D.G. and Syofyan, R., 2021, June. Earnings Management Practices From Perspective a Law and Ethical Views. In Proceedings of the Sixth Padang International Conference On Economics Education, Economics, Business and Management, Accounting and Entrepreneurship (PICEEBA 2020) Earnings (Vol. 179, pp. 307-313).
Belgasem-Hussain, A.A. and Hussaien, Y.I., 2020. Earnings management as an ethical issue in view of Kohlberg’s theory of moral reasoning. Journal of Financial Crime.
Donegan, J., Ganon, M. and Johnson, Z., 2017. Influencers of earnings management fraud: Coercion, project stage, and ethics. Journal of Managerial Issues, pp.169-188.
Goodman, M.S. and Sanders Thompson, V.L., 2017. The science of stakeholder engagement in research: classification, implementation, and evaluation. Translational behavioral medicine, 7(3), pp.486-491.
Gunz, S. and Thorne, L., 2020. Thematic Symposium: The Impact of Technology on Ethics, Professionalism and Judgement in Accounting. Journal of Business Ethics, 167(2), pp.153-155.
Jaijairam, P., 2017. Ethics in Accounting. Journal of finance and accountancy, 23, pp.1-13.
Jaijairam, P., 2017. Ethics in Accounting. Journal of finance and accountancy, 23, pp.1-13.
Kiradoo, G., 2020. Ethics in accounting: Analysis of current financial failures and role of accountants. International Journal of Management (IJM), 11(2), pp.241-247.
Kujala, J., Sachs, S., Leinonen, H., Heikkinen, A. and Laude, D., 2022. Stakeholder Engagement: Past, Present, and Future. Business & Society, p.00076503211066595.
Lavery, J.V., 2018. Building an evidence base for stakeholder engagement. Science, 361(6402), pp.554-556.
Leonidou, E., Christofi, M., Vrontis, D. and Thrassou, A., 2020. An integrative framework of stakeholder engagement for innovation management and entrepreneurship development. Journal of Business Research, 119, pp.245-258.
Svabova, L., Kramarova, K., Chutka, J. and Strakova, L., 2020. Detecting earnings manipulation and fraudulent financial reporting in Slovakia. Oeconomia Copernicana, 11(3), pp.485-508.
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