Question

You have just been appointed as the financial accountant at Caulfield Warehouse Direct (CWD), an electrical company. CWD makes all sales under terms of Free On Board (FOB) shipping point. FOB shipping point specifies that the title and responsibility of goods transfer from the seller to the buyer when the goods are placed on the delivery vehicle. During your first week, you have been asked to conduct a review of all income items as the Australian Tax Office wants to know details of all income in the last financial year, which ended on 31 December. During your review, you became aware that CC had post-dated a significant sales transaction of $500,000 (goods were delivered on 27 December, but invoiced on 3 January). Post-dating the sales transaction would lower CWD’s taxable income. You approached the owner, Megan Simpson, and discussed about it. Megan asked you to ignore the finding because it is part of the company’s policy. After all, there was a difference of only one week between 27 December and 3 January.

1. Explain the ethical issue (or dilemma) that you face.
2. Identify four (4) parties (stakeholders) that may be harmed.
3. Discuss three (3) specific interests that are in conflict [HINT: For each, you must identify pairs of stakeholders whose interests might be in conflict and explain why].
4. What are your options and the consequences of each option? Specify two (2) options, and for each option, explain the impact of that option on the stakeholders.

Answer 1

a. Ethical issue faced by the financial account in the given sinario:-

In the given sinario accountant of CWD on review of all income items for the last financial year ended on 31 December noticed that CC had post-dated a significant sales transaction of $500,000 (goods were delivered on 27 December, but invoiced on 3 January) which lowers the CWD's taxable ncome. And when the accountant approched the owner and discussed about it, Megan asked him to ignore the finding because it is part of the company’s policy.

Hence the accountant is in dilemma wether to accept the same as it is as per the company's policy or to report to Australian Tax Office as the post-dating the sales and lowering taxable income thereto is against the ethical standards.

b. The Four parties that may be harmed in the given sinario are:-

i. Australian Government ii. Share holders of the Company iii. Investors and iv. Banks and Financial institutions (Lendors)

c.The three pairs of stakeholders whose interest might be in conflict are:-

i. Australian Government & Company: If the accountant ignores the sales transaction of $500,000 Australian Govenrment loses tax income or if reported by accountant company needs to pay excess tax even which is not required as per company's policy.

ii. Investors and Company: Investors tend to invest if the companies earnings are high however company needs to pay excess tax even which is not required as per company's policy, if sales transaction of $500,000 is reported by accountant.

iii. Share holders and Company: Earnings per share will be high if sales transaction of $500,000 is reported by accountant however company needs to pay excess tax even which is not required as per company's policy,

d. Options available to Accountant:-

Option 1: To report sales transaction of $500,000

Impact on stakeholders:-

Governmet receives higer tax income, Investors tend to invest more in the company, Shareholders EPS will be high and Lendors tend to lend more funds as the companies earnings are high.

Option 2: To ignore sales transaction of $500,000

Impact on stakeholders:-

Governmet loses some tax income, Investors investment in the company may be comparitively less, Shareholders EPS will be low to the extent of ignored amount of income and Lendors tend to lend less funds as  the companies earnings are comparitively low.