Ethical dilemma 13: Unbilled rates - what you gonna do

All rights reserved. This case study may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, with appropriate acknowledgement of the publisher.

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 can't wipe the smile from your face - you have landed on your feet. It now seems like an eternity since you were given the dreadful news that your former employer, Teetering Brink Ltd, was making you redundant.

At that time it seemed as though the world had ended, 5 years of long hours down the pan as you struggled to progress up the career ladder and break through the glass ceiling. You had joined Teetering Brink Ltd immediately after qualifying as a CA and had reached the level of financial controller before losing your job.  

However, a business contact had alerted you to the fact that a medium-sized private company in your area, Gettingby Ltd, was looking for a Financial Director (FD) to replace its existing FD, who had sadly passed away.

After a whirlwind week following your interview, you now find yourself as the newly appointed FD of the company. Although you have just arrived, the mood amongst the employees appears good and you are glad to have been re-employed so quickly.

The economic climate is bleak and you were fortunate to have been in the right place at the right time. Now that you have your feet under the desk, your first task is to prepare the annual statutory accounts for the year to 31 March.

Thankfully, the previous FD has left a good set of working papers for the previous year and this makes the task of putting together a reasonable set of draft accounts much less burdensome.  

You quickly cast your eye down the numbers and note that, while the company is not exactly flush with cash and has to run a very tight ship when it comes to cash management, it is certainly solvent and has returned a reasonable level of profit given the current economic downturn.

Comparing the year end figures with the comparatives reveals a level of profit more or less in line with the previous year although turnover is down slightly. With respect to the balance sheet comparatives, the only item that attracts your attention is the "creditors amounts due within one year" figure.

From your limited knowledge of the business, the figures in both years appear rather high and, on further investigation, you note that the respective accruals figures per the notes to the accounts appear much higher than you would expect.

On examining the previous year's working papers file you note that a large accrual was included for business rates although, other than some workings showing a rough arithmetical calculation of the amount concerned, there is no formal paperwork to support this amount which has not been reversed.

You then check and discover that no payments for business rates were made in the previous year. You also note that no assessments or demands for business rates appear to have been received for the forthcoming financial year. This raises your curiosity and you decide to ask Joe, the Managing Director (MD), to see whether he can shed any light on this issue.  

You are still in the process of establishing your working relationship with Joe. He has been helpful in helping you settle in, but it is obvious he has very clear ideas of what he wants.

As MD, he expects to get his own way. Other staff have hinted that he can be very difficult to deal with in debate and that he can be very impatient when his ideas are challenged. There are reports of "fiery" debates around the boardroom table, and that he is prone to using sarcasm as a weapon to blunt opposition. To date you have seen none of this.  

You head up to Joe's office and he is pleased to see you. He asks you how you are doing and how you are settling in. You tell him that you are doing great and have settled in quickly as the people are really friendly.

He says that's great and is keen to emphasise the importance and benefits of a good friendly working environment - and for the MD and FD to be able to work together for the good of the business.

He tells you that one of your predecessor's great attributes was an ability to take a pragmatic view of matters and to adopt a flexible, but fair, approach. He adds:  

"As everyone knows, the rules accountants are taught can't cope with all circumstances you will encounter when it comes to working in a commercial environment."  

He then asks what it is that you require. You tell him what you have discovered regarding the business rates and he laughs:

"Yes, this is a strange one. It relates to when the regional councils were broken up into smaller local councils in the 1990s. For some reason since the reorganisation, Gettingby Ltd has never received a rates notice."  

"The former FD was always prudent though, and each year put through an estimated expense for rates in the accounts. This is necessary because at some time in the future there is the possibility that the company will receive a rates assessment for the period since the reorganisation of the regional councils."  

You feel uneasy. The company has never received a rates demand in 14 years and yet it would not appear as though anyone has ever contacted the local council to inform them.

You mention your unease and his demeanour changes. He makes two things quite clear. Firstly, this is the kind of thing he was referring to when he mentioned your predecessor's flexibility.

In this particular instance, while he recognises the issue you are raising, he expects you to put the company's interests first - every time. Why would you want to draw the attention of the local council to something, which is clearly its own mistake?

Is that what you see as loyalty to your employer? Secondly, you have seen the books and are well aware of the tightness of the cash position. You must be well aware there is not enough surplus cash to pay anything like 14 years of back rates. Do you want to create a situation where jobs are lost and the company's future threatened?

Joe leans back in his chair, relaxes and softens his tone. He smiles encouragingly:  

"That's the kind of thing you encounter every day in business as I am sure you know. You seem to me like the kind of person who can cope with the rough and tumble - that's why I employed you. Off you go and do the calculations for this year - and I don't mind at all if you put in a bit of extra prudence in the accrual calculation if that will help."  

You go back to your office and ponder the situation. You can see Joe's point of view - the continued accrual of the cost will ensure the situation is reasonably accurately reflected in the company's accounts - both the Profit and Loss Account and the Balance Sheet.

But where does this leave you - is it sufficient for the company merely to accrue a rates expense each year or is there a duty upon you to do more?  

What do you do now? 

Scenario Analysis

What are the readily identifiable ethical issues for your decision?  

For you personally  

  • Can you continue to do as the MD asks and merely accrue an estimate for the rates bill for the year?
  • If you decide that you cannot merely do this, do you go back to him and advise that the company should contact the local council and inform them of the situation?
  • Is there anyone else within the company that you should speak to regarding this matter?
  • Are the other directors aware of this issue?

For the Company  

  • Is there a supportive environment for open discussion of practical dilemmas without a recriminatory, or 'blame', culture?

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

  • You
  • The Managing Director
  • The other directors
  • The company's employees
  • The shareholders (if different from the directors)
  • The local council
  • The general public
  • Potentially HMRC

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


Your integrity is undoubtedly being challenged as you are being asked to undertake a course of action which you clearly have doubts about.  


As you are new to this role it could possibly be assumed that there are no doubts regarding your objectivity. However, does the difficult economic environment and the pressure of possibly disagreeing with your boss, who you hardly know, threaten your ability to be objective?  

Professional competence and due care

Although you are new to your role, your professional competence and due care are assumed. It is your diligence in reviewing the previous set of working papers, which has uncovered this issue.


You are faced with a situation where your employer obviously believes that their non-payment of rates is confidential information.

Professional behaviour

Does it serve the public interest for this type of corporate behaviour to be ignored? There would appear to be a potential conflict between the confidentiality due to one's employer and the potential wider public interest.

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

Is there any other reason why the company has not received a bill for business rates?  

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

The FD has a duty to ensure that the rest of the Board are aware of this situation.

The business is a private company and consideration would need to be given as to whether the matter should be reported to the shareholders, if these are not the same persons as the directors.

Commercially, there is the possibility of a conflict with the company being better off financially if it continues to do nothing in terms of notifying the local council.  

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

You could try to use interpersonal skills in a non-confrontational way to offer to find a solution to the underlying problem.

Has anyone explained the potential consequences to the MD if the local council discovers this error?

Would the local council look to name and shame, which could possibly result in negative PR for Gettingby Ltd?

Would any interest or penalties be payable by the company?

What will happen if at some future date there are plans to sell the company - any due diligence is likely to discover this non-payment of rates - will it have any impact on a potential sale?

You could also ask the MD to consider whether Gettingby Ltd has a moral CSR obligation to the local community. The MD, of course, might argue that he is doing more than his fair share by employing a number of people in the local area.

Are there any other comments?  



  • Ethical dilemmas

Previous page