ICAS ICAS logo

Quicklinks

  1. About Us

    Find out about who we are and what we do here at ICAS.

  2. Find a CA

    Search our directory of individual CAs and Member organisations by name, location and professional criteria.

  3. CA Magazine

    View the latest issues of the dedicated magazine for ICAS Chartered Accountants.

  4. Contact Us

    Get in touch with ICAS by phone, email or post, with dedicated contacts for Members, Students and firms.

Login
  • Annual renewal
  • About us
  • Contact us
  • Find a CA
  1. About us
    1. Governance
  2. Members
    1. Become a member
    2. Newly qualified
    3. Manage my membership
    4. Benefits of membership
    5. Careers support
    6. Mentoring
    7. CA Wellbeing
    8. More for Members
    9. Area networks
    10. International communities
    11. Get involved
    12. Top Young CAs
    13. Career breaks
    14. ICAS podcast
    15. Newly admitted members 2022
    16. Newly admitted members 2023
  3. CA Students
    1. Student information
    2. Student resources
    3. Learning requirements
    4. Learning updates
    5. Learning blog
    6. Totum Pro | Student discount card
    7. CA Student wellbeing
  4. Become a CA
    1. How to become a CA
    2. Routes to becoming a CA
    3. CA Stories
    4. Find a training agreement
    5. Why become a CA
    6. Qualification information
    7. University exemptions
  5. Employers
    1. Become an Authorised Training Office
    2. Resources for Authorised Training Offices
    3. Professional entry
    4. Apprenticeships
  6. Find a CA
  7. ICAS events
    1. CA Summit
  8. CA magazine
  9. Insight
    1. Finance + Trust
    2. Finance + Technology
    3. Finance + EDI
    4. Finance + Mental Fitness
    5. Finance + Leadership
    6. Finance + Sustainability
  10. Professional resources
    1. Anti-money laundering
    2. Audit and assurance
    3. Brexit
    4. Business and governance
    5. Charities
    6. Coronavirus
    7. Corporate and financial reporting
    8. Cyber security
    9. Ethics
    10. Insolvency
    11. ICAS Research
    12. Pensions
    13. Practice
    14. Public sector
    15. Sustainability
    16. Tax
  11. CPD - professional development
    1. CPD courses and qualifications
    2. CPD news and updates
    3. CPD support and advice
  12. Regulation
    1. Complaints and sanctions
    2. Regulatory authorisations
    3. Guidance and help sheets
    4. Regulatory monitoring
  13. CA jobs
    1. CA jobs partner: Rutherford Cross
    2. Resources for your job search
    3. Advertise with CA jobs
    4. Hays | A Trusted ICAS CA Jobs Partner
    5. Azets | What's your ambition?
  14. Work at ICAS
    1. Business centres
    2. Meet our team
    3. Benefits
    4. Vacancies
    5. Imagine your career at ICAS
  15. Contact us
    1. Technical and regulation queries
    2. ICAS logo request

Ethical dilemma 1: The creeping FD

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.

Scenario

You are the Financial Controller in a manufacturing business, Sundance & Cassidy Ltd, which like many businesses in the UK is beginning to feel the impact of the credit crunch.

The business is a large private company with 270 employees and has a turnover of £50 million. You prepare the quarterly management accounts and provide these to Robert, the Financial Director (FD), for his comments.

A few months ago you had noted that the balance sheet position was slightly below that required by the covenant over the company's long-term bank loan and you made Robert aware of this. He thanked you for your vigilance and for raising the issue but told you not to worry.  

A few days later, a set of quarterly management accounts was sent to the bank. Robert provided you with a set of accounts for the file. You noted that the stock figure on the balance sheet had been increased by £1,850,000. Without this adjustment the banking covenant would have been breached that particular quarter.

Whilst you trust Robert and have a good working relationship with him, you found the stock adjustment surprising as you had made all the usual checks to ensure that the cut-off and valuation procedures were properly adhered to. Such an adjustment had never been made in previous quarters. You thought about questioning Robert on this issue but as you have a great deal of respect for him and he is a very busy man, you decided not to say anything.  

At the end of the next quarter, the same thing happened again, although the adjustment on this occasion had risen to£2,770,000. This time you asked Robert why the stock adjustment was necessary. He advised you that, at the quarter-end the company held stock at external premises, which was not included in the stock count.

You found this strange as Robert has never mentioned this to you before and it would have been helpful if he had informed you of any stock held externally before you finalised the quarterly stock figures for the management accounts. However, you decided not to pursue this matter any further.  

At the end of the next quarter, things are even worse and you once again highlight to Robert that the company is failing to comply with the terms of the bank covenant. Robert tells you not to worry and a few days later you note that the set of accounts sent to the bank has again been altered to include a higher stock figure: this time an additional £5,500,000 has been added to the figure that you supplied which ensures that the company meets its banking covenant. You ask Robert to properly explain the stock adjustments which have been made in recent months but he tells you to:  

"Mind your own business and get on with your own job."  

He also informs you that if you ever question his judgment again then:  

"You won't have a job to go to!"  

What do you do now?  

Scenario Analysis

What are the readily identifiable ethical issues for your decision?  

For you personally  

Can you allow this situation to continue without seeking a full explanation from the FD? If you do not believe that you can raise the matter with him again, then who can you discuss it with within the organisation? Does the company have a policy for such matters? Is there another director that you could approach?  

For the Company

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

Is the FD putting through these adjustments on his own behalf or is someone else exerting pressure on him to do so?  

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

  • You
  • The FD
  • The other directors
  • The shareholders
  • The employees
  • Customers and suppliers
  • The bank.

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

Integrity  

Can you retain your integrity by ignoring this issue?

Have you already done enough by raising the issue with the FD? (he has warned you not to raise the issue with him again)

What will happen if the external auditors start to ask questions about the stock adjustments?  

Objectivity  

The ability to be able to question senior personnel when there is something, which does not appear right.  

Professional competence and due care  

Assumed.  

Confidentiality  

Assumed.  

Professional behaviour

The need to display professional courage by getting to the bottom of the matter.  

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

The possibility exists that the FD is telling the truth and that Sundance & Cassidy Ltd does have stock located at another company's premises. However, if this is the case then why is he not providing evidence to justify his stock adjustments?  

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

If the FD is falsifying the quarterly management accounts then he is bowing to the commercial pressure to ensure that Sundance & Cassidy Ltd is satisfying the funding conditions placed on it by the bank. If the bank covenant terms were breached, the bank could of course take action and the risk would be that Sundance and Cassidy Ltd might be put out of business if the funding package was withdrawn or not renewed. The requirements of the 'Guardian' role are for the accountant to ensure that the monthly management accounts are a fair representation of the company's financial performance and position.

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

No.  

Are there any other comments?  

None.

Ethics and The Power of One

ICAS calls on every CA to place ethical leadership at the heart of their professional responsibilities

2022-11-mitigo 2022-11-mitigo
ICAS logo

Footer links

  • Contact us
  • Terms and conditions
  • Modern slavery statement
  • Privacy notice
  • CA magazine

Connect with ICAS

  • Facebook (opens new window) Facebook Icon
  • Twitter (opens new window) Twitter Icon
  • LinkedIn (opens new window) LinkedIn Icon
  • Instagram (opens new window) Instagram Icon

ICAS is a member of the following bodies

  • Consultative Committee of Accountancy Bodies (opens new window) Consultative Committee of Accountancy Bodies logo
  • Chartered Accountants Worldwide (opens new window) Chartered Accountants Worldwide logo
  • Global Accounting Alliance (opens new window) Global Accounting Alliance
  • International Federation of Accountants (opens new window) IFAC
  • Access Accountancy (opens new window) Access Acountancy

Charities

  • ICAS Foundation (opens new window) ICAS Foundation
  • SCABA (opens new window) scaba

Accreditations

  • ISO 9001 - RGB (opens new window)
© ICAS 2022

The mark and designation “CA” is a registered trade mark of The Institute of Chartered Accountants of Scotland (ICAS), and is available for use in the UK and EU only to members of ICAS. If you are not a member of ICAS, you should not use the “CA” mark and designation in the UK or EU in relation to accountancy, tax or insolvency services. The mark and designation “Chartered Accountant” is a registered trade mark of ICAS, the Institute of Chartered Accountants of England and Wales and Chartered Accountants Ireland. If you are not a member of one of these organisations, you should not use the “Chartered Accountant” mark and designation in the UK or EU in relation to these services. Further restrictions on the use of these marks also apply where you are a member.

ICAS logo

Our cookie policy

ICAS.com uses cookies which are essential for our website to work. We would also like to use analytical cookies to help us improve our website and your user experience. Any data collected is anonymised. Please have a look at the further information in our cookie policy and confirm if you are happy for us to use analytical cookies: