Accountants, Ethics, and the Financial Statements $(25$ Marks$)$

For some time, Hernadez Pty Co$.$ a beverage manufacturer has been selling to the west

coast region, however recently their market share has been dwindling. The coming summer

season presents an opportunity for the company to expand its operations to capture the lost

territories. Like many other Managers of businesses and other organizations, the Chief Executive

Officer $($CEO$)$ is very concerned about how their current financial statements reflect their

management and performance of the enterprise, since they will be forced to approach a local

bank for additional funding. This is very natural and generally appropriate too, because such

concerns are more likely to lead managers to want to do a good job of managing the enterprise.

But it can also lead to temptations to consciously alter the information in the managers$$ favour.

The possibility of such a temptation is part of the reason auditors are employed by organisations

to examine financial statements, including the existence and proper functioning of internal

controls.

Additionally, temptations to alter the information in favour of the management also

produces ethical problems for professional accountants employed by the enterprise. On the one

hand, such an accountant is bound by the ethical rules of their profession to see that proper

accounting methods and procedures are followed in preparing the company$$s general purpose

financial statements, which would imply that the information should not be altered in

management$$s favour. On the other hand, such an accountant works and reports for the senior

management and is likely bound by the contract of employment to put the enterprise$$s interests

first. Hence, there is a case of constant ethical dilemma facing accountants.

What does such an accountant $($for example, the chief accountant responsible for

preparing the enterprise$$s financial statements$)$ do if senior management $($for example, the Chief

Executive Officer$)$ wants to alter financial statements to make things look better and makes a good

case that such an action will in fact help the enterprise get bank loans and other assistance it

needs from third parties transactions?

Required:

Discuss this situation from the point of view of both the chief executive officer and the chief

accountant bringing out the salient features and concerns.