CASE 2: 10 marks

You are one of three partners in a firm of accountants. Five years ago the firm was appointed as external accountants to a young, successful and fast-growing company, engaged to prepare yearend accounts and tax returns. The business had started trading with a handful of employees but now has a workforce of 200, while still remaining below the size of company requiring a statutory audit.

Due to your close relationship with the directors of the company (who are its owners) and several of its staff, you become aware that staff purchases of goods manufactured by the company are authorised by production managers, and then processed outside the accounting system. The proceeds from these sales are used to fund the firm's Christmas party.

Parts:

1.Discuss the improper accounting for sales in the scenario. (2 marks)

2.What are some of the ethical questions that you will ask to yourself in light of the fundamental principles of professional code of conduct for accountants? (8 marks)