Discuss About A Sample Case Study On Ethics In Business


Case study

“I just don’t know if I can go along with it?” Avalon said to Kathryn (the administration assistant) with grave concern after ending a long telephone conversation. “You don‟t have much choice. Summar Ltd will be our biggest client, Avalon, and we can’t lose such a large engagement bid because of a little issue regarding the reclassification of marketable securities.” “Yes, I am aware of that, and they said the engagement will generate significant revenue and publicity.” Avalon said. “Have you spoken to Lara about this?” Kathryn said. “Are you kidding? Lara attracted Summar Ltd in the first place, I know how hard she is working to get the business name out there and she’s the one who made the decision to always go along with Industrial.” Avalon said. The previous scene took place in the office of Absolute Corporate Accounting Solutions (ACAS), a CPA firm in Brisbane, Australia. ACAS is a new accounting firm that has yet to establish a large client base or significant reputation. Avalon is a junior accountant in the firm and recent university accounting graduate. She is under a lot of pressure from her new boss to „attract‟ and „satisfy‟ new clients. Lara is Avalon’s boss, and the managing partner of ACAS, she is a CPA with 20 years‟ experience in the industry. Avalon is preparing to meet with Max, the CEO of Summar Limited. She knows that the company has been experiencing financial difficulty, largely derived from its large and underperforming portfolio of marketable securities. However, despite the current downturn of Summar Ltd, it has plans for expansion that requires a substantial bank loan and significant increase in share allotment, and therefore, favourable financial results to impress the banks and potential shareholders. Max believes the best way to do this is to reclassify Summar’s marketable securities, and he is willing to transfer the accounting engagement to ACAS, with the condition that they support this action. Avalon knows that re-classifying the assets from a trading investment, which currently accounts for a $3,000,000 market loss, to the available-for-sale category, so that the “loss” would show up in the stockholder’s equity and not as a charge against the income, will provide the best face possible on its financial statements. Max‟ objective is to increase Summar’s earnings in 2015 by 7 per cent. Avalon knows that if she does not take Summar Ltd on as a client and the current classification of marketable securities remain, the earnings will decline by 3 percent and the stock price will take a hit. Simultaneously, Avalon will be denying Lara, her new employer, significant income, growth and clientele. Upon further research, Avalon learns that the specific investment in question was made in an affiliate company that Summar had owned for 11 years. And further, that there is no justification under generally accepted accounting principles to change the classification from trading to available-for-sale.


1. Who are the stakeholders in this case? What expectations should they have? And, what are the ethical obligations of ACAS and its employees to the stakeholders?

2. Using the APES 110 Code of Ethics for Professional Accountants as a reference, what ethical issues exist for Avalon, Lara, and ACAS in this matter?

3. Discuss why the accounting rules for valuing so-called securitized assets that were designed using a package of outstanding mortgages came under attack in 2008- 2009. Explain how the accounting rules for investments in securities changed following criticisms that the accounting rules were, at least in part, responsible for the financial crisis.

4. Critically analyze the role of the accountant in this case – does auditor virtue play a role in determining what to do? Or, do you think the accounting rules should be influenced by political pressures (as was the case with the changes in accounting for investments)?



The question belongs to Corporate Strategy and it discusses about a sample case study on ethics in business.

Total Word Count 1533

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