Ethical decision making
The auditor’s failure to report going concern problems injures the members of the public more since most of the decisions they make are based on the auditor’s report and majorly on the going concern aspect. When the auditor fails to shed light on the going concern aspect. The decision-makers end up making the wrong investment decisions, which makes them suffer heavy financial implications. The public can also sue the auditor if they based their decisions on the report. The auditor will thus be fined or be punished by revocation of their certificates of participation by their relevant governing bodies. To avoid such consequences, the auditor should always report the going concern aspects when they exist.
The different members of the public who can be directly affected by such mistakes by the auditor include; current and prospective shareholders, suppliers of the company, creditors, financial institutions, and employees of the company. All the parties mentioned above depend on the auditor’s report in making relevant decisions and when the report does not contain accurate information they are prone to making inaccurate decisions that expose them to financial losses.
In case an auditor has reported going concern problems yet they do not exist. Various parties will be affected as the company will lose most of its shareholders because they will sell their shares due to panic. The prices of the shares will fall as most buyers will not be willing to purchase them. Employees will also terminate their contracts with the company or offer their letters of resignation as they may fear going working for long periods without salaries. The company will lose its creditors since they will not be willing to credit a company that may become bankrupt soon.
The affected parties due to an auditors’ report which reports going concern problems by mistake include; the employees of the company who are likely to terminate their contracts, financial institutions that fail to get the interest they could have earned, and shareholders who fail to earn the dividends they could have earned. The company will also be affected negatively by such a report as its suppliers will also not be able to earn from supplying the company. All the mistakes mentioned above have negative consequences on the company. However, failure to report going concern problems when they exist has worse implications because most public members are caught unaware and end up losing their hard-earned money.
Nigerian barges transaction
The Nigerian barge transaction should be reported as a loan and not a sale since it contains all the characteristics of a property loan. The electricity power barges should be considered as secure as they are later returned to the Enron Company after they settle their debt in full. The hefty payment should be considered as the interest earned by the loan. The amount paid to the Enron Company before releasing the generators should be considered as the principal loan since it earns interest and is secured by the generators.
Skills development case
The profitability can be affected both negatively and positively depending on the changes adopted. Changing the basis of allocation of overheads of labor hours could reduce the profit made by the company as the military customers will pay less while the civilian buyers are not guaranteed to pay less as their price is based on negotiation. On the other hand, changing the base of allocating overheads to machine hours will increase the profit of the company. The military customers are expected to pay more since their purchase price is based on 130% of the total cost of the contract. Thus, the higher the cost associated with military contracts the more the profit generated from the contracts.
They should use machine hours as the basis of allocating overheads to increase profits. This way the military will pay more while they can still negotiate for favorable prices from the civilians. According to the ethics of contracts, only costs related to a particular contract should be allocated to that contract. It is unethical to allocate the costs of one contract to another contract.
I could advise the controller to consider the ethical issues of contracts even though they want to make large profits. The ethics will prevent them from overcharging one customer in favor of another customer. To protect me from liabilities arising from unethical decisions made by the controller due to my assistance and advice. I will sign a disclaimer to contract to price.
Ethical challenges and issues involved in managerial accounting
In managerial accounting, one could overcharge one customer and undercharge another customer. This is both unethical and illegal as far as business ethics of conduct is concerned. Conflicting interests can also lead to unethical conduct by the managerial accountant. The accountant is supposed to make decisions in favor of the company but when the accountant acts under pressure from the controller they may make decisions that will affect the company negatively. When making asset replacement decisions the accountants are supposed to consider the ROI ratio. Failure to consider this ratio is unethical.
The company may gain from unethical acts of the actions of the managerial accountant while the public may be injured by such actions. This is the major tension caused by such decisions. The accountants can ease this tension by basing their decisions using the ethics code of conduct of their profession. This will strike a balance between the public and the company thus reducing the tension between the two parties.
Legally correct reports contain all the necessary aspects as required by law. Ethical issues are not considered in such reports as only legal issues are considered. Ethical reports contain all aspects that are demanded by the ethics of a given profession. However, it is rare to find reports that are ethical and not legal. The reports can only be fair, accurate, and ethical if only the managers uphold both the legal and ethical aspects.
The biblical aspects that can guide the managerial accountant include; honesty, love, integrity, and fairness. Love and fairness will make them act in such a way that they treat both the public and the company equally. Honesty will enable them to make decisions that are genuine and not based on bribes. Integrity may prevent the managers from stealing from both the company and the public by not altering the accounts or failing to report some assets with intentions of stealing the assets. It is evident that if an accountant upholds biblical aspects, legal aspects and the necessary professional ethics his or her reports will serve the best interest of the public and the company. This will ensure that negative review implications that may befall their career are avoided early and thus they maintain their professional dignity.