Ethical Issue Faced By The Accountant Maria Mars Of Sunshine Ltd

Question: Discuss about the Financial Accounting of Sunshine Ltd. Answer: Introduction Financialaccounting is mainly concerned with theaccounting regarding the summary, analysis and presentation of financial transactions relating to business. It also comprises preparation of financial statements which are made available to internal and external users. The present report deals with discussions relating to the ethical issue faced by the accountant of Sunshine Ltd and the manner in which she resolved the same. Further discussion relating to AASB 116 has been provided in detail so that it could be appropriately understood. Relevance and importance of ethics and governance for management have also been explained in the report. As they both play a vital role while taking the major decision relating to an organisation in an appropriate manner. The impact of AASB 116 due to the decision was taken by management has also discussed in the report. Ethics Financialaccounting ethics form the structure relating to legal and regulatory requirements and comprise issues relating to maintaining and continuing public trust. Many professional organisations have their own ethical conducts which are to be complied by its members. As the main objective of IFAC is to serve the public interest; for the purpose of accomplishing the same objective code of ethics for professional accountant has been established by them. For strengthening the same and developing strong international economies, it is promoting these standards to adherence these high-quality standards. The fundamental principles that might be followed by an accountant as they are having responsibility for taking a decision in public interest; thus he is required to comply following: Integrity; confidentiality; Objectivity and Professional competence and due care. These can be followed by accountants also in their profession for resolving ethical dilemma issues as even they have to take decision for the benefit of company i.e. benefit of shareholders. A company which discloses clear explanation ofaccounting procedures and policies which have been applied in preparing of books of accounts appears to be more ethical and trustworthy in comparison to companies which do not provide such facts and details in its notes to accounts. Thus; it can be said that in present scenario as the company is not providing details relating to change in depreciation method and the reason behind it; the possibility exist that in case the users of statements assess any such fault that they might question the other figures available and rethink regarding investment decision. Governance Governance structures assure the shareholders that they will be provided reliable information relating to the value of organisation and that managements will take every decision after considering the interest of the company. Financial accounting comprises both corporate accounting and external reporting system which assesses quantitative data presenting the financial position of the company. The structure even encourages managers and other senior officers for maximising firms value rather than their personal objectives. In other words, it can also be said that governance in the system of rules, practise and policies through which companies are directed as well as controlled. It initially evolves balancing the interest of companys shareholders, financiers, management and community. It provides a framework for attaining the objectives of the company and encompasses every operation of management from action plans and internal controls for evaluating the performance and corporate disclos ure. In the present case as per the facts available that as the management is aware that economist is predicting an economic slowdown and subsequent fall in profits in the year 2018 and 2019. Therefore, the general manager Kam has discussed the same issue with accountant Maria and requested to find a way so that the profits can be reduced to a couple of years and thus the same will provide consistent profits to the shareholders. This will provide satisfaction to the shareholders that their company is performing in an appropriate manner and providing consistent profits even when economies are slow down and other companies are not able to perform well. As per the analysis, it can be said that no governance exists in Sunshine Ltd. as the manager itself is forcing the accountant to find a way to misinterpret the profits of the company. Even she is not satisfied the solution she has provided to him, but for achieving the contract of the company, she took such steps which mean for her personal objectives are prior in comparison to companys objectives. AASB 116 The aim of accounting standard AASB 116 Property Plant and Equipment is to assist in prescribe details relating to appropriate accounting of plant, property and equipment so that the users can discern information relating to it and the changes in such investment. The major issues of accounting regarding property, plant and equipment have been discussed in this standard such as the method of ascertaining their carrying value; depreciation charges and accounting treatment of impairment losses relating to them. As per this standard depreciation is the systematic allocation of the depreciable amount of asset over its useful life. The depreciation method which has been applied for the accounting purpose shall replicate the pattern in which the future economic benefits which are expected to be received by the organisation. Any change in depreciation method should be done as per the provisions specified in AASB 108 Accounting policies, change in accounting estimate and errors; as the same is specified in AASB 116. The change in accounting policy such as the method of depreciation can be made only in the case when such change is specified by the amended Australian accounting standard or in case the specified change will result in the presentation of financial statement in more appropriate format. In the present scenario, the accountant Maria has taken the decision of changing the depreciation method followed by the company from straight line method to the sum of years digit method. The reason behind same was to charge higher depreciation present and next year, and due to this change, consistent profits will be presented to the shareholders who will make them more satisfied with the performance of the company. Further, she has also not disclosed the details regarding same in the notes to accounts of the f inancial statement which is compulsory to be done as per the provisions available in accounting standard. Thus, it can be concluded that in present case Sunshine Ltd. has not complied with applicable accounting with accounting standards thus its financial statement does not represent the true and fair view of books of accounts. Accountants Role In Changing Depreciation Methods The obligations and responsibilities of an accountant are to be carried after application of the high level of ethics and governance. They have to take many important decisions relating to policies and procedures which are the base for the preparation of books of accounts. Depreciation is a fundamental expense for every organisation which comprises assets excluding land. The method which is adopted for depreciation impacts revenue in profit and loss account and assets in Balance Sheet. The pace of technology and economic change has resulted in the increase in demand of skilled accounting professional, and thus their work is no more limited to entering the transactions and preparing financial statements. In the present scenario, the accountant is having a pivotal role in a decision relating to change in depreciation policy. As the manager discussed the issue relating to economic decline and asked her to find a way so that the lower profits can be presented in the present as well as next year. This action will subsequently make the profit consistent with upcoming years in which it is expected that the profits will be lowered. As accountant deal with the transaction of business of day to day basis; they are having much detail and appropriate knowledge regarding the impact of the change in policy on the financial statements. In this case, the accountant decided to change the depreciation method as the same will accomplish the need of manager but the same will not accomplish the objective of the organisation. It can be said that the decision taken by the accountant is not ethical as depreciation method can be changed only after complying the specified provision available in AASB 116 and in the present case they have not been followed. On the other hand, even the accountant decided that details relating to same will not be disclosed in the financial statement as the disclosure will not satisfy the shareholders. It can be said that in present situation accountant has not fulfilled his obligations in an appropriate manner and given priority to her personal interest rather than accomplishing her obligations in an ethical way. Stakeholders A stakeholder refers to any individual, social group, establishment or the community at large that holds a stake in the business activities and outcomes. A stake signifies an important interest in the business and its operations. Customers, investors, accountants, auditors and employees are vital stakeholder groups that have high influence and high interest in a companys activities. They have the power of making recommendations pertaining to improvement in the dependability of financial reports, mitigating costs and so on. When a business contemplates a voluntary change in its accounting principles, then it should ensure that the advantages beat the cost. However, it is highly critical that prior to introducing any modifications in an accounting policy, the company should review it with its existing auditor to gain relevant insights about the implications of the change and the pertinence of the new policy (West, 2016). As far as the current situation is concerned, management is persu ading companys accountant to devise a technique through which higher revenues of the current and following year are reduced so that they correspond with future years. The ethical responsibilities of stakeholders and the business render business ethics a two-way conversation. Nonetheless, it is critical that stakeholders assume accountability in the companys success as well as its failure in an ethical way and supply real information to the investors. Stakeholders are also charged with the responsibility of developing the core of partnership between the company and other stakeholder groups by their actions. They are in charge of following rational and just policies so that the fair view of the business is put forth through the financial records (Bhasin, 2015). They need to evaluate the prevalence of non-ethical activities and operations in the company because they hold the authority to question it. As per the provisions of accounting standards, modifications in accounting policy must be done if any of the below-mentioned conditions is met: Modifications in the accounting policy is required by the law of the land, or Modifications in the accounting policy will lead to the better presentation of financial records. Impact of AASB 116 AASB 116 specifies provision relating to Plant, Property and Equipment regarding their accounting treatment and disclosure in financial statements. In present case, if the accountant has complied with AASB 116 that he had not taken the decision of changing depreciation method for decreasing the profit of current as well as next year. The decision which has been taken by her not only made the financial statements not complied with accounting standards but also made the whole financial statements inappropriate. As the change in depreciation method had an impact on the value of assets also. Conclusion Recommendation It can thus be concluded that a company must not resort to unethical means to solve any issues. This will only give momentary solution and can have dire consequences in the future. It is recommended that rather than making modifications in the accounting policy, the organisations management must disclose the reason behind falling profits in the financial statements. Through this, the firm will be representing the true business state and justify it in correspondence to industry standards. References Omran, M. and M. El-Galfy, A., 2014. Theoretical perspectives on corporate disclosure: a critical evaluation and literature survey. Asian Review of Accounting, 22(3),Pp.257-286. Abbas, S.A. and Klemm, A., 2013. 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