Jack Warren lives in Invercargill and has recently joined the staff of his community hospital as the financial controller. He is also a member of the Hospital Foundation that runs several very successful fundraising events each year. The hospital is mainly funded by the public health system, but also depends on the funds generated by the foundation. Jack is an experienced accountant, nearing retirement, and does not get paid a lot. He is passionate about the hospital and ‘giving back’ to the community.
Hospitals operate in a high-risk environment, and Jack completed a risk management audit, identifying the likelihood of risks and assessing the systems for managing them. Areas reviewed were quality, occupational health and safety, and financial management. Some risks were identified in the quality area and occupational health and safety area. In terms of the financial management area, Connor Jones, the hospital’s senior accountant did a review and found no significant problems with the financial management system.
Amy Long, the daughter of a very close friend of Jack, is the treasurer of the Foundation. Amy also owns a small business selling clothes and accessories from a shop on the outskirts of town. The rumour around town is that this business is not doing very well, and that Amy owes her landlord a substantial amount for unpaid rent. Jack wonders whether he could help Amy solve her problems and contacts her father to offer his assistance. However, Amy’s father informs Jack that there is no need to worry as recently she seems to be doing much better and has paid all the overdue rent and even bought a new car. Amy’s father is unable to explain the turnaround, other than some good luck and good management. Jack mentions this to his wife, who then also informs him about another rumour that Amy is having an affair with Connor Jones, who is a married man with a heavily pregnant wife. Amy and Connor apparently met when Connor was auditing the Foundation’s books.
A couple of days later, Jack has a chance to think over these conversations, and becomes concerned. From experience he knows that ‘good luck’ is rarely an underlying factor in business turnarounds. Jack also knows that the Foundation has been through a very successful period of fundraising, but that Connor’s review showed no concern over the financial management system of the hospital. To alleviate his growing fears, Jack performs another audit of the Foundation’s books, and quickly discovers that Amy has been stealing money from the Foundation. When confronted, Connor initially denies any knowledge but later admits his involvement. He appeals to Jack to show sympathy, if not for Amy, but for her father at least. Connor reminds Jack that in a small community like Invercargill, word spreads rapidly, ruining the lives of Amy and her family as well. This could also cause considerable stress to Connor’s pregnant wife.

Required:
i. Name and briefly discuss the principles of the Code of Ethics for Professional Accountants.

ii. Which parts are relevant to Connor Jones’ situation and how did he behave contrary to the code?

iii. What actions would you advise Jack Warren to take, given the ethical code of conduct of the accounting profession?

Answer rating: 100% (QA)

The Code of Ethics for Professional Accountants contains six principles 1 Integrity The cornerstone of any profession and a quality highly valued by clients the public governments and other users of f... View the full answer