This study deals with a situation that prevails in a company named as Sunshine Limited. In this particular assignment, proper emphasis has been given on understanding the impact of AASB 116 that deals with Property, Plant and Equipment (Yao, Percy and Hu, 2015). The current segment highlights the ethics and governance in accounting that need to be followed by the accountants. The next part elucidates the role of accounting that needs to be concerned at the time of changing the depreciation methods. In this study, the company that was facing problem with the current depreciation method named as Sunshine Limited. The company had recorded profits with the use of straight line depreciation method for the year 2015 but predicted that in future, they will not be able to earn profits. For solving the issue, the General Manager of Sunshine Limited had approached an accountant (Maria Mars) for guidance if she could diminish the profits in the subsequently couple of years and transferred to the years such as 2018 to 2019. This was planned so that each year Sunshine Limited can enjoy consistent profits that will help shareholders. After looking at the concern of the General Manager, Maria determined to modify the depreciation methods from straight line method to sum-of-digits methods but did not mention in the notes to financial statements in the books of accounts of Sunshine Limited (Yao, Percy and Hu, 2015).
Sunshine Limited is one of the large Department Stores that have been using straight-line depreciation method from the starting of their operations (Weaver and Clark, 2015). Sunshine Limited enjoyed profit for the year ended 30th of June 2015 and predictable high profits to maintain at least in the subsequent years 2016 and 2017. It was opined by the economists that there will be further financial decelerate as well as subsequent fall in profits for the year 2018 and 2019.
The issue that is identified by the General Manager of Sunshine Limited and approached to the accountant named as Maria Mars (Tan?Kantor, Abbott and Jubb, 2017). Kam had been concerned to find a way so that hey the reducing the revenue in the then couple of years and transfer it to 2018 and 2019. This action will help Sunshine Limited to have reliable proceeds over the then few years that will remain the shareholders happy. The main issue that is faced by Sunshine Limited is predicted that they would suffer loss in the next years because of their use of depreciation methods such as straight line method (Yao, Percy and Hu, 2015). The issue lies in the fact as Maria had used wrong means to keep her position better with the company. She involved in hiding the relevant information as she purposely did not mention the change in depreciation methods in the notes to financial statements of Sunshine Limited (Soltani and Maupetit, 2015).
To solve the issue, Maria decided to transform depreciation method from straight-line method to sum-of-years digits technique (Nicol?escu, 2013). Depreciation methods mainly help accountants for aligning with the recognition on cost with the given benefit offered by assets as mentioned in the standard AASB 16. This accounting standard mainly requires depreciation rate that matches with the rate where the advantages are extracted from an asset of Sunshine Limited. Furthermore, the depreciation method helps in estimating the consumption of utility in an asset of Sunshine Limited (Yao, Percy and Hu, 2015). It is important to understand the fact that change in depreciation method as recommended by Maria is not directly connected to change in accounting policy rather than change in accounting estimates. Addition to that, change in accounting policy takes place when rules of either measurement, recognition of line items that are changed (Müller, 2014).
AASB 116 is a standard that speaks about Plant, Property and Equipment that depicts the accounting calculation that consists of determining as well as recognition of carrying amounts, impairment loss as well as depreciation (Laing and Perrin, 2014). It is noted where inspection is performed under AASB 116 Plant, Property and the Equipment, as well as charge of the item of the plant, property and equipment include the preliminary inference of dismantling price and eradicate the item and re-positioned the site where it is positioned. In can be viewed that influence connect to the verdict among two representation, there is ordinary proposal that the present price such as fair value shall present more appropriate facts as contrast to past price and while the cost connected with continually judgment out the present price reduce the inducement on cost-advantage basis and move to current values. AASB 116 require revaluation to be taken with sufficient promptness to make sure that the moving sum of the assets do not separate significantly from the sum deliberate by relate fair value at the date of coverage (Kabir and Rahman, 2016). This Standard suggests that revaluations every 3 to 5 years might be adequate for non current asset of Sunshine Limited which looks at non considerable modification in fair value. It is examine that AASB 116 disclose that the fair value is intended in concern to the best and highest use of the possessions for which participants of the market could be eager to pay. Furthermore, it can be said that AASB 116 is gradually altering the basis of the measurement (Yao, Percy and Hu, 2015). The base for the intended change in the strategy of the accounting is obtainable in the Accounting Standard. Furthermore, AASB 116 limits the result of the measurement basis to fair value and historical cost. As mentioned in the standards, AASB 116, assets intended on the fair value and should be revalued when the moving sum distinct from the fair value (Jin, Shan and Taylor, 2015).
It has been inspect that AASB 116 require trade unit to forecast the dismantling expenses and eradicate mechanism of non -current possessions and re-positioned for the situation where it is located (Hodgson and Russell, 2014). It is noted that some of the trade entities are encouraged through use of cost model as well as some entities are confident by revaluation model since of their reimbursement and features. It is important to understand the fact that business entities employ cost model since with the help of deemed cost exception they want to evade the computation of chronological cost as mentioned in the standard (AASB 116). The items all through the class of plant, property and the equipment are revalued continually to prevent discerning assets revaluation and coverage of sums in financial declaration which is a blend of values and cost at separate dates. The difficulty of the revaluation model is, it depreciates the assets at the superior value and that illustrate the less productivity within the Sunshine Limited (Hu, Percy and Yao, 2015).
It is important to consider the fact that Kam (general manager) plays a major role on shaping the future of Sunshine Limited with the optimum utilization of resources that hinges upon the efficiency in the managerial decisions (Hanlon, Navissi and Soepriyanto, 2014). Each of the members of Sunshine Limited need to be aware of the key role they need to play as well as responsibility that depends upon the nature of operations. In this case, Sunshine Limited had approached accountant who has the required expertise and can give suggestions on how to manage with the profits so that it is consistent over the years. The accountant here needs to address the issues that Sunshine Limited would face over the years. The accountant should be fair in opinion and should maintain the confidentiality of information in accordance with the accounting standards (Yao, Percy and Hu, 2015).
The accountant was at fault as he had changed the reduction methods from straight line technique to sum-of-digits process but did not mention in the notes to monetary declaration (Adhariani, Sciulli and Clift, 2017). This act of hiding the information in the annual report of the company is not acceptable as all the information should be valid and reliable at the same time. Accountants need to perform their job diligently and keenly watch the changes as presented in the assets as well as liabilities in the balance sheet that require quick correction as and when needed (Yao, Percy and Hu, 2015). Furthermore, it is important to ensure Auditor Independence where the accountant is assigned to Sunshine Limited and require fulfilling their mission in the most competent as well as independent manner. Nevertheless, the effectiveness of accountants of the Board considers being the paramount importance in this particular scenario (Biondi and Lapsley, 2014).
Ethics and Governance cannot be considered as just moral or compliance issues in this case. For long-term, it can be seen that proper behavioral traits of Sunshine Limited manly help in augmenting the brand equity of the company so that it ensure stable sustainable growth (Yao, Percy and Hu, 2015). Board members of Sunshine Limited should embrace Corporate Ethics through creation of climate of integrity as well as responsibility within Sunshine Limited that is expressed in both written code such as Promoters and Directors that ensure correct behavior or the right behavior where the policies are either written or enforced (Aras, 2016).
Conclusions and Recommendations
From the above discussion, it is recommended to Maria Mars, the accountant to appropriately disclose the financial information such as change in depreciation methods in the notes to financial statements. As mentioned in the Ethics and Governance, it is the responsibility of the accountants to properly communicate each and every changes made to the management as well as shareholders. They are not allowed to hide any type of information be it financials or any change as it leads to malpractices. Maria knew herself that change in depreciation methods alone will not solve the problem that was faced by Sunshine Limited on matters relating to profits. Maria was concerned about the fact that her contract with Sunshine Limited would not be renewed if by any change she upsets the General Manager. This type of thinking is not acceptable as she is only concerned about her stay with the company and she is feeling unsecured about her position in the company. This should not be the case as Maria should be diligent in her opinion and should know the actual facts on how to solve the problem that was faced by the company rather than agreeing with the General Manager of the company so that she does not get into trouble in near future. As mentioned in the AASB and conceptual framework, accountants are responsible to conduct faithful representation of all the financial statement figures and disclose the information in the notes to financial statements of Sunshine Limited. Furthermore, accountants should be concerned with professional and due care where they need to present all the data ethically.
Reference List
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