Ethics in Public Accounting Profession
Added on 2020-04-07
13 Pages2101 Words510 Views
|
|
|
1Introduction to AccountingName:Course Professor’s nameUniversity nameCity, StateDate of submission
2Question 1Who are the stakeholders in this situation?The stakeholders in this case are the employees( both the manager and the accountant), they are the primary stakeholders and have a hand in how the financial statements turn out to be. The second stakeholder is the government. The government is involved in this case because it it provides a grant of $100,00 to the firm to encourage the hiring and training of mechanics(Thomas and Ward, 2015). The third stakeholder is the tax authorities, they will suffer if the profit is deferred to the next year as the manager suggests. Understating of profits will consequently lead to the company declaring and filing lower taxes than they ought to have filed. The tax authority thus is affected by the low profits declared. The other stakeholder is the mechanics who will be affected by the decision of the government not to give the $100,000 grant. This means that mechanics will not get the opportunity for training and eventually getting jobs in the company. Lastly, auditors are also a stakeholder in this case, they will be auditing misrepresented financial statements that will hinder them from effectively carrying out audit of the company(Thomas and Ward, 2015). All these are groups that are likely to be affected by a misrepresentation of the financial statement. Why do you believe Freda asked Lucia to do this?Fredas bonus is capped at $30,000 regardless of how much the company makes as profits. In thiscase, the managers bonus cannot go any higher and the company has made a profit of $3.5 million. The company cannot qualify for a government grant of $100,000 after making such highprofits, and thus the Fredas advice to Lucia to find ways of deferring the profits is based on the idea that the government will not be providing any grant for the company. If the accountant
3understates the profits to $3,000,000, Freda will get her maximum bonus of $30,000 and the company will still get the $100,000 grant. This is a win win situation for both the company and Freda, who will get a grant and a bonus respectively. Another reason that might have motivated Freda to advice Lucia to understate profits is so that the company cannot pay huge taxes to the government.Ethical issues involvedOne of the ethical issues involved in this case is contemplating to report financial reporting fraudulent. The misstatement of financial statements by the management by recording transaction that are not in line with generally accepted accounting standards is termed as fraudulent reporting . This is done to mislead various stakeholders and in this case the government. Greed in business has been the main factor that leads to fraudulent reporting (Weil, 2017). In finance and business world, the desire for making more profits leads to the management to cross ethical boundaries. An accountant should never let this desire get in the way of making sure that accounting standards and ethical guidelines are adhered to. The accountant ( Lucia ) faces the ethical dilemma of being a whistle blower for what the management wants to do because she may not get the promotion and may lose her job. However,she is supposed to report any accounting violations to the Financial accounting standards board. Another ethical issue in this case is omission of financial records (Weil, 2017). Omission is a violation of accounting ethics because the accountant leaves some information that may paint thebusiness in bad light to the investors.Can it be ethical to defer revenues and incur as many expenses as possible?
4By adjusting entries, Lucia can defer all possible expenses and accrue all possible incomes through adjusting entries (Barker, 2011). However, Lucia should not distort the financial positionand performance of the entity that is aimed at misleading stakeholders . Therefore, it is not ethical for Lucia to defer revenues and incur as many expenses as possible as this will mislead the stakeholders and is not in accordance with the general accepted accounting standards.
End of preview
Want to access all the pages? Upload your documents or become a member.
Related Documents