Improper Accounting for Sales

Article Passage:
You are one of three partners in a firm of accountants. Five years ago the firm was appointed as external accountants to a young, successful, and fast-growing company, engaged to prepare year-end accounts and tax returns. The business had started trading with a handful of employees but now has a workforce of 200, while still remaining below the size of the company requiring a statutory audit.

Due to your close relationship with the directors of the company (who are its owners) and several of its staff, you become aware that staff purchases of goods manufactured by the company are authorized by production managers, and then processed outside the accounting system. The proceeds from these sales are used to fund the firms Christmas party.

Key fundamental principles (Require Answers)

Integrity: Would omitting income from staff sales result in the financial statements and returns to the tax authority being misleading? Is the practice dishonest, and what should be your involvement?

Objectivity: In view of the trust that has built up between you and your client, and the threat brought about by the familiarity you have with the directors and staff of the company, how will you maintain your objectivity when deciding on a course of action?

Professional competence and due care: You must ensure that the financial information that you produce on behalf of your client is in accordance with technical and professional standards.

Professional behavior: How should you act in order to protect your reputation and that of your firm and your profession?

(Answers Required)
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