ADAM’S

ETHICAL
DILEMMA
Presented by :
Divya Nandini
1000321
INTRODUCTION
• Protoganist – Adam
• Hired as a controller by NHC who provides needed healthcare services to low income
residents. – Before a professional accountant engaged in public practice.
• Married with two children.
• Midst of a financial crisis which may be considered temporary - asked to alter the
accounting records for a short period of time to avoid bankruptcy.
• 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.
• Decide whether to modify or not the financial statements.
 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.
 OBJECTIVES
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
• TO DETERMINE THE SIGNIFICANT PARTIES WHO WOULD
BE BENEFITED OR HARMED OF ADAM’S DECISION.
S.W.O.T. ANALYSIS
 Strengths
• Adam has its own freewill to decide whether to modify or not the financial
statements

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

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.
DECISION ANALYSIS
 Factors to be considered
• Code of Ethics for Professional Accountants in Malaysia
• Objectivity- a professional should not allow bias, conflict of interest or undue influence of
others to override professional or business judgments.
• Integrity- a professional accountant should be straightforward and honest in all
professional and business relationships.
• 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.
• Professional Behavior- a professional accountant should comply with relevant laws and
regulations and should avoid any action that discredits the profession.
Factors to be considered…(cont.)

• Nilai Health Care Clients

• Nilai Health Care Employees
• Nilai Health Care Management
• Family’s Well-being
• Bank
1. MODIFY THE FINANCIAL STATEMENTS

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.
 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 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.
 2. Not modify the financial statements

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.
 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.
RECOMMENDATION
• Negative outcome - 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 - 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.
• If management is not persuaded - choose the second alternative course of action
• Modify the financial statements in two conditions :-
• 1. Such modifications will not deviate too far from the current position of the
entity but satisfactory enough to pass the standards of the bank.
• 2. 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.
CONCLUSION
• 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.

• Further, Adam has fulfilled his responsibility with the general public of presenting the
financial statements fairly - may be fired from his job and 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.
Thank you !