What are the duties owed by Ming?
Ming answers to Bing Ho, to the company, the stakeholders and the board of directors The duties that Ming takes as an employee are
* Accountability
* Objectivity
* Integrity
* Honesty/duty of care
Is there any conflict of interest faced by Ming as an assistant accountant in Wholesalers Ltd? Ming V Bing
Decide to go with Bing’s guide as instructed or record Bing’s fraudulent discrepancy or follow the company’s policy. Yes there is a conflict of interest because if Ming says anything there is a chance that he will be fired. As he is only an assistant accountant and Bing is the chief accountant there is a chance that he will not be believed as Bing is there much longer. (red is my answer) 2. For case scenario 2
Explain any ethic risks and possible consequences faced by Ming when dealing with Alice. Ethical risks:
* Failure to do what was asked of him
* Failure to apply duty of care
* Failure to apply disclosure
* Failure to act ethically
Consequences
* Misstated financial statement
* False untrue books
* Acceptance from Alice and Bing Ho to follow
* Failure to follow Bing’s instructions
* Loss of Alice’s friendship
* The company suffers
* Breaching Bing’s instructions would lead to Ming being disciplined
Ming might be tempted to tell Alice about her father’s dealings, as this would not be ethical¸ but there is a chance if he says anything to Alice that she will stop going out with him. Comment on Bing’s motto and advice of Ming’s possible actions. Bing’s motto is “being a professional accountant holds the key to all” P12, , Accountants have a duty towards their employer, loyalty to the governing body, and management and the responsibility to ensure such duties are performed with the objectivity, integrity and ethics of a professional person. Internal fraudulent activities.
The Essay on Failure vs Success
Without failures, how can one improve? I’m still making mistakes, still learning and bound to face new challenges. Everyone is a key to their own success. In the process of succeeding mistakes are made and failure sometimes occurs. Failure can lead to success in relationships, managing companies and being an employee. First, failure leads to success in relationships. Failed relationships make you ...
P13, all accountants are expected to observe the standards of care, professionalism and ethical behaviour as part of their primary professional duty to safeguard the public interest.
3. Taking both scenarios together, what are the ethical and professional issues faced by Ming. Taking both scenarios the ethical issues are that An accountant’s role is that of performing under tight budget and timelines, maintaining relationships with clietns and firm management, and applying strict accounting rules and professional standards. How would you advise Ming?
Follow the company’s procedure for reporting transactions. Let Ming be disciplined. If Ming decides to record Bing’s discrepancies to the board of directors, objectivity, and integrity and independence are his duties. Technical competency, duty of care, professional issues chapter 3.
P 54 book chapter 2
Alan Bond the sales man
1. He is a stage 2, p44 table.
Which means that he only interested in his own self-interest. From p 42
* Treating the company badly.
* Reduced the credit terms
* Leases terminate without compensation
* Failed to accept the auditors reccomdations.
2. His selfish behaviour, obsession with growth is the primary reason for the demise of the company. His on-going acquisitions, expansion of debts was totally unsustainable. He was more concerned with personal wealth and growth of his empire. The implications of his actions would come to harm others and he did not care so he is a stage 2.
3. As an Auditor there are minimum standards, objectivities and integrity standards. Due care, skill and competence are also primary traits of an auditor. When rating someone as a client, consideration must be given to whether the client poses an unusual unacceptable risk. That would be a client that lacks integrity, and by implication would pose a greater chance of errors on irregularity. The facts are not given correctly or if it remains undetected the auditor faces a great risk of litigation for negligence and fraud. It would be damage to his reputation. Therefore in considering taking on a client like Bond, an auditor should seriously consider the integrity of the client before accepting the audit.
The Essay on Maintaining Good Client Relations
Establishing and Maintaining Good Client Relations Total Quality Management, customer satisfaction index, zero defects, client service - all are buzzwords of management in the 1990s. Yet what is all this about anyway? After all, lawyers and law firms successfully made it through the '80s without all the commotion about quality and service. Why all the fuss now? Is this just another fad, some ...
4. Rights perspective: make decisions without respect for others (shareholders), theory of rights(what is respect for others).
Consideration has to be given to the rights of others involved and ensure that the decision respects the rights of others that may be involved. Must make sure decisions made respects the rights of others. Diverted money, and the way he treated the assets to be his own failed to respect the rights of the shareholders, therefore his actions were unethical.
5. They are both corporate rogues, they are both the same. But to give credit where it is due Bond did face the consequences of his actions. He faced some responsibility for his actions. Wrong is still wrong, and both behaviours were unethical and despite Bond facing the judiciary they are both rogues.
P 85 chapter 3 Professional Misconduct
Member borrowed money from his client, to invest and to send his child to school. 1. Identify the fundamental principles of professional conduct that the member breached and explain why you think they have been breached. * Integrity: He was dishonest
* Ethical behaviour: he only gave back $29,000; court order was not enough to stop him. * Independence: he wasn’t clean in his dealings.
* Objectivity
2. The member was found guilty of professional misconduct. What penalties do you think are fitting for this member’s behaviour? a. The case was recorded and published (name and shame), to be fined as well as this is the protocol, and he would be called before the legal team (committee of band) and asked to justify his legal behaviour. 3. Would your answer in question 1 and 2 differ if the member repaid the loans when they were due? b. No he should not have asked the clients for money for personal reasons, repaying the loans by the due date makes no difference, he should not have a conflict of interest with a client, borrowing from a client compromises one’s independence. 4. Do you believe that a member’s name should be published when they are found guilty of misconduct? c. Yes, IAASA is the accounting board for professional accountants, The IAASA deals with the code of conduct, for different people, board members, employees, customer of chartered of rights . d. Professional indemnity, insurance for accountants. e. Civil liability – jointly and severely liable.
The Term Paper on Auditing Issues In Enron
Independent Needed for the Houston office of Andersen, an audit partner that understands the role of being a “public watchdog” with “ultimate allegiance to the creditors and shareholders” . Arthur Anderson abandoned its roles as independent auditor by turning a blind eye to improper accounting, including the failure to consolidate, failure of Enron to make $51million in ...
P113 chapter 4
http://www.apesb.org.au/attachments/5-GN1.pdf
Half full or half empty
1. What are the facts of the case?
Who what when where and how
* Bill turner spent the day on 31st December, performing inventory observation procedures at a grain storage tower. * Had measured the grain on previous 2 counts, so knew what he was doing. * He is the in-charge accountant on this audit.
* Bill’s account was 10% below that of the clients, which was significant enough to note. * As this caused a drop in net income, he documented the findings, and proposed to adjust the entry for the difference. * A discrepancy had also occurred 2 months previously when it was carried out by a government official, but was not as great as this discrepancy. * He documented this as well and the fact that no change was made then either. * Bill told Greg, who was the engagement partner.
* Greg advised Bill that it would be a sensitive issue with the client. * He said that it is extremely difficult to calculate this and that 10% discrepancy sometimes occurred. * He said he would handle the matter and not to do anything; including talk to the client about it. * Greg kept the paper.
* When he was finished Bill went back to the office to wrap it up. * There were no inventory papers in the file.
* When he asked about it; Greg handed him a new set of files. * These new files had the date as 31st December, had Greg’s signature but had the book amount of grain recorded. * Greg had personally performed additional work on the grain inventory after the year end. And based on his own findings had substituted his own papers with the ones that Bill had prepared. * There was no record of Bill’s proposed adjustments.
The Research paper on Enron Corporation and Anderson case study
Analyzing the fall of two Giants This case results in the publishing of Sarbanes-Oxley Act of 2002 and relevant to the Securities and Exchange Commission. Also, it is related to SAS 103: Auditing, Quality Control, and Independence Standards and Rules. [1] What were the business risk Enron faced, and how did those risks increase the likelihood if material misstatements in Enron’s financial ...
* So therefore an unqualified opinion was subsequently issued. 2. What are the ethical issues in the case?
2.a Who are the primary stakeholders?
* Bill
* Greg
* Directors of the grain Storage tower
* Stakeholders of the Grain storage tower
* The accountancy firm which they worked.
2.b Define the ethical issues.
* Bill’s responsibility to Greg versus his independence and objectivity * Bill’s responsibility to protect the interests of the company versus the responsibility to Greg. * Overall, Bill’s problem is how to react to Greg blatantly ignoring Bill’s proposed adjustments. 3. What are the norms, principles, and values related to the case? * Technical and professional standards: Bill and Greg should carry out their work in accordance with the technical and professional standards relevant to that work) * Integrity: (Greg should be straightforward)
* Competence and due care: (Bill’s responsibility as an accountant)
4. What are the alternative courses of action?
* Bill can do nothing
* Bill can try to raise the issue with management
* Bill can resign
* Bill can raise his concerns informally with the external audits who already audited the place.
* Bill can try to convince Greg to report his findings.
5. What is the best course of action that is consistent with the norms, principles and values identified in step 3? * He does nothing – would breach all 3 principles identified in step 3 * Bill can try to raise the issue with management – may be consistent with the principles but does not give Greg a chance to explain himself. * Bill can resign – does not satisfy any of the principles and abrogates responsibility * Bill can raise his concerns informally with the external audits who already audited the place – may be consistent with the principles but does not give Greg a chance to explain himself * Bill can try to convince Greg to report his findings- is consistent with integrity and allows Greg to explain himself (e.g. it may be that the matter is part of a broader but confidential investigation that Greg is conducting).
6. What are consequences of each possible course of action? * Bill can do nothing
* will pacify Greg
The Essay on Enron Ethics Case
Enron Corporation, once the 7th largest company in US and a global leader of electricity and natural gas industries, filed for bankruptcy protection in late 2001. It was revealed that the company had been hiding investment losses and created fictitious revenue through several complicated accounting gimmicks. Besides Enron’s senior management who created the whole fiasco, many people believed that ...
* could have detrimental financial consequences for the organisation if there are continual losses of inventory and cash * would cause Bill to breach his ethical standards as outlined in the Code
* Bill can try to raise the issue with management
* may highlight problems within the organisation and lead to their rectification * may result in action being taken against the employee who has failed to keep adequate grain records. * could have a negative impact on Bill’s career aspirations if he has to continue working with Greg. Alternatively, Bill may be rewarded for identifying the problems
* Bill can resign
* may not result in problem being identified, which may have detrimental effects on the organisation * has a personal cost
* Bill can raise his concerns informally with the external audits who already audited the place. * may preserve Bill’s integrity
* may lead to an independent investigation
* could have a negative impact on Bill’s career aspirations if he is identified as the source
* Bill can try to convince Greg to report his findings.
* may cause Greg to refuse and take disciplinary action against Bill * May cause Greg to explain his actions to Bill’s satisfaction and so settle the matter
7. What is the decision?
In the light of the analysis, Bill could adopt the following plan: First, Bill can try once more to convince Greg to report Bill’s findings and if this is not successful, Bill could raise his concerns with management/his peers/the audit committee, etc. This allows Greg the opportunity to resolve the matter but, if unsuccessful, means that the issue will probably be resolved internally.
Chapter 5
P 143
Corporate governance and the collapse of Enron
1. Why was there no adjustment in Enron’s share price when sophisticated investors knew of the complex financial structure, off balance sheet entities, lack of disclosure, the lack of credibility of Anderson’s certification, and loss of independence between the auditors and Enron? Comment on the reasons why you think these factors were not impounded into the share price. It was highly known in the analytic community that Enron’s financial structure was highly complex. No-one on the outside really understood Enron’s financial condition but they also knew that they didn’t know. Enron was a faith stock. The sharply diminished value of Anderson’s certification for a company like Enron with complicated accounting, abundant consulting opportunities, and obvious accountant planning, should have been impounded in Enron’s price from the get go, but it was not.
The Essay on Enron: The Smartest Guys In The Room 2
Enron Corporation was an energy, commodities, and service company out of Houston, Texas founded by Kenneth Lay in 1985. Lay built natural gas power energy in East Texas which helped Enron’s stock rise. Louis Borget, Andrew Fastow, and Jeffery Skilling were the top management executives from 1985 until 2001. Each helped to bring about the demise of the company in multiple ways. One of the first ...
2. Even though Enron had what appeared to be a board structure that satisfied the guidelines for good corporate governance, how did information asymmetry and the board’s culture contribute to Enron’s demise? The board were long time serving members who were familiar with the management teams, thus they believed what they were told about the company as they had no reason to mistrust the management. Management told a convincing story, and scepticism, suspicion, healthy scrutiny were inconsistent with the board’s culture. High levels of compensation may compromise directors independence, since a director’s sharp questioning of senior management may lead to subtle pressures against his re-nomination. Stock-based director compensation is also a double edged sword: it may both enhance the board’s vigour as a shareholder agent but also increase its ambivalence (uncertainty) about uncovering embarrassing facts that will reduce the share price.
3. As option grants increased, Enron executives were confronted with two incentives, fraud and risk taking. Does this mean that there were no positive effects with share options? Share options may be a way of overcoming the interest divergence between management and shareholders. Share options are the most efficient way of overcoming the agency problem when managerial reward is linked to the price of the firm’s shares. Linking managerial reward to the price of the firm’s shares alleviate the incentive problem of motivating management. The shareholders are able to utilise the information that is publically available (share price) to monitor management. If managers become shareholders via share options they have a direct interest in increasing share price. Stock options have also give managers particular incentives to undertake difficult measures that may even reduce the riskiness of the firm but that may be personally stressful.
4. If employee share schemes are to continue as incentive to motivate employees to increase firm value, what if any, restrictions should be placed on them? 5. Structure the scheme so that employees become entitled to shares only if you sell or float the company; 6. Limit the scheme to certain key employees, for example, those with scarce managerial or technical skills;
7. Enron demonstrates that there are problems that cannot be solved, but can only be contained. Imperfectly fashioned incentives and the lack of self-restraint contributed to the collapse of Enron. Comment on this statement. Are there any other poor corporate governance practices that played a part in the collapse?
Things to change
Anderson and what could have been done with them
There are at least two obvious ways to monitor. First, an internal “inspector general” might provide disinterested internal review of important accounting judgments made by the Houston partners, an internal auditor’s audit. Second, partners might rotate among offices (for the same reason that bank officers frequently rotate).
Neither of these mechanisms, nor any other, seems to have been used by Andersen. Indeed, it seems that the Houston office could reject accounting judgments from Chicago headquarters with impunity.10
Board of directors
One possible way to mitigate some of these tensions is to change the nominating and compensation practices for what might be called “trustee” directors in large public corporations.
Compensation for audit committee members should be different, a flat fee (or time-charged) rather than incentive-based. Audit committee members are in real sense the corporation’s compliance officers. To protect both the fact and appearance of their willingness to ferret out bad facts, they should not receive compensation closely tied to the corporation’s profits or stock price.
One alternative is to raise legal liability for directors for breaches of duty of care, or more particularly, breach of the duty of managerial oversight.