Question

Sherry Chan has just started up a small corporation that produces jewellery. She has applied for and received a government grant. The grant will automatically be renewed as long as the business shows a profit at year end. Because she is trying to control costs, Sherry will prepare the financial statements. The bank has loaned Sherry money and is also waiting for the year end statements. It will decide whether to renew the loan or not?

Discuss the ethical issues of Sherry preparing her own financial statements

Answer 1

Ans. The ethical issues of Sherry preparing her own financial statements are as follows:

(i) She doesn't have the entire knowledge of financial statements. Therefore, she might end up preparing an incorrect statement of financial performance and financial position.

(ii) In order to ensure loan, she might use unfair means to inflate her profits.

(iii) In pursuit of reducing cost, she might end up allocating wrong proportion of costs.

(iv) She won't be an independent party while preparing the financial statement.