Report on Ethical Dilemma - the Grape Expectation

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Overview of the ethical principals at risk by each member

Member

Principle not met

Jane Brown CA

Integrity due to knowingly misstating financial statements

Professional behaviour as ignoring regulations (here IAS 2 (Inventory)

Martin Jaques CA

Integrity due to his association with reports that are misleading or materially false

Professional Competence and Due Care due to neglecting his obligation to act diligently in accordance with applicable standards such as ISA 200 (keeping professional judgement)

Professional Behaviour as he does not comply with relevant regulations (IAS 2)

Graeme Giddells CA

Objectivity due to close relationship with Crooker Valley Wines’ CEO and not questioning or investigating the inconsistencies further.

Expected and actual behaviour

Jane Brown CA

The institute expects from Jane Brown CA that she would have made a stand against her CEO and should have rejected the valuation changes of the inventory. In addition, she and the CEO should have sought a discussion with the bank manager Graeme Giddells CA to examine the possible breach of the loan covenant and how to deal with this. Due to the size of the winery and the importance for the bank as well as the local community the institute is convinced that both parties would have found a solution in this matter.

Instead, Jane Brown CA had put her own personal interests such as a bonus over her professional integrity and knowingly neglected standards and regulations for the preparation of financial statements, here IAS 2 (Inventory).

Martin Jaques CA

The institute expects from Martin Jaques CA that he would have complied with the professional regulations how to communicate with the winery’s management and investigate the issue raised by his team member. It is expected that he had kept his professional scepticism and had not accepted the inconsistencies. In addition, he should have also referred to the professional regulations (IAS 2) in his conversation with Jane Brown CA to emphasise that the inventory valuation leads to a qualified opinion as required in the professional standards.

Due to the perceived pressure built by Jane Brown CA, he neglected his professional judgement and did not investigate the suspicion of a misstatement further.

Graeme Giddells CA

Graeme Giddells CA should have investigated the inconsistencies in the financial statements further and looked into a possible breach of the loan covenants. This exercise of due care would have been in the interest of his employer.

Instead, Graeme Giddells CA ignored the warnings of Beth Bryson CA regarding the inconsistencies of the inventory valuation to keep his personal relationship with the winery’s CEO.

How to maintain the ethical principles and its consequences

This section describes how the members can maintain their ethical principles.

Jane Brown CA

Jane Brown CA should talk to the bank manager Graeme Giddells to discuss the breach of the loan covenant in the case that the inventory would have not been adjusted by her. She can then negotiate with the bank a temporary waiver of the bank covenant. Short term, she would lose her bonus and the trust by her CEO. However, long term she will gain respect and trust of her business partners and contacts in particular from the bank. She then becomes a reliable partner for others.

Martin Jaques CA

Martin Jaques CA should talk to his line manager and discuss his actions and doubts regarding the revaluation of the inventory. Short term his employer might withdraw its confidence in Martin Jaques CA. Long term he will gain the respect of his team members as he had stood up to correct his decision. He should also talk to Jane Brown CA.

Graeme Giddells CA

Graeme Giddells CA should talk to his line manager about his personal relationship to the winery’s CEO and the possible breach of the loan covenant. It is also recommended to talk to Jane Brown CA to discuss this with her further and negotiate the loan facility. Long term this will strengthens his position in the bank as he will have approved that he acts in the best interest of the bank. However, short term his previous actions might led to a withdraw of the confidence his managers have.

Consequences if no action is taken

The current section covers the diverse consequences for the members as well as for the organisations they work for if no action is taken.

Jane Brown CA and Crooker Valley Winery

Jane Brown CA has breached following principles:

- Integrity

- Professional Behaviour

Business partners and contacts will lose trust in Jane Brown’s work if the misstatement will be uncovered. Long term this will damage her reputation and will lower the level of respect others have for her.

Eventually this might have negative consequences for the winery as well as the bank might call in the loan given. The worst case would be putting the company into receivership. Long term, this would have negative effects on the entire organisation and finally on the community.

Martin Jaques CA and Blofeld&Blofeld

Martin Jaques CA has breached following principles:

- Integrity

- Professional competence and Due care

- Professional behaviour

Currently a senior auditor these breaches will damage his reputation and the trust others have in his professional competence. He might also lose his status as a team leader and even need to look for a new employer.

The breach of the principle of professional behaviour might have a