You work in the finance department of ‘A la Mode’ (ALM), a manufacturer of women’s wear, which supplies a national group of chain stores. The company is a subsidiary of ‘Femme Fatale’ (FF), a publicly listed company.
Both companies have a 31 December financial year end. In July this year you were asked to issue a credit note in respect of a large order which had been invoiced, and paid, twice: once in October and once in November.
This error had arisen when the customer asked ALM to re-issue the invoice in the name of another of their group companies. You have been told to record the credit note in the current year’s accounts. You feel uncomfortable because the double counting of the invoices will turn what would otherwise be a loss into a small profit.
Your line manager, the Finance Director of ALM, an unqualified accountant, has told you not to worry as “this will never be picked up”.
WHAT SHOULD YOU DO?
As a member in business you are bound by the same fundamental principles and the same standards of behaviour and competence as apply to all other members of ACCA. The “client” of an employed member is his employer. [ACCA Rulebook 2009 3.7 paragraph 2].
Threats to compliance with the fundamental principles may arise where members may be pressurised to become associated with misleading information. “The significance of such threats will depend on factors such as the source of the pressure and the degree to which the information is, or may be, misleading.
[If, after evaluating the threats, it is considered that] they are other than clearly insignificant, safeguards should be considered and applied as necessary to eliminate them or reduce them to an acceptable level. Such safeguards might include consultation with superiors within the employing organisation ………. or with ACCA or another relevant professional body”. [ACCA Rulebook 2007 3.7 paragraph 27]
In a situation such as in this example, a member, should where possible try and resolve the issue internally. Clearly, having raised the matter unsuccessfully with your immediate line manager, it will be necessary to go higher within the organisation’s chain of command, such as the CEO of ALM. If you are still unable to achieve a satisfactory result it would be necessary to have recourse, for example, to the Finance Director and/or CEO of FF. It will be necessary to provide evidence of your concerns.
Since the figures for the year to December had already been reported internally to FF, the CEO of ALM would not agree to a change in the financial statements for the year to December when the member brought the issue to her attention.
However, on taking the matter higher, to the Finance Director of FF, there was a happy outcome. The Finance Director of FF, also a qualified accountant and committed to good corporate governance, understood the predicament the member was in. Immediately, appropriate action was taken against those who had negated the changes. New internal group procedures were also instigated.
In such circumstances, members should document any verbal discussions and following up with appropriate written confirmation. This is necessary so that members may safeguard themselves.
“Where it is not possible to reduce the threat to an acceptable level, members should refuse to remain associated with information they consider is, or may be, misleading.
Should they be aware that the issuance of misleading information is either significant or persistent, they should consider informing appropriate authorities in line with the guidance in [ACCA Rulebook 2009] section 3.5, Professional duty of confidence in relation to defaults and unlawful acts of clients and others. They may also wish to seek legal advice or resign.” [3.7 paragraph 28]
The ethical responsibilities of members in business are set out in full in the ACCA Rulebook 2009 at section 3.7.
Members wishing to talk over ethical concerns may contact their local Technical Advisory Team for confidential advice.
Alternatively, members in the UK may discuss matters with Public Concern at Work [www.pcaw.co.uk] the independent organisation established to support employees troubled by ethical dilemmas at work.