You have been the finance director of a clothing company. You have recently been advised by the store manager of slow moving stock (inventory) which would normally have been written down ( reduce value) thus reducing the value of overall Inventory(stock). Managing director wants the financial statements to carry an inflated stock valuation (higher stock valuation ) because he has found a buyer for the company and wants to the sell the company. The managing director has indicated to you that, if the deal ( to sell the company) is successful, all employees will keep their jobs and you will receive a pay increase (higher salary) Which key Fundamental principles of professional ethics is affected and what is the most relevant threats? You must ensure that you act honestly, and that you are open and straightforward thus ensuring Integrity. Managing Director appears to be suggesting that the
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You have been the finance director of a clothing company.
You have recently been advised by the store manager of slow moving stock (inventory) which would normally have been written down ( reduce value) thus reducing the value of overall Inventory(stock).
Managing director wants the financial statements to carry an inflated stock valuation (higher stock valuation ) because he has found a buyer for the company and wants to the sell the company. The managing director has indicated to you that, if the deal ( to sell the company) is successful, all employees will keep their jobs and you will receive a pay increase (higher salary)
Which key Fundamental principles of professional ethics is affected and what is the most relevant threats?
You must ensure that you act honestly, and that you are open and straightforward thus ensuring Integrity. Managing Director appears to be suggesting that the future employment of other employees depends upon the proposed deal being successful with a high stock value in the financial statements. This leads to Intimidation threats.
The managing director is putting you under pressure to account for stock at a higher value than that with which you feel comfortable. He proposes misrepresenting information about the company in the financial statements, which would be contrary to the fundamental principle of Integrity. A Familiarity threat to your objectivity arises from the financial benefit that you are likely to receive if the company is sold under the proposed deal.
You cannot simply do what has been asked of you, because the principle of integrity requires a professional accountant not to be associated with information that they believe to be false or misleading. A Self-review threats to your objectivity arises from the financial benefit that you are likely to receive if the company is sold under the proposed deal.
The first step is to ensure confidentiality by collecting sufficient information to know the basis of valuation of the company’s stock, investigating the system for counting and evaluating stock, and discussing with the warehouse manager the reason why the stock is slow moving even though the managing director is putting you under pressure to account for stock at a higher value than that with which you feel comfortable leading to intimidation threats.
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