In: Accounting
Susannah’s Sweets Pty Ltd has cash flow problems due to Covid -19 shutting cafes, so Zoe the Manager is applying to the bank for a loan. Elizabeth is the accountant at Susannah’s Sweets Pty Ltd. Elizabeth has discovered that some assets are overstated in this year’s Financial Statements, because Depreciation was not done. Elizabeth tells Zoe that the Financial Statements need to be corrected before they are submitted to the bank, as part of the loan application. Zoe replies that the bank would not approve the loan if the real financial position was known, so tells Elizabeth that she must not correct the Financial Statements. Zoe says that if Elizabeth tells anyone it will be her fault if the business closes and everyone loses their jobs. Required: Answer each question in the spaces provided below: a) Name 4 stakeholders in this situation? b) Explain two of the Ethical Principles affected in this case. State the principle and explain why you believe there are issues. c) Name two (2) potential Ethical Threats in the above case and provide your reasoning as to why you believe they are threats.
Solution :
Part A : Stakeholders
1) Bank
2) Employees
3) Owners and Representatives of the company - Manager
4) Customers
5) Government
Part B : Ethical Principles
1) Integrity : An accountant should be straightforward and honest in his approach to professional work.
Failure on part of Elizabeth to diclose the fraud of overstatement of assets is a direct violation of her integrity. It is the responsibility of an accountant to be honest to maintain the intergrity of the profession.
2) Objectivity : An accountant should not bias, conflict or undue influence of others to override her professional judgements.
In the given case, Zoe has influenced Elizabeth stating that she will be responsible for causing loss of employment to all the employees. Zoe has instigated an emphatic feel on Elizabeth to think in the shoes of employees. However, Elizabeth has failed to think that it is a trap by Zoe to influence her to conceal the fraud.
Part C : Ethical Threats
1) Intimidation Threat : Intimidation threat occurs when the accountant is intimidated i.e influenced by the pressure of the client.
In the given case, Zoe has intimidated Elizabeth by exerting influence and pressure on her to conceal the fraud. He influences her by stating Elizabeth would cause all the employees of the company to suffer.
2) Advocacy Threat : Advocacy threat occurs when the accountant client's interest undermines the accountant's objectivity.
In this case, Elizabeth is pressurized to think about the interest of the employees which will make her to sabotage the overall public interest