Question 1 2
A) Who are the stakeholders in this situation? 2
B) What are the ethical issues? 2
C) What would you do as the chief financial officer? 2
Question 2 3
A) Partnership 3
B) Pty Limited Company 3
C) Sole Trader 3
D) Partnership 3
Question 3 4
A) Cash Flow Statement 4
B) Statement of Financial Position 4
C) Income Statement 4
D) Cash Flow Statement 4
A) Who are the stakeholders in this situation?
Myself: Chief financial Officer
Jack Lack: Director
All users of the financial information: Shareholders, banks, creditors and investors who rely heavily on the financial information to make accurate decisions on the allocation of scarce resources.
Managers and Employees: Managers decision making in areas such as costing and budget may be affected due to the misrepresentation of the financial information which may have a flow on effect such as job loss.
B) What are the ethical issues?
The ethical issues are:
A) Do I ignore the advice of my superior director and notify the relevant authority’s regarding this misrepresentation in the annual report. This may lead to a termination of employment.
B) Do I adhere to the director’s advice and say nothing in which I will be breaking legislative rules and code of conducts which could possibly lead to prosecution.
C) What would you do as the chief financial officer? As Chief Financial Officer I have a duty to abide by an ethical code of conduct and adhere to relevant legislation set by the governing bodies of the industry. By not bringing to light the misrepresentation of the financial information I am putting stakeholders in the company at risk which could potentially have disastrous consequences for them and leave myself open to prosecution. I would stop the distribution of the annual report until the errors in the information had been amended.
‘In each Case Explain what form of entity the business is likely to take – sole ownership, Partnership or company. Give reasons to support your Choice’
Partnerships are often formed so that skills of individuals are pooled in one business to maximise profit. (Jackling, Raar, Wines, & McDowall, 2012). Given that each individual has a specialised skill set in a different area, I believe the entity that they most likely will form is a partnership.
B) Pty Limited Company
I believe the best option for William is becoming a proprietary limited company. Williams profit has increased and he has an intention to expand though borrowing a large sum of money which ultimately entails a great deal of risk. By becoming a Proprietary Limited Company he can limit his liability to the debts of his company by essentially creating a separate legal entity from himself or an “artificial person” (Jackling, Raar, Wines, & McDowall, 2012).
C) Sole Trader
Seeing as Wendy only has a small amount of savings, becoming a sole trader would be the best option for her business. Becoming a sole trader is relatively easy and inexpensive while also allowing Wendy to control and manage the business. (Australian Taxation Office, 2015)
Jill and Joan would like to expand their business which would come at a financial cost such as material or stock to produce the jewellery and also website establishment fees. A partnership has the advantage of increasing the likelihood of obtaining finance which could be used in the growth of their business. The establishment fees of a partnership are also significant lower to that of a Pty Ltd Company which means that money could be better utilised for aspects of the business growth. (Perry Ure Pty Ltd, 2015)
‘For each situation, state whether the decision maker would be most likely to place the main information on information provided by the income statement, Statement of financial position or statement of cash flows. Include a brief justification for each choice.’
A) Cash Flow Statement
Cash flow statements give an account for the