Armidale Hardware and Accounting Ethics

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Identify and discuss the sections of APES110 that John’s behavior has violated

It seems that John has forgotten that he is no ordinary employee. Although he receives a salary from Armidale Hardware and at the same time a brother to his employer, John could not simply obey whatever his “Boss” tells him to do. John has to abide by the rules and ethical standards that governed his profession. Even with the most basic description of his recent activities it is easy to see that John has violated sections 110, 120, and 150 of the APES110. The following is a more detailed analysis why he crossed line.

Section 110

There is a reason why professionals must adhere to the principle of integrity. It is defined as being straightforward and honest in terms of professional and business relationships as well as fair dealing and truthfulness when one transacts with other people. This is the primary reason why John is in violation of Section 110 of the APES110 Code, because John was not only dishonest and deceitful to an ordinary member of the general public but to an institution that can greatly impact the lives of many people. John’s actions were unfair not only to the bank but also to the stakeholders in the said bank. These are the people who made deposits in the said bank knowing that their funds are safe and secure. Others would deposit money to the said bank hoping that they can earn a profit in the long run. But the actions of John can damage the profitability of the bank in the years to come. In 2009 and 2010 we are constantly reminded of the effect of unethical practices and this refers to the financial crisis that has gripped the world.

Imagine what would happen if John had started a chain-reaction of events that would not only hurt the bank’s management – they would obviously feel the backlash of a failed business – but also the stakeholders who may experience bank foreclosures in the event that John’s actions will have a multiplier effect, especially if many will learn how to behave like John.

John, as an accountant, must not be associated with reports, in this case, a financial statement that will “impress” the bank’s personnel so that Armidale will be able to obtain a loan. This is a very selfish action on the part of the accountant working in behalf of the company because there is a reason why a bank makes a decision based on the financial statements submitted by companies interested in a loan. It is of course related to the company’s ability to repay the loan. If the company cannot repay the loan then it is possible that it may become bankrupt and then this is the beginning of the problem that can affect the whole community not only the accountant and his employer.

Section 120

Conflict of interest is written all over Johns case. First of all, John is related to his employer. John is the brother of the proprietor of the Armil Hardware business. This relationship has created this problem because John will have a hard time resisting the suggestion of his sister to “cook the books” so to speak. Secondly, he is an employee of the company and it is to his best interest to help the company succeed because if Armil Hardware will succeed then so does he. And finally, John was heavily invested in the said enterprise. One can easily understand what it means to put one’s money in only one pot. Nevertheless, it is clear in the APES110 that this kind of setting must be avoided.

In the case of John he has created a hole that is almost too difficult to get out of. This is indeed a dilemma for many professionals. Their monetary reward is based on the success of the company and businesses that hire them for their expertise. It is almost always a conflict of interest to promise to uphold the rules that govern the profession as well as the need to maximize profit for the business. In the first place, John should have seen this coming and he should not have accepted the offer to work there and also, he should not have invested in his sister’s company because he works there as an accountant.

He should not have accepted the offer to work in the said company knowing that his sister would become his employer. She will undoubtedly be a great influence to his decision-making, but the problem is, he cannot afford to be influenced because he is paid to provide unbiased information and recommendations not only to his sister but also to the institutions that regulate commerce. If they receive inconsistent information then they will also make the wrong decisions and these decisions does not only end with the individual but it will certainly affect a great number of people.

Section 150

John has to realize that he has broken the law. This is not some silly prank that he has pulled on the bank and of course the institutions that governs the banks. John is not only in serious breach of ethical standards but he is actually breaking many laws. There is now stricter controls regarding this behavior and if John continues to make fraudulent claims then he is in serious jeopardy. One way that he can experience the negative consequence of his actions is to be publicly humiliated when his actions will be made known. It will be worse if the Federal government will go after him depending on the extent of his actions and the damage it created.

In the aftermath of the financial crisis that has hit the globe, banks and governments have imposed stricter standards in regulating financial institutions and a large part of it is geared towards monitoring accounting firms and of course the accountants. When we look at APES110 we are not merely looking at suggestions but actually we are looking at something that will help us steer away from trouble. John must fully understand that ethical standards are not to be trifled with. It can even be considered as the lifeblood for his profession, without it accountants will find it increasingly troublesome to practice their profession. If this is not remedied then there will come a time when layers upon layers of protection will be used to prevent accountants from cheating and this will be very detrimental for them as it is would be doubly harder to earn a living.

John can even lose his ability to work as an accountant. Imagine the devastation this will cause to his personal life, including his family. This pales in comparison to what he can gain or lose with the $200, 000 investments he has poured out into Armil Hardware. We have to face it that this is not a paltry amount and yet if we think long term and see the big picture; we can easily realize that it would be better for John not to engage in this risky behavior.

Would John’s behavior be acceptable (ethical) according to any of the normative theories that were introduced in Topic Two of this unit?

It is a breech of trust but it is the type that can only be understood in the context of professionals who are given community sanction. As pointed out by experts: “…society has granted professionals the power to self-regulate.” (Dellaportas et al. 2005) There is a good reason why professionals such as accountant like John must self-regulate. The accountant cannot and must not be dictated upon because they are in essence the people who will provide checks and balances. In John’s case the banks are heavily dependent on his reports. The bank has no idea the kind of financial situation Armildale Hardware was in and therefore they needed the advice of John and this comes in the form of a financial report regarding the ability of the company to make money and therefore its ability to repay the loan. A misleading report will make the bank lend money to the enterprise but to the peril of everyone involved. In addition the profession’s code of conduct is not just a mere set of rules but designed to protect everyone involved: the accountants, the banks, and business owners.

John must realize that ethical standards were created not only to protect the banks but also the accountants like him. This is what experts has to say about this topic “Codes protect potentially vulnerable clients from incompetent and unscrupulous practitioners, and also protect the qualified practitioner from unfair competition.” (Dellaportas et al. 2005). In the long run John will benefit from doing the right thing. His actions will encourage others to perform other unethical actions and by doing so will create a community of cheats. At this time John may have the upper hand but not for long. There will also come a time when John will be at the receiving end of such a dishonest act.

John may have his reasons as to why he created the fraudulent report and say that it is for the good of the company. However, it was made clear in the ethical standards that govern their profession that the accountant must observe not only the code per se but also the spirit of the code. In this regard John is really accountable for his actions. He did not act as professional but like a criminal who was hired to break the law.

According to other theorists, conflicts will always abound in this profession because, “Conflicts are inevitable since the duty to the client must be balanced against a broader duty to society, the profession and to the practitioner’s personal standards of behaviour.” (Grace & Cohen, 2005) John must know this and he must realize that the moment he went to work for his sister he has created problems for himself and the company. He should have resigned from that job and find work elsewhere. He has made it doubly difficult to do so when he decided to invest in the said company. This is a prime example why ethical standards must be observed so that the professional must be guided on the right thing to do from the very beginning.

According to another contributor to the study of professional ethics in accounting, public accountants should not exist for self-gain, their primary purpose is to serve the general public (Gul et al., 1995). If this will be considered as standard then John is more than guilty. In this regard we also have to point out that accounting is something that one cannot easily understand and then master in a few years time. It requires a great deal of study, a college degree, a board exam, and then a season of learning under the tutelage of a master. This can happen in an accounting firm or simply working in a business environment where the skills of accountancy are hone. In other words, accountants are members of an elite group. They can either abuse their sphere of influence and power or they can begin to realize that they must not take for granted the trust given to them by their clients and the public in general as well as the vulnerability of those who have no idea what they are doing and yet still highly dependent on the accountant’s skills and services.

Perhaps John can learn a thing or two with regards to the conclusion made by one theorist who said, “All accountants, whether working as employees of an organisation or in private practice, have an obligation to do their best to ensure that the culture of their organisation does not conflict with the requirements of their professional code of conduct (Maurice 1996). John should be sensitive to this reality. In every workplace there is a certain culture that dictates how people should do their job. An accountant must learn to transcend this culture and adhere only to the standards that can be found in his heart and mind – that was hammered there during his or her college days and repeated to them when they were sworn in as certified public accountants or CPA.

If John had asked for your advice before he provided the financial statements, what would you have advised him to do?

In an ideal situation John would realize the folly of his ways and so he should make great effort to divest himself of the company. He must be able to cash-in the $200, 000 that he has invested into the company. This money is clouding his ability to make the right judgment call. This has forced him to do the unethical because he could not risk losing this huge amount of money and besides he has not diversified his investment and everything was riding on the success of the Armildale hardware. John was forced to help the company in whatever form he can and as an accountant he was in a greater position to help the company or break the laws.

The second thing that John has to do is to resign. There is major conflict of interest. Others may reason out that there is no need to lose employment over this matter. The only thing to do is to create the proper financial statements that will be in turn submitted to the bank. But this is easier said than done. Imagine the pressure that John will have to go through each day not only because he is working for someone who needed his help to secure the loan, but also because he is working under her sister who can make it very hard for John to say no to her suggestion to break the law.

Therefore, instead of suffering under such circumstances it would be better to resign. As pointed out in the case study, John is not an ordinary accountant, he is of course highly educated but at the same time has postgraduate qualifications in both accounting and finance. People with John’s caliber can easily find work elsewhere. There is no other way to solve this dilemma than to resign. In the process, John will never have to deal with terrible conflict of interest and at the same time the new accountant will never have to struggle to tell John’s sister that it would be best for everyone to simply tell the truth.

John must realize that there is no need to jeopardize his career and the future of his family. At first it would be hard for him to do because he seems to be in too deep already. But he must be made to understand that there is a way out of the mess that he has gotten into. It may force him to do some tough decisions. It is also possible that he may lose money in the short term but this is nothing compared to what he will lose if he has lost credibility. Who will hire him if the company will fold? This is also the reality that must be drilled into John. The company that he is working for is not making a great deal of money and therefore there is a great chance that it will not be sustainable.

Thus, it would be best for John to make preparations now and to do the right thing while there is still time. He must resign from this job. He will of course complete the necessary tasks as required by his profession but he must make serious steps to find employment elsewhere. But with the kind of credentials that he possesses, this is not a major problem.

Resources

Australian Professional & Ethical Standards Board (2006). “APES 110, Code of Ethics for Professional Accountants.” Web.

DeGeorge, R.T. 1999, Business Ethics, 5th edn, Prentice Hall, Upper Saddle River, New Jersey, pp. 487-504.

Grace, D. and Cohen, S. 2005, Business Ethics: Problems and Cases, 3rd edn, Oxford University Press, South Melbourne, pp. 126-138.

Hutchinson, M. Leung, P. and Van Homrigh, D. (2005) Ethics, Governance and Accountability: A professional perspective. Wiley: Milton.

Click Here To Order Now!