Ethical dilemma 12: Sale or no sale

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In 2008, ICAS Research published the report "What do you do now? Ethical Issues Encountered by Chartered Accountants" by Dr David Molyneaux containing 28 true life case studies of ethical dilemmas faced by accountants either in practice or business.

In recognition of this work, in 2009 the ICAS Technical Policy Board then published "Shades of Grey" containing a further series of case studies, one of which is reproduced below.

The views expressed in these respective case studies are those of the Ethics Committee and do not necessarily represent the views of the Council of ICAS.

This case study gives general guidance only and should not be relied on as appropriate or comprehensive in respect of any particular set of circumstances. It is recommended that users consider seeking their own professional advice.

The authors or the publisher can accept no responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication.


You are the recently appointed interim Financial Director (FD) in a small listed Australian company, Great Bite Engineering. The company produces parts for machines that are used in the mining industry in Western Australia.

You have only recently arrived "down under" and were actually looking forward to spending more time on the beach, soaking up the sun working on your tan. You had registered with a local recruitment agency prior to leaving the UK but were most surprised to receive this offer of temporary employment so soon after arriving.

Although you had initially thought of turning it down, you had come round to the idea of working the 6 months required and then rewarding yourself by spending the following 6 months taking in more of the sights of the southern hemisphere, which would now include a trip to Queenstown in New Zealand to experience the world's adventure capital first hand. The thoughts of doing a bungee jump over the Kawarau River would keep you going.  

Great Bite Engineering has been struggling of late as the mining sector begins to feel the impact of the worldwide downturn. The previous FD, Dreyfuss, had left his post last month due to ill health. The company's year-end had just passed and the company urgently needed someone to come in and fill the post on a temporary basis until the directors had the time to search for and appoint someone on a full-time basis.  

So here you are in Australia, happy at gaining employment but still wishing that you had allowed yourself more time beforehand to enjoy the local beaches. However, it doesn't take long to get back into the swing of things.

Unfortunately, it would appear that the previous FD was not the most organised person and you are having difficulty tracking down a set of working papers to support the draft year-end accounts. After much searching, you finally track down the supporting papers and begin your review of the breakdown of the figures featured in the draft accounts.

During your review you discover reference to a small number of journals, which have minimal, supporting backup. These journals, posted 8 months ago increase the sales figure significantly, 23% of the company's reported turnover. The journals refer to the Lucan project, of which you have never heard, but you remind yourself that you are new to the company and decide to raise this issue with Robert, the Chief Executive.  

Robert welcomes you into his office and then explains that the Lucan project relates to a one-off shipment of specialised parts to a company based overseas. He informs you that only a few people knew about this contract, as apparently a number of countries have placed an embargo on supplying goods of this nature to businesses within this country. That is also why the normal sales process was not followed.

Those "in the know" included the former FD. You thank him for enlightening you but then ask why payment has never been received for this order. Robert advises that no payment has so far been received but that payment will be received in due course - the customers may be slow payers but they are very wealthy, and it is not in our interests to chase payment as this might impact on our healthy relationship and future orders. However, he asks you not to mention this to anyone else.  

You leave the room but are somewhat mystified. Sales appear to have been inflated by transactions outwith the company's normal customer base but for which payment has not yet been received.

Have these sales actually taken place and if so has the company sold goods to an entity in another country, which may be blacklisted by Australia?

Furthermore, will it ever get paid for the goods - if they have indeed been supplied? You are also aware that the Chief Executive has a very generous share options package, which he will be able to exercise in a few months time - does this have any impact on the situation?

What do you do now? 

Scenario  Analysis

What are the readily identifiable ethical issues for your decision?  

For you personally  

The ICAS Code of Ethics, which is substantially based on the IFAC Code of Ethics, applies to members regardless of where they are working.  

How do you maintain your integrity in this scenario?

The Chief Executive has informed you of sales in relation to a project for which there is a lack of supporting documentation and for which payment has not been received.

Is he telling you the truth?

If he is telling the truth, then how do you get him to face up to the need to chase payment from the customer? You have concerns that, even if the sales were indeed genuine, if the amount requires to be provided for then it will have a serious negative impact on the results for the year and hence the resulting share price.

Furthermore, if the sales were genuine is there any requirement on you to report the sale of goods to a potentially blacklisted country? You need to remind the Chief Executive that the auditors will undoubtedly question these transactions.

Who are the key parties who can influence, or will be affected by, your decision?

  • You
  • The Chief Executive
  • The other directors
  • The former FD
  • Shareholders
  • Potential investors
  • The auditors
  • Customers
  • Suppliers
  • Employees

What fundamental ethical principles for accountants are most applicable and is there an apparent conflict between them?  


How can you maintain your integrity without investigating this matter further?  


Assumed, as you are new to the company. However, you must satisfy yourself that you are objective.  

Professional competence and due care  




Professional behaviour  

You need to investigate this matter further to arrive at the true position.

Did the company make sales to an entity overseas? If so, there is a need to convince your Chief Executive that payment has to be chased or ultimately the debt may need to be provided for. The auditors will undoubtedly question these transactions.

Is there any further information (including legal obligations) or discussion that might be relevant?  

  • Is any further information available about the customer concerned?
  • Is there an embargo on exports to that country?
  • What, if any, other paperwork exists to substantiate the sales made in relation to the Lucan project?
  • Did the former FD have any share options or other financial incentives?
  • Have similar transactions been posted in previous years?

Is there a conflict between the 'Guardian' and 'Commercial' strands of an accountant's responsibilities?  

The 'Guardian' role is to report fairly the company's financial performance and position. Have the Chief Executive and former FD attempted to massage the company's financial statements for short-term commercial benefit?  

Based on the information available, is there scope for an imaginative solution?


Are there any other comments?  



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