Question

John works in a small consultancy firm and that suffers a large income decline. During the current month, a contract was not renewed and it seems quite clear that the firm needs to go into insolvency. One of the firm's directors is demanding to have his expenses settled as a top priority. These have not been authorized especially since there are no supporting documents, despite the firm's policy and repeated request. What is your ethical response for this?

Answer 1

The recommendations should be as follows,

As there is a clear sign that the company may go into insolvency, it is violating the going concern concept of generally accepted accounting principles, the accountant should be very clear about the disclosure of the going concern concept, as it would effect many of the stakeholders of the company. There should be clear disclosure of the reasons why the company is about to go into insolvency and what is the reason behind the same.

Also do not forget to state that, one of the director is keen in settlement of his dues prior to others. It is against the law, all the secured creditors and loans will be settled 1st and there is a specific flow for the disbursement of dues, the director cannot expect his dues ti be settled in priority.