Course Profile Introduction to Financial Accounting, Grade 11, University/College Preparation, Catholic

Unit 4: Ethical Practices in Accounting

Time: 12 hours

Unit Description

Students explore the regulatory, moral, and ethical framework within which accountants operate (ICAO Member’s Handbook, Ontario Securities Commission, CICA Handbook, CA Magazine, Check Mark Magazine). Students understand and apply the concept of professional judgement and rules of professional conduct. Case study analysis could be highly effective in studying potential abuses of accounting data (preparation, interpretation, and opinion), internal control weaknesses, and implications of global competition. Finally, ethical issues surrounding the establishment and operation of a partnership are examined (appointments, profit sharing, duties, obligations, and liability).

Unit Synopsis Chart

Activity	Time	Expectations	Assessment	Tasks
4.1: Ethical Framework	1.25 hours	OAV.01, .02, OA1.03, OA2.01, .02; CGE2a, 2b, 2c, 7a, 7b, 7e	T/I; K/U	Socratic delivery, note taking, and discussion
4.2: Introduction to Christian Ethical Decision-making Model for Scenarios	1.25 hours	OAV.01, .02, AFV.04, OA1.04, .05 OA2.01, .02, AF4.02; CGE1c, 3b, 3d, 4f, 4g, 5e, 7b	K/U; T/I; C	Socratic, idea generation, student-driven model development
4.3: Ethical Scenario Study (Appendix 1)	3.5 hours	OAV.01, .02, FAV.01, .03, OA1.04, .06, OA2.01, .02, FA1.01, .04, .05, FA3.01, .02, .03; CGE1d, 2c, 3d, 3e, 4a, 4e, 5a, 5e, 5h, 7a, 7j	K/U; T/I; A; C	Think/pair/share problem solving
4.4: Introduction to Christian Ethical Decision-making Model for Cases (Appendix 2)	1.25 hours	OAV.01, .02, AFV.04, FAV.03, OA1.04, .05, OA2.01, .02, AF4.02, FA3.01, .02, .03; CGE1c, 3b, 3d, 4f, 4g, 5e, 7b	K/U; T/I; C	Socratic, idea generation, student-driven model development
4.5: Case Study Application and Presentations (Appendix 3)	3.5 hours	OAV.01, .02, .03, AFV.01, FAV.01, .03, OA1.04, .05, .06, OA2.01, .02, OA3.03, AF1.05, FA1.04, .06, FA3.01, .02, .03; CGE1i, 2a, 2b, 2c, 3c, 3d, 3e, 3f, 4c, 4d, 4f, 4g, 5a, 5e, 5f, 5g, 7a, 7b, 7e, 7j	K/U; T/I; A; C	Independent and group case analysis, peer instruction, and presentation
4.6: Summative Evaluation Unit Test (Appendix 4)	1.25 hours	OAV.01, .02, .03, FAV.01, .03, OA1.03, .04, .05, .06, OA2.01, .02, OA3.03, FA1.04, FA3.01, .02, .03; CGE1i, 2b, 2c, 3c, 3d, 3f, 4c, 4d, 4f, 5f, 5g, 5h	K/U; T/I; A; C	Trigger recall, application, and analysis

Activity 4.1: Ethical Framework

Time: 75 minutes

Description

Students are introduced to the significance of ethics and ethical behaviour. Approaches to ethical behaviour are presented along with a rationale for why businesses are behaving more ethically in the global marketplace. The issue of “What is an ethical dilemma?” is addressed. The ICAO Code of Conduct is introduced as a behavioural guideline for professional accountants as well as accounting students.

Strand(s) & Learning Expectations

Strand(s): The Objectives of Accounting

Ontario Catholic School Graduate Expectations

CGE2a - listens actively and critically to understand and learn in light of gospel values;

CGE2b - reads, understands, and uses written materials effectively;

CGE2c - presents information and ideas clearly and honestly and with sensitivity to others;

CGE7a - acts morally and legally as a person formed in Catholic traditions;

CGE7b - accepts accountability for one’s own actions;

CGE7e - witnesses Catholic social teaching by promoting equality, democracy, and solidarity for a just, peaceful, and compassionate society.

Overall Expectations

OAV.01 - describe the discipline of accounting and its importance for business;

OAV.02 - demonstrate an understanding of the regulatory and ethical framework of accounting.

Specific Expectations

OA1.03 - understanding of the changing role of accounting;

OA2.01 - describe the link between ethics in business and ethics in accounting;

OA2.02 - assess the effects of current issues and developments on the accounting profession.

Planning Notes

· The teacher can take these notes and copy them onto an overhead transparency

Business Ethics

Ethics defined - moral principles; rules of conduct in a particular group/culture; values relating to human conduct; right, wrong, good, bad

Ethical Behaviour is Legal behaviour with implications from a variety of variables including the individual, social, and corporate priorities.

Ethical dilemmas - situations faced by managers every day
- choice between alternatives in a situation that may result in personal/organizational benefit or may minimize losses to “save face”.

Why should managers/accountants behave ethically?

· it is required by the accounting governing bodies and practising professionals could lose their licence if they behave unethically (See ICAO Summary.)

· new societal push for corporate responsibility in this information age (Ethical MBA programs already exist in the USA; Canada will soon follow suit.)

· lawsuits when you do wrong

· long-run profit can be sustained

· improved public image

· better overall environment for all to enjoy

· government and professional regulation will not need to increase

· employee/community pride will increase (less employee turnover)

· finally and perhaps most importantly: AS CHRISTIANS WE ARE CALLED TO DO UNTO OTHERS AS WE WOULD LIKE OTHERS TO DO UNTO US.

A Summary of Basic Terms, Rules, and Principles Outlined in the ICAO Member’s Handbook

Printed with permission

DEFINITION OF PROFESSION – To be considered a profession, the elements must be present:

· mastery of skills through lengthy education and training;

· applying skills on behalf of others for compensation;

· deals with the application of a service, not a provision of goods;

· an expectation that practitioners will be objective;

· practitioner cannot personally benefit from any work performed;

· qualification requirements, checks of competence, and assurance of correct application of standards and skills;

· an existence of a code of conduct and enforcement in order to protect the public;

· a professional commitment to life-long education and training;

· a personal commitment to sharing advances in knowledge with fellow practitioners.

As such, the accounting occupation fits all the categories of profession.

ICAO “Fundamental Behaviour Principles” for Chartered Accountants and students – Members will:

· conduct themselves and maintain the good reputation of the profession and protect interest of public;

· perform their work with integrity and care;

· keep their skills and knowledge up to date;

· not accept compensation for referral of business from one client to another;

· not perform audits and review engagements when an outside person would reasonably think that you may have a conflict of interest;

· not use information obtained in their work for personal gain;

· not discuss client information with anyone unrelated to the job you are working on and especially not with others outside the firm;

· when looking for clients, only advertise what services they offer and what expertise they have;

· not actively solicit clients from other members and not pay referral fees;

· treat other members with courtesy and respect in the way that they themselves wish to be treated;

· be responsible for all associated with them and ensure that they also abide by ICAO rules of conduct;

· abide by the rules of the profession for the part of the world in which they are living; however, they must not bring disrepute to the profession in any way when working in another part of the world;

· handle monies held in trust in a separate bank account from that of the operations of the firm;

· use a form of ownership for their accounting firm, either sole proprietorship, partnership, or LLP.

ICAO “General Rules” – Members can be charged with professional misconduct if they:

· are convicted of criminal or other similar offences;

· have pleaded guilty or found guilty of a criminal offence;

· have signed any false or misleading document;

· don’t “promptly” reply to ICAO letters.

In any of these cases, violation of rules of conduct will be reviewed by the ICAO when they receive report of the incident. A committee from the ICAO will be put together to hear the case. If found guilty of misconduct, the member will be fined, licence suspended or revoked, and the name and details of the misconduct will be published in the ICAO Check Mark publication mailed to all ICAO members.

Teaching/Learning Strategies

1. The teacher begins by defining decision making.

2. As a class, students generate a list of major decisions that they will have to make during their life.

3. The teacher leads a class discussion on factors that influence responses to the above major decisions, focussing on distinguishing between good and bad influences. This should include a focus on how these apply to accounting practice.

4. Teacher-led brainstorming on developing a group definition of morals, ethics, laws, and rules.

5. From these terms, the teacher leads into a Socratic lecture regarding the notes given in Planning Notes.

6. At this point, the teacher provides a hypothetical life dilemma that students will have to solve and justify their approach.

Assessment & Evaluation of Student Achievement

· Students submit their solution to the life dilemma. This activity is a pre-assessment strategy for the unit and focuses on the Thinking/Inquiry Achievement Chart category.

· The unit test culminating activity addresses the Knowledge/Understanding, Application, Thinking/Inquiry and Communication Achievement Chart categories.

Accommodations

· Students who require enrichment could be asked to mentor peers requiring extra assistance.

· The teacher circulates around the room to give feedback and direction.

· Refer to Accommodation Chart if required.

Resources

Ethics, Business, and Gospel Infusion - www.smcdsb.edu.on.ca/secondary/business/infusion.html
Examples of ethics and gospel values applied to business curriculum and relevant links to other sites.

Schermerhorn, J., R. Cattaneo, and A. Templer. Management – The Competitive Advantage. Toronto: Wiley Publishers, 1995. ISBN 0-471-64110-3

Wilson, D. ICAO Member’s Handbook. Toronto: CICA, 1989.

Activity 4.2: Introduction to Christian Ethical Decision-making Model for

Scenarios

Time: 75 minutes

Description

Students are introduced to the Christian Ethical Decision-making Model as an approach to analysing ethical dilemmas. Scenarios are analysed using the first two steps of the model. Gospel Values are listed and described in order to assist in further dilemma analysis from a Christian perspective. Finally, a sample scenario is included together with a solution that can be used as a model for student solutions.

Strand(s) & Learning Expectations

Strand(s): The Objectives of Accounting; The Fundamentals of Accounting

Ontario Catholic School Graduate Expectations

CGE1c - actively reflects on God’s Word as communicated through the Hebrew and Christian scriptures;

CGE3b - creates, adapts, and evaluates new ideas in light of the common good;

CGE3d - makes decisions in light of gospel values with an informed moral conscience;

CGE4f - applies effective communication, decision-making, problem-solving, time, and resource management skills;

CGE4g - examines and reflects on one’s personal values, abilities, and aspirations influencing life’s choices and opportunities;

CGE5e - respects the rights, responsibilities, and contributions of self and others;

CGE7b - accepts accountability for one’s own actions.

Overall Expectations

OAV.01 - describe the discipline of accounting and its importance for business;

OAV.02 - demonstrate an understanding of the regulatory and ethical framework of accounting;

AFV.04 - assess the impact of technology on the accounting functions of business.

Specific Expectations

OA1.04 - understanding of the changing role of accounting;

OA2.01 - describe the link between ethics in business and ethics in accounting;

OA2.02 - assess the effects of current issues and developments on the accounting profession;

AF4.02 - describe the ways in which technology can affect the accounting function.

Prior Knowledge & Skills

Students are required to define Ethics and Ethical Behaviour, and Approaches to ethical behaviour. Students also need to understand the benefits of ethical decision making and the consequences of not behaving ethically according to the ICAO Code of Conduct.

Planning Notes

· The teacher can take these notes and copy them onto an overhead transparency.

· Teachers may also show clips of the video Affluenza from Bullfrog Films (see Resources).

Viewing dilemma scenarios and case studies-Steps in the Christian Ethical Decision-making Model

1. Define the dilemma.

2. List the facts.

3. List your options.

4. Evaluate options: Is it legal? Is it right? Is it Christian? (See Gospel Values.)

Does your decision adhere to Gospel Values? Peace, Conflict Analysis and Management, Cooperation, Non-violence, Global Community, Social Justice, Social Sin, Human Rights, Responsible Use of Power, Responsible Stewardship of the Earth, Moral Conscience.
Gospel Value Examples:

Social Sin:	Are our company objectives, advertising, and objectives promoting social sins, such as greed and waste?
Human Rights:	Do we, as part of management, try to take advantage of employees to the point that we are denying employees a real life or a safe working environment?
Responsible Use of Power:	Do we take advantage of third-world countries to benefit our company?
Responsible Stewardship of the Earth:	Do we pollute in order to improve the bottom line or to eliminate our competitors through price wars?
Non-violence:	What concerns do we have about the treatment of employees?
Moral Conscience:	As a Christian and as a professional accountant you must be able to live with the decisions you make. It is your reputation, name, and ultimately your livelihood which are at risk. If a professional accountant is found guilty of professional misconduct or illegal activities, then they lose their ability to practise in Canada.

5. Select an option.

6. Reflection. What if others close to me find out about my decision? What will the Institute of Chartered Accountants do if they find out about my decision?

7. If uncomfortable with your decision, then your moral conscience is talking to you. You need to go back and select another option (see Allan Otten. “Ethics on the Job: Companies Alert Employees to Potential Dilemas.” The Wall Street Journal. July 14, 1996, p. 17).

Sample Scenario and Solution

Candice Crown, CA, is considering a request to audit the accounts of a local registered charity. It is Candy’s policy not to charge an audit fee to any local charities. Candy has found this policy to be good in obtaining new clients; the cost is not significant, as there are few charities in this small community. In addition, she is considering an arrangement with the Lodge; she will donate $250 for each new client that club members refer to her practice.

Solution: Students complete the first two steps of the Christian Ethical Decision-making Model:

Step 1) Define the dilemma.

Step 2) List the facts and how ICAO rules and Gospel Values are at question.

For this particular scenario, the following are relevant issues:

Rules of Professional Conduct: ICAO does not allow the providing of services without fee unless for charitable purposes. Candy’s motive is profit-driven. This is a case of conditional fees.

Client Solicitation: The donation violates the ICAO rule about paying a commission to obtain clients.

Professional Misconduct: It could also be argued that Candy is conducting herself in a way that could taint the reputation of the accounting profession by profiting from a seemingly charitable action.

Social Sin: In today’s society it has become more acceptable to lie for personal gain under the facade of goodwill. How many so-called charities are really “charitable”?

Responsible Use of Power: As a professional, you are seen as an honourable and trustworthy person. In this case, Candy is using the cloak of professionalism to misrepresent her actions.

Moral Conscience: Candy is living the letter of the law and not the spirit of the law. While the work is charitable within ICAO guidelines, she is financially benefiting from this activity.

Teaching/Learning Strategies

1. The teacher begins by asking students to brainstorm what is it to be Christian. What are our basic beliefs? This leads into a discussion of Gospel Values and how they apply to business.

2. The teacher introduces the sample Candy Cane scenario on an overhead. Students work individually on applying the first two steps of the Christian Ethical Decision-making Model to the scenario.

3. Students share their analysis with a partner, after which the teacher leads a comparison of student analysis to the sample solution, which could also be presented on an overhead.

Assessment & Evaluation of Student Achievement

· Students present their solution to the sample scenario to the class in a non-threatening, supportive environment. The presentation focuses on the Knowledge/Understanding Achievement Chart category, but will also address the other three categories.

· The unit test culminating activity addresses the Knowledge/Understanding, Application, Thinking/Inquiry and Communication Achievement Chart categories.

Accommodations

· Students who require enrichment could be asked to mentor peers requiring extra assistance.

· The teacher circulates around the room to give feedback and direction.

· Refer to accommodation chart if required.

Resources

Bullfrog Films Company – www.bullfrogfilms.com
Includes a video entitled Affluenza, which challenges our materialistic society.

Ethics, Business, and Gospel Infusion - www.smcdsb.edu.on.ca/secondary/business/infusion.html
Examples of ethics and gospel values applied to business curriculum and relevant links to other sites.

Schermerhorn, J., R. Cattaneo, and A. Templer. Management - The Competitive Advantage. Toronto: Wiley Publishers, 1995. ISBN 0-471-64110-3

Wilson, D. ICAO Member’s Handbook. Toronto: CICA, 1989.

Activity 4.3: Ethical Scenario Study

Time: 210 minutes

Description

Students are exposed to many different scenarios, which they analyse using the format outlined in Activity 2. The class is divided into pairs on the first day in order to perform the scenario studies in a think/pair/share setting. On the second day, students work in trios with assigned roles. On the third day, students present their solutions to the class.

Strand(s) & Learning Expectations

Strand(s): The Objectives of Accounting; Financial Analysis, Control, and Decision Making

Ontario Catholic School Graduate Expectations

CGE1d - develops attitudes and values founded on Catholic social teaching and acts to promote social responsibility, human solidarity, and the common good;

CGE2c - presents information and ideas clearly and honestly and with sensitivity to others;

CGE3d - makes decisions in light of gospel values with an informed moral conscience;

CGE3e - adopts a holistic approach to life by integrating learning from various subject areas and experience;

CGE4a - demonstrates a confident and positive sense of self and respect for the dignity and welfare of others;

CGE4e - sets appropriate goals and priorities in school, work, and personal life;

CGE5a - works effectively as an interdependent team member;

CGE5e - respects the rights, responsibilities, and contributions of self and others;

CGE5h - applies skills for employability, self-employment, and entrepreneurship relative to a Christian vocation;

CGE7a - acts morally and legally as a person formed in Catholic traditions;

CGE7j - contributes to the common good.

Overall Expectations

FAV.01 - demonstrate an understanding of the importance of proper internal control;

OAV.01 - describe the discipline of accounting and its importance for business;

OAV.02 - demonstrate an understanding of the regulatory and ethical framework of accounting control systems to the financial management of a business;

FAV.03 - demonstrate an understanding of how accounting information is used in decision making.

Specific Expectations

OA1.04 - understanding of the changing role of accounting;

OA1.06 - explain basic concepts, procedures, and GAAPs;

OA2.01 - describe the link between ethics in business and ethics in accounting;

OA2.02 - assess the effects of current issues and developments on the accounting profession;

FA1.01 - describe the basic elements of a proper internal control system;

FA1.04 - describe the role and work of an auditor;

FA1.05 - analyse control measures used in a business;

FA3.01 - demonstrate an understanding of various uses of financial data in decision making;

FA3.02 - describe how accounting information is used by company personnel;

FA3.03 - describe how accounting information is used by outsiders.

Prior Knowledge & Skills

Students understand the first two steps in the Christian Ethical Decision-making Model. Furthermore, students need to be able to recognize when GAAPs and ICAO regulations are violated and situations in which Gospel Values are threatened.

Planning Notes

· The teacher can select the pairs so as to have gifted students work with other students who may be in need of assistance. In addition, by changing partners each day, each student is exposed to a different mindset of morals, enhancing their overall learning experience.

· The teacher should photocopy as many of the scenarios as they need, physically cut the scenarios off the page, and then distribute different scenarios to each pair/trio. See Appendix 1.

Teaching/Learning Strategies

1. On the first day, the teacher selects pairs to work together; within each group, students perform a think/pair/share analysis. The cases and student solutions are discussed by the class. Ideally, each group analyses two different scenarios in the allotted time.

2. On the following days, the teacher selects trios to work together; in each group, students perform scenario analysis. The cases and student solutions are discussed. Ideally, each group analyses three scenarios per day. Students are assigned tasks of Recorder, Timekeeper, and Spokesperson.

3. Under each scenario is a list of the relevant issues that should be discussed in the student solutions. There may be other issues as well that “crop up” as you look at them in more detail.

Assessment & Evaluation of Student Achievement

· Students present their solutions to the scenarios in a non-threatening, supportive environment. Presentations focus on Knowledge/Understanding and Communication.

· The Unit test culminating activity addresses the Knowledge/Understanding, Application, Thinking/Inquiry and Communication Achievement Chart categories.

Accommodations

· Students who require enrichment could be asked to work in groups with peers requiring assistance.

· Students who require enrichment could create new scenarios and solutions to be used in subsequent sections of the course.

· The teacher circulates around the room to give feedback and direction.

· Students requiring more time to read the document may have a partner read it to them.

· Refer to accommodation chart, if required.

Resources

Ethics, Business, and Gospel Infusion - www.smcdsb.edu.on.ca/secondary/business/infusion.html
Examples of ethics and gospel values applied to business curriculum and relevant links to other sites.

Schermerhorn, J., R. Cattaneo, and A. Templer. Management - The Competitive Advantage. Toronto: Wiley Publishers, 1995. ISBN 0-471-64110-3

Wilson, D. ICAO Member’s Handbook. Toronto: CICA, 1989.

Appendix 1

Scenarios for Class Use in Activity 4.3

Scenario 1

Brad Shoreman is a drummer in a band based out in Southern Ontario. He asks you to help him with his personal Tax Return. He believes that any cash “gigs” should not be included in his personal income because they are not traceable and the government gets enough of his money. You like their music and enjoy the free tickets supplied to you. What will you do when he demands that this revenue not be included? (Issues: Accounting Entity, Revenue Recognition, Social Sin, Moral Conscience)

Scenario 2

Lisi Crichton operates a variety store. Her brother does custom welding and made some racks to hold videos. Lisi gave her brother $5000 cash and did not get a bill. A similar rack was on display at a deparment store for $1000. You are told to book an expense on the company financial statement for $5000. What will you book the amount for? What account will you post to?

(Issues: Cost Principle, Conservatism, Asset Capitalization, Objectivity, Conflict Analysis and Management, Social Sin, Moral Conscience)

Scenario 3

Carmello Sferazza has a restaurant called Stella’s Bistro. He has five employees, all of whom are friends. When he goes away on vacation to Italy for three months each year, his bartender does the deposits and bookkeeping. The bartender is his brother-in-law. Is there anything wrong with that?

(Issues: Internal control – Separation of duties, Responsible Use of Power, Moral Conscience)

Scenario 4

Cynthia VandenBerg operates a consulting firm. She performed work for the local Thunderwood Golf Course, but agreed to a golf membership in lieu of the work performed. An annual membership would cost $1400. Cynthia argues that since no money changed hands, it need not be recorded as revenue. You act as accountant for Cynthia and have been friends for years. What do you say? (Issues: Revenue Recognition and Objectivity, Conflict Analysis and Management, Social Sin, Responsible Use of Power, Moral Conscience)

Scenario 5

Joe Saxafone is the proprietor of an upscale coffee shop. You are a patron of the coffee shop as well as their independent accountant employed at a local firm. You overhear Joe telling a patron that he is going to bring an espresso machine home and that he can depreciate it on the company books as an expense. Joe looked over at you during the conversation for non-verbal approval (the old “head nod”). Joe is also an old friend of your Dad’s. What do you do? (Issues: Business Entity Concept and Fraud, Social Sin, Human Rights, Responsible Use of Power, Moral Conscience)

Scenario 6

Neera Gupta is the owner of Just Videos. She purchased 50 new videos the day before her financial year end, when she realized that she may have to pay corporate tax on her net income for the 2000 calendar year. She has a bill for the full amount and a cancelled cheque to prove that she has paid for it. She has told you to record the bill as an expense for the current year. Is this a problem? (Issues: Matching Principle and Asset Capitalization, Peace, Conflict Analysis and Management, Social Sin, Moral Conscience)

Appendix 1 (Continued)

Scenario 7

You are working for the accounting firm of Zulian, Bolton, and Buffone. A client’s financial records do not include invoices for the purchase of a $2000 computer used in the business. The client is Finnegan’s Fireplace Manufacturer with total assets of $100 billion and a net income of $7.8 billion. The partner of the accounting firm has told you to not look any longer for the bill as the amount is so small and to accept the word of Finnegan’s owner. You have already spent the allotted time on this client’s work and will get a bad review if you spend any more time looking for this bill. (Issues: Objectivity, Materiality, Professional Judgement, Professional Liability, Conflict Analysis and Management)

Scenario 8

Play It Again Sam Sporting Goods bought 5000 CCM hockey sticks at a total cost of $50 000 on September 29, 2000. The owner, Chris “Bugaloo” Perri, has told you not to include the amount in the financial statements dated September 30, as Play it Again Sam has not paid for the goods yet so they really do not own the sticks. If they are included in the financial statements, the closing inventory figure would rise and thus result in a lower cost of goods sold. The company needs to show a high net income to get a bank loan necessary for expansion of their facility. (Issues: Cost Principle, Accrual Basis of Accounting, Conflict Analysis and Management, Responsible Use of Power, Moral Conscience)

Scenario 9

Mirona Dragicevic owns a catering company named Good Eatin’. Sabrina Smith does the general ledger work; another part-time clerk named Rocky takes care of accounts receivable; and a third part-time clerk named Nicole takes care of accounts payable. Sabrina is a dedicated employee who never takes holidays and doesn’t like anyone to take her place when she is working on things. Further, she takes over Rocky and Nicole’s jobs when they take their vacations and doesn’t ask for a raise when she helps out this way. Mirona appreciates this dedicated work ethic and gives Sabrina full control of all accounting functions, as they were best friends in high school. This includes reconciliation of general ledger control accounts to the general ledger listing, as well as signing authority on cheques. (Issues: Internal Control- Separation of Duties, Social Sin, Responsible Use of Power, Moral Conscience)

Scenario 10

Hong Kong Construction (HKC Co.) is considering placing a bid for the new bypass around a town in Ontario. The proposed multi-year contract is to cover the years 2000-2003 (four-year contract) that will yield the successful company $100 million in revenue with the stipulation that payment be withheld until project completion. The owner/operator held a closed door meeting in which he detailed to the accounting department the following plan: the calculated expenses are estimated to be near $65 million and are to be recorded in the year they were incurred, not in the year revenue is realized. For the duration of the contract there will not be any revenue flow for the project. The plan means huge losses in the next four years, followed by one immensely revenue rich year. If the project is delayed, the payment will be delayed accordingly. He has asked you, as the Chief Financial Officer, to evaluate the proposed contract in conjunction with his proposed financial plan. What would you do? What issues are there for your company? What modifications would you make to the financial recording plan and the proposed contract? (Issues: Revenue Recognition, Time-Period Principle, Accrual Basis of Accounting, Conflict Analysis and Management, Moral Conscience)

Appendix 1 (Continued)

Scenario 11

After having prepared financial statements and tax documents for Regan Heffernan for years, the two of you are good friends and socialize with each other; your families interact as well. Regan owns a large farm named Cornhuskers Ltd. and is approaching the bank for an expansion loan. He has asked you to prepare audited financial statements for the loan proposal and you agree as you know the business well. At the meeting the banker, is impressed with the financials presented. The banker then has a strange look on his face. He says, “I remember where I’ve seen you – you were out at Pasquale’s Trattoria the other night with your families”. You agree and inform the banker that your families socialize together and have even gone on a holiday together. The banker looks at the financials again and asks that another accounting firm verify the audit results that you spent five days putting together. What has just happened? (Issues: Objectivity, Conflict of Interest, Responsible Use of Power, Moral Conscience)

Scenario 12

You are just starting your accounting practice and only have a few clients. You have a huge mortgage on your home and have just had $5000 worth of car repairs done. The manager of twenty condominium corporations has approached you to be the auditor of all of the condo corporations. Each corporation will yield a fee of $1500 but you live in one of the condo corporations. The audit will verify that legal requirements for safe reserves are in place and have an effect on the market value of each unit. You decide to relinquish your voting rights as an owner of the corporation that you live in and take the job as auditor. Have you fulfilled ICAO requirements regarding being an independent third party? Explain your stance. (Issues: Objectivity, Conflict of Interest, Professional Misconduct, Conflict Analysis and Management, Responsible Use of Power, Moral Conscience)

Scenario 13

Me Do It Lumber Centre is a client for whom we do bookkeeping on a monthly basis. The financials are made without an audit and you are attending meetings with the client and their bank manager monthly to explain the information. Revenues increased from $30 000 in the first month, to $60 000 in the second to $80 000 in the third. In addition, at year end you are asked by the client to perform the service of auditor to verify the accuracy of the bookkeeping and accounting work performed by your technicians. Upon performing the audit, you find out that $60 000 is the cumulative revenue and not the revenue for the second month alone. Furthermore, the $80 000 was also the cumulative total for the end of the quarter and not revenue for the third month. You know that you should report the problem in the audited financials, but what effect will this have on your credibility and reputation? (Issues: Conflict of Interest, Objectivity, Professional Misconduct, Conflict Analysis and Management, Social Sin, Responsible Use of Power, and Moral Conscience)

Scenario 14

Juanita Alves is planning on expanding her fish farm operations to Southern Ontario and needs you to put together a business plan to secure additional bank finances. She agrees to pay you $15 000 for the plan, but will pay a bonus of $20 000 to you if the plan secures the loan for the company. Your firm is small and struggling and the bonus would cover your business rent for the year. What do you do? (Issues: Professional Misconduct, Conditional Fees, Objectivity, Conflict Analysis and Management, Social Sin, Responsible Use of Power, Moral Conscience)

Appendix 1 (Continued)

Scenario 16

Current technology in accounting software allows the person setting up the company records to implement internal controls to protect the data and detect accounting irregularities. Specifically, any deletion of accounting entries is limited to authorized personnel and is recorded in a hidden file accessible only by the person who sets up the system. You have set up this system for Tres Hombres Music Company. After the first fiscal year, you open the file and see that the comptroller has deleted $200 000 worth of revenue transactions. The result is that the company will not pay any corporate taxes this year. If included, the tax would be $39 567 for the current year. What is your professional obligation to the information in the file? (Issues: Revenue Recognition, Tax Evasion, Internal Control, Conflict Analysis and Management, Social Sin, Responsible Use of Power, Moral Conscience)

Scenario 17

Curly, Larry, and Moe are limited liability partners in La Trois Frere’s Law Office in Waterville. They each contributed $100 000 to the start-up costs of the practice. As such, they enter into a partnership agreement that outlines the specific job duties, responsibilities, and liabilities and includes a special clause that details the division of profits and losses. However, the agreement does not include provisions to address the issue of equitable remuneration (compensation for work completed by each practitioner). Curly has recently been negligent on a number of cases. His secretary has revealed that Curly has been frequenting the local pub. What responsibilities do the other partners have for Curly’s negligent work? If this pattern of Curly’s continues, the remaining partners will have to take over Curly’s case load. If the net income of the practice was $150 000, how should the proceeds be distributed at year-end? (Issues: LLP Liability vs. Partnership Liability, Profit Distribution, Conflict Analysis and Management, Social Sin, Human Rights, Moral Conscience)

Scenario 18

Mike Prentice, CMA, is a staff accountant with a large CA firm. In the process of completing an audit of Honka Autos Limited (HAL), Mike discovers that HAL has been awarded an exclusive government contract for 12 years, which will triple the sales of HAL. Mike would like to acquire shares of HAL, but he is aware that it is not possible because of the objectivity concerns as auditor. Therefore, he informs his sister that it would be a good investment to buy shares in HAL, but does not disclose the reason. (Issues: Objectivity, Insider Trading, and Disclosure, Social Sin, Responsible Use of Power, Moral Conscience)

Scenario 19

Jacquelyn Daniels, CGA, a sole practitioner, has been the auditor of Snowshoes ‘R Us Ltd. (SSRU) for six years. Dris Stanley, the owner, told Jacquelyn that the new controller was incompetent and he fired him after six months. He had replaced SSRU’s long time controller ,who had recently retired. While Dris searched for a new controller, Jacquelyn’s husband Jake would assume the controller’s duties for SSRU on a part-time basis. Jacquelyn also agreed to give Dris her audit working paper documents after the end of the audit. This would make it easier for Dris to train any future controller he hired. (Issues: Objectivity, Confidentiality of Audit process/findings, Responsible Use of Power, Moral Conscience)

Activity 4.4: Introduction to Christian Ethical Decision-making Model for Cases

Time: 75 minutes

Description

Students are introduced to all of the steps in the Christian Ethical Decision-making Model as a guide for analysing ethical dilemmas in cases. They then identify how the approach to scenario analysis is different from the model for case analysis. Finally, students are given a sample case and solution using the Christian Ethical Decision-making Model.

Strand(s) & Learning Expectations

Strand(s): The Objectives of Accounting; The Fundamentals of Accounting; Financial Analysis, Control, and Decision Making

Ontario Catholic School Graduate Expectations

CGE1c - actively reflects on God’s Word as communicated through the Hebrew and Christian scriptures;

CGE3b - creates, adapts, and evaluates new ideas in light of the common good;

CGE3c - thinks reflectively and creatively to evaluate situations and solve problems;

CGE3d - makes decisions in light of gospel values with an informed moral conscience;

CGE4f - applies effective communication, decision-making, problem-solving, time, and resource management skills;

CGE4g - examines and reflects on one’s personal values, abilities, and aspirations influencing life’s choices and opportunities;

CGE5e - respects the rights, responsibilities, and contributions of self and others;

CGE7b - accepts accountability for one’s own actions.

Overall Expectations

OAV.01 - describe the discipline of accounting and its importance for business;

OAV.02 - demonstrate an understanding of the regulatory and ethical framework of accounting control systems to the financial management of a business;

FAV.03 - demonstrate an understanding of how accounting information is used in decision making;

AFV.04 - assess the impact of technology on the accounting functions of business.

Specific Expectations

OA1.04 - identify the users and uses of accounting;

OA1.05 -demonstrate an understanding of the recording and decision making aspects of accounting;

OA2.01 - describe the link between ethics in business and ethics in accounting;

OA2.02 - assess the effects of current issues and developments on the accounting profession;

FA3.01 - demonstrate an understanding of various uses of financial data in decision making;

FA3.02 - describe how accounting information is used by company personnel;

FA3.03 - describe how accounting information is used by outsiders;

AF4.02 - describe the ways in which technology can affect the accounting function.

Prior Knowledge & Skills

Students are required to define Ethics, Ethical Behaviour, and Approaches to ethical behaviour. Students also understand the benefits of ethical decision making and the consequences of not behaving ethically according to the ICAO Code of Conduct. Students should have the note on the steps in the Christian Ethical Decision-making Model.

Planning Notes

· The teacher can take the attached sample case study analysis and copy it on an overhead transparency.

· The teacher gives a copy of the sample case details to students for their perusal.

· See Appendix 2.

Teaching/Learning Strategies

1. The teacher begins by reviewing the steps in the Christian Ethical Decision-making Model outlined for scenarios (steps 1 and 2 only).

2. The teacher then reviews ALL of the steps in the model. All steps are implemented when dealing with case study analysis.

3. Students identify how the approach to scenario analysis is different from the model for case analysis.

4. The teacher provides students with a photocopy of the case details and ask them to use the Christian Ethical Decision-making Model to perform an analysis of the sample case.

5. The teacher uses student input to come up with a class solution to the model case, which is then compared to the sample solution.

Assessment & Evaluation of Student Achievement

· Students present their solution to the case to the class in a non-threatening, supportive environment. The focus of the evaluation is on Thinking/Inquiry and Communication.

· The unit test culminating activity addresses the Knowledge/Understanding, Application, Thinking/Inquiry and Communication Achievement Chart categories.

Accommodations

· The teacher circulates around the room to give feedback and direction.

· Refer to Accommodation Chart, if required.

Resources

Ethics, Business, and Gospel Infusion - www.smcdsb.edu.on.ca/secondary/business/infusion.html
Examples of ethics and gospel values applied to business curriculum and relevant links to other sites.

Schermerhorn, J., R. Cattaneo, and A. Templer. Management - The Competitive Advantage. Toronto: Wiley Publishers, 1995. ISBN 0-471-64110-3

Wilson, D. ICAO Member’s Handbook. Toronto: CICA, 1989.

Appendix 2

Sample Case Analysis for Use in Activity 4.4

Students complete all steps of the Christian Ethical Decision-making Model.

Case 1: Water Worries

A prominent paint company, Rainbow Paints, started with one location and later expanded into many modern facilities while maintaining the original site. Total revenues last year were $27 billion and the company had a reputation for paying its executives huge bonuses.

The original factory is located 5 km upstream from the town of Horrizon and is now 75 years old. Five hundred of Horrizon 25 000 residents have jobs at this plant. While the plant still passed Environmental Regulations, it is getting so old that it is not running efficiently and has been shut down twice in the past six months due to emergency repairs. Rainbow Paints and especially management at the site have never set environmental standards as a priority as too much attention would detract from the net profit, resulting in lower bonuses for management. Paint thinners are routinely flushed into the sewage system; they make their way into a pipe and get washed into the nearby river when there are large rainfalls causing storm sewers to overflow.

One of the residents of Horrizon is Glen Herrell, a chemist and new executive with Rainbow’s original plant. Glen knows that he could make $100 000 in salary and up to $40 000 in bonuses if the company’s profit level remains the same as last year. Recently, at a training session, Glen learned of new testing techniques to determine the presence of a chemical known as ZZT, commonly used by paint producers and making its way into the nearby waters. ZZT has been proven to cause cancer in lab rats but its implication on humans is yet unknown. Testing included taking initial samples 3 km downstream from the plant and secondary samples near the Horrizon water intake for the town’s drinking water. The results showed that the initial samples had readings of ZZT that were ten times the legal limit and the secondary samples at the highest limit of acceptability as set by provincial guidelines.

Horrizon doctors have started noticing and recording high rates of cancer in long-time residents, together with abnormally high incidents of miscarriages in women who had lived most of their lives in Horrizon.

Glen has come to you with the results of his testing and is torn about whether to recommend implementation of a complete overhaul of the plant. The overhaul would cost $50 million and not only would the company executives forego bonuses, the factory may be shut down and a site in Comfort Bay expanded to pick up the extra capacity. Your lawyers say that because there currently is no direct link between ZZT and human health, you cannot be held liable in a court of law under current legislation. As CFO, you must decide what to tell the Board of Directors and CEO about the information.

Solution

Step 1. Define the dilemma and identify which of the four approaches to ethical behaviour you are using.

From a Christian perspective it can be rationalized that a utilitarian view is the most Christian of the views as it delivers the greatest good to the most of God’s creatures. The dilemma faced is that the CFO benefits personally if he decides to hide all or part of the results of the study.

Appendix 2 (Continued)

Step 2. List the facts.

· Factory location, age

· Job implications

· Environmental practices

· Personal implications

· ZZT implications

· Cost of overhaul

Step 3. List your options.

1. Bury the report.

2. Only give partial factual data to the CEO with no recommendation.

3. Only give partial factual data to the CEO with a recommendation to do minor repairs to the plant.

4. Full disclosure of the report with no recommendation.

5. Full disclosure of the report with a recommendation to repair/rebuild the original site.

Step 4. Test the options.

Is it legal? All of options 2-5 are legal as there are no laws being broken.

Burying the report is illegal because it does show that readings in the initial sample near the plant were ten times the legal limit.

Do all humans deserve healthy living conditions?

Glenn could have chosen to skew the report results to preserve his job and bonus but instead has shown you the results. You, as CFO, could consider your own bonus and your job security in short and long term. If you ignore the mess and it is found out will you have a job? Will the firm protect you when an environmental disaster is uncovered or will they claim ignorance and use you to take the fall?

What is fair and equitable? Is it fair that management take large bonuses and the company doesn’t modernize the plant? Is it fair that the river that has no voice is being exploited by a corporate entity? Is it fair that the company pick up and move to another town leaving behind a run-down plant and 500 unemployed residents of Horrizon?

Is it Christian? The Applicable Gospel Values are:

Conflict Analysis and Management – Is it good conflict resolution to hide a problem in the hope that it will go away?

Human Rights – Do the residents of Horrizon have the right to safe environment? Are you earning enough money without the bonus for your family to have a good living?

Responsible Use of Power – As a person in a position of power, your Christian responsibility is to do unto others, as you would have others do unto you. This would mean trying to keep the jobs in Horrizon.

Responsible Stewardship of the Earth – As a resident of the area, you should consider what kind of an environment you are leaving behind for your children and family.

Appendix 2 (Continued)

Step 5. Select an option

The ideal solution is option 5; the community would have safer water, retain its 500 jobs, ensure the safety of your job in the long run, and maintain the long-term profitability of the firm.

Step 6. Reflection should lead the student to option 5, eventually, as they must consider the following tough questions: What if others close to me find out my decision? What will the ICAO do if they find out about my decision?

Activity 4.5: Case Study Application and Presentations

Time: 210 minutes

Description

Students are exposed to many different cases, which they analyse using the format outlined in
Activity 4.4. The class performs the analysis individually on two cases. Students also perform analysis on other cases in trios with assigned roles. Finally, students present their solutions to the class.

Strand(s) & Learning Expectations

Strand(s): The Objectives of Accounting; The Fundamentals of Accounting; Financial Analysis, Control, and Decision Making

Ontario Catholic School Graduate Expectations

CGE1i - integrates faith with life;

CGE2b - reads, understands, and uses written materials effectively;

CGE2a - listens actively and critically to understand and learn in light of gospel values;

CGE2c - presents information and ideas clearly and honestly and with sensitivity to others;

CGE3c - thinks reflectively and creatively to evaluate situations and solve problems;

CGE3d - makes decisions in light of gospel values with an informed moral conscience;

CGE3e - adopts a holistic approach to life by integrating learning from various subject areas and experience;

CGE3f - examines, evaluates, and applies knowledge of interdependent systems (physical, political, ethical, socio-economic, and ecological) for the development of a just and compassionate society;

CGE4c - takes initiative and demonstrates Christian leadership;

CGE4d - responds to, manages, and constructively influences change in a discerning manner;

CGE4f - applies effective communication, decision-making, problem-solving, time, and resource management skills;

CGE4g - examines and reflects on one’s personal values, abilities, and aspirations influencing life’s choices and opportunities;

CGE5a - works effectively as an interdependent team member;

CGE5e - respects the rights, responsibilities, and contributions of self and others;

CGE5f - exercises Christian leadership in the achievement of individual and group goals;

CGE5g - achieves excellence, originality, and integrity in one’s own work and supports these qualities in the work of others;

CGE7a - acts morally and legally as a person formed in Catholic traditions;

CGE7b - accepts accountability for one’s own actions;

CGE7e - witnesses Catholic social teaching by promoting equality, democracy, and solidarity for a just, peaceful, and compassionate society;

CGE7j - contributes to the common good.

Overall Expectations

OAV.01 - describe the discipline of accounting and its importance for business;

OAV.02 - demonstrate an understanding of the regulatory and ethical framework of accounting;

OAV.03 - distinguish between the different types of business structures;

FAV.01 - demonstrate an understanding of the importance of proper internal control systems to the financial management of a business;

FAV.03 - demonstrate an understanding of how accounting information is used in decision making;

AFV.01 - analyse the similarities and differences in the accounting procedures and principles for a service business, manufacturing business, and merchandising business.

Specific Expectations

OA1.04 - identify the users and uses of accounting;

OA1.05 -demonstrate an understanding of the recording and decision making aspects of accounting;

OA2.01 - describe the link between ethics in business and ethics in accounting;

OA2.02 - assess the effects of current issues and developments on the accounting profession;

FA3.01 - demonstrate an understanding of various uses of financial data in decision making;

FA3.02 - describe how accounting information is used by company personnel;

FA3.03 - describe how accounting information is used by outsiders;

AF4.02 - describe the ways in which technology can affect the accounting function.

Prior Knowledge & Skills

Planning Notes

· The teacher needs to supply each student with copies of five cases. The teacher could use the cases in Appendix 3 or create new ones. See Appendix 3 for resources.

· The teacher considers groupings of students to ensure that gifted students are able to work with other students who require additional help.

Teaching/Learning Strategies

1. On the first day, the teacher assigns two cases for students to work on individually. One solution is discussed orally while the remaining case is submitted for grading.

2. On the second day, the teacher selects trios to work together. In groups, students perform case study analysis of the three remaining cases. Each person in the group is assigned different tasks for each case: Recorder, Timekeeper, and Spokesperson.

3. During analysis, students learn more detailed case study analysis and are put into situations not as clear cut as the scenarios. They think like management as well as accounting professionals.

4. Students present one of their solutions to the class.

Assessment & Evaluation of Student Achievement

· Students present their solution to the case to the class in a non-threatening, supportive environment. The focus of the evaluation is on Thinking/Inquiry and Communication.

· The unit test culminating activity addresses the Knowledge/Understanding, Application, Thinking/Inquiry and Communication Achievement Chart categories.

Accommodations

· The teacher circulates around the room to give feedback and direction.

· Refer to accommodation chart if required.

Resources

Ethics, Business, and Gospel Infusion - www.smcdsb.edu.on.ca/secondary/business/infusion.html
Examples of ethics and gospel values applied to business curriculum and relevant links to other sites.

Schermerhorn, J., R. Cattaneo, and A. Templer. Management - The Competitive Advantage. Toronto: Wiley Publishers, 1995. ISBN 0-471-64110-3

Wilson, D. ICAO Member’s Handbook. Toronto: CICA, 1989.

Appendix 3

Cases for Class Use in Activity 4.5

Case 1: What’s in a Rumour?

Brinichi Systems was experiencing impressive growth in the semi-conductor industry and meeting cash goals for the first time in many years. There is a rumour going around that suppliers are receiving late payments. Brett is confident the rumours are incorrect, but could he ignore them wholeheartedly?

At 5:00 pm Brett phoned home and told his wife he would be home shortly. She requested that he pick up a few things at the grocery store. She gave him a list, but he repeatedly asked her to repeat what she said. His head was elsewhere; he was still reeling from what had transpired at an earlier meeting in the day. He was wrestling with the comments from a fellow colleague. But more specifically, what was he going to do?

Brett Rosie is the Fibre Optics Division Manager of Brinichi Systems, a billion-dollar division of FEA Systems Incorporated. Specifically, Brinichi Systems produced semi-conductor solutions and Internet infrastructure for FEA Systems. Brett is responsible for the maintenance of an ethical environment within Brinichi and is committed to ethical procurement set out through mandated department policies and procedures. In addition, he routinely conducts training programs rich in ethically based curriculum. His training philosophy is centred on case study analysis and, therefore, group work, cooperation, and sharing are very important. This approach helped develop an environment that is hospitable to open discussions – which is at the heart of the team-building philosophy at Brinichi.

As each case is analysed, summarized, and solved one after the other, it is Brett’s contention that at the end of each session he ask the group which case seemed particularly applicable to their current situation.

This final free thinking/expression session is usually not very memorable – until today. Jamie Grecco began to speak aggressively about a case in which a supplier began to receive account payments on a regular basis from its biggest account. On a comedic reply, Brett proclaimed “Remember, we don’t worry about other companies’ payment practices”. The statement was not met with laughter, but rather a deadening silence. Then, out of the tranquility, someone replied “Maybe we should focus more on our own.”

“What is going on here?” Brett thought to himself. Could there be some inconsistency in our payment procedures? Is this fact or a biproduct of a rumour? Did he bring something up that did not jive with his own information? Whatever the case, Brett expressed to the group that he would address this issue once he had attained all the pertinent information – until then we go with what we know – we are meeting cash goals for the first time in many years – until further research says otherwise. Brett also reassured the group that he would get to the bottom of this within a reasonable amount of time.

As Brett placed the phone down, he could not help but obsess on the idea that the company was making timely payments and meeting cash goals or were his impressions totally unfounded.

Did he really want to lend credibility to this rumour? He went back to his office, collected files, placed them in his briefcase and set out to pick up a few things at the grocery store.

Appendix 3 (Continued)

Case 2: All in the Family

Georgian Seefoods Inc. (GSI) was started by Mr. Ho 25 years ago. He recently retired and transferred the shares of GSI equally to his three children. Li and Ling Ho have been in the family business since leaving high school. Sun went to university and got her CA designation. The accounting and tax work for GSI has been done by Ms. Mikayla Zulian, CA, who attached a review report to the financials. The bank recently called GSI requesting audited interim financial statements within 30 days. Ms. Zulian informed GSI that she would not be able to complete the accounting and tax work requested. In fear of losing the needed bank support, Li phoned Sun and asked for help. Sun completed the financials and signed an unqualified audit report, meaning that there are no restrictions on the scope and content of the audit. Sun knew the business and trusted her siblings; she would obtain the necessary evidence once the crisis was over.

Case 3: Promotion Commotion

Goggles Paisano has run his own accounting practice for the last 12 years. One of his audit clients, Cimento Salata Construction (CSC) recently hired Mr. Smith as their controller. Mr. Smith apprenticed with the firm of Carson and Taylor (C&T) and has maintained a close relationship with the firm since he left 12 years ago. The partner-in-charge of client development at C&T sent a letter to Mr. Smith when they read about his new position at CSC, which included the following comments: “We wish to congratulate you on your new position. As you know, our firm provides a full range of service to businesses like CSC. The audit fee for such a client would be based on time spent but will not exceed $25 000. We would not charge you for tax planning services directly, but would rather charge you 10% of any taxes saved by our recommendations. We would be pleased to discuss this matter with you further at your convenience.”

The fee of $25 000 is about 60% of what you have been charging CSC for all services provided, including the year-end audit. What do you do?

Case 4: Losing your promotion and your clients too!

You recently passed your CA exam and work for the firm of Greedy and Simple, who have been auditors of Temper Tantrums Ltd. (TTL) for over 25 years. Mr. Greedy went to university with the majority owner of TTL and has completed the audit since the company began operations. Mr. Greedy retired this year and you are in line for a potential partnership if the client base is maintained. The new partner-in-charge is not as familiar with the operations of TTL as you are and has scheduled a meeting next week with Mr. Greedy and you to ensure a smooth transition. The new partner calls an emergency meeting since he has received a letter from a large CA firm asking if there are any reasons not to accept the audit engagement of TTL.

You are upset by the loss of the client; if you retained Mr. Greedy’s clients it would enhance your chances of a partnership with the firm. You decide to make the transition process as difficult as possible by missing scheduled appointments, not returning calls, and denying access to your files.

Activity 4.6: Summative Evaluation

Time: 75 minutes

Description

Students write a unit test, including both scenario and case analysis.