Question

You are the newly hired controler of Wright's Gourmet a bakery and sandwich shop in South Tampa Mrs. Wright currently owns 100% of the company and is chairman of the board, but has semi-retired. Key management positions are currently held by her family members, and her son is acting as the CFO and is your direct boss! As a key member of the accounting team, you have discovered that some employees are being paid cash at the end of each day, rather than through the formal payroll process. You suspect that some of these employees are being employed illegally, and you have no records of their formal employment social security numbers, or documentation that they are independent contractors. When you discuss this with the CFO, he tells you not to worry about it. Furthermore, when you review the cash account, you see several cash withdrawals from the operating account for large amounts each week that have been authorized by the CFO When you review the journal entries related to these cash withdrawals, all are classified as "Prepaid Salaries' 1. Is the CFO violating any of the IMA Standards of Ethical Conduct? Discuss and be specific

this is all the information

Answer 1

Ans: IMA have prescribed four standards of Ethical Professional Conduct to avoid bringing discredit to the profession to which all management accounts should abide to maintain highest professional standards and professional image.

The four standards of Ethical Conduct are:

• Competence- Maintain appropriate level of professional expertise, perform duties as per relevant laws,regulations and standards
• Confidentiality- Do not disclose confidential information acquired during professional engagement unless required by any regulator and refrain from using confidential information for unethical or illegal advantage.
• Integrity- Adherence to moral and ethical principles. The state of being honest
• Credibility- Communicate information fairly and objectively and disclose all that information that could reasonbly be expected to influence the decision of the user

Here, the employee of the accounting team has discovered that the employees are being paid cash at the end of each day instead of getting paid through formal payroll process. There has been susceptibility that the employees might be employed illegally as they have no records of formal employment, social security number neither do they are employed on a contract basis. The accountant team member communicated these discrepencies to the CFO, but the CFO really didn't care about the facts rather he tells the team member of the account team not to worry about it. The accountant while veryfying the cash found some cash withdrawals of larger amounts named prepaid salary that have been authorised by the CFO.

Looking at the facts of the situation, we can say that there is compromise of the standard of Integrity by the CFO. Integrity defines the act of honesty, avoiding conflict of interest, refrain from acting or engaging in any conduct that would be prejudicially be unethical, refrain from doing activities that brings discredit to the profession, Contribute to a positive ethical culture and place integrity of the profession above personal interests.

The CFO has been acting dishonestly by hiding the actual facts of being paying salary of such large amounts to the employees without proper formal documentation. On being asked he acted very neglegiently as everything was fair and just. He did not offer proper explanation to the accountant. There might be large amount of cash misappropriation within the organization which is being conducted under the nose of CFO.

Therefore, the CFO has been violating the IMA standard of Integrity.