Reference no: EM132783840

Question - Andy is a senior partner in the Arthur & Sons Accounting firm.

The managing director of a major client, Enormous Ltd, asked Andy to design some accounting tricks to boost the company's reported profit so that he and other senior managers will be eligible to receive large bonuses payable in cash and shares.

Andy determined that it is possible to design some complex and costly structures that would enable the management of Enormous Ltd to avoid recognizing losses made on certain investments.

Unsure whether this was the right thing to do, Andy asked another partner, Ms Ada Vice. She advised, "You might as well, because if we don't someone else will, and we don't want to lose a good client."

Required -

a) Define the ethical problem faced by Andy and identify two individuals or groups who are stakeholders. Identify the rights or duty owed by Andy to each stakeholder or group that you identify.

b) Identify two principles relevant to the ethical problem faced by Andy and explain why each principle is relevant. At least one principle must be from APES 110 Code of Ethics for Professional Accountants.

c) Andy is considering two options: 1) Advice the client on how to construct accounting tricks that will avoid recognition of losses and 2) Declining the assignment. Investigate the ethical outcomes of each option suggested and make a recommendation.

d) Assume Andy, or another accountant, designed a complex and costly scheme which was applied by the management of Enormous Ltd to defer recognition of losses for several years. Explain the effect that the subsequent discovery of the scheme might have on the reputation of the accounting profession.