Question

You are the newly appointed financial controller of Harry plc. Harry is about to purchase shares in Liam, which will give it a controlling interest, and the finance director has just called you to say When the acquisition goes through, you need to minimise the fair value adjustments so that the post-acquisition profits are maximised. He has also stated that a large bonus will be payable after the acquisition, dependent on the profits earned by Liam in the twelve months after the acquisition. The finance director has made it clear that if the profit targets are not achieved by Liam, you will lose your job.

Requirement:

Advise the financial controller of the correct accounting treatment of the investment in Liam, and any ethical issues arising from the scenario. 10 marks

Please answer the question relating to the scenario

Expert answer below which is incorrect. When answering this question please do not use the answer below

Unfortunately, there's no shortage of business headlines about companies manipulating data in unethical ways involving fraud, embezzlement or falsifying information.

But this blog post isnt about monetary malfeasance and accountings bad apples. Its about professionals who want to do the right thing as they handle a wide range of privileged and sensitive data in their daily tasks.

One final ethical dilemma accountants may face is the thorny question of when to blow the whistle on a company or a division that's unethically manipulating or misstating its numbers. If the accountant's information is damaging enough, it could cause a company to fail or lose much of its stock value overnight. That can hurt thousands of investors, or put the accountant's own friends and co-workers out of work and into financial jeopardy. There's a very real risk of backlash and intimidation, and a reputation as a troublemaker can be a career-breaker.

While it's one thing to raise questions inside the company, bringing in regulators or criminal investigators raises the ante in a big way. However, for those who take the moral high road, the Securities and Exchange Commission (SEC) offers a Whistleblower Program to assist those wanting to come forward about financial indiscretions. The program offers confidentiality and in some cases financial reward for successful enforcement action.

Heres a quick guide to some of the most common dilemmas involving accounting ethics, along with steps to help you navigate them.

Accounting ethics involving conflicts of interest

Suppose you are providing services to both a vendor and a purchaser. Or maybe you are consulting a client looking to acquire another client. Or, perhaps, you are faced with two clients, both eager to take over the same company. When it comes to conflicts of interest, or even the appearance of one, you have to ensure they will not adversely or inappropriately sway your business judgments. To navigate such situations, you might create distinct accounting teams for different clients and notify all parties of the nature of the conflict.