Reference no: EM132544454

Question - Lucia works as an accountant for 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 $1million profit, Freda receives a bonus of 20,000 that increases progressively to $30,000 for a $3 million profit. If the profit of Vroom Limited exceeds $3 million, Freda receives the maximum bonus of $30,000. Vroom Ltd. currently receives a grant from the government of $100000 per year to employ and train apprentice mechanics.

At the end of May, it appears that Vroom Ltd will make a profit of approximately $3.5 million for the year ending 30 June 2019.Freda approached Lucia and said that if the company made too much profit then the government may stop paying Vroom Ltd the grant for training apprentice mechanics and it would lose $100000 tax-free cash inflow. Freda instructed Lucia to find ways of deferring recognition of as much revenue as possible until the following financial year, for which the forecasts for the industry were quiet poor, and to accrue as many expenses as 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 to risk her own opportunities for promotion by upsetting her manager.

Required -

1. Who are the stakeholders in this situation?

2. Why do you believe Freda ask Lucia to do such thing?

3. What are the ethical issues involved?

4. Can Lucia defer revenues and accrue as many as expense as possible and still be ethical?