Mubark Company is an elevator repair company located outside of Doha, Qatar. For the last two years, the company has recorded net losses due to a sharp decrease in customer demand. In an attempt to improve its financial performance, the company hired Mr. Rashid Salim as the managing director. Mr. Rashid was known in the community as a person who is well respected and cares deeply about his work. He has excellent experience in helping companies that report net losses improve their financial performance and become profitable again.
One of the first things that Mr. Rashid did was review the company’s financial records. He decided to meet with Maryam Mohammed, the company’s Chief Financial Officer. During the meeting which took place on December 22, 2014, Mr. Rashid said to Maryam: “I noticed that on December 1, 2014, we received QR 560,000 from Gulf Water Company in exchange for elevator maintenance services which we will provide for a period of 6 months. I also noticed that on the same date, you recorded this amount by a journal entry as a liability. However, if you read the contract carefully, you will notice that we were required to start providing services from December 2, 2014. I would like to kindly request you to correct your December 1 entry to show that we have earned revenue of QR 560,000. Finally, I would like to remind you that our company is going through a very difficult financial period and ignoring this QR 560,000 of revenue will hurt our company very badly.”
Maryam asked to study the request and to get back to Mr. Rashid in two days. Before the meeting was over, Mr. Rashid turned to Maryam and said: “I would like to tell you that our company contributes to charities and offers financial assistance to poor families in other countries. Your help in correcting the journal entry will certainly show that we are no longer a company that reports a net loss. Of course reporting positive net income this year will help us to succeed in the market. As you know this success will also benefit the community and poor people all over the world. I hope you can take this into account when you consider my request.”
1. Are there any ethical issues that face Maryam Mohammed, the Chief Financial Officer of Mubark Company, as a result of the request made by the managing director, Mr. Rashid?
2. Who are the stakeholders that are affected by the request made by Mr. Rashid.
3. Identify the alternative courses of action that Maryam Mohammed could consider?
4. What action would you advise the Maryam to take?
5. “Ethics are important in the accounting profession” Briefly discuss this statement in by addressing the following issues:
– The importance and the role of ethics in the accounting profession.
– Give examples of the accounting ethical standards that should be followed by the accountant.
ETHICS IN ACCOUNTING
Ethical issues facing the C.F.O of Mubark Company
Scholars hypothesize that ethics is the code of conduct that provides a the criterion for the evaluation and wrong. Ethical challenges occur when when an individual is faced with a decision that tests the code of ethics, as is with Maryam Mohammed. The recording of the monies received from Gulf Water as a revenue income in the journal of entries while the work has not yet began is ethically not correct, and tests the Financial Director’s professional behavior. It will be wrong for Maryam to enter this record in the books as revenue, changing it from the liability entry she had initially made, which was correct as it puts to test her integrity, objectivity and confidentiality.
Again she is requested by the new company’s managing director to report a positive net income which has not been earned so that the company receives positive publicity instead of reporting the correct accounts is ethically wrong, and the company’s Chief Financial Officer is facing a lot of ethical dilemma inflicted by the new top boss.
Stakeholders affected by the Managing director’ s requests
Rashid Salim’s requests to the C.F.O, Maryam, do not only affect her morally, but also affect the business stakeholders. The owners of the business will be negatively affected by this requests as if fulfilled they will not portray the correct information, which will negatively affect the future growth of the company. The financial community with whom the company relates with will also be affected by these decisions, as they will be subjected to faulty information, as well as bodies that receive the charity.
Alternatives to consider
Maryam Mohamed, the chief financial officer of Mubark Company should first establish the relevant facts surrounding the request she has been offered as she is aware that she is being asked to take part in dishonest and fraudulent transactions that will have a negative impact on the organization in the future (120). By considering the relevant accounting principles and the ethical of the professional accounting body she is a member to, Maryam should be able to act ethically.
She should also make an identification of the parties and stakeholders that the entries will affect, who in clued herself as the Chief Financial Officer, the company directors, the users of the accounts, and consider the harm it will pose to them and the society at large if she acts in an unethical way. Notwithstanding, she should also consider the involvement of parties other than the companies direct stakeholders, safeguarding the principle of confidentiality (119).
Action Maryam Should take
The Chief Financial Officer should bring the matters to the directors of the company. She should explain the implications of the actions she has been requested to take, and their possible effects on the company in the future. Maryam should inform the owners of the company on the impact of the misleading information she has been requested to make. She should report to them of her interest to protect the interest of the company and the staff through offering advice on how the matter may be rectified (124). If the owners of the company seem unwilling to change the system implicated by the new Managing Director, the Chief Financial officer should detach herself from the involvement with the company’s finances, and this will require her resignation from the organization. she may also be required to seek advice from relevant professional bodies. The details of the meeting should be documented in detail, stating the steps she had to take inn resolving her dilemma incase her ethical judgement and decisions are challenged in the future.
Importance and role of ethics in accounting
The privy nature of the accounting profession calls for those practicing it to be ethical in their dealing. Accountants work involves special trust relationships between the accountants, their clients, employers, taxation bodies and the public in general (109). The decisions made by accountants in their daily jobs affect the allocation of resources in the economy, and the key to maintaining clients confidence is by maintaining both professional and ethical conduct.
Examples of ethical standards for accountants
There are the fundamental principles by which professional accountants adhere to in the execution of their duties. qualified accountants should esteem the confidentiality of information and should not disclose it wholly or in part to third parties without permission from the proper authority or unless there is a professional right to disclose. They too are required to act in professional behavior, avoiding actions that discredit the accounting profession. They should portray professional competence an due care, because of their duty to maintain and handle professional skill at levels that ensure that clients receive the best service, enhanced with legislations and the possible future developments in the practice (111). A professional accountant should not be biased and should not show skewed interests in business judgements. Lastly, an accountant by profession should be honest and straight forward in any professional and business dealings, and should act with integrity.
Bayou, M. E., Reinstein, A., & Williams, P. F. (2011). To tell the truth: A discussion of issues concerning truth and ethics in accounting. Accounting, Organizations and Society, 36(2), 109-124.