Prior to the end of ABC Group financial year-end (November 30, 1997), ABC began discussions with FINSAC for a "bailout". An agreement was reached in April 1998 with FINSAC several months after ABC year-end, but before the accounts were approved by the Board of Directors. Based on the agreement reached in April 1998, the directors wrote back to the Profit and Loss Account for the year ended November 30 1997 an allowance of $1.12 Billion for loan losses in respect of the loans that are to be sold to FINSAC. This write back of the allowance resulted in the ABC group showing a profit instead of a loss in its Profit and Loss Account for the year ended November 30, 1997. ABC Group published its audited financial statements a few days after the agreement was reached with FINSAC. Since the financial statements were approved a few days after the agreement was reached with FINSAC members of the public were concerned that the ABC Board of Directors delayed the authorization of the financial statements for the year ended November 30, 1997 in order to reflect a profit and not a loss.

REQUIRED:

1. Discuss the ethical ramifications involved in ACB's write back of $1.12 billion to its Profit and Loss Account. In your discussions you should indicate clearly your opinion as to whether ABC's decision was ethical or unethical and the reason(s) for your opinion.

2. Given ABC's decision to write back the $1.12 billion to its Profit and Loss Account, how should this item be reflected in ABC's financial statements for publication based on current International Financial Reporting Standards?

3. If you were a member of the ABC board of directors would you vote for the inclusion or the exclusion of the $1.12 billion in ABC'S Profit and Loss Account? State your reason or reasons for your vote.

Answer rating: 100% (QA)

Answer 1 Ethical Ramifications The write back of 112 billion to ABCs Profit and Loss Account raises ... View the full answer