i) The following fundamental ethical principles might have been breached:

Integrity The conduct of the previous Finance Director in painting false performance of the company by engaging in earnings management violates the principle of integrity. An Accountant is expected to be honest and straightforward in carrying out his duties. This behaviour is therefore contrary to the principle on integrity. The unmodified opinion of the Auditors despite these adjustments made by the Director of Finance also brings the integrity of the Auditors into question.

Professional behaviour The practice or behaviour of the Accountant should not put the Accounting profession into disrepute. Manipulating expenses and the timing of recognition of income statement items to increase bonus payments is not expected of the Accountant. An Accountant is encouraged to produce financial statements that represent true and fair view of events. Similarly, the Auditors of the company are expected to express an opinion on the truth and fairness of the financial statements. The issue of unmodified opinion on the financial statements regardless of the former Finance Director’s significant manipulations to the accounts also puts the Accountancy profession in bad image.

Professional competence The professional competence of the Accountant is also brought into question here. Though, the behaviour of the former Director of Finance is seen as deliberate, the timing of recognition of revenue and massaging of expenses also shows that the competence of the Accountant is questionable.

(Any 2 principles well discussed @2.5 = 5 marks)

ii) Possible actions that the Finance Director should take include: Engage the Former Director of Finance as a colleague member of the profession on the issues detected. Find out the reasons for his decisions and offer any necessary advice. Engage the Managing Director of the company on discovery of the malpractices and its implications on future profit of the company to manage their expectations. Engage the Board of Directors of the company on discovery of the company’s practice of earnings management and why the practice should not be entertained. Since the Auditors of the company have issued an unmodified opinion on the accounts, it presupposes that the Auditors are also supportive of the practice of earnings management by the company. The new Finance manager should also engage the Auditors on this issue, and emphasise the need for professional behaviour and due care to be exercised in their future work. Mr. Kennedy Owusu can always seek advice from the Professional body on the matter especially if the key actors like management and the company’s Board of Directors are in support of the current practice. If Mr. Kennedy does not make any headway in dissuading the company from the current practice of earnings management, he can resign to prevent breaching of the ethical principles.

(Any 5 actions to be taken at 1 mark each= 5 marks)