AYB225 Management Accounting - Free samples to Students
At the end of May, it appears that Vroom Ltd will make a profit of approximately $3.5 million for the year ending 30 June 2016. Freda approached Lucia and said that if the company made too much profit then the government may stop paying Vroom Ltd the grant for training apprentice mechanics, and it would lose the $100 000 tax-free cash inflow. Freda instructed Lucia to find ways of deferring recognition of as much revenue as possible until the following financial year, for which the forecasts for the industry were quite poor, and to accrue as many expenses as possible at the end of the current accounting period when it came to making the end-of-period adjustments. Although Lucia was not happy with this instruction, she did not want to risk her own opportunities for promotion by upsetting her manager.
1. What are the ethical issues involved her?
2. Can Lucia defer revenues and accrue as many expenses as possible and still be ethical?
Answers:
Question 1
Ethical issues can be described as a problem or circumstances which oblige an individual to have a choice between options that should be evaluated as ethical or unethical either correct or incorrect (Crane and Matten, 2016). Further, for the success of the company, it is significant for it to work ethically.
As per the assertions of Davies (2016), it can be stated that all employees of the company must function according to the pre-determined rules and regulations of the organization.
The main problem faced by Lucia in the present case is a contradiction between personal profit and responsibility towards the organization. Due to the same Lucia, accountant of company Vroom Ltd is in the confusion that whether she should choose promotion of her by deferring revenue or be responsible towards organization by ignoring the promotion. In case she opts for the responsibility towards organization then she might lose the opportunity of getting promotion and also the share in profit, which she might get if she agrees with the instruction provided by Freda that is she has to defer revenues. In contrary to this, if she selects to defer revenues then, in that case, she is unable of fulfilling her responsibility towards the organization which will be unethical. It is very important for every employee of the company to work in an ethical manner.
Question.2
No, Lucia will be no more ethical if she defers revenues as many expenses as possible. Since for doing the same, she has to manipulate the accounts as well as apply window dressing in books of accounts. Window dressing refers to activities which are undertaken by the company prior to issuing a financial statement to enhance the appearance of financial reports. Weiss (2014), specified manipulation of accounts refers to forge figures in financial statements with the intention of reporting net income more or less in comparison to actual figures. Window dressing and manipulation of accounts is done to show inappropriate financial status in financial statements of the company. As in present case Freda, the manager of company instructs Lucia to lower the profits of the company and accrue the expenses as possible as she can so that the company can get the brand grant which is given to them by the government. Since, if more profit is being shown by the company than in that case, the government will not pay them the grant. But, it should be considered that the company should not adopt unethical ways to increase the profit of the company. Therefore, Lucia should choose the option of her responsibility towards the organization as the first duty of employees is to work in an ethical manner. By adopting the option of responsibility towards organization she might has to sacrifice her promotion opportunity and her share in profits but she is working ethical which will be right. Further, the grounds which can be assessed by an individual to assess whether he has made an ethical decision or not he is required to consider five important variants, i.e. honesty and privacy, sovereignty and informed consent, justice and beneficence (Shaw and Barry, 2015).
References
Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.
Davies, P.W., 2016. Current issues in business ethics. Routledge.
Shaw, W.H. and Barry, V., 2015. Moral issues in business. Cengage Learning.
Weiss, J.W., 2014. Business ethics: A stakeholder and issues management approach. Berrett-Koehler Publishers.
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