1.

0 Introduction

The perspective held will be the controller of the Nilai Health Care (NHC), Adam, who faces a
dilemma during the course of his job. The controller was recently hired by NHC who provides
needed healthcare services to low income residents. Before he took the job as a controller, he was
a professional accountant engaged in public practice. He is married with two children.

He is in the midst of a financial crisis which may be considered temporary. He is asked to alter the
accounting records for a short period of time to avoid bankruptcy. He is in a situation where he
would think about the ethical tradeoffs in an environment where the better good may actually be
achieved by complying with the CFO’s request. He is to decide whether to modify or not the
financial statements.

The situation presented in the case is intended to get us to think about the ethical trade-offs in an
environment where the “greater good” may actually be achieved by complying with the CFO’s
request to alter the records since the health, and even the lives, of some clients may be at risk if
the organization were to fail.

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2.0 Statement of the Problem

Adam, the controller of Nilai Health Care is pressured by the CFO to temporarily modify the
financial statements to present a more favorable position of the entity to utilize the line of credit
of a regional bank.

3.0 Objectives
1. To determine the optimal decision to be made by Adam considering the following factors:
- Code of Ethics for Professional Accountants in the Malaysia
- Nilai Health Care Clients
- Nilai Health Care Employees
- Family’s Well-being
2. To determine the significant parties who would be benefited or harmed of Adam’s decision.

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4.0 S.W.O.T. Analysis

The SWOT analysis helps organizations assess issues within and outside the organization. The
SWOT analysis, made up of an assessment of strengths, weaknesses, external opportunities and
threats from competition, provides an outline for strategic decision-making. Small businesses,
large corporations and individuals can utilize the SWOT analysis process for evaluation. By adding
a SWOT analysis in their business plans, small businesses can better clarify their short- and long-
range strategies. The SWOT analysis, often found in marketing plans, becomes a useful tool for
planning and competitive analysis. Organizations often provide a SWOT analysis in a chart format
with each segment represented in a different quadrant. Although so, in this case, I am just going
to list each segment.

4.1 Strengths
- Adam has its own freewill to decide whether to modify or not the financial
statements

4.2 Weakness
- Adam is vulnerable to the threats emulating in the situation.
- Adam has no experience in dealing these kinds of situations due to the fact that this
was his first job as a controller of a company.

4.3 Opportunities
- Adam can consult other people or advisors to advise him of the optimal decision to
make

4.4 Treats
- All employees including him would be jobless.
- The probable circumstance that NHC Clients would receive no quality health care
at a lower cost in case NHC would go out of business.
- Family’s welfare would be in a dire situation.

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5.0 Decision Analysis

5.1 Factors to be considered

o Code of Ethics for Professional Accountants in Malaysia

Key fundamental principles involved:-
1. Objectivity- a professional should not allow bias, conflict of interest or
undue influence of others to override professional or business
judgments.
2. Integrity- a professional accountant should be straightforward and
honest in all professional and business relationships.
3. Professional Competence and Due Care - a professional accountant has
a continuing duty to maintain professional knowledge and skill at the
professional knowledge and skill at the level required to ensure that a
client or employer receives competent professional service based on
current developments in practice, legislation and techniques.
4. Professional Behavior- a professional accountant should comply with
relevant laws and regulations and should avoid any action that discredits
the profession.

o Nilai Health Care Clients

o Nilai Health Care Employees
o Nilai Health Care Management
o Family’s Well-being
o Bank

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 5.2 Courses of action

5.2.1 Modify the Financial Statements

5.2.1.1 Advantages
 Adam’s position as a controller of NCH will be retained, he would
have enough income to support his children and wife.
 Adam’s position as a controller of NCH will be retained, he would
have enough income to support his children and wife.
 The Bank would let NCH lend money to a maximum of RM500,000.
 Clients can continue enjoying the privilege of quality services of
NCH at lower cost.
 Management would be relieved temporarily of the present liquidity
problem the entity faces.

5.2.1.2 Disadvantages
 This is clearly an obvious conflict to the fundamental principles of
the code of ethics of Professional Accountants in Malaysia.
 Presenting the financial statements of the entity not in accordance
with GAAP.
 Due to the CFO’s relief of the temporary solution of the liquidity
problem, the CFO including the management would be lax in
considering other permanent solutions to the problem.
 If the bank found out that there have been modifications to the
financial statements of the entity, the bank may withdraw the
amount borrowed and black list the entity. The entity cannot borrow
anymore from the same bank. Moreover, the entity may have bad
reputation regarding this matter.
 If the RM750,000 grant would not be received within 4 to 5 months,
such modifications to the financial statements would not be

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 reversed. By the time of the annual audit of the firm, these
misstatements may be discovered by the auditors causing them to
issue a qualified or adverse opinion. Further, the entity if conditions
remain unchanged during the period, they may not pay their debt
when it comes due.

5.2.2 Not modify the financial statements

5.2.2.1 Advantages
 Adam would be in compliance with the code of ethics.
 Adam would present fairly the financial statements based on
applicable financial reporting standards and GAAP.
 Adam would be free of his conscience.
 These would be an eye opener to the management to dig deeper and
analyze the source of their liquidity problem and consider
permanent solutions which would be more effective and efficient.
As a result of management’s initiative to find permanent and
effective solutions to the problem, NCH Clients may indefinitely
benefit from their quality health care services.

5.2.2.2 Disadvantages
 Adam may be fired from his controllership position. In addition, the
entity may not pay severance.
 The bank will not lend money to the entity.
 Short term liquidity problems will arise.

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6.0 Recommendation

A negative outcome that may happen from his decision is that Adam may be fired from his
present job. This may not be the case if Adam will provide another solution in easing the
entity’s liquidity problem. He may convince the management to explore alternatives other than
a loan from the bank to ease their liquidity position and to do so he may conduct a thorough
analysis of the entity’s working capital and find the root cause of the problem. For example,
Adam could advice to the management to reduce operating expenses such as electricity and
water, disposal of assets, shifting to hiring from regular to contractual employees.

After a series of advices and the management is still not persuaded by his advices, he
would have no choice but to choose the second alternative course of action and that is to modify
the financial statements in two conditions. First, such modifications will not deviate too far
from the current position of the entity but satisfactory enough to pass the standards of the bank.
Second, when the entity has received the loan from the bank, the management including Adam
must formulate a plan that would make them better off from the present situation to the point
wherein the entity would be more or less in the position portrayed in the modified financial
statements.

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7.0 Conclusions

The most optimal alternative course of action is to not modify the financial statements.
Based on the decision analysis presented in the previous section, the first alternative course of
action, which is to modify the financial statements, has more disadvantages than advantages
as compared to the second alternative. Moreover, the first alternative courses of action’s
advantages are more or less short term in nature while the second one’s advantages are much
more long term.

Adam should have a great degree of moral courage to say this to the CFO. In the short run,
there may be some problems such as liquidity. This is only temporary. As the management
would be making some strategic plans for the company by scanning the environment to search
for the source of the problems and implementing it to reach their objectives, permanent rather
than temporary solutions would be applied. The corresponding present situation has a greater
chance that it will not happen again. Further, Adam has fulfilled his responsibility with the
general public of presenting the financial statements fairly. However, Adam may be fired from
his job and as a result; he may not have sufficient income to sustain his family. Parties who are
benefited with this decision are the management, his co-employees, Adam and the Nilai Health
Care Clients. On the other hand, parties who are harmed with this decision are Adam and his
family.

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