Question

YOU have graduated from Deakin with a Bachelor of Commerce and started work with a mid-sized accounting practice in Melbourne, working in the Accounting and Tax team. Standards are high. To move ahead in your career you must not only work hard and effectively you must also demonstrate cultural fit. This was easy during recruitment as the firm promoted itself as “top class people, doing top class work, with top class standards”. You were expecting that the firm would do all it could to win and serve its clients. There is huge stigma attached to being held responsible for losing a client. One of the clients in your team runs a successful business. However, he was very unhappy when presented with a tax bill of over $1 million. Your supervisor spent a considerable amount of time trying to help the client see that tax is paid on profits and that profits are a sign of success. The client was only partially persuaded. His clear instructions to your supervisor are to lower his tax bill, “make it happen, or I will find someone who will” were his final words. The client’s business has grown an extra 10% this year. Meanwhile, the client has planned a major expansion that will take the business to global markets. All the spare cash of the business has been invested in the expansion. Bank loans have also been raised to fund the expansion. Your primary task is cashflow planning, which includes current operations, tax payments and the expansion project. A successful outcome will turbo-charge your career. At an accounting conference you meet Jen, the Business Development Manager for a tax planning specialist. She outlines an investment scheme where clients borrow from the scheme promoter who invests the money in infrastructure projects around the world. Clients can claim a tax deduction for interest on the borrowing in the early years. This will reduce their tax. Project revenue is taxable when the projects become operational, several years into the future. Investors enjoy immediate tax benefits. Jen adds “investors don’t actually have to invest cash up front. All we need is a guarantee to pay cash ‘if and when required’. We take the guarantee to a bank who will provide project funding. If there is a problem the bank takes over the project. Investors are only called on if the project does not manage to pay out the bank loan. In over 20 years of promoting these schemes this has never happened”. She adds, “the beauty of this scheme is that investor get to choose the size of their tax saving. The bigger the guarantee they sign up for, the bigger the tax saving”. You do some calculations and establish that for every $100 guarantee your client provides to Jen’s investment scheme he will get a $50 benefit. In a stroke you could reduce his tax bill and free up funds to complete the expansion. Use ONE of the decision-making models to reach and justify a responsible ethical judgement in terms of what you ought to do in this situation.Use the AAA ethical decisoon making model to answer the question and it should be in first person

Answer 1

AAA ethical decision making model which is one of the decision making model.both parts sums up in this answer.

AAA Ethical Decision Making Model

• Fact of the case

  In this case i am a fresher who have graduated from deakin with bachelor of commerce and started work with mid sized accounting practice who promote themselves as "top class people dping top class work with top class standards". There is a client running a successful business of our firm whose buisness has grown an extra 10% this year.He is very unhappy because his tax bills for this year are over $1million. Clients clear instructions to our firm are to lower his tax bill, “make it happen, or I will find someone who will” were his final words Meanwhile, the client has also planned a major expansion that will take the business to global markets. All the spare cash of the business has been invested in the expansion. Bank loans have also been raised to fund the expansion. My primary task is cash flow planning which includes current operation tax payments and expansion project. At an accounting conference i came to know about an investment scheme in which investors don’t actually have to invest cash up front. All they need is a guarantee to pay cash ‘if and when required’. We take the guarantee to a bank who will provide project funding. If there is a problem the bank takes over the project. Investors are only called on if the project does not manage to pay out the bank loan. In over 20 years of promoting these schemes this has never happened
The bigger the guarantee they sign up for, the bigger the tax saving”. I did some calculations and establish that for every $100 guarantee my client provides to investment scheme he will get a $50 benefit.

• Ethical issues in this case

The ethical issues in this case is that if I encourage the client to invest in this scheme , reduce his tax liability and make funds available for expansion project which gave a turbo booster to my career but i know that if there will be problem and project does not manage to payout the loan It will create an immediate liability for my client which will be double in amount as he got $50 benefit for  $100 investment.

• Norms,values and principles related to this case

A professional accountant have to follow the fundamental principles during the work, I should not impose a contingent liability on my client to get a turbo booster in my career

• What are the alternative course of actions

Option 1 is encourage the client to invest in the scheme and which will result in a successful outcome, eventually it will give a turbo booster to my career. Option 2 - gave each and every information to client and see if he wants to invest or not and if i dont want invest in scheme explore other options for tax saving.

• Option 1 will give me a definite career advantage while in option 2 my success will depend on client whether he wants to invest or not.
• Option 2 is best course of action that is consistent woth norms principles and values.