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ACCT 335 – CHRIS D.

BURNLEY
ETHICS & CONCEPTS ASSIGNMENT
EMMA TWENEBOAH-KODUAH
576971865
QUESTION 1
The main ethical issue faced at Nikit Ltd. is fraudulent financial reporting. This is
because the CEO, Jane Savory, has suggested that certain vital information should be
omitted from the company’s financial statements. This is intended to maintain the
company's own financial position as well as to persuade the bank into approving and
financing the loan. This failure to disclosure pertinent information to investors and
creditors that could change their decisions about investing is ethically wrong.
The parties likely to be harmed by not disclosing this information about Air Bangla Ltd.
include the owners of the company, Tim and Allan McCloy, the employees who own
voting shares in the company and possibly the bank that would be financing the loan to
Nikit Ltd. The company may benefit in the short-run by being able to secure the bank
loan but may suffer significantly in the long-run as they would likely not have an
adequate asset base to buffer the effect of the higher liability incurred.
As a CPA who is bound by the Generally Accepted Accounting Principles (GAAP), it is
my responsibility to ensure that the preparation and presentation of financial statements
is accurate and in accordance with the principle of full disclosure. It is ethically and
professionally wrong on my part as the controller to deliberately omit information that
would significantly affect the company’s financial position and the decisions of our
investors and creditors. Since the survival of Air Bangla Ltd. for the next year is
uncertain but highly doubtful, I am obligated to disclose this information in the financial
statements to stakeholders. The allowance should also be adjusted, even if slightly, to

It is worth noting however that. However. then Nikit Ltd. the shareholders and owners would be able to make decisions based on this information and may decide to either look for alternate financing options such as equity financing. would be in a good position financially by not disclosing the information. However. By not disclosing the information but slightly adjusting the allowance. but slightly adjust the allowance Do not disclose the information and do not adjust the allowance If we disclose the information and adjust the allowance for this receivable. In the long-run however. The company’s assets would also be lower as the receivables from Air Bangla would no longer be available. adequate provision has not been provided for the receivable thereby resulting in a greater burden being suffered by the shareholders should the loan be approved and Air Bangla be unable to provide the materials. This would likely reduce the severity of the impact of Air Bangla’s receivables not being collected. banks may be skeptical to lend to the company if . In this case. because some adjustments have been made to accommodate the increased possibility of noncollection of this receivable. if Air Bangla survives. Nikit Ltd. the company is likely to not get the bank financing and this may result in the company going out of business. In light of this. may be able to secure the loan from the bank and thus be in a better financial position to cushion a portion of the blow from Air Bangla. However. the effect on the shareholders and owners would be lesser than if we decide to not disclose the information and not adjust the allowance.accommodate the current risk associated with the material receivable from Air Bangla Ltd. we may decide to choose one of three alternatives for the current period:    Disclose information and adjust the allowance accordingly Do not disclose the information. this would leave the shareholders and owners worse off as they would now have a greater liability to offset.

QUESTION 2 1. This gives her and the other classmates who do so an upper hand in the class and hence. The behaviour is unethical as it goes against the academic policies of the institution. while providing possible remedies to cushion the severity. I might however take this approach as it would save my company some money as payments would be deferred for as long as possible with minimal interest charges.they find out such an important information was withheld. This behaviour would also be unethical as I would be taking advantage of my smaller suppliers as a result of their size and bargaining power. an undue advantage over the others. QUESTION 3 . Even if I am sure of not getting caught. I would possibly not have a strong understanding of the material covered in the course and this might affect my ability to perform when tasked with a job in this field in this future. The company may also suffer immensely if the bank decides to call back the loan once they find this out. These suppliers may be hurt in the long-run as a result of high account receivables. The extra cash can then be used for other activities and this would result in a higher net cash from operating activities for my company. I would not use this information as it might have an adverse effect in the long-run. 2. The stakeholders in this situation will therefore be able to make their decisions based on all available and up-to-date information. The most ethical alternative would be to disclose the information on the increased doubt of Air Bangla being able to provide the material receivable and adjust the allowance accordingly.

2015) 3. an estimated value is applied to it. A current accounting standard that reflects this notion is the materiality principle that states that an accounting standard can be ignored if this would not mislead readers of the financial information. the impact (materiality) of an event or a transaction can supersede another accounting principle as to whether and how to record it. the Board is proposing that although the legal aspects of transactions and events are of great importance. the Board believes that when there is high measurement uncertainty. This would make the financial information more relevant as it would express how events and transactions actually affect the assets. In as much as using estimates does not make a financial information irrelevant. Hence. (Exposure Draft. (Exposure Draft. the book values may not provide relevant information as they may not be the best estimates of the asset’s value or would not accurately reflect the usefulness and nature of the assets. Estimates used in depreciating property. With respect to property. The term “measurement uncertainty” refers to the situation whereby an asset or liability cannot be accurately measured and thus.1. By “substance over legal form”. it is sometimes difficult to determine the useful economic life of the asset in calculating its depreciation. they should be accounted for and presented in accordance with their economic effects and essence rather than just the set legal rules for reporting them. the estimates used may cause the financial information to be less relevant. liabilities and equity of a firm rather than simply reporting it under the various categories based on legal regulations or principles. 2015) 2. . plant and equipment affect the book value of the assets and where there is a high measurement uncertainty. plant and equipment.

(Cooper. usually management. the Board proposes that judgement calls on how these values are estimated should be made with caution to ensure that estimates given truly reflect the company’s financial position. The users. 2015) b. The Board’s proposed reintroduction does NOT mean they favour a conservative bias whereby assets or revenue are not overstated and liabilities or expenses are not understated deliberately. However. The Board’s definition of prudence slightly differs from the notion of conservatism in that. d. This deliberate over or under estimation is done to take into account other consequences of reporting those figures. “Prudence” in this context refers to taking extra caution when making decisions that involve a level of uncertainty or estimates. (Exposure Draft. rather than a strictly prudent approach as this method helps to conserve capital. justifies this position by stipulating that the firm may be better off in the long-run through this. 2015) . the Board’s focus is on making the estimates neutral and as close to perfect as possible.a. This means that some users of financial statements would like to see an overstatement of assets and revenue and an understatement of liabilities and expenses if this bumps up net income and would benefit the firm. rather than deliberately estimating in such a way as to make a firm’s financial position look good. c. This means that the preparer of the financial statements should be cautious when making judgements where there is uncertainty in over to avoid overstating or understanding the estimates used as this would make the financial information less relevant.

London. Conceptual Framework for Financial Reporting.org/Investor-resources/Investor-perspectives2/Documents/Prudence_Investor-Perspective_Conceptual-FW. S.org/current-projects/iasb-projects/conceptualframework/documents/may%202015/ed_cf_may%202015. Retrieved from http://www. United Kingdom.ifrs.ifrs.pdf .References Cooper. (2015. June). (2015.PDF International Accounting Standards Board.A tale of ‘Prudence’. May 28). IFRS. Investor Perspectives . Retrieved from http://www.