Kwadwo Kusi (KK), the Financial Accountant of Dibimame Ltd was reviewing the draft financial statements prepared by an Accounts Officer and came across the following issues:
i) In calculating the interest on staff loan, the Accounts Officer in error applied 5% instead of 10% interest rate. KK is a beneficiary of the staff loan and a member of the staff loan committee.
ii) The staff union has demanded a separate accounts for the staff loan. This they advise would promote transparency and accountability in the process and approval of loans.
iii) Included in accounts receivables was a company known as Sede Ltd, owned by his mother-in law. Instead of an outstanding amount of GH¢60,000, the account balance as per the draft financial statements was GH¢80,000.
iv) The CEO who is known to be domineering has an outstanding balance of GH¢100,000. This was as a result of cumulative unaccountable imprest which is against the accounting policy of Dibimame Ltd.
Required:
Identify, evaluate and address the above threats to compliance with the fundamental principles of good ethical behavior, KK is confronted with. (6 marks)
View Solution
i) Self-interest and self-review threat
KK faces a self-interest threat because he is a beneficiary of the reduced interest charged. Also, being a member of the loan committee, he finds himself in a situation where he would be reviewing his own committee’s decisions and hence, is faced with a self-review threat.
To address this threat, KK should advise the accounts officer to charge the correct interest rate and arrange for a different person to review the loan aspects of the draft accounts.
ii) Advocacy threat
As KK is part of those advocating for a separate set of accounts to be opened for the loans, he may become too defensive of the union’s position.
To address such risk, he should be seen as providing only impartial and neutral advice in this respect.
iii) Familiarity threat
KK faces a familiarity threat to integrity – not ensuring that the accounts receivables balance reflects the true amount – due to his close association with the owner of Sede Ltd.
KK should advise that the correct figure of receivables be included in the accounts.
iv) Intimidation threat
KK is faced with intimidation threat as he works under a bossy CEO.
As a safeguard, KK should advise the CEO himself or discuss the anomaly with a relevant board committee, internal audit, non-executive directors or the board chairperson to ensure that the imprest is properly accounted for.