ASSIGNMENT 1

SUBMITTED TO: MR HAMMAD JAVED VOHRA

NAME: AMNA NASEER & ZOAFSHAN SADAF

REGISTRATION NO: 1847146 & 1847183
CLASS: 6-B
Contents
TOPIC: ETHICAL DILEMMAS IN ACCOUNTS PROFESSION ................................... 2
1. WHISTLE-BLOWING ................................................................................................. 2
EXPLANATION: ............................................................................................................ 2
HYPOTHETICAL SITUATION/EXAMPLE: ............................................................... 2
2. OMISSION OF RECORDS ......................................................................................... 3
EXPLANATION: ............................................................................................................ 3
HYPOTHETICAL SITUATION/EXAMPLE: ............................................................... 3
3. OVERSTATING INVENTORY VALUATION ......................................................... 4
EXPLANATION: ............................................................................................................ 4
HYPOTHETICAL SITUATION/EXAMPLE: ............................................................... 4
4. IMPROPER RECORDING OF SALES TRANSCATION ......................................... 5
EXPLANATION: ............................................................................................................ 5
HYPOTHETICAL SITUATION/EXAMPLE: ............................................................... 5
HOW ACCOUNTANT/FINANCE PROFESSIONAL SHOULD ACT ............................ 6
1. IMPROPER RECORDING OF SALES TRANSCATION ......................................... 6
2. OVERSTATING INVENTORY VALUATION ......................................................... 7
 TOPIC: ETHICAL DILEMMAS IN ACCOUNTS PROFESSION

1. WHISTLE-BLOWING

EXPLANATION:
When you find something secretly or illegally happening in the organization i-e the cost
being capitalized rather than being expensed, then in order to bring attention on it you
blow the whistle. Blowing the whistle is basically when you are revealing your
organization’s wrong doing to others.
HYPOTHETICAL SITUATION/EXAMPLE:
When you look at the organization balance sheet at the end of the year you realize that
the value of assets have been materially inflated, causing the statement to be as attractive
as it could be, but also at the same time causing a situation where if found out by the
investors they will pull out their investments. So, now you can blow the whistle by
revealing this to the outside authority but in doing so your job will be in jeopardy and if
you don’t then the organization at some point in time has to face the consequences legally
and also, pay penalty as well.
So the ethical dilemma that you are facing is that you can either report this to the
immediate supervisor who will maybe look into it and rectify such errors or you can
directly report it to the external sources leading to the bad reputation of your
organization.
 2. OMISSION OF RECORDS

EXPLANATION:
At times manager pressurizes an accountant to understate their liabilities to attract more
investments, as the investors prefer to invest their money in organizations with good
financial standing.
HYPOTHETICAL SITUATION/EXAMPLE:
The management pressurizes you to maintain the position of financial statements in way
that always shows good financial position even though in reality there are some
discrepancies in the financial statements. Now for instance at times you can be asked by
manager to understate the liabilities and steer numbers to exhibit a false picture of the
organizational success.
In keeping up with the managerial demands you will gain their approval but if you refuse
then you will be treated adversely. Now it’s upon you to make an unethical decision and
by doing so you can increase your bank account. So the ethical dilemma here is that
either you do what your manager asks you to or you lose your job by doing what is
ethically right.
 3. OVERSTATING INVENTORY VALUATION

EXPLANATION:
Sometimes you are told to overstate stock value by not writing down the slow moving
inventory. In doing so you will not be showing the true and fair value of the company,
which is against the code of ethics.

HYPOTHETICAL SITUATION/EXAMPLE:
Let’s suppose you are a finance director in a company and you are preparing year-end
financial accounts. As a finance director you come to know and are also advised by your
manager about large amount of slow- moving stock. The stock under consideration is
approximately a year old and should have been written off a few months before.
You have been advised by the managing director to not write down the inventory during
finalizing the year-end financial statements. The main reason behind this advice is
because shareholders want to sell the company and by showing inflated inventory
valuation they want impress an interested buyer. If you follow his advice then all
employees will retain their actual job and you will gain an incentive along with an
increase in your actual salary.
 4. IMPROPER RECORDING OF SALES TRANSCATION

EXPLANATION:
When sales are being done to your own staff such sales are processed outside financial
statements and the proceeds generated against such sales are used for other purposes.
HYPOTHETICAL SITUATION/EXAMPLE:
You work as an external accountant in an organization and are responsible for the
preparation of year-end accounts and tax returns. Having close relationships with the
production manager and sales head, you get to know that some of the goods
manufactured by the company are sold to company’s own employees and such sales are
processed outside the financial statements and the sales proceeds are used for
entertainment purposes. By doing this they are understating their profit and paying less
tax. So the ethical dilemma here is that you can either keep this little information to
yourself in order to have a cordial relationship with such employees or reveal it to some
higher authority and prepare financial statements that show the true and fair value and
include such sales proceeds as well.
 HOW ACCOUNTANT/FINANCE PROFESSIONAL SHOULD ACT
Any accountant/finance professional when faced with an ethical dilemma situation should
always follow the code of ethics specified by the IFAC. These codes of ethics entail the
main characteristics or principles of ethics that should be present in every professional
accountant. These 5 code of ethics are listed below:
 Integrity
 Objectivity
 Professional competence and due care
 Confidentiality
 Professional Behavior

1. IMPROPER RECORDING OF SALES TRANSCATION

An external accountant’s responsibility is to always treat their clients to the best of their
capabilities and follow the code of ethics regardless of the circumstances. In this case, the
external accountant came to know about the improper recording of sales transaction.
After getting wind of such discrepancy, the accountant should examine different financial
statements and bring this to the knowledge of directors of the organization. Also check
out previous financial statements to gain knowledge regarding the past misconducts.
After having enough information regarding this wrongdoing, the accountant must take
this matter to the higher external authorities. As it is the accountant’s ethical
responsibility to take corrective measures to ensure correct accounting standards are
being followed. Even being an external auditor it’s still his responsibility to advice the
directors to establish a proper system governing staff sales, so that such unethical
situations can be minimized in the upcoming future.
Furthermore, he should make the directors change the accounting system to avoid this
matter from happening again and also instruct them to come clean regarding the past
unrecorded revenue and pay the due tax amount. If the director doesn’t heed this advice
then the only option is to separate from the organization.
Additionally, he should blow the whistle regarding their misconduct to authorities, as this
is his ethical responsibility.
 2. OVERSTATING INVENTORY VALUATION
By heeding the manager’s advice he will go against the first principle i-e integrity. An
accountant should always do what he knows is right and not what he is told to do. Here
the managing director, who holds an authoritative position over the finance director,
pressurizes him to overstate the stock by not writing off the slow-moving inventory. So,
the finance director should not in any way let go of his ethical beliefs and make what he
knows is the most ethical and appropriate decision.
First the finance director should gather all information regarding this reason behind the
slow-moving inventory. He will contact the warehouse manager to inquire more about
the reason behind slow-moving inventory. Along with this he will check the inventory
valuation system as well. After doing this, such figures should also be discussed with the
sales manager to gauge the realizable amount of such inventories.
He should bear in mind that while gathering information he must act with professional
competence and exercise due care. When he has enough information regarding this
matter he can contact the managing director about this issue again and try to reason with
him about not recording invalid entries regarding stock. If the managing director still
pressurizes him to record wrong inventory transaction, then he has to try to take this issue
with other directors. Also apart from the BOD if he wants to take someone else opinion
about this issue then also keep in mind about the confidentiality principle.
If even after following all protocols and maximizing his efforts, this issue is still not
resolved then he can approach external parties like external auditors and inform them
about this wrongdoings. If still this issue is not resolved then the last resort is to resign.
As, an accounting professional would rather stick to his morals.

THANK YOU 