Sunday, December 8, 2019

Financial Accounting Ethics and Governance of Sunshine Ltd

Question: Discuss about the Financial Accounting Ethics and Governance. Answer: Introduction The statements which are prepared so as to provide the information related with the present financial position of the company and helps in the evaluation of the financial performance of the business during the time of reporting are known as financial statements. It is necessary that the financial statements should be prepared on the bases which are true as well as fair so that trust among the stakeholders of the company could be developed with the help of which they can take appropriate decision. The report is developed in relation with preparing appropriate set of financial statement for Sunshine Ltd. which is a large department store which is showing a consistent performance in the market from past few years and will be performing in the same manner in next 2 years. The general manager of the company is willing to transfer the profit of the last two years towards the further two years. The report is prepared to develop the understanding upon the ethical behavior as well as ethical dilemma of the accounting at the time when these duties are being discharged. Ethics and Governance The system of following all set moral as well as authenticated principles in the process of decision making is known as ethics. Business ethics is the framework in which the issues related with the decision making process as well as various moral issues that arise at the workplace are being resolved by taking the appropriate as well as unbiased decisions. These are applicable to both individual as well as organization (Denis Alajbeg, et. al., 2012). Corporate Governance is the legal framework in which all set of rules, regulations, policies and legal aspects of the company are being controlled. Behavior of the corporate or the business is being dictated by the principles of the corporate governance in the best interest of the stakeholders. Corporate governance helps in protecting the stakeholders interests with the effect of which decorum of the market could remain maintained (Byrne, et. al., 2007). Stakeholder Attached with the Present Practices Individual or group who is attached with the organization either directly or indirectly and gets impacted with each and every decisions of the business is known as stakeholder (Denis Alajbeg, et. al., 2012). Stakeholders are interested in the aspects, success as well as failure of the business. In the case presented general manager of Sunshine Ltd Kam Sunshine influence the accountant of the company Maria Mars to make certain manipulations in the accounts so as to ensure that the consistency of the profit could be provided to the organization (Most, et. al., 2015). Suggestion was made to Maria Mars to make changes in the depreciation methods which will lead to show fewer expenses and increase the level of profit in the books. Doing so will affect many of the stakeholders due to which ethical aspects as well as framework of the governance will directly get affect (Schreiber, 2016). Some of the stakeholders of Sunshine Ltd are: Investors: Investors are the individuals or the groups who has provided the financial support to the company (Michelon, et. al., 2015). With the decision of Kam Sunshine investors of the company will be directly affected. Making changes in the depreciation methods and reducing the expenses related with it and increasing the fictitious profit will lead to fooling the investors. As increase in the profit will attract more investors towards the business as they will think they are investing in the company which will consistently earn the profit for two years but on the other hand actual profit of the company will not be the same in the two years which will affect the investments of the investors (Marinovic, 2013). Government: Government is another stakeholder attached with Sunshine Ltd. which is concerned with the applied legal applications and regulations attached with the company as well as market (Zhou, et. al., 2012). There are certain set of government policies which have a huge impact on the business processes. These policies are directly concerned with the economic conditions of the business. Indulging in such fraudulent activities could lead Sunshine Ltd to oppose the compliance as well as allegations of the government. In this case principles of the corporate governance will be directly breached if the accounting standards will not be followed by Maria Mars (Arnold, et. al., 2013). Management: Management is the stakeholders who are directly attached with Sunshine Ltd as they manage the internal aspects of the company (Bogdanova, 2015). Management will directly get affected with the activities of the general manager Kam Sunshine as she is also a part of the management due to which trust of the employees will get reduced from the management and they will not be able work on the basis of the instructions provided by the management. Hence, with the misleading as well as fraudulent activity of one manager will affect the image of whole management working in Sunshine Ltd which will have great impact on the work process of the organization (Brockett, et. al., 2013). Suppliers: Suppliers are the stakeholders which help in managing the core operations of the business as the raw material is being provided by the suppliers with the help of which further processing related with the products and services are being processed by Sunshine Ltd (Hecimovic, et. al., 2011). Showing such fraudulent information to the people regarding the fictitious profit general manager of Sunshine Ltd will attract the suppliers to provide the goods on credit. And if the company will fail to generate the same amount of profit then loyalty will get affected as well as their payment will also get affected (Byoun, et. al., 2013). Customers: Customers are the external stakeholders who are termed as the most important part of the business as they are the one with whom the business processes are being completed and business continues to provide services in the market (Chang, 2011). Showing such type of false data will attract more people towards the business and when after two years when they will come to know the reality then the trust of the same will get affected. Customers attract toward the companies which are highly ethical but do not want to visit the companies who are indulged in the fraudulent activities and in the unethical practices (Basu, et. al., 2010). Ethical Issues An ethical issue is being observed in Sunshine Ltd and it could be evaluated that the same issue is being developed because of general manager as well as accountant of the company (Bodie, et. al., 2011). In such situation professional ethics of both general manager as well as accountant of the company are being questioned. Ethics is one of the most important aspect attached with any business, it is required that each and every employees working in the organization whether he is at the lower level or at the higher level should work on the path of following all set of ethical aspects an should ensure to deliver the true as well as authenticated services to the people as well as organization (Denis Alajbeg, et. al., 2012). In present case information related with a departmental store is being availed, Sunshine is a department store in which general manager of the company Kam Sunshine is concerned with the future profit of the company, reason behind it is the prediction of the economic shutdown in the years 2018 and 2019 (Byrne, et. al., 2007). Hence, Kam Sunshine provided direction to the accountant of the company Maria Mars to make changes in the future profit and to reduce the profit of the present two years which are 206 and 2017 and adjust the same in the next two years which are 2018 and 2019 (Denis Alajbeg, et. al., 2012). Doing so will help the company in maintaining the consistency in the earning capacity of Sunshine Ltd. Suggestions were made to Maria Mars to change the depreciation method so as to reduce the expenses of the company. According to the accounting standards no one has the right to make changes in the depreciation without providing proper set of reason and without any approval of the auditors and various other important members of the company (Most, et. al., 2015). Hence, it could be said that in this case general manager Kam Sunshine and accountant Maria Mars have failed to maintain the ethical procedures of the company. It could be interpreted that manipulation of the financial statements or transactions of the company so as to attract the interest of the stakeholders will be termed as an ethical issue (Schreiber, 2016). Governance Issue Governance helps the business in managing all the ethical, legal as well as regulatory frameworks and ensures that the compliance related with the market could be maintained. All the compliance related with the internal policies, procedures, external laws and regulations which are established by the government and various other regulatory bodies are being managed by the governance. Corporate governance helps in protecting the interest of the stakeholders and maintaining the decorum of the market (Michelon, et. al., 2015). In the case of Sunshine Ltd, general manager of the company was in the dilemma to maintain the conscience of the future for next two years which lead her to make the decision so as to manipulate the financial statements of the organization. According to the accounting standards no one in the organization is can change the depreciation methods without giving prior notice as well as explanation for the same (Marinovic, 2013). It is required that the disclosure of the changing depreciation from the past should be provided in the financial statements but this procedure was not being followed and the accountant of Sunshine Ltd, Maria Mars made the changes without giving any prior notice and made changes in the depreciation method. Hence, it could be said that in this situation Maria Max failed to follow the provisions and the accounting standards which lead to create governance issues for Sunshine Ltd (Zhou, et. al., 2012). Compliance Attached with the Accounting Standards As the normal wear and tear of the fixed assets the depreciation is being changed and is being changed at the obsolesce level of the fixed assets. In Sunshine Ltd depreciation method was being changed without giving any prior notice or making the entries in the financial statement which is an unethical practice in which accounting standards got violated (Arnold, et. al., 2013). There are certain accounting standards, according to the Australian Accounting Standard 1021 there are certain set of conditions in which the modification in the depreciation method could be made and these conditions are: Methods could be changed so as to make the financial statements true as well as fair These could be changed on the direction provided by the law as well as regulatory bodies. In case change in the accounting standards occurs then the depreciation methods could also be changed (Bogdanova, 2015) Suggestion on the basis of Australian Accounting Standards 116 According to the case presented in relation with the Sunshine Ltd there are various provisions which are being stated in the Australian Accounting Standards 116 which is property, plant and equipments, these are not being complied in. According to the AAS116 it is required that all set of information which influence the decision making aspects of the organization should be stated by the company or the authorities indulged in the same (Brockett, et. al., 2013). It could be AAS116 it could be suggested that the company should remain indulged in the auditing processes so as to gather appropriate set of information related with the financial statements. This will help in reducing the risk of occurrence of such type of activities at the workplace (Hecimovic, et. al., 2011). Conclusion Gathering information and analyzing all the aspects indulged in the case conclusion can be drawn that financial statements are one of the most important aspects for the organizations which helps in the decision making aspects. Hence it is required that the organization maintain the same in a proper manner. 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