Investigation Impact Of Preparer Penalty Essay


Discuss About The Investigation Impact Of Preparer Penalty?



As per the question the stakeholders listed in the situation are Freda Chuse, the manager of Vroom Limited, Lucia, the accountant and all the present and active stakeholders or shareholders of the company.

In this question it has been asked that Freda had asked Lucia for finding solutions of deferring recognition of as much revenue as possible for the next financial year because the total earned revenue for the financial year ending on 30 June, 2016 being $3.5 million, Freda had assumed or expected that this would definitely would hamper the normal proceedings of business. This is because Freda had logically concluded that if the company earned too much revenue then it would be a problem because this amount would definitely show in the financial statements, therefore the Government in charge of paying grant would refuse to do so. It is mentioned in the question that Vroom Ltd received grant from the government for the event of training apprentice mechanics and on account of huge profit earned, the company would surely lose the grant of $100000 tax-free cash inflow (Zadek, Evans and Pruzan 2013). The other reason for which Lucia had been asked to defer the revenues is that, as per the data in the question, the bonus received by Freda will be of maximum amount when the revenue earned by the company is $3 million. So when the total revenue earned by the company is $3.5 million, Freda would not be benefitted by any means. On the other hand Freda had analyzed that the revenue earned by the company for the next financial year would not be of such higher prospective. Therefore deferring the revenue of $3.5 million to the next financial year would be financially effective both for Freda and the company and would also help in maintaining the goodwill of the company among the stakeholders so that they agree to invest in the company (Tweedie et al., 2013).

The ethical issues that might come up in such conditions is that Lucia on account of unjustified pressure from her manager might as well succumb to the pressure and give in, that is, she may accept to defer the revenue to the next financial year. This is clearly unethical and has no basis in principles of accounting. On the part of Lucia, she may agree to commit the unethical task because she may be in fear of upsetting her manager because her refusal would clearly minimize the chances of her promotion. The right action in such a situation would be refusing to defer the revenue to the next financial year and prepare a report that correctly reflects the true and fair view of the company’s financial statements for that particular financial year. Ensuring recording of the assets and liabilities and other important components of accounting statements for that particular financial year is highly crucial and in accordance to the generally accepted principles. If Lucia does succumb to the pressure and does defer the revenue then it would become highly unethical and unreasonable as the financial statements prepared by Lucia would not present a true and fair view of the financial or liquidity position of the company and also does not provide a result as to how the organization is performing. Though there are a huge number of techniques that Lucia can get a hold of, for deferring or manipulating the data in the financial statements of the company or in order to manipulate the profit earned by the company like changes in the method of calculation of depreciation or maneuvering the number of useful life left in assets. Due to loopholes in the generally accepted accounting standards, these practices may be accepted by the same and can also be protected by legal provisions even but that does not certify the practice to be at all ethical. On the part of Freda, the manager it is also not acceptable to put unreasonable pressure on her subordinate to commit such unethical task as just for personal benefit (Liu, Yao and Hu, 2012).

Lucia is able to defer all types of revenues and accrue as many expenses as possible by the process of passing adjusting journal entries but it would definitely result in disparity and distortion in the accounting statements that may in turn lead to incorrect reflection of the financial position of the company or does not provide a true and fair view of the financial conditions of the company. This may not be a legal offence but this will definitely produce a wrong image of the company to its different stakeholders including shareholders. This is both ethically and principally wrong because this would lead to wrong expectations from the company to its shareholders or investors, who would invest in the company expecting a certain profit that is completely fake and imaginary. Even if Lucia agrees to defer revenue and accrue expenses then it must be done on a short scale basis because practicing this on a large scale would ultimately harm the company in the long term (Apostolou, Dull and Schleifer, 2013).

In this question it has been asked to cite three examples to demonstrate how breaches of ethical standards were seriously treated by the professional organization. Therefore the instance of Mr. Henry N Bernard has been chosen. The disciplinary tribunal on 8th September, 2016 charged Mr. Henry of breach on account of not completing a review of the quality within a specified time period that is framed within mentioned frames. He was also accused of not being able to implement risk management procedures in his firm. Due to this the penalties were imposed. The article under which this breach fell is 39(a) (ii) of the Constitution.

The next instance is of Ms Tracey Redman-Slater who was accused of breach by the disciplinary tribunal on 9th August, 2016. It falls under the Article of 39(a)(ii)A of the Constitution. The charge under which Ms Tracey was found guilty was that she was unable to provide information that was requested to be provided to the professional code of conduct body within a time period of ten days. Ms Tracey was also accused of negative or depreciative attitude toward CPA Australia which was carried out in no best interest of the institution. She ran out of the time period given to her client of eighteen months, thus charged guilty.

The third instance is of Harvey Goodman was accused by the disciplinary tribunal on 5th April, 2016. Harvey Goodman was accused of the charge, of not completing the quality review. He was also accused of negative or disrespectful attitude towards CPA Australia which was carried out in no best interest of the institution. When the date for quality review was extended to November, 2014, Harvey was unable to conduct the quality review within the specified date and did not even provide a written explanation for this unethical behavior. Therefore the penalties were imposed (Hansen, V.J. and White, 2012).

The sub section of 100.21 of the APES 110 standards apply to all the above listed three examples because according to this section if a member is not able to perform his responsibility then it will be covered under this section.

The huge sum of money levied as fine or the penalties imposed upon the individuals committing breach is just and perfectly fitting. The disciplinary tribunal has taken enough care to chalk out the penalties imposed upon these people and requires no other adjustments or alterations. So the accounting bodies have imposed the exactly correct penalties in case of all the three instance (Carey, Monroe and Shailer, 2014).


Apostolou, B., Dull, R.B. and Schleifer, L.L., 2013. A framework for the pedagogy of accounting ethics. Accounting Education, 22(1), pp.1-17.

Carey, P.J., Monroe, G.S. and Shailer, G., 2014. Review of Post?CLERP 9 Australian Auditor Independence Research. Australian Accounting Review, 24(4), pp.370-380.

Hansen, V.J. and White, R.A., 2012. An investigation of the impact of preparer penalty provisions on taxation preparer aggressiveness. Journal of the American Taxation Association, 34(1), pp.137-165.

Liu, C., Yao, L.J. and Hu, N., 2012. Improving ethics education in accounting: Lessons from medicine and law. Issues in Accounting Education, 27(3), pp.671-690.

Tweedie, D., Dyball, M.C., Hazelton, J. and Wright, S., 2013. Teaching global ethical standards: a case and strategy for broadening the accounting ethics curriculum. Journal of Business ethics, 115(1), pp.1-15.

Zadek, S., Evans, R. and Pruzan, P., 2013. Building corporate accountability: Emerging practice in social and ethical accounting and auditing. Routledge.

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