Ethics and Governance

Question 1 – 10 Marks You are the deputy director of finance and information for a hospital trust, with overall responsibility for the preparation of non-financial performance information. The newly appointed director of finance and information is putting considerable pressure on you concerning the collation and reporting of this year’s performance information for presentation to the trustees and your regulator. The director has made it clear that he expects the reported performance information to result in the hospital retaining its ‘excellent’ rating by the regulator. Some favourable performance information has not been adequately verified, but the director is willing for it to be reported, because it will enhance the perceived performance of the trust. You are aware that some departments have had difficulties meeting targets during the last year, due to funding constraints and staff shortages. From your scrutiny of the information systems, you are concerned that the relevant information may be incorrect, and that the correct performance information would draw attention to some severe performance shortfalls within the hospital. You are aware of some instances where departments have been double counting activity in order to increase the funding income of the hospital. This was highlighted in a recent internal audit report, which will shortly be submitted to the audit committee. The director is putting considerable pressure on you to conceal this issue, in the short term, while he reviews the position and puts in place a plan for remedial action. Recommend an appropriate course of action. Use the following format for your answer. Relevant facts Key fundamental principles under threat Affected parties and how they are affected Possible courses of action and consequences Recommended course of action and justification Question 2 – 10 Marks The following situations may violate the APES 110 Code of Ethics for Professional Accountants. Assume, in each case, that the public accountant is a partner. 1. Able, CPA, owns a substantial limited unit trust in a block of units in Adelaide. Peter Marshall is a 100% owner in Marshall Marine Company Ltd. Marshall also owns a substantial interest in the same unit trust as Able. Able does the audit of Marshall Marine Company Ltd. 2. Baker, CPA, approaches a new client and tells the general manager that she has an idea that could result in a substantial tax refund in the prior year’s tax return by application of a technical provision in the tax law, that the client has overlooked. Baker adds that the fee will be 50% of the tax refund after it has been resolved by the Australian Tax Office. The client agrees to the proposal. 3. Contel, CPA, advertises in the local paper that his firm does the audit of six of the eight largest finance companies in the city. The advertisement also states that the average audit fee, as a percentage of total assets for the companies he audits, is lower than that of any other public accounting firm in the city. 4. Davis, CPA, sets up a small-loan company specialising in loans to business executives and small companies. Davis doesn’t spend much time in the business because she works full-time in the accounting practice. No employees of Davis’s accounting firm are involved in the small-loan company. 5. Elbert, CPA, owns a material number of shares in a mutual fund investment company, which in turn owns shares in Elbert’s largest audit client. Reading the investment company’s most recent financial report, Elbert is surprised to learn that the company’s ownership in his client has increased dramatically. 6. Finigan, CPA, does the audit, tax return, book-keeping and management services work for Gilligan Construction Company Pty Ltd. Mildred Gilligan follows the practice of calling Finigan before she makes any major business decisions to determine the effect on her company’s taxes and the financial statements. Finigan attends continuing education courses in the construction industry to make sure she is technically competent and knowledgeable about the industry. Finigan normally attends board of directors meetings and accompanies Gilligan when she is seeking loans. Mildred Gilligan often joking introduces Finigan with this statement: ‘I have three business partners – my banker, the government and my accountant, but Finnigan is the only one who is on my side’. identify the relevant facts, discuss whether there is a violation of the APES 110, with specific reference to the section(s) in APES 110. Where relevant, specify appropriate safeguards or actions.      

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