Question

Problem:

Charity Going Concern You are the newly hired controller for a charitable organization that is in trouble. The organization Helping Hands assists disabled individuals with all aspect of looking for and getting jobs. The organization has been struggling for the entire time of your employment. You are concerned that Helping Hands can survive much longer. The recession has taken a toll on fundraising. Payroll was due and you delayed paying the utilities for as long as you could. The big problem is Helping Hands largest donor requires that he be provided quarterly financial statements for him to continue making donations. In fact, you have not provided Gerald with statements for the last two quarters. Gerald comes to see you and informs you that his accountant will not allow him to provide any more financial assistance until you provide him with financial statements. If Gerald could show his accountant that the organization was doing well he could give them this quarters check. He needs the financial statements that have been promised. You apologize that he has not received the statements yet and promise that he will have them next week.

Later, Don the executive director of Helping Hands visits your office. He realizes there is a problem but is thankful there is enough cash to get through another week. Don is sure that once you provide Gerald the promised financial statements the donations will continue. Don realizes the financials do not look that good. He suggests leaving the debt to a major vendor off the financials. Don is a golfing buddy with the vendor’s president and the vendor Charles has offered to give the charity an official letter immediately waiving the charities debt to his company, not permanently, but just until you get past the cash crunch. Don assures you that it will keep the charity afloat and you wouldn’t be doing anything illegal. Charles is fully authorized to do this, as a goodwill gesture to a worthy cause. Don is hoping that maybe in the end Charles will actually cancel the debt. It’s a possibility.

UPDATED INFO: what is the ethical issue? what are the facts? who are the stakeholders? any alternatives to solve this issue? what would be the correct decision on this issue? using the 8 step process to answer and using support from the AICPA, Explain what your options are (there are two).

The textbook and the code of ethics should give you the information you need to complete this assignment. Your paper should be of the quality you would submit to the executive director or the board, explain your decision in a factual business manner. - Recognizing Ethical Matters and making good decisions means being familiar with the profession’s rules and regulations from the AICPA and the state board of accountancy.

To be effective, you need to know how to analyze a matter or situation. One ethics decision making model contains 8 steps:

Step 1: Recognize the Ethical Issue – the ethical issue in this situation

Step 2: Gather the Critical Facts – All the facts may not be initially evident, make sure you have them all before making any decisions.

Step 3: Identify the Stakeholders – Considering the alternatives who will positively benefit or negatively be harmed by your decision or actions.

Step 4: Consider Alternatives – What are the various approaches that can be taken to address this matter and resolve the ethical conflict.

Step 5: Consider the Effect on Stakeholders – Consider how each approach is likely to affect the stakeholder.

Step 6: Consider Your Comfort Level – How comfortable are you with each option, if discussed in public, how would it reflect on your ethics.

Step 7: Consider Rules, Regulations and Laws – Are the options consistent with the professional rules, regulations and laws?

Step 8: Make a Decision – Once you have considered all of the above can you make a decision? Explain your decision and what the major factors in why you consider this to be the best option. Make your argument convincing.

Answer 1

Answers

Step 1 : As a professional, one should consider their responsibilities towards various persons, Public interest, Integrity, Objectivity and Independence and Due care. The ethical issue concerned here is nondisclosure of the correct financial position by leaving the debt to the major vendor off the financial. It is unethical if he hides the material item in the financial statements which might mislead the users of the financial statements. It is against all the ethical principles like Integrity, Independence and Public Interest.

Step 2 : The following are the critical facts in this current scenario

* The organisation is struggling for the entire time of the controller's employment.

* Concerns whether the Helping hands can survive longer.

* The Recession has taken a toll on Fundraising.

* Payroll is due and the controller delayed the payment of utilities as much as he could.

* Helping Hands largest donor requires the quarterly financial statement.

* Helping Hands don't have enough cash after next week.

Step 3 : In this scenario,

* Helping hands and Charles would be benefited by nondisclosure of the debt in the financial statements and whereas Gerald would be the misled person.

Step 4 : An ethical conflict arise when there is an obstacles for the member to follow appropriate course of action due to internal or external pressures or in applying relevant professional standards or legal standards.

With regard to the alternative approaches, he should consider the following

* Relevant facts and circumstances including applicable rules and regulations.

* Ethical Issues involved

* Established internal procedures.

The member should be prepared to justify any departures that the member believes were appropriate in applying the relevant rules and laws. If member couldn't resolve it, then the member may have to address the consequences of any violations.

The member should consider either consulting with other individuals for help in reaching a resolution or obtaining advice from professional body or legal counsel.

Step 5 : By Nondisclosure of the debt in the financial statement might affect the business of the Gerald by taking an inappropriate decision using the incorrect financial statements.

This might cause a threat to the Integrity and Objectivity Rule by making a materially false and misleading entries in the financial Statements or records and permits another to sign a document containing materially false and misleading information.

Step 6 : It is better to disclose in the financial statements about the consequences of the debt if cancelled by Charles in future.

A member would be considered in violation of "Independence Rule", if the member cannot demonstrate that safeguards were applied that eliminated or reduced significant threats to an acceptable level.

Step 7 : In evaluating any ethical issues, the member should determine the following

* whether it fails to comply with the professional standards, when applicable

* creates a material misrepresentation of fact; or

* may violate applicable laws and regulations.

In Case 1 : By nondisclosure of the debt in financial statement, it might create a material misrepresentation of fact.

In Case 2 : The appropriate way is to disclose the fact and the consequences of cancellation of the debt in the future by Charles.

Step 8 : Hence, considering all the facts, getting an official letter from Charles for waiving the debt for temporarily and making a disclose of the facts and consequences in case of cancellation of that debt by Charles in future would be the best option.

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