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Group Assignment

Activity 6: Case study on professional ethics

Question 1
1)a) Do you think Greenberg did the right thing by opening the April bank
statement and reconciling it to the general ledger?
What Kevin Greenberg did by opening the April bank statement and
reconciling to the general ledger is professionally wrong and he violated the
trust Janet placed in him.
b) Why or why not?
Because Kevin didnt have an authority to open the bank statement and
reconcile it to the general ledger as Janet specifically told to just those aside
until she returns from recovery. Although he had good intention to help
reduce Janet burden.
c) What about the previous bank statements?
In our opinion, Kevin should report the bank statement he discovers to Janet
father Gary Hoffman. First is because Hoffman is responsible in managing the
business and he must resolve any issue incur within company. Second,
Hoffman is the one who hired Janet to manage the office. The consequence
from Janet action depend on Hoffman action. Maybe he didnt do anything
and Janet fires Greenberg and maybe Hoffman take action against Janet to
sanction her or fires.
2) Explain what Greenberg should do if he reasons at each of the six stages
of Kohlbergs model of moral development. Be sure to consider stakeholder
effects in your answer.
Kohlbergs Stages Moral Development
Stage 1: Obedience and Punishment Orientation
Kevin Greenberg will stay quiet and not report Janet action to any
stakeholder because he also will get into trouble if he speaking up as his
action to open the bank statement and reconcile it to general ledger without
Stage 2: Self-interest Orientation
Kevin Greenberg would report to the stakeholder with the hope he will be
rewarded for his action.
Stage 3: Interpersonal Accord and Conformity
Kevin Greenberg probably do not report to the stakeholder and stay quiet as
to protect Janet and the possible negative effects for the company of the
unethical action of Janet.
Stage 4: Authority and Social-order Maintaining Orientation
Kevin Greenberg would report to stakeholder because Janet has violated the
law as she secretly embezzling money from the company. She also uses the
authority given to satisfy her self-interest.

Stage 5: Social Contract Orientation

Kevin Greenberg would report to the stakeholder because the action done by
Janet is effect the company money, other employee and even the
stakeholders. Kevin sees if he reports Janets action he will help many people
in the organization.
Stage 6: Universal Ethical Principles
Kevin Greenberg would report the action to the stakeholder because the
action done by Janet is self-interest and manipulate company money and
authority given. Kevin think its right to report and not because to avoid
punishment as he acts without Janet authority to opening April bank
statement. All owners have a right to know what happened.
3)a) If you were Janet and Greenberg dropped by the hospital to tell you
about his discovery, how would you react?
In our views, we probably get upset and angry because Kevin had acted
without an authority and discovery the unethical action done. Because of the
scare if the action gets to other stakeholder, we will try to discuss what the
best solution would be and what his interest in this situation. We also
probably manipulate Kevin that the action is reasonable.
b) Assume Greenberg contacts Janets father because he did not want to
upset her after the surgery. Hoffman talks to his daughter, who inform him
that she had a shortage in her personal funds and planned to repay back RM
30 000 after she return, how would you react?
First of all, we will be given a chance to Janet to redeem herself. We also try
to settle the Janet debt to the company. Besides that, we will not inform the
action to the other stakeholder as Janet is the daughter and family is more
important. Lastly, we try to educate Janet what is right in wrong in make she
learn from her mistake. For Kevin, we probably give reward for the
discovering the unethical action as he has a good deep to help Janet
c) Assume Hoffman does nothing because of his daughters explanation.
Janet returns to work and fires Kevin Greenberg. What would you do if you
were Greenberg? Why? How do you think his action (or inaction) might affect
his opportunity for other jobs? Should that matter in terms of what he
decides to do?
We believe that the important issue is Kevin need to acquire and save all
document related to the fraudulent action done by Janet before he being
fired. If he not , the other stakeholder might not believe his statement and
he opportunity to work at another company will slightly.

Question 2
a) Explain how professional code of ethics address possible conflicts of
interest facing accountants.
Under a section 220, conflicts of interest under Code of Ethic for
Professional Accountants stated that a professional accountant in public
practice should take reasonable steps to identify circumstances that could
pose a conflict of interest. Such circumstances may give rise to threat to
compliance with the fundamental principles. Besides that, a professional
accountant should evaluate the significance of any threats. Evaluation
includes considering, before accepting or continuing a client relationship or
specific engagement, whether the accountant has any business interest, or
relationship with the client or third party that could give rise to threat. If the
threat is significant, a safeguard should be considered and applied as
necessary to eliminate them or reduce them to an acceptable level.
Safeguards should ordinarily include the professional accountant in
public practice depending upon the situation giving rise to the conflict:
a) Notifying the client of the firms business interest or activities that
may represent a conflict of interest, and obtaining their consent to act
in such circumstances; or
(b) Notifying all known relevant parties that the professional
accountant in public practice is acting for two or more parties in
respect of matter where their respective interests are in conflict, and
obtaining their consent to so act;
(c) Notifying the client that the professional accountant in public
practice does not act exclusively for any one client in the provision of
proposed services and obtaining their consent to so act.
The following additional safeguards should also be considered:
(a) The use of separate engagement team; and
(b) Procedures to prevent access to information; and
(c) Clear guidelines for members of the engagement team on issue of
security and confidentiality; and
(d) The use of confidentiality agreements signed by employees and
partners of the firm; and
(e) Regular review of the application of safeguard by a senior individual
not involved with relevant client engagement.
Where a conflict of interest poses a threat to one or more of the
fundamental principles including objectivity, confidentiality and professional
behavior that cannot be eliminate or reduce to acceptable level, the
professional accountant should not accept a specific engagement or that
resignation from one or more conflicting engagements is required. Finally,
when accountant has request consent from client to act for another party in
respect of matter where the respective interests are in conflict and that
consent has been refused by the client, then the professional accountant
must not continue to act for one of the parties in the matter giving rise to the
conflict of interest.

(b) For each situation;

1) Identify and explain the ethical threat to the accountant.
2) Discuss the ethical safeguards available to overcome that threat.

A applies for a job and enhances his CV by indicating he

obtained first time passes in all his examinations, although he
actually failed three exams at the first attempt.
1) The threat in this situation can be identify self-review threat. Self-review
threat is the threat that a professional accountant will not appropriately
evaluate the result of a previous judgement made or activity or service by
the professional accountant, or by another individual within the professional
accountants firm or employing organization, on which the accountant will
rely when forming a judgement as part of performing a current activity or
providing a current service. Beside that, one of the fundamental principles
for which accountant required to comply is integrity. Integrity here mean
accountant should be straightforward and honest in all professional and
business relationship. Refer to the situation, accountant A is clearly dishonest
about his examination attempts in his CV. A has no integrity in his
information for job applies which can be ethical threat when he became a
professional accountant in public practice in dealing with client and business
2) The ethical safeguards to overcome the threat is provide education and
training requirement on ethic and professional responsibilities which can
improve accountant in professional practice on ethic responsibility. Besides
that, produce a professional standard and the threat of discipline as a
guideline and consequence on ethical behavior on accountant.
B is the management accountant in C Ltd. B is paid a bonus
based on the profits of C Ltd. During accounts preparation B
notices an error in the inventory calculation which has the
effect of overstating profits. B decides to take no action as this
would decrease the bonus payable.
1) The threat in this situation can be categories as self-interest threat. Self-
interest threat is the threat that a financial or other interest will
inappropriately influence the professional accountants judgement or
behavior. Example of self-interest threat is a member holds a financial
interest in the employing organization, and the value of that financial interest
is directly affected by the members decision and a member is eligible for a
profit or other performance-related bonus, and the value of that bonus is
directly affected by the members decision. As stated, B didnt take no action
in inventory calculation error as if he corrects the amount his bonus will be
decreases. B clearly has self-interest in his behavior to be paid bonus in
maximum amount.
2) The ethical safeguard to overcome this kind of threat is leadership of the
firm that stresses the importance of compliance with the fundamental
principal, continuing education requirement on ethic, provide policies for
promotion, rewards and enforcement of a culture of high ethics and integrity
and many more. This safeguard can improve ethical value of the accountant
and limit accountant control on financial statement.

D is responsible for the purchase of computer equipment in E

Ltd. Quotes (or quotations) from three suppliers have been
received for installation of new hardware; one supplier, F Co,
has promised a 10% discount payable to D if their quote is
1) The threat in this situation can be identify as undue influence threat. The
threat is that D will subordinate his/her judgement with F Co. supplier due to
the influence of 10% discount payable promised if their quote is accepted.
This threat will lead to hire unqualified supplier, quality of the good or service
unfavorable and loss a potential supplier.
2) The safeguard to overcome undue influence threat is assigning sufficient
staff to accept and evaluate the trade, policies for selecting supplier as a
guideline related to supplier acceptance and quality of the good or services
and regular monitoring of internal policies and procedure.

G is preparing the management accounts in H Ltd. Part of the

information presented to him indicates that H Ltd. Entered into
an illegal agreement with I Ltd to fix price increases in the
goods H and I supply. H and I together supply 90% of the total
market. The price setting enabled H and I to obtain higher than
expected profits for their sales.
1) The threat to the accountant in this situation is advocacy threat. The
threat that a member will promote an organizations interest or position to
the point that accountant G objectivity is compromised. G maybe bias in his
judgement to promote his organization to obtain higher than expected for
their sales. Besides that, G also might be fired or discarded from
management team if G speak up about the illegal agreement.
2) The safeguard to this threat is a tone at the top emphasizing a
commitment to fair financial reporting and compliance with applicable laws,
rules and regulations, and corporate governance policies. Besides that,
procedure addressing ethical conduct and compliance with laws, rules and
regulation and internal policies and procedures requiring disclosure of
identifies interest or relationships among the employing organization, its
directors or officers, and vendors, supplier, or customers.

J is preparing the management accounts for K Ltd. L, the senior

management accountant, has instructed J to omit the negative
overhead variance from the accounts on the grounds that they
show an unacceptable loss with the inclusion of the variance.
1) This situation threat to accountant is intimidation threat. The threat that a
professional accountant will be deterred from acting objectively because of
actual or perceived pressures, including attempts to exercise undue
influence over the professional accountant. This kind of situation gives threat
for a professional accountant such as a firm being threatened with dismissal
from organization or fired, a professional accountant feeling pressured to
agree with the judgement of a senior management because they have more
expertise on the matter in question and J accountant being informed by a
senior management that a planned promotion will not occur unless J agrees
with inappropriate accounting treatment.
2) The safeguard is to overcome this threat is provide policies and
procedures to implement and monitor quality control of management teams,
a disciplinary mechanism to promote compliance with policies and
procedures and published policies and procedures to encourage and
empower staff to communicate to senior level within the firm any issue
relating to compliance with the fundamental principles that concerns the.