Question

Your elder brother Kazim has been hired as CFO in Sohar Power Company SAOG. Sohar Power
company SAOG owns and operates the largest power generation and water desalination plant in
the Sultanate. Sohar Power is incorporated in 2004. Since then, the company has built and owns
the 585 MW electricity generation and 33 MIGD seawater desalination plant. Sohar Power has a
history of research and development in the field of power generation and water purification. It has
a long established policy for the treatment of expenditure on research and development, on which
it spends huge amount annually.
Recently, Kazim becomes aware that an investment of OMR 100,000 which was made last year
for research and development programme, has not been properly evaluated. Although in aggregate
OMR 1 million has been spent, but Kazim thinks that the criteria for the investment was not fair
and clear. The director for the research committee did not assess properly and the output of the
investment was poor. Kazim enquires Mr. Abid, the director of research committee to justify the
investment. Abid replies by saying that they will satisfy the auditors in any way.
However, the financial year end is only two months away and OMR 1 million in write-off at this
late stage in the financial year would cause Kazim and his team in difficulties. The company has
to finalize the year-end report. Kazim called the meeting of directors and discussed the issue.
During the meeting they have serious reservations on research committee. One of the directors
suggested that this amount will be considered as an asset and it will be presented on the financial
statement for this year and it would be write off in the next financial year.
a. In your opinion, what decisions will be taken by Kazim to satisfy the auditors and board of
directors of the company? How this transaction would be reflected on financial statement of Sohar
Power?
b. Abid, working on a high position in a company thinks that auditors can be satisfied in an
unethical manner. How could such an unethical behavior be a learning experience for the rest of
the employees? In your opinion, who is to be blamed for this incident in Sohar Power and why?

Answer 1