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    Case Study Group 1

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    CPAREVIEW
    Nazreen, the finance director of a clothing retailer, is finalizing the year-end accounts but has been pressured by the managing director not to write down the value of slow-moving stock in order to make the company more attractive to a potential buyer. However, Nazreen knows that accurately writing down the expired inventory is proper accounting practice and failure to do so would compromise her ethical principles as an accountant. The document outlines the ethical dilemma Nazreen faces in deciding whether to follow the managing director's order or properly account for the slow-moving stock.

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    Case Study Group 1

    Uploaded by

    CPAREVIEW
    35 views37 pages
    Nazreen, the finance director of a clothing retailer, is finalizing the year-end accounts but has been pressured by the managing director not to write down the value of slow-moving stock in order to make the company more attractive to a potential buyer. However, Nazreen knows that accurately writing down the expired inventory is proper accounting practice and failure to do so would compromise her ethical principles as an accountant. The document outlines the ethical dilemma Nazreen faces in deciding whether to follow the managing director's order or properly account for the slow-moving stock.

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    Nazreen, the finance director of a clothing retailer, is finalizing the year-end accounts but has been pressured by the managing director not to write down the value of slow-moving stock in order to make the company more attractive to a potential buyer. However, Nazreen knows that accurately writing down the expired inventory is proper accounting practice and failure to do so would compromise her ethical principles as an accountant. The document outlines the ethical dilemma Nazreen faces in deciding whether to follow the managing director's order or properly account for the slow-moving stock.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    35 views37 pages

    Case Study Group 1

    Uploaded by

    CPAREVIEW
    Nazreen, the finance director of a clothing retailer, is finalizing the year-end accounts but has been pressured by the managing director not to write down the value of slow-moving stock in order to make the company more attractive to a potential buyer. However, Nazreen knows that accurately writing down the expired inventory is proper accounting practice and failure to do so would compromise her ethical principles as an accountant. The document outlines the ethical dilemma Nazreen faces in deciding whether to follow the managing director's order or properly account for the slow-moving stock.

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    © All Rights Reserved
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    You are on page 1of 37

    CASE STUDY

    ​PRESENTATION
    GROUP ONE
    START
    Pressure to Overstate Stock Valuation
    Group 1

    REPORT 1 REPORT 2 REPORT 3


    SUMMARY
    Nazreen have been the finance director of a clothing retailer
    for ten years. The company’s year end is 31 March, and she is
    finalizing the year end accounts.

    Nazreen have recently been advised by Shiela, the warehouse manager


    of a significant level of slow-moving stock. The stock in question is
    now more than nine months old and would normally have been
    written down some months previously.

    The shareholders are trying to sell the company, and the


    managing director (the majority shareholder), Kharylle has told
    Nazreen that it is not necessary to write down the stock in the year
    end accounts. Nazreen are sure that Kharylle wants the financial
    statements to carry an inflated stock valuation because she has found
    a prospective buyer. Kharylle has indicated to Nazreen that, if the
    proposed deal is successful, all employees will keep their jobs
    and Nazreen will receive a pay increase.
    Question:
    What is the ethical dilemma
    of Nazreen?
    Pressure to Overstate Stock Valuation
    Group 1

    REPORT 1 REPORT 2 REPORT 3


    BABYCAKES CLOTHING RETAILER
    AMOUNT REFLECTED IN
    TRANSACTIONS STOCKS FINANCIAL STATEMENT
    BEGINNING 10 PCS P5,000
    SOLD 5 PCS (2,500)
    CLOTHES HAVE BEEN
    DAMAGED AND STOLEN 2PCS (1,000)
    CORRECT AMOUNT
    TOTAL 3 PCS P1,500
    TO BE RECORDED IN FS
    BUT IF WE DECIDED TO IGNORE THE RECORDING OF WRITE-OFF,
    OUR FINANCIAL STATEMENT WOULD BE OVER STATED.
    AMOUNT REFLECTED IN
    TRANSACTIONS STOCKS FINANCIAL STATEMENT
    BEGINNING 10 PCS P5,000
    SOLD 5 PCS (2,500)
    TOTAL 5 PCS P2,500
    FUNDAMENTAL PRINCIPLES

    Integrity

    Objectivity

    Confidentiality

    Professional Competence and Due Care

    Professional Behavior
    COURSE
    OF
    ACTION
    Ensure to have sufficient information on why
    stocks are slowly moving.

    Changing season Tougher competition Poor marketing strategy

    Communicate with the warehouse


    I should make a detailed report manager
    What should be included
    in the report?
    - Reasons of slow moving inventory
    International Ethics Standards Board for Accountants :
    SUBSECTION 111- INTEGRITY
    SUBSECTION 112- OBJECTIVITY
    SUBSECTION 113 – PROFESSIONAL COMPETENCE AND DUE CARE
    SUBSECTION 114 – CONFIDENTIALITY
    SUBSECTION 115 – PROFESSIONAL BEHAVIOR

    - Correct way of accounting the “expired


    inventories” in the FS
    International Ethics Standards Board for Accountants :
    SUBSECTION 111- INTEGRITY
    SUBSECTION 112- OBJECTIVITY
    SUBSECTION 113 – PROFESSIONAL COMPETENCE AND DUE CARE
    SUBSECTION 115 – PROFESSIONAL BEHAVIOR

    - Opinion and report of other individuals


    (auditor, professional body, advisor etc.)
    International Ethics Standards Board for Accountants :
    SUBSECTION 111- INTEGRITY
    SUBSECTION 112- OBJECTIVITY
    SUBSECTION 114 – CONFIDENTIALITY
    SUBSECTION 115 – PROFESSIONAL BEHAVIOR
    - Code of Ethics
    Discussions with the
    managing director and
    those people involved may

    +
    be made easier by reference
    to the company’s own code
    of ethics or conduct.

    +
    Once you are sure about the facts, you should discuss the matter with
    the managing director.
    BUT… WHAT IF?
    I SHOULD THINK ON HOW I CAN
    RAISE THE ISSUE WITH THOSE
    CHARGED WITH GOVERNANCE.

    CONFIDENTIALITY
    CLEAR
    REASONINGS
    POLICIES AND
    PROCEDURES

    International Ethics Standards Board for Accountants :

    SUBSECTION 114 – CONFIDENTIALITY


    SUBSECTION 115 – PROFESSIONAL BEHAVIOR
    Next step is, I should
    consider the need to
    follow up meetings with
    email or other written
    correspondence to record
    my points of view.

    NOTE:

    NOT EVERYONE IS
    AVAILABLE , AND THAT
    IS OKAY.

    International Ethics Standards Board for


    Accountants :

    SUBSECTION 111- INTEGRITY


    SUBSECTION 115 – PROFESSIONAL BEHAVIOR
    I might have to consider raising the
    issue externally, for example
    alerting the auditors to the
    existence of the slow-moving stock.
    You should consider discussing with
    a trusted advisor, e.g., a colleague
    or your professional body.

    COLLEGUE OR
    AUDITORS PROFESSIONAL BODY

    International Ethics Standards Board for Accountants :

    SUBSECTION 112- OBJECTIVITY


    SUBSECTION 114 – CONFIDENTIALITY
    SUBSECTION 115 – PROFESSIONAL BEHAVIOR
    I can also talk to the higher authorities with those people who gave their opinion about the case
    like the sales director, warehouse manager, auditors, etc. If those people are not available, then
    I can show to the higher authorities my report with their opinion.

    International Ethics Standards Board for


    Accountants :

    SUBSECTION 111- INTEGRITY


    SUBSECTION 112- OBJECTIVITY
    SUBSECTION 113 – PROFESSIONAL
    COMPETENCE AND DUE CARE
    SUBSECTION 114 – CONFIDENTIALITY
    SUBSECTION 115 – PROFESSIONAL BEHAVIOR
    If the situation remains unresolved, you may have to remove
    yourself from the conflict.
    NOTE: THIS WILL BE YOUR LAST RESORT.

    “I resign”
    You should document, in detail, the steps

    that you take in resolving your dilemma, in

    case your ethical judgement is challenged in

    the future.
    GROUP ONE
    END
    THANK YOU
    ​FOR LISTENING!
    Pressure to Overstate
    Clothing Store
    Stock Valuation

    Nag e-expired ba ang


    mga damit?
    CONSUMER‘S SIDE

    YES!
    SELLER‘S SIDE

    YES!
    ETHICS DILEMMA

    A set of rules and A situation in which a difficult


    principles designed to choice has to be made
    encourage ethical between two or more
    conduct among a group alternatives, especially equally
    of professionals. undesirable ones.
    -Investopedia - O x f or d d i c t i o n a r y
    ETHICS DILEMMA

    A set of rules and A situation in which a difficult


    principles designed to choice has to be made
    encourage ethical between two or more
    conduct among a group alternatives, especially equally
    of professionals. undesirable ones.
    -Investopedia -Oxford dictionary
    Role player 1 Presenter 2 Presenter 1 Role player 3 Role player 2

    Fundamental Principles
    Ethical Dilemma
    Role player 2 Role player 1 Presenter 2 Presenter 1 Role player 3

    Fundamental Principles
    Ethical Dilemma
    Role player 3 Role player 2 Role player 1 Presenter 2 Presenter 1

    Finance Director
    Presenter 1 Role player 3 Role player 2 Role player 1 Presenter 2

    Warehouse Manager
    Presenter 2 Presenter 1 Role player 3 Role player 2 Role player 1

    Managing Director
    RELEVANT FACTS
    STOCKS UNDER PRESSURE

    SELF-INTEREST SYMPATHY
    AFFECTED PARTIES

    Other Users of
    Managing
    Finance Director Potential Buyer Employees Financial
    Directors
    Statement
    WHO SHOULD BE INVOLVED IN THE RESOLUTION?

    Warehouse Manager Managing Director

    Board of Directors External Auditor


    SAFEGUARDS

    SAFEGUARDS
    Pressure to Overstate Stock Valuation
    Group 1

    REPORT 1 REPORT 2 REPORT 3


    SHOULD I WRITE DOWN THE EXPIRED INVENTORY?

    YES! NO!
    If I won’t follow the shareholder’s order,
    That’s the right thing to do.
    Remember my ethical principles! I might lose my job.

    If I won‘t follow the order, the prospective


    buyer might not buy the company.

    If I follow the order and the deal was


    successful, others will keep their job and I
    will receive a salary increase.

    BUT
    I might lose my job.
    BUT
    That is not the right thing to do.
    Others might lose their job too. My ethical principles were affected
    There would be no salary increase. negatively.
    There would be no potential buyer I might regret my decisions in the future.
    of the company.

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