Question

James is a charted accountant at Golden Electronics Bhd. The company operates the business in Klang and involves in manufacturing of electronic appliances. The company currently has recorded total sales of RM25 million. It is the end of the first quarter 2020. James is hurriedly attempting to prepare a financial statement so that quarterly interim financial reports can be prepared and released to the board of directors and the regulatory agencies. While finalizing the accounts, he found that the total credits on the trial balance exceeded the debits by RM3,700. In order to meet the deadline, James decides to force the debits and credits into balance by adding the amount of the discrepancies to the Equipment account. He chose Equipment because it is one of the larger account balances; percentage-wise, it will be least misstated. James “plugs” the discrepancies! He believes that the discrepancies will not affect anyone’s decision. He wishes that he had another few day to find the error but realizes that the financial statements are already late.

1. Identify three stakeholders in this situation? Explain the importance of these stakeholders in the above situation.
2. Critically discuss the ethical issues involved in this case?
3. What are Scott’s alternatives? Explain all the three alternatives.

Answer 1

a. Three Stakeholders in this Situations:

1. Regulatory Agencies
2. Board of Directors
3. Shareholders of Golden Electronics Bhd

Importance of Stakeholders in the above situation:

1. Regulator Agencies: They are those stakeholders who regulate the working of the company and hence require correct information about the company. Further, if they are provided with incorrect or misleading information then they have the authority to charge fines and penalty for the same.
2. Managment: They are responsible for the overall management of the company and hence it is imperative for the accountant to provide accurate information to them.
3. Shareholders: They are those people who have invested their money in the company and they have a right to be provided with correct information at all costs. Any incorrect information may cause them to take an inappropriate decision.

b. Ethical Issues invloved in the case

In the case given above James is a chartered accountant at Golden Electronics Bhd, where he is responsible for preparaing the quarterly interim financial statements. While doing so he found that the total credits on the trial balance exceeded the debits by RM3,700. In order to meet the deadline he adjusted this difference in the equipment account, since this account is the largest and least misstated.

From the given case, James is under Intimidation Threat to complete the work within the deadline. An intimidation threat occurs when a person may be deterred from acting objectively and exercising professional scepticism by threats, actual or perceived, from the directors, officers or employees of the client.

This has caused James to make the finanacial statements misleading and hence this could impact the decisions of the stakeholders and it may losing their trust in the company. Further, James can also be held guilty of other misconduct for providing incorrect or misleading financial statements.