Discuss about the National Culture and Ethical Judgment.
From analysis of Preston Company it was observed that it is a manufacturing firm that wishes to expand its product line in domestic equipment. For such reasons, list of fixed assets was provided along with its acquisition date, original cost and accumulated depreciation on single asset basis. Fixed assets were old and so their book values were less than actual costs. Fair market values for fixed assets were deemed to be used in determining purchase price portion that must be allocated to goodwill. [1] Moreover, auditors of the parent company’s purpose were to become familiar with company operations and conduct an audit. They offered opinion on the consolidated financial statement for the year. From such opinion, the owner realised that the parent company might sell few assets of the subsidiary company for expansion of its product lines. Moreover, an increased book value can also result in drastic loss as goodwill was used to increase asset value and was not stated in financial statement.
The ethical issue that took place in the company was regarding misrepresentation of accounts. Fixed assets of Preston Company were deemed to be old and for this reason, their book values were drastically lesser than the actual costs. Conversely, after completion of the company’s financial statements audit Wilson was surprised to observe misstatement of financial statements. This is for the reason that goodwill amount of $450,000 was not indicated but has been employed for increasing the asset value. [2]
With their asset values faster write-off of the same might occur in comparison to the goodwill within 20 years. Considering this, it can be said that as per American Accounting Association (AAA) ethical decision-making model to this asset valuation/goodwill problem misrepresentation of accounts was done by auditors. The auditors either involve in such conduct or failed to carefully audit assets of Preston Manufacturing Company.
Six major principles, rules and values that are important to the evaluation of the case with specific reference to Stephanie Wilson’s ethical dilemma are explained below:
Selecting the best course of action and considering the consequences of results. Purpose of this rule is to make implications of the outcome unambiguous so that financial decision is made in all the decision options full knowledge and recognition. [4]
Four options that are that can be considered by Wilson in resolving such ethical concern of misstatement of financial accounts are explained below:
As per Article 10 of Delegated Regulation (EU) 2015/35, asset valuation norms, principles and values with alternatives for Preston Company are explained under:
Whistle blowing is a process in which a whistleblower is exposed to certain type of information or conduct which is considered being unethical, illegal or highly inappropriate in the company whether the company is public or a private company. Due to this reason, several laws are there to protect whistleblowers. Whistle blowing is deemed to serve as an indispensible tool that makes sure of effective corporate governance procedures in the company. Whistleblower protection is considered to be highly necessary in order to encourage reporting regarding misconduct, corruption and fraud. [5]
Offering effective protection for the whistleblowers supports open company culture in which the employees can be aware of appropriate reporting techniques. It can also facilitate businesses to avoid and detect bribery within commercial transactions. Importance of whistleblower protection was confirmed at international level when OECD guidelines support “Guiding Principles for Whistleblower Protection Legislation” for dealing with corruption. For safeguarding integrity and accountability, whistleblower protection is recognized by every major global instruments surrounding corruption.
Considering that Watkins was whistle-blowing today and in Australia, certain guidelines were provided to her concerning her legal protection in compliance to “Part 9.4AAA of the Corporations Act”. For legal protection of Whistleblowers, this corporation act makes sure that the whistleblowers attain:
As per Corporations Act, there is a high value of whistleblowers protection in any organization. This because of the reason and as per the act whistleblowers protection is vital in encouraging the reporting of fraud, misconduct and corruption. In such case, protecting private sector whistleblowers supports the reporting of certain bribery along with other corrupt activities conducted by companies. Protecting public sector whistleblowers supports reporting of passive bribery along with misuse of waste, fraud, public funds and other types of corruption. Supporting and encouraging whistle blowing through offering efficient legal protection along with clear guidance on reporting policies might also facilitate authorities to ensure compliance through detecting anti-corruption policies. Offering effective protection for them can support an open company culture in which employees will be aware of proper reporting with promoting public sector accountability and integrity. Considering the relevance of maintaining while blowing protection laws, certain provisions have been developed that strengthened the global legal structure for nations to maintaining efficient laws regarding whistleblowers protection.
Sleepy time Ltd is an herbal and vitamin remedy organization that manufactures organic and natural sleeping pills for people facing trouble in sleeping. From analyzing the case study of Sleepy time Ltd certain issues have been discovered in relation to OECD principles of corporate governance. There are three actions in the above case study that is deemed to generate concerns in adherence to OECD principles. Certain major principles have been disregarded by Sleepy time Ltd Company.
From the case study it is gathered that the company’s board of directors includes executive and non-executive directors. Two among them are potential consumers and another one is a major shareholder of the company. This is observed to create issue regarding conflict for interest. Moreover, the directors being consumers will not have accurate access to confidential information and there is a chance that they can misuse corporate assets and associated party transactions. [6] In compliance to OECD principles, the company must appoint adequate numbers of non-executive board members that will be able to exercise free judgment to tasks in which conflict of interest might arise.
In order to maintain a stable position in the marketplace, the shareholders those purchased shares in initial public offering decided to purchase and hold shares for over two years. However, in adherence to OECD principles certain issues regarding material conflict of interests who can compromise with the integrity of decision making and advice. In adherence to OECD principles, the company should participate and be informed on decisions regarding major corporate changes such as authorization of additional shares.
The company announced that for avoiding takeover from competitors it has generated contracts with senior management regarding receiving payments of $20 million each in case the takeover occurs. As per the OECD guidelines such decision of the company is against corporate governance ethics. The principles state that costs associate with effective ownership should and can be decreased. In such situation OECD corporate governance principles allow that authorities must permit or encourage companies to co-operate their actions. Such co-operation must not be focussed on manipulating the merger company or gaining control on the organization without considering suitable takeover procedures.
References
Bobek, Donna D., Amy M. Hageman, and Robin R. Radtke. “The effects of professional role, decision context management, and gender on the ethical decision making of public accounting professionals.” Behavioral Research in Accounting 27.1 (2015): 55-78.
Cuomo, Francesca, Christine Mallin, and Alessandro Zattoni. “Corporate governance codes: A review and research agenda.” Corporate governance: an international review 24.3 (2016): 222-241.
Curtis, Mary B., et al. “National Culture and Ethical Judgment: A Social Contract Approach to the Contrast of Ethical Decision-Making by Accounting Professionals and Students from the US and Italy.” Journal of International Accounting Research (2017).
Martinov-Bennie, Nonna, and Rosina Mladenovic. “Investigation of the impact of an ethical framework and an integrated ethics education on accounting students’ ethical sensitivity and judgment.” Journal of Business Ethics 127.1 (2015): 189-203.
Siems, Mathias M., and Oscar Alvarez-Macotela. “The OECD Principles of Corporate Governance in Emerging Markets: a successful example of networked governance?.” Networked Governance, Transnational Business and the Law. Springer Berlin Heidelberg, 2014. 257-284.
Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and practices. Oxford University Press, USA, 2015.
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