| Country : | Australia |
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Assignment Task -
Q1
Sara is a junior management accountant at Big Discount Store Ltd. Sara is given the task of compiling a cost-benefit analysis report on whether the company should purchase an expensive new machine from Beta Ltd, where her boyfriend is the new sales manager. Sara did not tell anyone in Big Discount Store Ltd about her boyfriend's new job.
In preparing her report, Sara overstates the qualitative benefits and understates the costs associated with this new machine, in order to help her boyfriend make his first sale as the new sales manager.
Discuss why and how Sara has deviated from the IFAC's code of ethics.
Q2.
Tae Franklin is the sales manager of Darius Enterprises, a very profitable distributor of office furniture to local businesses. A recent economic downturn has created an extremely tight cash position, and the company has been hurt by the bankruptcy of two key customers.
In late October, anticipating an economic recovery, Franklin began an extensive remodelling of the company's sales floor. Construction costs, decorating and equipment purchases are projected to cost $250 000.
Darius has a policy that individual expenditures in excess of $200 000 must be approved by the firm's board of directors. Franklin, unfortunately, missed the deadline to have the board consider this project at its regular September meeting.
Not wanting to wait until the next meeting in December, he subdivided the project in two parts—construction and decorating ($190 000) and equipment purchases ($60,000)—neither of which needed board approval because of the dollar amounts involved. The project was recently completed and sales have begun to recover. Customers have raved about the new sales area, noting that it is far superior to those of Darius's competitors.
Required:
A. Would Franklin's approach of subdividing the project in two parts have any effect on the company's financial statements? Briefly explain.
B. Briefly discuss whether Franklin behaved in an ethical manner.
C. Which, if any, of the following standards of conduct would have applicability to Franklin's conduct: competence, confidentiality, integrity or credibility? Briefly explain.
Q3
Janet is the head of the sales Department for a large book distributor. She manages a team of sales people, including her close friend Emma. Each salesperson is responsible for particular product line and is entitled to receive a bonus provided that, he or she exceeds the profit forecast for his/her product group by more than 10 percent.
Profit for each product group is estimated by deducting from sales revenue, the cost of books sold plus a charge for corporate overhead. Corporate overheads are charged as the percentage of sales revenue using a complex formula based on different percentages of revenue for different product lines: and salespeople can never make any sense of their annual overhead charge.
As the year end approaches Lyer, who sells religious and philosophical text learns from the accountant Stanley Riteous that she will not receive a bonus as she will not achieve her annual profit forecast. She’s feeling very frustrated as she has heard that, the rest of the sales team will come with more than 20% above their forecast.
Lyer approaches Riteous suggesting that an accounting entry is made to move some of the overhead charges to the other salespeople who after all will still earn their bonus. Riteous refuses on the ground that he is a CPA but he is subsequently instructed by Kaniva to make this journal entry.
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