- Facts of the case in the case study;
- The Chief Financial Officer at HOHO is aware of the violation of the 25% rule in expenditure-to-funding ration. The TV advertising costs will definitely push the costs above the limit established in the legislation.
- HOHO management has misallocated funds from administrative costs to program costs in a bid to ensure that the 25% legislation is not exceeded in the books.
- The penalties on the violation of the rights are strict and may pose very serious threats to the image of HOHO and by extension XYZ Ltd for involvement in an illegal corporate affair.
- Six stakeholders affected;
- Donors. The donors can be implicated by the involvement of an illegal business activity.
- Employees. Punitive measures will threaten the job security of employees due to decreased financing from donors.
- Suppliers. Suppliers of products and services will be wary of the implications of doing business with HOHO as it raises questions on the commitment of HOHO to ethical business practices.
- Community. The community is the major beneficiary of HOHO’s services. HOHO offers community outreach programmes by ensuring that homeless members of the society are connected to their families or hosted temporarily at the HOHO homes.
- Government. The role of the government is to ensure proper legal business environment to facilitate fair and easy flow of business activities. The decision by HOHO to violate the law by misallocating funds, therefore, creates a tussle between the government and HOHO.
- Directors and managers. The managers at HOHO have a direct responsibility of ensuring compliance to set rules and legislations. Moreover, the managers are under the pressure to uplift the company performance by ensuring increased donations to facilitate the institution’s ability to carry out mandated operations.
- Customers (homeless people). HOHO’s interest is to provide homes to homeless people. It can be said, sufficiently, that homeless people are the primary customers to HOHO. The move to violate the rules, therefore, adversely affects the hope and welfare of homeless people.
- Relevant ethical issues in the case scenario, relating to principles, rules and values under APS 110
The HOHO case scenario raises several ethical concerns. The issues discussed in this section are identified through matching of the scenario facts and the principles under APS 110, Code of Ethics for Professional Accountants.
- Integrity.
On top of the knowledge for misallocation, the chief financial officer has authorized misallocation of funds by putting administrative costs under the program cost budget. This is a violation of the value of honesty and straightforwardness in accounting.
- Professional behavior.
The principle of professional behavior requires members to comply with all relevant rules and regulations. Any behavior that disregards any legislation relevant to a specific scenario is defiant to the principle of professional behavior.
(n.d ) retrieved September 30, 2014.
The new accountant at HOHO has noticed non-compliance on the classification of costs. Under the professional behavior principle, the accountant is required to insist on compliance and counter the grounds under which the chief financial officer is defending his position.
- Consequences of different actions from XYZ perspective
- Doing nothing;
- Telling your corporation about the situation;
A decision to inform XYZ Ltd, as the advisor, is both ethical and appropriate. XYZ can then carry out a discussion with HOHO regarding the excesses in the budget and arrive at a decision based on whether HOHO realigns its accounts with the legislations in place.
This decision will also be appropriate in regards to principles of integrity and professional behavior. If HOHO insists on complying with the rules, then XYZ can cut off the donations.
The other option will be for XYZ to wait till HOHO aligns the accounting process to the principles, perhaps after the current promotion drive, to resume the funding.
- Encouraging my corporation to work with HOHO;
Encouraging XYZ Ltd to work with HOHO will endanger the company through exposure to legal proceedings which might affect the business negatively in future.
It also implicates XYZ as a collaborating party in the claim, hence adverse legal results (Boland, 2005, p. 55)
References;
Retrieved from http://www.apesb.org.au/uploads/revised-apes-110-dec-2010/apes-110-code-of-ethics-for-professional-accountants-december-2010-final.pdf
Boland, G. 2005. Study guide to accompany Accounting: Business reporting for decision making. Milton, Old: John Wiley & Sons Australia.
