You are a CPA and the chief financial officer of Amazona Ltd. Recently you discover a significant misstatement that understated current liabilities in this year's financial statements. The misleading financial statements are contained in the company's annual report, which is about to be issued to banks and other creditors.

After much thought about the consequences of telling the managing director, Brad Smith, about this misstatement, you gather your courage to tell him. Jack says, 'What they don't know won't hurt them. But just so we set the record straight, we'll adjust next year's financial statements for this year's misstatement.

Required:

a) What are the ethical issues in this situation.

b) Identify the fundamental principles in APES110 Code of Ethics for Professional Accountants that will be breached by Brad Smith and yourself.