Ethical and Professional Responsibilities of Controller of Accounts - Case Study Example

Accounting Practice and Theory: Ethics Case Management  Ethical and Professional Responsibilities of Alan Fazil       Alan Fazil being the Controller of Accounts in Australia Steel Company had the right to comment on any accounting policy of the company. As for the processing of work-order requests Fazil was in dark in regards to the representation of dubious and framed information on proposed benefits in the light of the expenditure incurred. It only came to his knowledge after the internal auditor’s annual review conducted on internal accounting practices and controls. On analyzing the records maintained for repair and maintenance, he realized that $100 million spent on a 12-month period on repairs and maintenance had effect on the company’s profitability. Fazil was much worried about the inference patterns of external auditors in regards to the expenditure made. Fazil stated that the narration to the expenditure reflected capital purchase than repair works. To this end, he discussed his concern for the above matter with the Vice President of the Company, Bill Stewart and Chief Executive Officer, Martin Gray. He expressed his fear of the external auditor’s questioning the description and showed further concern in regards to Australian Taxation Office in not allowing tax deductions on the expenses made. The controller of Australian Steel Company, Alan Fazil further inferred on the lowering of integrity of the employees of the company. He stated that the following of the practice of making fake job orders make the employees prone to draw more money from the management’s hands much easily. This clearly shows an unethical practice followed by the production employees of Australian Steel Company disturbing its integrity. In this regard, Fazil recommended that proper training programs must be started to educate the employees in writing proper job orders. The above discussion reflects both the professional and ethical responsibility of Alan Fazil in making the company profitable operationally. (Australian Steel Company, N.D., pp. 2-3).   2. Alan Fazil’s Position       To understand one’s stand in the shoes of Alan Fazil a discussion needs to be made on the job responsibilities and ethical standards which a corporate financial controller need to follow. Prior to the discussion on Job Responsibilities of a Corporate Financial Controller, it must be noted that a Financial Controller needs to be a Chartered Accountant or a Certified Public Accountant (CPA) with needed experience in the field of accounting practice and problem solving. Effective interpersonal and communication skills in maintaining liaison with the management on corporate issues are highly recommended. The controller is needed to train the employees as regards to new policies or procedures introduced for proper compliance to such.  Thus, the Critical Responsibilities of a Controller entail not only Compliance with Statutory Standards and efficient Administration of Financial Matters but also include effective People Management. (Job Description-Financial Controller, 2009, p.1). The increase of corporate crimes and fraudulent business practices has led to the emergence of the concept of “Ethically Intelligent Financial Executive” who actively participates with the management in framing standards that would help reduce the intensity of financial crime. (Schwalberg, 2003, p.1) The above discussion clearly shows that Alan Fazil proved to be an effective financial controller and an ‘ethically intelligent financial executive’ for possessing the necessary traits and qualifications. Standing in Fazil’s toes I need to first assess the reasons for the financial crime committed. Here, the greed to gain more from the management’s hands instigated the production employees to make fake recommendations on machines’ future performance post repairs. In this regard, I can make recommendation of conducting a continuous training program to let the employees know about the company’s zero tolerance policy to fraud. Further, the recruiting team can be asked to reinstate the anti-fraud policies of the company, which must be duly signed. Punishment standards like expulsion need to be informed to the employees on acts of fraud. I can also put drop boxes in the manager’s room wherein other employees suspecting acts of fraud can put written evidences, which will help in fraud detection. This information will be treated with high confidentiality. Finally, I can ask the management to relax its restrictions on sanctioning funds for needs of repairs and maintenance. This in turn will help fostering a friendly management employee relation and will help in fraud reduction. (Stern, 2005, pp.1-3) 3. APES 110 Code of Ethics for Professional Accountants          In deciding on the course of action to be taken in regards to the above case three fundamental principles of APES 110 Code of Ethics for Professional Accountants proved to be of greater concern to me. The Section 100.1 and 100.1.1 of APES 110 Code of Ethics for Professional Accountants state that the accounting profession takes on its responsibility in the light of public interest. Hence, it clearly means that the Accountant’s work is not centered on pleasing only the employer or the upper management. Rather it works to achieve the collective well-being of the stakeholders of the company. Here, stakeholders refer to employees, employer, investors, suppliers and the government as a whole. Abiding by this principle, I had decided to draw the matter of fraud to the management’s eyes and focused on the compliance of the Audit norms. I had also stated to the management that the current law of the land relating to taxation would not support the fraudulent statements of the company concerning repair and maintenance expenditure.  (Accounting Professional and Ethics Standard Board, 2006, p.4)       In regards to Integrity as mentioned in Section 110 and dealt with in Section 110.1 and 110.2 of the APES 110 Code of Ethics for Professional Accountants, which mentions that the members in accounting profession need to be straightforward and honest in their practices, I abided by the same. As mentioned in Section 110.2 that the members in accounting profession must restrain themselves from being associated with any fraudulent or misrepresented reports, I took the very first opportunity to go by the same. The very moment I came to discover that the production employees in making commit fraudulent practices fake job orders I published the same before the management’s eyes. (Accounting Professional and Ethics Standard Board, 2006. p-8)       Section 150 of the APES 110 Code of Ethics for Professional Accountants mentions Professional Behavior of the members in the accounting profession. It highlights that the practicing accountants whether in business or independent must abide by the laws of the land. They must also have a fair look to other regulatory parameters of the company in which they are acting. Abiding by the said rule, I hinted the management on external audit practices, which would certainly involve inferring on the misrepresented information and thus would invite dishonest answers. Further, I also reminded the management of the taxation laws of the land, which will not allow tax deductions on the expenditures incurred on repairs and maintenance for being duly misrepresented.  (Accounting Professional and Ethics Standard Board, 2006. p-12). In this way, I took concern of the above principles of the APES 110 Code of Ethics for Professional Accountants while acting as a Controller of Accounts in Australian Steel. 4. Australian Steel Company’s Cost Control Policy: Operational and Ethical Perspective       The Australian Steel Company is held to be the largest producer of steel products having production centers along Sydney and Australia. Steel produced by the company is sold along to customers in Australia and in other countries. It was considered to be the leader in the steel industry and occupied a profitable position from a long time. In previous days of little or no competition in the steel industry, the Australian Steel Company showed little interest in cutting down the operational costs. It was because the company used to swell above the targets set in terms of steel production and thus incurred high profits in the steel trade. However, of late due to the fact of increased completion in the steel market the profitability of the company was greatly affected. Previously the company used to augment the price of its steel products with an increase in the cost of the raw materials. However, in the light of increased completion making its way the company was bound to shift its focus on cost cutting. In this regard, it was found that the company wanted to reduce the growing expenditure on repairs and maintenance to support its stand of lowering the prices of steel products. The Vice President of the company, Bill Stewart and the Production Manager, Dick Smith focused on making a new policy, which aims at deferring the expenditure to be incurred in terms of repairs and maintenance. The policy stated that each request for money to be expended on repairs and maintenance would be granted provided the supervisor, the Production Manager and the Vice President, approves them. Moreover, the policy wanted the production force to provide substantial evidence that expenditure incurred on repairs and maintenance will help increase the profitability and efficiency of the company. To this end the Production Manager, Dick Smith recommended that preventive and timely maintenance would certainly help in reduction of operational costs. The new policy on repair and maintenance expenditure failed to welcome positive apprehension from the management and employee circle for they felt that in case of any breakdown they would be the first to earn the blame. Moreover, the current policy in targeting deferred payments in regards to machinery repairs would result to fall in production, thus inviting events like layoffs and increased losses for the company. The above situation led to increase in pressure in the company, which culminated in encouraging the employees to take resort to dubious activities. The Production Supervisors made responsible to write the job orders to invite funds for repair and maintenance purposes started exaggerating the repair situation. It so happened because a minor hint of fixing the broken part was not enough to let funds flow out from the management’s hands. They needed a strong case, which was aptly catered for by the fraudulent job orders made by the employees. (Australian Steel Company, N.D.:1-2). In regards to the above context the statement made by the Chief Executive Officer of Australian Steel Company stating that there ‘have been no violations of the corporate code of ethics’ can only be regarded as a hoax. The fraudulent practices of the employees, which are justly unethical, cost the company $100 million in a twelve-month period, which even explains the efficiency of the new policy in reducing operational costs.     5. Alan Fazil in the Cognitive and Moral Development Framework       The decision taken by Alan Fazil to highlight the fraudulent descriptions relating to expenditures on repair and maintenance made by the employees of Australian Steel Company in the eyes of the Audit Committee is studied based on Kohlberg’s Cognitive and Moral Development Framework. Kohlberg’s model of Cognitive and Moral Development is essentially divided into six divisions. In this regard, it needs be mentioned that Lawrence Kohlberg, a child psychologist categorized human behavior into three levels of moral reasoning. Again, the three levels of moral reasoning viz. Pre-Conventional, Conventional and Post-Conventional are further sub-classified into two stages each for the three levels. Thus, they constitute a total of six stages. Alan Fazil’s above decision to highlight the fraudulent practices of the company’s employee force, which cost the company increased expenditure on repairs before the auditor falls in the fourth stage of the model. The fourth stage ‘Social System and Conscience’ belongs to the Conventional moral reasoning attribute of human behavior. This stage stresses on the performance of the duties agreed upon professionally. It seeks to give the laws of the land due importance until and unless they curb other moral rights. Further, the model justifies its stand in responding to the conscience of human nature in rightly satisfying to the obligations already agreed on and in not following the crowd. To this end, it is observed that Alan Fazil had listened to his conscience in putting up the case before the auditor. Alan Fazil a controller by profession had strictly obliged to the accounting principles of providing transparency. Further, he maintained his stand and did not deter himself because of the warning given by Martin Gray, the Chief Executive Officer of Australian Steel Company restraining him from such activity. (Ethics in Accounting, N.D, pp.15,17).                     References: 1. Australian Steel Company. 2. “Job Description-Financial Controller”, burtoncontractors.com. (2009). Retrieved on September 30, 2010 from: http://www.burtoncontractors.com.au/files/Financial%20Controller.pdf 3. Schwalberg, M. (2003). Ethical Conduct: what financial executives do to lead. Retrieved on September 30, 2010 from: http://www.allbusiness.com/human-resources/employee-development-employee-ethics/442718-1.html 4. Stern, A. (2005). Focus on fraud: internal controls, audit policies-and a tough stance-can help deter fraud. Retrieved on September 30, 2010 from: http://www.allbusiness.com/accounting-reporting/fraud/563988-1.html 5. Accounting Professional and Ethics Standard Board (2006). APES 110 Code of Ethics for Professional Accountants. 6. Ethics in Accounting, N.D Read More