Question

Question No 2: (5+5 =10 Marks) You are a senior accountant in a company. Your immediate manager is a very forceful, dominant individual and you have been accepting his views over the last two years on ‘level of work in progress’ in the company. He has informed you that work in progress has increased by 200% during the current reporting period and instructed you to report this level in the monthly management accounts. The year-end draft of financial statements shows that the organization has only just met its planned ‘level of work in progress’ targets of 110%. Which you were not aware of when the draft financial statements were prepared. Based on the above evidence it is clear, that work in progress had not increased at anywhere near the rate advised by your manager. You are required to: Analyze the scenario and comment on the most applicable ethical principles for accountants and discuss the best possible course of actions? (300 words)

Answer 1

Key Ethical Fundamentals involved in the given case is as follows -

a) Integrity

Integrity involves proving that the accounts are true and fair without altering the draft report. Is it possible here ?

b) Objectivity

Objectivity refers to being unbiased in your duty when your immediate manager is so dominant.

c) Professional competence and due care

This involves making the accounts are drafted as per the appropriate and relevant standards.

d) Professional behaviour

The steps to be taken to ensure you as a Senior Accountant do not jeopardize your reputation.

Discussion of the scenario -

Identify relevant facts

A careful analysis of the documentation stating showing a different level of work-in-progress needs to be undertaken. Cost of Sales, Margins and Cash flows need to be reviewed along with the treatment as per relevant Accounting Standards.

Identify affected parties

The most affected parties here are you (Senior Accountant) and your immediate manager. Other parties affected at varying degrees are higher level of management, external auditors, shareholders, etc.

Who should be involved in resolution

This step involves not just considering who needs to be involved in the resolution process, but also the timing of their involvement and the reasoning for the same. Some of the possible alternatives could be to approach your relevant accounting body (example, CPA in USA) for advice and guidance, discussing the matter with your immediate manager with the evidence you have gathered, etc.

Possible course of action

Verify the facts (previous stock counts, margins, cost of sales, etc) by supporting it with documentation and discuss the matter with your immediate line manager to figure out a appropriate course of action. One of the steps could be to take a stock count.

Approach the next level of management if you feel the response given by your immediate manager is not appropriate. You could also include additional people for better clarity such as external auditors, audit committee and senior management.

Document all the relevant material during the resolution process such as

(a) Summary of the discussions held with various parties

(b) Who were the parties involved

(c) Conclusions and their reasons.