Question 1 (10 marks – 1,000 words)
Alan is a Chartered Accountant who used to work as an auditor for a Big 4 accounting firm, but has now moved to a regional town to become the Financial Controller for Jupiter Ltd, a small construction company which employs 70 people. Unfortunately, there has been a downturn in the construction industry and the company is facing tough trading conditions.
Another consequence of the downturn has been an increased difficulty in collecting receivables. Before year-end, Alan had a conversation with the CEO of Jupiter, Carly, about the collectability of a material receivable from Beginner Ltd. Alan stated to Carly that Beginner had major problems and that the word on the street was that Beginner would be in receivership within a couple of months. Alan stated that, in his view, Jupiter would need to raise a significant provision against the money owed to them by Beginner.
Carly recoiled at this suggestion and stated that if Alan was to do this, then the auditors of Jupiter would have enough justification to start raising going concern issues about Jupiter. Without a clean bill of health from the auditors, there is no way that Jupiter will get extensions on its loans from the bank, and that Jupiter would also be out of business by the end of the year. Carly then said to Alan that if they can just ride out the next couple of months, business will pick up and they can deal with the collectability issues with Beginner in a few months.
Alan returns to the office and thinks about his conversation with Carly. Reflecting on his experience working for a Big 4 firm, Alan is fairly sure that the auditors of Jupiter will want to know about Jupiter’s likelihood of collecting the receivable from Beginner.
Required:
- a) What are the ethical issues facing Alan?
- b) From an ethical egoist perspective, what would be an appropriate course of action for Alan? Justify your choice.
- c) Would your answer to b) be different if Alan pursued ‘utilitarianism’? Justify your position.
- d) Advise Alan of an appropriate course of action from a deontological ethical perspective. Outline why it is based on deontological ethics.
- e) Which ethical theory do you think leads to the most appropriate course of action for Alan? Justify your position.
Question 2 (10 marks – 1,000 words)
Outline the reasons why it is important for theories to be evaluated. Identify and justify the criteria you would consider before deciding that a theory appears sound. Apply the factors you have identified to an accounting theory of your choice (eg. Normative, Positive, etc).
NB: A useful tool for you to use that demonstrates how to correctly use in-text referencing and the correct way to cite the reference