Ethics and Governance -The impact of a bonus incentive scheme on the financial statements

Luciaworks as anaccountantfor a motor vehicle engine parts manufacturer called Vroom Ltd, owned by an international car firm.Her manager,Freda Chuse, is paid a bonus depending on the profitability of the company. If Vroom Ltd makes $1 million profit, Freda receives a bonus of $20 000 that increases progressively to $30 000 for a $3 million profit. If the profit of Vroom Ltd exceeds $3 million, Freda receives the maximum bonus of $30 000.Vroom Ltdcurrently receives a grant from thegovernmentof$100 000 per yearto employ and train apprentice mechanics.

At the end of May, it appears that Vroom Ltd will make a profit of approximately$3.5 millionfor the year ending 30 June 2016. Freda approached Lucia and said thatif the company made too much profit then the government may stop payingVroom Ltd the grant for training apprentice mechanics, and it would lose the $100 000 tax-free cash inflow. Freda instructed Lucia to find ways ofdeferringrecognition of as muchrevenueas possible until thefollowing financial year,for which theforecastsfor the industry werequite poor, and toaccrue as many expensesas possible at the end of the current accounting period when it came to making the end-of-period adjustments. Although Lucia was not happy with this instruction, she did not want torisk her own opportunities for promotionby upsetting her manager.

Required

A.Who are thestakeholdersin this situation?

B.Why do you believeFreda asked Lucia to dothis?

C.What are theethical issuesinvolvedher?

D.Can Lucia defer revenues and accrue as many expensesas possible andstill be ethical?