Ethical dilemma 15: Silence is Golden

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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 Financial Director of a large private construction company, Bonnieclyde Ltd. The company undertakes major construction projects such as building new roads, motorways etc. Until last year the company had been very profitable but the economic downturn has started to hit the company hard.

The company's year-end was 31 August and the auditors were in during October to do their fieldwork. It is now December and the auditors are coming in tomorrow for their closing meeting to discuss their main findings and any adjustments that will be required to the draft accounts.

You are aware of at least one significant issue, which requires to be discussed at the meeting. This relates to the fact that a significant debtor as at 31 August, Dudsareus Ltd, has just recently been put into administration. Additionally, Dudsareus Ltd has been disputing the quality of the work and hence the actual amount due.

No payments have been received from that customer post year-end. You are unaware as to whether the auditors are aware of this fact or not. If none of the debt is recovered then the balance sheet position at the year-end will move from a net assets position of £2,500,000 to £700,000.  

What makes it worse is that the company has carried out further work for this client post year-end to the sum of £650,000. The consequences of this do not bear thinking about.

You have not yet had time to update your projections to take account of the likely impact of this potential bad debt and of the worsening economic environment, which has seen many potential road upgrades postponed. The projections that the auditors had reviewed in October in your opinion now appear to be very optimistic. You believe that they will need to be updated and a copy given to the auditors.  

Just as you are thinking this over, Dan, the Chief Executive, comes into your office. He asks whether you have updated the accounts and projections to take account of the new information. You advise that you are just about to do so and that the figures will be available later in the day.

He advises you that there is no need and that what the auditors already have is sufficient for their purposes and that projections are a "guesstimate" at the best of times.

He also informs you that no adjustments should be made for the debtor, which has gone into administration. You inform him that the auditors will demand that the year-end debt is provided for.

He advises you to leave the discussions on the recoverability of the debt to him. Additionally, you inform him that the projections will require to be updated as they now look overly optimistic given what has happened in the past few days with your largest debtor now in administration and road contracts that you had budgeted on winning being postponed.  

Dan replies that:  

"The past year has been very challenging and the bank is putting pressure on me to send them a copy of the audited financial statements at the earliest possible opportunity.

"If the financial statements do not show the company to be in reasonable health then negotiating our new funding facilities is going to be at best very difficult. Remember, it is not only your job that is on the line - think of all the other 60 or so employees and their families.

"We will be able to trade through this downturn if we are only given a chance. It is not our fault that we find ourselves in this position - don't let them pull the rug from our feet."

What do you do now? 

Scenario Analysis

What are the readily identifiable ethical issues for your decision?  

For you personally  

Can you follow Dan's orders and not update the accounts and projections?

Undoubtedly, he is correct in that projections are a best guess of the future, however, they need to be based on the most up to date and best information available. To not take account of current events could be construed as misleading the auditors.  

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

  • You
  • The Chief Executive
  • Your other fellow directors
  • The shareholders (if different from the directors)
  • The employees
  • The auditors
  • The bank
  • Any other creditors

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


Can you preserve your integrity if the information presented to the auditors is not up to date and does not reflect recent events?


The need to set aside the potential consequences of recent events (in a worse case scenario the bank might withdraw/not renew their funding) to prepare financial information that takes account of their implications.  

Professional competence and due care  




Professional behaviour  

The need to prepare realistic projections based on the most up to date information available. The need also to comply with legal requirements in relation to the provision of information to auditors.

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

What is the likelihood of getting repayment of any of the amount due from Dudsareus Ltd?  

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

The 'Guardian' role would place emphasis on producing the best information possible for decision-making purposes for all parties concerned.

In this scenario, the 'Commercial' pressure is likely to conflict with this need for transparency.  

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


Are there any other comments?  



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