Business Ethics and Corporate Governance

Question: Discuss about the Business Ethics and Corporate Governance. Answer: Introduction: An organization owes a responsibility towards its stakeholders and entire society at large to pose an ethical code of conduct. In context of financial accounting, ethics refer to legitimate financial reports and statements that should be conveyed to the interested parties of an organization. Besides that, there should be no window dressing or manipulations in the accounting system of a business (Rossouw, 2005). Brady Industrial Products has to present its financial reports by June 30, 2018 of this year. It has taken a loan of handsome amount from Localtown Bank. As a clause of that loan agreement, the company has to maintain a current ratio of 1.2:1. However, the value of current assets less inventories amounts to $1,100,000 and liabilities amount to $1,000,000. This shows that their current ratio is just 1.1:1, which is to be maintained before presenting the reports in front of the bank. The assistant accountant Sharon proposed that they should increase their current assets to maintain the ratio. They can ask some of debtors to pay their debt earlier. Tim, the senior accountant said that they do not have enough time for this. They already have a loan of $120,000 to the owner which is to be repaid after 14 months. In near future, it is going to be classified as current liabilities. He proposed that they should show it as a current liability now only. Hence, there is an ethical dilemma faced by Sharon (Rezaee, 2009). Being an ethically responsible person and a thorough professional, I will definitely not indulge in window dressing, which is actually a crime in accounting sector. Hence, my own conscience decision would be to oppose this suggestion of my senior. However, I cannot be rude to my senior since it is a question of my job. I will ask my boss politely that if we can use better ideas to solve the issue and that too without compromising with workplace ethics. I would suggest some better ideas to him. First of all, we have the formula to calculate current ratio as given below. Current ratio= current assets (less inventories)/ current liabilities. This is currently 1.1:1 (current assets less inventories = 1,100,000 and current liabilities = 1,000,000). To make it 1.2:1, we can either increase our current assets or we can decrease our current liabilities. The best idea to the situation will be to sell some inventory which will reduce inventory and increase cash reserves. Or, they can put pressure on trade receivables for immediate payment. But we do not have enough time for that. So, we must carry out some other ideas to solve the issue but an unethical practice is a no way to go (Hillier, Hodgson, Stevenson-Clarke, Lhaopadchan, 2004). Conclusion and Recommendations To conclude, I should say that an ethical dilemma is common at a workplace. But it depends on the values of an individual that how effectively he/ she respond to the situation and avoid unethical practice at any cost. Following steps can be used to resolve the issue stated above. Instead of pressurizing debtors, we can allow some discount to them if they make an immediate payment. This will increase bank balance immediately. Another idea may be to sell non- performing assets of the company and increase cash or bank balance of the company's current assets. Besides that, the company can also have some amount transferred in working capital reserve or cash reserves of the company. Even other specific purpose reserves that are from current assets class can be used. (Duke Hunt, 1990) References Duke, J. C., Hunt, H. G. (1990). An empirical examination of debt covenant restrictions and accounting-related debt proxies. Journal of accounting and Economics, 12(1-3), 45-63. Hillier, D., Hodgson, A., Stevenson-Clarke, P., Lhaopadchan, S. (2004). Accounting Window Dressing and Template Regulation: A Case Study of the Australian Credit Union Industry. Retrieved from https://www98.griffith.edu.au/dspace/bitstream/handle/10072/21702/50944_1.pdf?sequence=1 Rezaee, Z. (2009). Corporate governance and ethics. John Wiley Sons. Rossouw, G. J. (2005). Business ethics and corporate governance: A global survey. Business and Society, 44(1), 32.