Evaluation of Various Accounting Policies-Free-Samples for Students

Questions: 1.Using the American Accounting Association (AAA) ethical decision model and relevant ethics standards to recommend a course of action for Janelle. 2.With reference to relevant case law, prepare a report for the managing partner of MYH on the strength of any negligence case that GGL might bring against MYH. The report should follow standard report structure. Information on report writing can be found here. Answers: 1.During the year 1990, Langenderfer and Rockness developed the different concepts of the American Accounting Association (AAA) model. AAA model provides the auditors with seven logical steps in order to deal with different ethical situation in auditing (Hope, Thomas Vyas, 2013). It needs to be mentioned that the application of the seven-step model of AAA is required in the provided case of Great Gold Limited (GGL) to provide logical course of actions. The main area of concern of this case is related with the leasing of apportion of their machinery from Big Machine Limited (BML) in spite of the fact that there is availability of other machinery suppliers in the region supplying small portion of the machineries. Apart from this, another major ethical issue can be seen due to the increase in profit under the directorship of Brent Allen related with the leasing of significant part of the machinery. In this situation, it is required for the auditor to apply the seven step model of AAA t o get recommended course of action (Yetman Yetman, 2012). Step 1: Facts Identification: This step involves in the identification of major facts with te concerned cases. In this particular situation, the major unethical case is related with the lease of large proportion of machinery to GGL by the director of the company in the presence of other small suppliers of machinery in that region (Kassem Higson, 2012). Step 2: Ethical Issues in the Case: In this AAA model, the second step involves in the identification of major ethical issues related with the provided case. Thus, based on the analysis of the provided case, an assertion can be presented that shows the motive of the director of GGL to increase the profit of BML that leads to the creation of an unethical situation (Craft, 2013). Step 3: Identification of Norms, Principles and Values Related with the Case: In the provided case, the norms, values and principles related with the directors of the company indicates towards the principle of integrity. It is the responsibility of the companies to make sure that there is compliance between corporate governance principles and ethical code of conducts while performing the business operations of these two companies. In the provided case study, the main ethical issue is related with professional integrity at the workplace. There has been major violation in the principle of integrity due to the intention of the director to increase the profit of BML with the help of significant lease of machinery. The inability of the auditors to demonstrate ethical principle and sound moral can also been seen. Thus, the director of the company has failed to act in fair, honest and ethical manner (Michels,2012). Another major ethical principle involved in this case is Due Care and Professionalism of the auditors while executing the audit procedures. It is the requirement of the director of the company to act in the most ethical manner and discharge legal duties professionally as per the ethical principle and code of conducts. Hence, the director of the company has shown an incorrect moral and ethical behavior (Michels, 2012). Step 4: Determination of Alternative Course of Action: There can be two situation in this case. In the first situation, one can simply ignore the ethical issues for director and let the profitability be increased. However, the second option demands the director not to lease the large portion of machinery to GGL (Ball, 2013). Step 5: Determination of the Best Course of Action: In this case, the best course of action according to the norms, principles and values is not to lease the significant part of the machinery to GGL. In addition, the company is required to lease the small portion of machinery as it will be majorly helpful in avoiding the occurrence of unethical situations related with profitability. This aspect will be helpful in the true and fair value of the financial statements. It needs to be mentioned that this course of action will be supported by the norms and ethical principles that will lead to the true and fair presentation of financial statements. Moreover, the auditors will be majorly accountable for making it sure that they address all the aspects that lead to the breach of ethical principles. Otherwise, it will be considered as the audit failures (Blankespoor et al., 2013). Step 6: Consequences of Courses of Action: Under the first option, the director will be continuing to lease the large portion of the machinery from BML. It will increase the profitability of the company along with the wealth of the directors. However, at the same time, the director will expose himself to the risk of the breach of ethical principle and legal risks (Michels, 2012). Under the second option, the directors will refuse to increase the profit of the company. This particular aspect will affect the relation between the auditor and the director. This particular situation will ensure that there is a violation of the ethical norms and principles. This aspect will be majorly helpful in maintaining the reputation and social standing of the auditors that will increase the confidence of the public and the stakeholders. Most importantly, the second option will be highly beneficial for the application of ethical perspectives in different aspects like the independence of the board, the protection of investor interest and many others (Michels, 2012). Step 7: The Decision: Under the model of director, it is the responsibility of the decision makers to consider the major aspects of ethical norms, principles and values while making the decisions. All these aspects will make the decision makers to make effective decisions. In this particular case, the application of the steps of AAA states that the intention of the director to increase the profit of the company with leasing is highly unethical from the part of the directors. For this reason, the director is required to be questionable in order to provide justification on the parts of accountability, transparency and appropriate governance in the business organizations. This is an important part in this model (Blankley, Hurtt MacGregor, 2012). 2.Introduction The provided case study deals with the issue of GGL related with the decrease in the prices of the shares. Moreover, there are many instances suggesting the situation that a large amount of contingent liability was included in the account of the previous year. This particular aspect contributed towards the raise of several damage claims from the part of the shareholders in the last annual meeting. At the same time, there were many opinion related to the inclusion of the large amount of contingent liability in the financial statements of the previous year for the negligence of the auditors (Vijayakumar Nagaraja, 2012). Application of Due Diligence While addressing MYH, it needs to be mentioned that the directors of the companies have the obligating to act with loyalty and professional due care. It implies that the directors are required t act in the most ethical men net for the betterment of the companies. This aspect will be largely helpful from the part of the shareholders, as it will help in increasing value of the shareholders (Munsif, Raghunandan Rama, 2012). In the provided situation of MYH, it can be said that the action of GGL is a wrong thing that can damage the wealth of the shareholders to suffer huge loss, the development of legal liability for the individual shareholders and all these aspects can lead to torturous acts. It needs to be mentioned that crimes fall under the tort law. However, there will be not be any restriction on the course of actions on the crime due to the negligence of the harm of the shareholders by the company (Munsif, Raghunandan Rama, 2012). There are some major identical duties of the directors that can also be found in other jurisdictions; more specifically, they are subject to loyalty and duty of care. Thus, it is the responsibility of the directors to act in the best ethical manner for the interest of the company and the shareholders. This can be considered as a major benefit for the shareholders in the presence of the obligation of creating value for the shareholders. In this process, the directors are required to avoid any conflict of interest (Newton et al., 2015). The violation of the standards of corporate governance can be seen from the company while deterring the duties of the auditors and the directors. In the case Australian Securities and Investments Commission v Rich, the failure of director in meeting the liability can be seen along with the failure in meeting the duty of care; and all these aspects led to the collapse of the whole organization. In this perspective, GGL has the authority to take action of tort law against MYH as the director of the companies has real intention in omitting the large contingent liability from being included in the correct accounts. This action may lead to the non-reflection of the true and fair value of the financial condition of the company (Varzaly, 2012). Compensatory Damage These negligent factors can have the ability to encourage the shareholders of GGL due to the burden to meet the debts falls on the shareholders. In case of MYH, GGL has the authority to make the claim for damage for the incurred losses. According to the laws, the damages can be compensated with the award of money to the persons who bear the loss or injury. The classification of damage can be done in punitive damage or compensatory damage. In case of GGL, the specific negligence action can lead to compensatory damage for the shareholders due to their economic losses like reduction in earning and others. For this reason, GGL can take actions against MYH due to blatant negligence actions that result in compensatory damage (Daniela Attila, 2013). In the case of Lee v Chou Wen Hsein (1948), the judgment of the Privy Council allowed the private company to have the provision of the directors for the removal of the other directors. In this situation, the removal of the directors from the office does not have any impact on the directors for claiming the breach of contract (Van Dam, 2013). On the other hand, it is the requirement of the directors for the determination of the overall response for addressing the risks by assigning and supervising the employees to take significant responsibilities of engagement. The current situation shows the failure of the auditors in considering the contingent liability in the companys book for expressing the true and fair value of the company to its shareholders and investors. Moreover, the failure of the auditors can be seen in the evaluation of accounting policies for financial reporting (Hermanson, Smith Stephens, 2012). In the provided case of GGL, the analytical process states that the unrecognized amount of contingent liability leads to the development of material missstements. For this reason, the financial statements of the company may not convey the true financial position of the company. Thus, it is the responsibility of the auditors to assess these material misstatements in order to find out that whether have been created from financial fraud. In case of GGL, there was a greater need to address omission of contingent liability for reevaluating the responses of risk assessment (Daniela Attila, 2013). For this reason, there is a need to make significant decision in respect to susceptibility of material misstatements in the financial statements due to the omission of contingent liability. Thus, based on the above discussion, GGL has the full authority to take action against MYH for tort of negligence. Negative action can lead to compensatory damage for the shareholders that can lead to major economic losses to the shareholders (Munsif, Raghunandan Rama, 2012). Conclusion Based on the whole discussion, it can be said that there is a need for the determination of the overall response for addressing the assed risks with the help of assigning and supervising necessary individuals to take significant engagement responsibilities. The responsibility of the auditors is the evaluation of various accounting policies related with the omission of contingent liability. Moreover, the involvement of the director can increase the profit of the company due to the lease of machinery. For this reason, there is a need for the application of appropriate steps of AAA with the organization. References Ball, R. (2013). 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