Financial Interest Case Study John is a partner in a three-partner firm of accountants. The firm generates fees of approximately £1.7 million per annum. Within John's portfolio of clients is Cossy Ltd, which has been very successful since it first came to John's firm five years ago. It now has an annual turnover in excess of £16 million. Cossy Ltd generates annually recurring fees for the practice of approximately £60,000, of which approximately £40,000 is in respect of audit work and £20,000 relates to routine tax calculations and preparation of the corporation tax return. John's firm has a separate tax department, which performs the tax compliance work in respect of Cossy Ltd. Cossy Ltd's financial year end is December. Last year the audit work commenced in June, and the audit report was finally signed in August. By the end of August, the tax return had been submitted to the taxation authority and accounts filed with Companies House, as well as the firm's invoice had been issued to Cossy Ltd. In September a significant customer of Cossy Plc went into bankruptcy, and Cossy Ltd suffered a large bad debt. The directors approached John immediately and were very open about the company's short-term cash flow problem. Therefore, John agreed that payment of the firm's invoice of £60,000 could be spread over ten months, commencing in October. To address cash flow issues Cossy Ltd also needed the support of its bank and, in December, it was negotiating a modest increase in its overdraft facility. It is now early March in the next financial year, and the bank has requested audited financial statements by the end of the month. The audit is well underway, and John have promised the directors of Cossy Ltd that the bank will have the audited accounts on time. The planning of the audit was performed by the audit senior and reviewed by the audit manager for the assignment (in whom you have a great deal of confidence). Due to pressure of work, John did not review the audit plan in detail before the audit team commenced the year end audit work, and so he decided to review and sign off that section of the audit file now (March in the next financial year). John noted that the audit manager has correctly identified going concern as the area of the audit attracting greatest risk. However, at the time of planning the audit, the manager was unaware of the credit agreement reached with regard to the payment of last year's fees. John checked his firm's records and determined that Cossy Ltd still owes the firm £30,000.

 

Question

Q1: Critically evaluate the financial interest case using normative ethical theories and evalua.te the significance and role of professional ethics in both local and globalised worlds. Make sure to include other relevant company examples and academic journals to support the case and the critique