Date: 1/27/2019
From: Sen Chen
Subject: My suggestion
I write to share my advice about what you should do in terms of the professional obligation. As a CPA and a member of AICPA, you should always follow the AICPA code of Professional Conduct. The purpose of AICPA Code of professional ethics is to ensure that all the members serve the interests of the customers. This is done following a high degree of integrity and competency (Lawson, Spencer &Turek, 2016). The first obligation of the members is to act in public interest. This means that accountants must always act in honesty as well as maintain ethics in serving the interests of employers and clients. Therefore, you acted in uttermost disregard of this provision whereby even with the amount of money promised, it would have been prudent to maintain honesty. Under this situation, be honest is your best option. I offer some possible reasons as well. Comment by tmk: Actually, it’s “the public interest” (not customers) Comment by tmk: But she has not chosen her action yet! You are using past tense as if she has already decided! Comment by tmk: being Comment by tmk: delete
To arrive at the conclusion that the decision taken to remain silent on an issue that affects the two firms is wrong and unethical, a decision making model was used. The first step involved determining the facts. This is where it is clear that your are going against the code of professional ethics in a bid to gain profit. The act of keeping quiet shows that she went against the responsibility principle which requires that all the members of AIPCA should exercise sensitive professional and moral judgment(Lawson, Spencer &Turek, 2016). This means that any person who uses their services requires them to remain consistent in their services. This situation took place in a company where a certified accountant was working during a time of sale of the company by failure of the accountants to write off obsolete inventory. Comment by tmk: again, no decision has yet been taken!!! Comment by tmk: The facts of the situation should be treated as objective circumstances—no value or judg,ent is warranted at that stage of the decision process. Comment by tmk: Sen, I appreciate that you are making extra effort by consulting an outside source, but this was not necessary!! Comment by tmk: I have no idea what this means! Comment by tmk: ??? this is part of the question you are considering
The second step is identifying the ethical issue and the stakeholders involved. In this case, you and the company want to reap higher benefits than the real worth of the company’s product being sold. The stakeholders who will be affected in this case include the KMR the small distributor. This is because even though they will not be negatively affected, they will receive higher pay than they should. The second stakeholder is the buying company. This is because it will have to pay more than the actual value of KMR. You and all the member of senior management are the third stakeholders as well, since you guys can get a significant bonus when the transaction has been completed. This is against the non- authoritative guidance found in the code of ethics where the only guiding principle for accountants should be the AIPCA. Therefore, you following the instructions of the VP and the owner means that you no longer follow the code of ethics stipulated by AIPCA which is supreme in accounting practice. Comment by tmk: this is not really the comparison. The problem is that the benefits sam could reap would be based on a faulty valuation Comment by tmk: members Comment by tmk: there’s an extra space in here—be careful! Comment by tmk: I’m not sure what you mean here. Comment by tmk: delete Comment by tmk: comma
The third step is the determination of the values and principles related to the situation. One of the values that are compromised is integrity. Failure to remain faithful to the code of profession shows lack of integrity (Penman, 2016). The accounting principle of accrual states that the accounting transactions should be recorded in the accounting periods. This means that the recording of obsolete inventory was delayed. Secondly, conservatism principle is also involved where expenses and liabilities should be recorded immediately. In this case, the obsolete inventory should have been recorded immediately. Comment by tmk: This is where I want you to use DIRECT REFERENCES TO THE CODE—NOT QUOTES FROM SECONDARY SOURCES!! Comment by tmk: This is NOT nearly as relevant as the sections of the Code that I directed you to in the assignment prompt!
The AICPA code also requires that the accountants maintain high standards of integrity. This means remaining open and honest but within the constraints of the code of professional ethics. The accountant should benchmark every decision made to avoid errors. By maintaining integrity, it becomes possible to endure the mistakes and the differences accruing(Lawson, Spencer &Turek, 2016). Therefore, it is lack of integrity for you to make the mistake knowingly because you want to make higher returns. It will be against the integrity standard set by the AICPA. Assuming that lying you did not know about the mistake will salvage your situation only shows how you are ready to forego integrity in your profession. Comment by tmk: You are referring to aspects of this case that are best evaluated according to the Code standard of “objectivity” (as well as integrity). Please cite that portion of the code and explain how it relates to Sam’s situation!
Specification of the next course of action is the next step. Instead of holding the information in this case, the available course of action is making the right change to the inventory and adheres to the standard of integrity and honesty(Lawson, Spencer &Turek, 2016). The fifth step is evaluation of how well each alternative corresponds to the values and principles identified. Maintaining integrity in this case means that as an accountant, one has respected and taken into consideration the rules and principles guiding them. Comment by tmk: I’m not sure what this means.
The standard of due care is also formulated in the professional ethics. It is a requirement that states that the professionals should always adhere to the technical standards and improve their services(Lawson, Spencer &Turek, 2016). They should also discharge every mandate with the best of their abilities. This standard was compromised because first you did not act to the best of her abilities when she found out that there was a discrepancy in the accounts. Instead of making independent decision she went ahead to consult the VP and the owner of the company both of whom were less concerned about accuracy. As an accountant and a member of AICPA, she should have reported the variances to ensure she has acted in due care. Comment by tmk: It’s “cited in the Code of Professional Conduct.” Comment by tmk: your Comment by tmk: you Comment by tmk: Look, Sen, you have to be consistent: either refer to “Sam” (in the third person) and use “she” and “her,” or else refer to “You” (second person), and then you use “you” and “your.”
Maintaining honesty and integrity will affect all the stakeholders. KMR will receive reduced proceeds whereas the buyer will have savings because the actual value of the firm will be paid. On the other hand employees such as the controller will receive lower proceeds. Therefore, as a qualified accountant, you should ensure that you abide by the set rules as opposed to acting unethically for monetary gains. It is important to always maintain the public interest and ensure that the accounting principles rules always apply. In this case, I do not agree with the decision taken to keep the information on obsolete inventory a secret. Rather I propose that the right information be shared for the benefit of all stakeholders. Comment by tmk: comma Comment by tmk: what set rules are you referring to? Comment by tmk: Act in Comment by tmk: GAAP? Comment by tmk: delete Comment by tmk: accurate Comment by tmk: Sen, this needs a lot of work. The most significant problem is probably that you have not made explicit references to the required portions of the Code!!!!!
References
Lawson, B. P., Spencer, A. W., &Turek, M. (2016).Developments in Ethics Guidelines for CPAs. Journal of Corporate Accounting & Finance, 27(6), 63-71.
Penman, S. (2016).Conservatism as a defining principle for accounting. The Japanese Accounting Review, 6(2016), 1-16.