QUESTION THREE (20 MARKS)

Mr. Stephan Gerhard is the Financial Director of Kledorf GmbH a company that is not listed at the Berlin Securities Exchange. The company has just received a patent on a product that is expected to yield substantial profits in a year or two. Currently the company is experiencing financial difficulties, and because of insufficient working capital, it is on the verge of defaulting on an overdraft issued by its bankers; the HSBC.

At the end of 2019, the company's Managing Director instructed Mr. Gerhard not to record several invoices as accounts payable. Mr. Gerhard objected since the invoices represented bona fide liabilities. However, the Managing Director insisted that these invoices should not be recorded until after the 2019- year end at which time it was expected that additional financing could be obtained. After several very strenuous objections-expressed both to the Managing Director and other members of the management -Mr. Gerhard complied with the Managing Director's instructions.

Required.

1. If the new product fails to yield substantial profits and the company becomes insolvent, can Mr Gerhard's actions be justified by the fact that he was following orders from a superior? In six paragraphs Explain this in reference to managerial Account's ethical conduct (12 Marks)