Ethical Issues In Accounting: A Case Of Vroom Ltd.

Stakeholder

Stakeholder:

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The stakeholder is the party or group of individual who has a substantial interest in the company and they might affect or get affected by the business activities. In the ordinary concept, the stakeholders are those who have a substantial relationship with the company or the business, like employees, owner, investor, suppliers, and others.

In the given case, the prime stakeholders are Freda the owner of the Vroom Ltd, and the accountant Lucia. In the given case both the above-stated persons are liable as on the grounds of unavailing the benefits of the grant (Sambo and Webb 2017). It is the responsibility of the government whether to provide grant aid to the company or not. The owner will be responsible for performing unethical trade practice in an unlawful manner if the owner influences to make an adjustment in the books to lower the profits. In such cases the Accountant will also be held in contempt as it is the responsibility of the accountant to make the accounting properly and in an ethical manner. If such practice is associated then both the owner and accountant will be the stakeholder of the situation (Everett et al. 2016).

Answer to question b:

In the context of the study, two possible outcomes may have raised. The presented issue in that if the company projects a higher profit in the books then the government authority might stop the grant aid to support the company. The grant aid is a substantial inflow of the company as this help the company to operate and train the apprentices who are not qualified, workers. The training will bring the skill of the employees; the grant lowers the cost of training as the government finances a major portion of the training.

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The government in order to increase the efficiency and the skill of the public provides the grant. The company receives the grant because it performs the training procedure not for saving the company from the loss. For the uninterrupted flow of cash inflow, the owner of the company asked the accountant to lower the profits by increasing the amount of provision and other expenditures in the coming financial year to provide an impression that the company is expected to perform poorly (Louwers et al. 2015).

Another issue that might have come into consideration that the owner has promised the accountant to pay a bonus of $10000 if the company is able to make a profit of $ 1 million in the current financial year. If the company is able to make profits of $2 million then the company will pay $ 20000 to the accountant Lucia as a reward of performance. If the company has obtained the profit of $ 3 million then the company will pay a reward of $ 300000 to the accountant. There are several chances that the owner may have promised to the accountant to increase the performance and Freda had not intercepted that the company has to pay $30000 as a bonus to their accountant Lucia (Ciavattini et al. 2015). 

Possible Outcomes

As the company has gained  profits of $ 3.5 million in the current accounting year, now the owner is reluctant to pay the tax obligation and obligation related to remuneration that is due by the company.. In addition to that, such practice performed by the company can de-motivate the employees, as the company is not performing the promised obligations.

Answer to question C:

In the given case, the identified issue of concern is that Vroom ltd wanted to lower the margin of profits to avail the benefits from the government. As for the training of the apprentice, the government provides $ 100000. This initially helps the company to make healthy and quality workers for the car parts production (Agheorghiesei 2018). The emerging issue that has been identified by the owner of the company is that the company has earned a profit of $3.5 million for the current financial year.

If the company is earning such amount of profit then the grant that is received by the company from the government of, Australia will not be received in the future. In that case, the owner asked the accountant to make suitable changes in the accounting record so that the profits becomes low.  The instruction given to the accountant was to show higher amount of expenses so that a profit amount made by the company can be displayed in the financial statement. The accountant owner has also made another promise to Lucia to provide her some bonuses which will be based on the profits shown in the financial statement.

After analysing the case, some material facts are taken into consideration. The prime issue is that the owner of the company is worried about that they might lose the grant aid if the company is reporting such huge profits (Bringselius 2018). In case if the company fails to earn the profits then, in that case, the company have to bear the cost of training that, the company provides to the apprentice to develop their skills. The grant aid amount is to a minor one as they receive $ 1 million for the training purpose. If the company does not receive the aid of $ 1 million then it will surely influence the financial position of the company and the company have to bear $ 1 million of the profit pockets of the company.

In addition to above, there is a signal that the owner has asked to reduce the profits, as Freda is not willing to pay the bonus of $ 30000. The bonus is due to the improved performance of the company. The ethical issues in both the case have substantial grounds to intercepted and taken into a shelter of discussion (Othman et al. 2014).

Issues of Concern

Answer to the Question D:

In the given case as the profits of the company is huge ($3.5 Million) for the current accounting year the company is worried about the grants that they receive from the Australian Government for the training of the Apprentice. Therefore, she asked the accountant of the company, Lucia to book as many expenses as possible to defer the revenues (Jonnergård and Sonnerfeldt 2016).

It is the duty of the accountant to prepare the books of accounts in such a manner so that the books of the company is able to reflect the exact financial condition of the company. Booking false and bookish entries either to increase the profits or decrees the profits is an unethical accounting practice. There are some ethical advises and rules in the Australian accounting such as APES 110 Code of ethics for professional Accountants. The code clearly states that the accountant will not participate in any act of misrepresenting the books of accounting or will not follow any guidance or order to make adjustments in to books to affect the profitability of the company (Trevino and Nelson, 2016). In addition to that, an accountant must work as a whistle-blower highlighting significant issues related to the company.

In the given case, as suggested by the owner to increase the expense to lower the profit is not actually possible to do. As there are so many tools and technics that are available in the present accounting environment that forces the accountant to book only actual expenses as the expense must have a valid invoice (Helin and Babri 2015). Further, the invoices can be counter-inspected form the vendor to the acceptability and the booked expense.

The company may initiate some provisioning funds to reduce the profits of $ 3.5 million but accounting standard has restricted to such provisioning extent. Instead of the above facts and effect, it is unethical to misrepresent the accounting in the wrong manner willingly to lower the profits. The code of ethical accounting condemns such acts to come into existence. The activity is ethically wrong as the company is fooling the government and other stakeholders to avail of the grant aid benefits and willingly representing the accounts in a dishonest way. The accounts are prepared to reflect the actual position of the company,But such malpractice that are involved in the accounting represents a wrong picture of the company, which might cost the trust of inventors of the company (Ovsyankin and Chaika 2016).

Answer To Question E:

An ethical principle can be discussed as an idea of being ethical. There is no specific definition of ethical principal rather there are some principal that if followed will result in ethical business activities. There are five principals’ needs to be followed to become ethical.

Integrity:

A professional accountant should be straightforward and honest towards the business and professional relationship. This means the professional accountant will not utter the voice of the commander or the boss. The accountant will only do what is liable or professional duty (Ferrell 2016).

Objectivity:

The objectivity principal disallows the accountant to make biased, conflict of interest and undue influence of others to hamper the work or accounting process. The objective requires performing the required work in an effective and efficient manner (Taggart et al. 2015).

Professional Competence and Due Care:

An accountant is liable to perform the duties of the accountant with due care and diligence in addition to the required skill and knowledge that will help the client or employer to intercept the preparation of the financial statements. In addition, professional behaviour means that the accountant needs to understand the current practice and techniques and act diligently regarding the needs of the entity (Milne et al. 2016).

Confidentiality:

            Confidentiality is one of the most important ethical principles in accounting. An accountant gets  to know about a lot of highly confidential information of the entity such as purchase price, sale price, and others (Lee and Fargher 2017). If any confidential information is leaked then in that case the company or the entity might suffer loss or will be affected by any legal problem. Therefore, it is important to obey the confidentiality and it should not be braked for any consideration of for personal benefits.

Professional Behaviour:

            A professional account must maintain the uniformity and the respect of the profession as well as the individual image by maintaining the professional behavior of the company.

Answer to question F:

Ethical models:

            There is certain Deontology, underlying principles that determined the right and wrong regarding the circumstances and analysing  the reasons.  Therefore, it is considered as the rule-based approach to ethics. The word ethics derived from a Latin word “ethos” means the principals (Lee and Fargher 2017). The word means that there is some inherent obligation, if performed then the activities of the company or the individual or the body corporate will be treated as ethical. If the action that is performed by an entity supposed to be morally right and beneficial to the society and the interest of the society is not harmed then, in that case, then it will be regarded that the activities and the objectives of the company or organization are ethical.

            For ethical decision-making, there are certain steps that help the assessor to make and respond in accordance with the circumstance and situation. The steps are the following:

  • Establish the facts of the situation:

In this process, the facts that have been initiated in the activity will be scrutinized and determined to find the reasons of the situation. This will help the assessor to go to the root of the cause and review the causes that influence the situations (Hogan et al. 2016).

  • Decide whether the situation connects legal or ethical issues:

In this step of the study, the assessor depending on the facts of the situation will analyze if any unethical or legal issues have been raised or not. If any unethical options was initiated by the organization then the grounds and reasons of such fraudulent activities must be recognised (He et al. 2016). Further, the assessor needs to find out whether the issue is willingly obtained or done by mistake.

  • Identify the consequences:

After analysing the cause of the practice then the assessor needs to determine the effect of such unethical practices. If any legal or unethical case was presented then what are the consequences of the problem. In addition to that, the legal steps might be imposed if the results went against of the company.

  • Evaluate the options:

There are many other options available by the company to respond to a similar act. The decision maker instead of making any unethical issue what are the available options? What are the chances to solve the emerging issues? Whom the decision will affect? The options will be analyzed in this step of the study (Narcisa and Elena 2017).

  • Selecting the best options:

After evaluating all the possible option that might be able to solve the problem, the best and the most effective option will be selected and the results of the study will contribute to solving the issue in a legal and ethical manner (Hogan et al. 2016). The option that solves the issue with maximum impact and with minimum efforts will be regarded as the best option:

  • Implement your Decision:

The last and final step is to implement the correct and chosen option to implement in solving the issue. In addition to that only implementation will not work, it will further require the successful implementation and controlling the activities and the option.

The ethical decision models help the company and the Assessor to make suitable and effective decisions and accepting the challenges to overcome any unethical and illegal manner.

Reference

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