Ethical Implications of Takeovers - Essay Example

Ethical Implications of Takeovers Ethical Implications of Takeovers From the perspective of the case, Lisa is facing a problem that most ethical accountants face while dealing with mergers and acquisitions. Mergers and acquisitions are sources of accounting errors and are often avenues for unethical behavior (Gibson, 2010). According to Lisa, the financial records pertaining to the acquired prestige fragrance company did not meet the standards and fell short of explanations on various entries. It is thus the job of the financial officer to identify and seek redress on the issues. The decisions regarding accounting standards and reporting under this case affect stakeholders such as shareholders, management and the government. The ethical issues of credibility and competence in financial reporting are under scrutiny. The CFO Lisa is working hard to find explanations to the deficiencies in the financial information that led to the acquisition of the fragrance company. Credibility of results is a contentious issue since the controller is unable to explain to the Finance Manager or validate the values recorded as ‘assets’ in the financial records. The assets in the financial information increase the value of a company, thus making it more expensive to acquire. The idea of having a section labeled ‘other assets’ without a subsequent explanation or evidence is a serious concern. Lisa is unable to solve that matter due to the uncooperative nature of the Controller in divulging details about the assets. According to Lisa, credibility is an important ethical behavior in accounting. Credibility clause requires that information be communicated in an objective manner without personal interests and disclosure of all information, deficiencies and internal controls. The Controller, Jeff Anderson, is in clear violation of this clause as he tries to cover up various loopholes pointed by Lisa. It is clear that the controller has a personal interest in the company that he had worked for 12 years. The above explanation indicates that Lisa detects the errors in accounting, but is unable to get supporting information. The accounting procedure used in the process of acquisition thus lack competence. Competence requires that every entry have supporting information to enhance accurate decisions. It also implies that accountants follow the set guidelines related to accounting. It is clear that this ethical requirement was not followed in this case. Lisa detects that the errors in financial reporting inflated the value of the company. The company financial records show inexistent assets and do not account for several liabilities. The Financial Manager is concerned about the reasons why some of the liabilities are capitalized. An example that Lisa identifies is the entry where marketing expenses are recorded as assets. However, the entry asks back-up information, though it is a clear violation of accounting standards and financial reporting. The uncooperative nature of the CFO is an issue that hinders the progress of an investigation on the incident. Lisa is upholding her professional obligation that are bound by ethical standards. However, she is unable to make a breakthrough due to the hostility of the Controller. To this end, Lisa must seek redress from the relevant authority. The redress should aim at seeking information on the deficiencies in the financial information of the Fragrance Company and subsequent revaluation. One of the methods used to resolve accounting problems is through seeking redress from fellow accountants or concerned persons. However, this seems to be futile since the CFO has already indicated hostility towards the investigation, and the employees are wary of being reprimanded. In this regard, Lisa has several other options. The options include following the established policies of the company pertaining reporting, seeking advice from an impartial professional accountant or seek legal advice pertaining the situation (IMA, n.d). From the case, it is clear that the Chief Executive Officer is unaware of this situation and thus may not be part of the investigation. Thus, Lisa can discuss the issue with the CEO and try to find the problem or compel the CFO to produce evidence of the entries in the financial information. Since Fragrance Company is under the Home and Care Product management, the CEO has the power to launch an investigation into the malpractices in financial reporting. Another course of action is that Lisa can consult an impartial accountant. The objective is to understand the various elements of the report. It is possible that Lisa may misunderstand several entries and thus consulting another accountant may shed more light. The accountant may also give Lisa more information regarding the possible action that she can take as a professional accountant. It would be better is Lisa can access an IMA Ethics Counselor to address this issue. The third option that Lisa has is to seek legal advice from an attorney. It is important to understand that accounting has its legal implications and thus Lisa must have the information at hand. The attorney should explain to Lisa the legal option that she has and how to go about them. In essence, the attorney explains the legal implication of the exposure and the possible legal suits. Of the three choices, the best choice is to report the issue to the top leadership of the company. The action would allow the CFO to come forward and explain to the management the facts and figures in the financial records. The method would thus compel the CFO to divulge important details that he conceals from the Finance Manager. Commonly, the accounting disputes pitting internal auditors is handled by external auditors who are impartial and conduct investigations and conduct the accounting process in an environment free of influence or conflict of interest. In conclusion, ethical standard should guide every accountant when making financial reports. Financial reports form a platform under which major organizational decisions are made. Erroneous accounts automatically lead to wrong conclusions and decisions. The statement is substantiated by the fact that Home and Care Products Company acquired Fragrance Company for $10 billion after considering its financial report. The report is subject to scrutiny and may lead to a revaluation of the company. It is, therefore, critical that all accountants adhere to the set accounting standards and ethical behavior. References Gibson, C. H. (2010). Financial reporting and analysis: Using financial accounting information. (12th ed.) Boston, MA: Cengage Learning. IMA. (n.d.). IMA Ethics Center. Retrieved November 17, 2014, from http://www.imanet.org/resources_and_publications/EthicsCenter.aspx Read More