Question 2 Jason is working as a junior accountant at MNC Manufacturing. He had joined MNC...
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Question 2 Jason is working as a junior accountant at MNC Manufacturing. He had joined MNC since his graduation from university almost a year ago. Brian, his senior during university, had recommended the job to him. Brian had been working at MNC as an accountant for about three years. Jason is happy with his job at MNC. His colleagues in the accounting department and his superiors, including the Chief Financial Officer (CFO), treated him well. In the course of his work, Jason discovered that MNC had changed its inventory method from the weighted average method to the first-in-first-out (FIFO) method for the financial year ended 31 December 2021. Using the latest set of draft financial statements of MNC and other financial information that he had access to, Jason did some rough calculations. He discovered that the change in inventory method resulted in an increase in net profit of $28 million and a corresponding increase in net assets of $28 million. Jason also discovered that MNC had an existing loan contract with ABC Bank which included a debt covenant that was based on the debt-equity ratio, and MNC would have violated the debt covenant in the loan contract if the inventory method had not been changed. Jason approached Brian and told him what he had discovered. He asked Brian why MNC had changed its inventory method. Brian said he was instructed to inform the auditors that the reason for the change of method was that FIFO was the inventory method selected by many companies in the same industry as MNC. However, he was aware that if the inventory method had not been changed, MNC would have breached the debt covenant in its loan contract. Jason asked Brian whether he should inform their superiors about the matter. Brian felt there were no issues with the change of inventory method since there was a legitimate reason for the change. Besides, he felt that if the debt covenant in the loan contract was breached, MNC may face severe consequences. ABC Bank may demand for the immediate repayment of the loan or may charge a higher interest for the loan. Since MNC borrowed a substantial amount from ABC bank, the consequences imposed by the bank for the technical default might affect the company's ability to operate in the near future and this might, in turn, affect their job security. Brian advised Jason to ignore what he discovered and not to tell anyone else about the matter. He said, "Jason, you may not care much about losing your job, but surely you don't want to be the one to cause all your colleagues to lose their jobs." 1 Required: (a) (b) Assuming you are Jason, analyse the ethical issues that you encounter in the situation described above, based on the Josephson's Six Pillars of Character and the Institute of Singapore Chartered Accountants (ISCA) Code of Professional Conduct and Ethics. Assuming you are Jason, examine the possible courses of action to deal with the ethical issues discussed in Question 2(a) and justify the appropriate action or actions to take. Question 2 Jason is working as a junior accountant at MNC Manufacturing. He had joined MNC since his graduation from university almost a year ago. Brian, his senior during university, had recommended the job to him. Brian had been working at MNC as an accountant for about three years. Jason is happy with his job at MNC. His colleagues in the accounting department and his superiors, including the Chief Financial Officer (CFO), treated him well. In the course of his work, Jason discovered that MNC had changed its inventory method from the weighted average method to the first-in-first-out (FIFO) method for the financial year ended 31 December 2021. Using the latest set of draft financial statements of MNC and other financial information that he had access to, Jason did some rough calculations. He discovered that the change in inventory method resulted in an increase in net profit of $28 million and a corresponding increase in net assets of $28 million. Jason also discovered that MNC had an existing loan contract with ABC Bank which included a debt covenant that was based on the debt-equity ratio, and MNC would have violated the debt covenant in the loan contract if the inventory method had not been changed. Jason approached Brian and told him what he had discovered. He asked Brian why MNC had changed its inventory method. Brian said he was instructed to inform the auditors that the reason for the change of method was that FIFO was the inventory method selected by many companies in the same industry as MNC. However, he was aware that if the inventory method had not been changed, MNC would have breached the debt covenant in its loan contract. Jason asked Brian whether he should inform their superiors about the matter. Brian felt there were no issues with the change of inventory method since there was a legitimate reason for the change. Besides, he felt that if the debt covenant in the loan contract was breached, MNC may face severe consequences. ABC Bank may demand for the immediate repayment of the loan or may charge a higher interest for the loan. Since MNC borrowed a substantial amount from ABC bank, the consequences imposed by the bank for the technical default might affect the company's ability to operate in the near future and this might, in turn, affect their job security. Brian advised Jason to ignore what he discovered and not to tell anyone else about the matter. He said, "Jason, you may not care much about losing your job, but surely you don't want to be the one to cause all your colleagues to lose their jobs." 1 Required: (a) (b) Assuming you are Jason, analyse the ethical issues that you encounter in the situation described above, based on the Josephson's Six Pillars of Character and the Institute of Singapore Chartered Accountants (ISCA) Code of Professional Conduct and Ethics. Assuming you are Jason, examine the possible courses of action to deal with the ethical issues discussed in Question 2(a) and justify the appropriate action or actions to take.
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Solution A The following ethical issues are being encountered by Jason in the mentioned situation Ba... View the full answer
Related Book For
Financial Accounting
ISBN: 978-1259103285
5th Canadian edition
Authors: Robert Libby, Patricia Libby, Daniel Short, George Kanaan, M
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