Vroom Ltd: Ethical Issues & Financial Impact of Bonus Incentive Scheme

This report delves into the impact of a bonus incentive scheme on the financial statements of Vroom Ltd. It explores the perspectives of various stakeholders, including employees and the government, and analyzes the ethical issues arising from potential accounting manipulations. The report examines how Freda, a manager, seeks to influence financial reporting to maintain her bonus, and how Lucia, the accountant, is pressured to defer revenues and accrue expenses. The analysis considers the implications of government grants for training apprentice mechanics and the ethical considerations of tax planning versus unethical accounting practices. The report also assesses whether Lucia can ethically manage revenues and expenses to achieve the desired financial outcomes, focusing on tax planning strategies and the limits of ethical accounting practices. The conclusion emphasizes the importance of ethical conduct in financial reporting and the potential consequences of manipulating financial statements.

The impact of a bonus
incentive scheme on
the financial
statements

Table of Contents
(a) Stakeholders of company.......................................................................................................3
(b) Why did Freda ask Lucia to do this?......................................................................................3
(C) What are the ethical issues involved?....................................................................................4
(D) Can Lucia defer revenues and accrue as many expenses as possible and still be ethical?....4
REFERENCES................................................................................................................................6

(a) Stakeholders of company
Stakeholders are the individuals or person who have interest or stake in business and its
operations. The company or entity has two types of stakeholders which are internal and external
stakeholders. Internal stakeholders are people whose interest within the organization comes
through direct relationship and includes owners, employees, investors. External stakeholders are
person who don't have direct relationship with the entity but are directly or indirectly impacted
by actions of organization and has power to impact business through their actions (Choudhury
and Pattnaik, 2020). External stakeholders includes suppliers, creditors, customers, government,
etc. The stakeholders who are mentioned in the case are employees and government.
The employees are Lucia who is an accountant of Vroom Ltd. and Freda who is a manger
of Lucia and there is also a small information regarding apprentice mechanics who are also
employees and stakeholder of company. Both are internal stakeholders of company and can
directly impact company and its business through their actions. They play a crucial role in
success and failure of business. The employees of the company are also impacted by actions of
company and this is the reason that they have high interest in profit margin and success of
business (Derakhshan, Turner and Mancini, 201). Government who is the another stakeholder
and external stakeholder of Vroom Ltd. Government don't have any direct interest in company
but actions of government can impact the business and its operations. The government of are
providing government grants which are used for training apprentice mechanics which enables
company to increase profit and this amount also give tax benefit to company. The grants
provided by government has a positive impact on profitability of company.
(b) Why did Freda ask Lucia to do this?
Government grants provided by government for training apprentice mechanics has a very
good benefit for company. The grant provides opportunity to company to provide training to its
employees which can will provide future benefit to company and this training can improve
performance of employees (Lee, Park and Gong, 2022). Another benefit of grant is that it
provides tax benefit of $100000. But it is evaluated that the increase in profit can lead to
stoppage of government grants. This can be a loss for company as it has to take money from
company revenue to train apprentice and another loss is it will not be able to take tax benefit. To
avoid these losses Freda had given solution to Lucia to show less profit by increasing expenses.

According to Freda, the stoppage of government grant can also impact her bonus because
she is taking bonus according to profit earned by company. Due to government grant company
was earning a profit of around $3 million, and she was earning bonus of $30000. But due to
stoppage of government grant company will have increase in expense of training programs
which will impact profit margin and the tax benefit will also be not there. Overall, there may be
decrease in profit and this will directly impact her bonus. It is the reason due to which Freda has
asked Lucia to show less profit to not impact profit margin of company.
(C) What are the ethical issues involved?
Answer- In this case there are some ethical concerns are involved. For instance as Lucia was
instructed by her manager to manipulate the accounts so there is “Unethical accounting” is
prevailing in the organization. Since she is supposed to change the figures in favourable manner.
At the same time, breaching social norms are also there. As they are intending to reduce their
cost burden so it is totally against the notion of good faith (Vărzaru, 2022)
Ethically an organization is supposed to perform ethical business practises but in this case
they are intending to reduce their tax burden which is completely a legal and ethical matter.
Whereas, the manager is striving to take undue advantage of its position which is breach of
employment laws and quite unethical matter. If the entity is striving to take government grant
despite being ineligible for that. It is a severe crime and in moral term they are somehow driven
to be immoral practitioners (Hoque and Rana, 2018)
Lucia did not want to do that mace up yet for her personal interests she is supposed to go
with the flow. It is a confrontation where personal interests are ruling over social interests so this
can be cited as a drastic unethical practise. So form the analysis of this case it would be fair to
interpret that there are range of unethical practises are prevailing.
(D) Can Lucia defer revenues and accrue as many expenses as possible and still be ethical?
Answer- This is hugely possible for Lucia to bring favourable impacts in the revenues and
accrues and still be ethical. She can take advantages of “Tax planning” it will give them scope to
save their tax by implying better accounting practises. Tax planning is an ethical practise and
majority of the organizations use it for reducing their revenues which ultimately causes them
lower liability to pay tax.
At the same time there may be some techniques which can be used and those techniques
are not unethical. For instance- If such an accounting practise is adopted which is permitted by

government and due to its legal structure it allows reducing overall taxation then this may be
used to be remained ethical along with keeping the graph of income lower. There are such
practises too which give this opportunity to keep the revenues lower and turning the tax liability
down (Bremser, and Gullkvist, 2020)
But it would be an unfair judgement to reflect that as many as expenses can be deferred.
Since despite the presence of tax planning and some other alternatives which are both legal and
ethical but it is having its brim or limit which can not be broken. This is a fair judgement or
position to take that such alternative is not there to differ as many as expenses. It can be reduced
to certain degree but not to the fullest extent.

REFERENCES
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and Reputation RiskThe Crusin Lines: Impairment and Reputation Risk. Issues in
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Choudhury, S. and Pattnaik, S., 2020. Emerging themes in e-learning: A review from the
stakeholders' perspective. Computers & Education. 144. p.103657.
Derakhshan, R., Turner, R. and Mancini, M., 2019. Project governance and stakeholders: a
literature review. International Journal of Project Management. 37(1). pp.98-116.
Hoque, Z. and Rana, T., 2018. Dealing with human ethical issues in research: Some advice. In
Methodological Issues in Accounting Research: Theories & Methods (No. 29, pp. 602-
612). Spiramus Press.
Lee, J., Park, Y. J. and Gong, X., 2022. How Do Government Grants Affect Nonprofit Financial
Effectiveness? The Mediation Role of Process Accountability. Administration &
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