Exploring the ethical issues at Positive Accounting Solutions

Ethical Case Assignment

Question 1

Stakeholders by definition are people and organizations who have interest with a business. They are affected by the activities of that business. They can be owners, managers, workers, customers, suppliers, lenders and the public. In the case study, the following people are identified as stakeholders. The first one is Katrina Richards who is an engagement partner of Global and who takes responsibility of audit engagement and of auditor's report on behalf of the firm. Katrina has also been recognized and given proper authority from the regulatory body and professional accounting body to conduct her audit duties in a professional and ethical manner. Another one from the CPA firm is Juliet Forbes who manages the firm's day-to-day operations. Another one is the global contractor that is the largest client to the company. Banks will be another stakeholder. The general public and investors in banks and in Global Contractor will also stakeholders in this case. Therefore this question will illustrate their expectations from the Positive Accounting Solutions and its CPAs.

The needs and the expectation of the stake holders represent the views of all the groups, individuals and organizations working hand in hand with the business. This illustrates the issues regarding users, customers, acquirers, any other stake holders (Gaffikin 2008, p. 59). The Global Contractor as the biggest client expects the CPA firm to do things in their favor and want it help reclassify marketable securities. For instance the business needs to be in a position to show up the losses in the stakeholder’s equity rather than classifying it as a fee against the current income. It expects the CPA firm to enable them to be able to borrow required money from banks. The expectations that the CPA firm has are not to lose its biggest client and to get fees by working with their biggest client. The firm fears that their biggest client might go to other accounting firms if the CPA firm does not do what it asks for. Banks, on the other hand, would like to receive reliable information from the CPA firm. The general public and investors in banks all expect the CPA firm to be professionally competent and conduct their duties in an objective and impartial manner.

The ethical responsibilities of the Positive Accounting Solutions and its CPAs to the stakeholders are of most importance. In this case, most stakeholders view accountant’s professionalism as a profession that should hold integrity, professionalism, and efficient skills (Gordon, 2010, p. 30). Stakeholders rely on financial data and information that the CPA firm audits and approves. Therefore ethics and technical competence of employees of Positive Accounting Solutions (PAS) acts as the core accounting requirements as perceived by the stakeholders. The stakeholders expect the following ethic obligations from the PAS's CPAs. PAS's CPAs are expected to apply ethical decision making in solving accounting problems. They are expected to apply the fundamental principles and rules regarding quality and integrity for stakeholders. They should be honest in their professional and business relationships. They must be fair to all stakeholders and trustworthy for all stakeholders. They are expected to carry out morally anticipated actions. They are also expected to show the ability to make moral commitments for the right actions.

Question 2

The following ethical issues exist for Juliette, Katrina, Richard and Greg, and Positive Accounting Solutions according to APES 110 Code of Ethics for Professional Accountants. APES 110 codes of ethics were dispensed in June 2006 and later reviewed on December 2010 and they took effect on July 2011 (ICAA 2014, p. 179). Greg and Richard who are final judgment makers concerning difficult accounting issues are required to adhere to fundamental principles of ethics such as objectivity. Katrina who has the main responsibility for audit in the team should also objectively conduct her professional or business judgment. Therefore they should not compromise their professional and business judgments as a result of bias, the influence of other members or a conflict of interest (ICAA 2012, p. 96). Although they might be requested or ordered by the chief executive officer of the firm to please their largest client, they must not compromise basic principles of ethics such as objectivity. Therefore, in making decisions regarding reclassification of marketable securities, objectivity code of ethics should guide them. SEEMs OK OK OK

Juliette Forbes who is the highest ranking person in the firm must not breach her professional obligations for any reasons. By laws, she is prohibited from reclassifying market loss to the available-for-sale category for any clients (maybe more info if time))))). Besides, she must hold a large amount of confidential information in her duties. Hence she is also refrained from doing the following things. She must not disclose to the outside employing organizations or other firms confidential data and information without proper permission from clients. She is refrained from utilizing information received as a result of professional and business relationships for her individual benefits and the advantage of third parties. For instance, she must hold to herself the information that the business needs to borrow $5,000,000 next quarter and the business made losses and must not take advantages of that confidential information to make her own fortune.

Positive Accounting Solutions including all its CPA members must show professional behavior. This principle obligates the Positive Accounting Solutions to comply with the laws and regulations and to avoid omissions of actions. These actions will be likely to bring discredit to their professionalism and its reliability. Therefore they have an obligation to act in a straightforward manner and be honest in all the business relationships. For instance they must be fair and honest enough to explain why contravening the laws and accounting standards can affect stakeholders and can have serious financial and reputation risks for the company. Regardless of the good record of the past, they should explain clearly that the Global Contractor's directors could even face criminal prosecution if they contravene the laws.

Katrina as an engagement partner for audit, Greg and Richard who make final judgment on difficult accounting issues and Juliette as the highest ranking person of the firm must show professional competence besides due care and integrity. With this principle, they must always maintain their professional knowledge as well as skills at all levels. This ensures the customers get competent professional services. In this case, the Global Contractor as the biggest client to the business should get all the necessary competent professional services that comply with the laws. The principle also ensures that they act diligently in respect to applicable technical as well as professional values (ICAA 2014, p. 189). They also need to identify the threats and making evaluation of threats. They also need to apply safeguards and to eliminate such threat besides reducing them to minimal levels. For instance, through their activities with the Global Contractor, they should detect the threats that are likely to compromise their integrity and destroy the good relationship between the Global Contractor and the business. Such threats include; self-interest threats, advocacy threats, intimidation threats, self-review threats, and familiarity threats. (http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%9308).

The code of ethics for professional accountants offers ethical conduct solutions where they have the need to create resolution of conflicts (ICAA 2012, p. 101). They must consider the following factors such as the relevant facts and the important principles that are related to matter in concern and questions. They must establish internal procedures, the ethical issues involved and the alternative course of the actions needed in such resolutions. Last but not the least they must analyze the results of every likely course of action for them and for the Global Contractor. (http://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-resources/ethics/apes-110.pdf). (link more to the case????)

Question 5

Political pressure should not influence accounting rules because accounting rules should be objective, reliable and trustworthy. Non-profit organizations, companies, investors and other organizations utilize the accounting standards as foundations that provide financial statement users with reliable data and information they need. This is especially for making decisions on how their organizations are managing their resources. Therefore, if political pressure influences accounting standard settings, it will imply that accounting standards will favor one party over another depending on the power of lobby groups. The capture theory should not be applied to accounting standard setting for the public interest. For example, the recent repeal of mining tax should be free from political influence. Its objective should be for the interests of the public and for investors and lenders as it seems to be the case for proposed new laws to reclassify operating leases. Another reason is accounting rules should be developed by an independent authoritative body as the new standards called international financial reporting standards (IFRS) are specifically issued and regulated by International Accounting Standards Board (IASB). Independent standard setting will ensure that vulnerable people who do not have resources to lobby the government are property protected from the exploitation of corporations and financial institutions. Failures of corporate collapses in the Inside job documentary proved that political influence on accounting rules has bad impacts on the public. Those big collapses happened because the financial industry and giant corporations lobbied the government to influence the standard setting and its rules. Another reason is that the accounting standards are made through global harmonization where many of the standard-setting worldwide are articulated by IASB. The Australian accounting principles are made by AASB and they are to be applied in all the financial reports whether in private sector or in non- private sector. The international economy is always changing and unpredictable. Hence in order to keep up the stability, retail investors and institutions, First, (please rewrite this only reason highlighted,>> to keep up the stability is fine: it does not make sense to me to keep up institutions and retail investors??). Second, please do some research for me on changes in accounting for investments and put two sensetnces on how changes in accounting for investments was influenced by politics but why it shoud not. to cover that topic as well. Please also provide LINKs for two more sentences. Thank you the publicly available financial data must be trusted and free form political influence (ICAA 2012, p. 100). Therefore this gives the need to set the independent accounting standards to guide the companies.

Bibliography

Gaffikin, M. (2008). Accounting Theory. New york : Pearson Education Canada.

Gordon Douglas Richardson, P. L. (2010). Ethics and Positive Accounting Theory. New York : Centre for Accounting Ethics, School of Accountancy.

ICAA. (2012). Auditing and Assurance Handbook 2012. New York : Wiley.

ICAA. (2014). Chartered Accountants Auditing and Assurance Handbook 2014. New York : John Wiley & Sons Australia, Limited.

Publications, M. (2003). Business Ethics, Issue 2. New York : Mavis Publications.

Sheikh, S. (2013). A Guide to The Companies Act 2006. New York: Routledge.

Tom Campbell, K. A. (2005). Ethics and Auditing. New York : ANU E Pres.