Ethical Issues in Accounting - Essay Example

Case study Introduction In this case study Lisa Michaels has been prompted as the Finance Manager of Home and Personal Care Products. This position was a dream for Lisa. Lisa is a Certified Public Accountant and she always seeks detailed information related with her work. After promotion her responsibility increased significantly. With this new post she handles all the integrating financial and accounting functions related with the merger and acquisition. Currently the organization where Lisa works in has gone for a $10 billion acquisition. In this case Lisa has a clear cut goal to maintain accounting transparency and to review various practices of acquisition. Lisa mate with Mr. Anderson the controller of acquired firm. She asked for several financial records from Mr. Anderson. Lisa has found some discrepancies into those records and wanted more details but unfortunately she did not get enough support. Discussion Answer 1 Here in this case identified ethical issue is improper way of managing accounting practices from the side of the acquired company. Here in this case Prestige Fragrance Company has intentionally and suspiciously inflated two accounts in their balance sheet. Those two accounts are “Other Assets” and “Other accrued liabilities”. Here in this case the acquired company has not given enough documents related with the other assets section. Review conducted by Lisa has categorically indicated that the acquired company has unethically capitalized marketing expenses. The organization has recorded marketing expenses as the asset. It should have been recorded in the expense section. It indicates that to inflate the financial situation Prestige Fragrance Company has intentionally used unethical accounting practices to create more value for the firm. It is a clear cut ethical breach from the side of Prestige Fragrance Company. The company has continued its unethical accounting practices in case of “Other accrued liabilities” also. When Lisa has asked for the all journal entries related with “Other accrued liabilities”, Mr. Anderson totally declined to give any details to Lisa. It further reinforces the presence of ethical issue. This attitude of Mr. Anderson has clearly indicated that, he wants to cover up something and for that reason only he is not willing to provide all the documents to Lisa. Hiding something from the finance manager of the parent company is also a clear cut ethical issue which is present in the current case. Answer 2 There are several stakeholders are related with the ethical issues. The whole accounting procedure is dependent upon various players. Here in this case the identified issue is improper way of managing financial records. In this particular ethical issue stakeholders from various level of the acquired company are involved. Those stakeholders are accountant who has prepared the report in an inflated way. Auditors who have cleared the inflated financial reports of the company are highly involved. They have scrutinized all the documents but still they have cleared inflated balance sheet. Mr. Anderson also an important stakeholder related with this unethical practice because due to his order only the accountant has made improper accounting. It means Mr. Anderson not only the director of this unethical practice but he also influenced other people to conduct unethical practices. Mr. Anderson has tried to cover up their unethical practices and did not support Lisa. It means he has direct responsibilities and direct participations into these ethical issues. Auditors are generally being assigned to scrutinize without any biasness and they should manage transparency. Here in this case they have not maintained that level of transparency. They have hided original documents and allowed Prestige Fragrance Company to come up with a faulty balance sheet. Accountant of the acquired organization has created the balance sheet under the top level compulsion and during that course he has compromised with his individual ethics. Answer 3 The condition of Lisa is highly precarious in nature. She believes that there are certain unethical practices have been made during the course of this acquisition. She wants to get details of those unethical accounting practices. There are several alternatives are present in front of Lisa. Lisa can take the help of corporate tax authority. She can ask for the details tax related information of the acquired company from the corporate tax authority. This alternative will allow Lisa to get information related with those two suspicious accounts. Corporate tax authority always tries to make transparency in the business accounting practices. They will provide all the required documents to Lisa. Lisa can ask for the detail from external auditor of the acquired company. Prestige Fragrance Company must showcase all the business related documents and accounting practices and records in front of the external auditors. External auditors can easily provide all the required documents to Lisa. It will allow Lisa to scrutinize all the detailed information of Prestige Fragrance Company without creating any relationship distance and all these information can certainly be trusted. Lisa can get the information from the accountant of Prestige Fragrance Company. In this alternative, Lisa can create close personal relationship with the accountant for getting the required information. Here in this alternative Lisa can use her personal influence to get the job done. This alternative will allow Lisa to get all the invoices of the Prestige Fragrance Company, which will support her to show case possible discrepancies in the other assets title. Answer 4 All the above alternatives are significantly suitable for Lisa. In between all three alternatives, asking details from the auditors will be best course of action for her. This will support Lisa to get all the required documents without any problems. Auditor will certainly provide in detailed and original documents to Lisa (Blake & Gowthorpe, 2005, pp. 45-46). There will be very less scope of discrepancy with the data provided by the external auditor of Prestige Fragrance Company. This course of action will allow Lisa to maintain the secrecy of her action and secretly she will be able to achieve her goal i.e. to showcase all the accounting discrepancies in the case of “Other accrued liabilities” and “Other Assets”. Prestige Fragrance Company must have given their all the accounting data to their auditors. Being the finance manager of the parent company, she easily can ask for the data from auditor. She has that authority and auditor has the compulsion to satisfy the requirements of the parent authority. If Lisa seeks all those documents from the corporate tax authority then the process will take too much time. On the other hand if Lisa tries to gather all the information from the accountant of the acquired company then there will be a scope of sabotage and personal close relationship can create ethical issues also. That is why the alternative of auditor is best among the all three alternatives. Situation of Lisa in current case is highly sensitive; to manage the high degree of sensitivity Lisa should go for the option of auditor. Conclusion During the course of this case one thing is clear that there are some levels of discrepancies are present in the accounting practices of Prestige Fragrance Company. Lisa, finance manager of Home and Personal Care Products wants to review all those discrepancies. Due to their unethical accounting practices the acquired firm is trying to cover up the whole issue by showing inflated accounting records. During the course of this case three suitable courses of action have been identified that can support Lisa to get all the required details but among all those alternatives, the option of auditors is most suitable according to the nature of this particular case. References Blake, J. & Gowthorpe, C. (2005). Ethical issues in accounting. New York: Routledge. Read More