Case summary
Charitable institutions are dependent on the contributions from well-wishers. Since they fall in the category of not-for-profit organizations, certain ethical standards have to be observed in their activities. Ultimately, they are not able to abide by the ethical standards as outlined in the limitations associated with expenditure and revenues. In order to cover up such violations, some accounts are willing to misallocate expenses in order to achieve the required proportion. In addition, since the donations are not regular and fixed, the periodic fluctuations are normally expected to be out the differences in the ratios.
Stakeholders:
- Donors
- Beneficiaries
- Other charitable institutions
- TV advertisement companies
- Regulatory bodies
- The charitable institution, HOHO.
Ethical Issues
Ethical issues identified in the case study include integrity, objectivity and professional competence (APESB, 2008).
Integrity
According to CGH (12), the principle of integrity is aligned with the need for all members to act in a straightforward manner in personal and professional relationships. Accountants have to avoid misrepresentations, reckless assertions, omissions and commissions.
Objectivity
Objectivity entails the absence of bias and conflict of interest. Moroney, Campbell and Hamilton (31) indicated that accountants stand to benefit from the reputation of an organization that donates the most costs to charities.
Professional competence
Clarke (42) observes that it is necessary for an accountant to be well-versed with all provisions of accounting as well as the ones affecting the related organizations. As a result, it is imperative for the accountant to be aware of the stakeholders in order to avoid being caught in scenarios where ignorance leads to unethical actions.
Alternatives and Consequences of Actions
Complacency is tantamount to affirmation of the actions by the charitable institution. The account has a duty and skill to provide the management with the report and give advice accordingly in order to ensure that the organization does not play a part in illegal and cover-up activities.
It is necessary to inform an organization about the scenario since it is the responsibility of the CFO to provide information for decision-making (Cunningham et al, 26). The decision to inform the organization will make it possible for the organization to document the instances and establish the reason why HOHO has engaged in such activities.
The consequences as outlined by the CFO will provide a working formula to ensure that the organization avoids liability because of complacency. Since the organization benefits from the activities of HOHO, it is necessary for the management to ensure that such advantages are not tainted by unethical conduct.
Encouraging the organization to work with HOHO entails ensuring that the charity adheres to the 25% rule. It is necessary to ensure that its actions are within the stipulated standards. Since the organization stands to benefit from donations to HOHO, even when abiding by the 25% rule, the most prudent action is to advise the company on charity so that it is to work within the stipulated ethical standards.
Recommendation
The CFO is mandated to inform the management and explain the consequences. Since it is the best interest of the organization to maintain the relationship with the charity, the accountant is the only individual who can preserve the integrity of the relationship. By informing the management, the accountant will have set a chain of activities with the most favorable outcomes off.
Works Cited
APESB. Compiled APES 110 Code of Ethics for Professional Accountant. 2011. Web.
CCH. Australian Master Accountants Guide. Sydney, N.S.W.: CCH Australia, 2009. Print.
Clarke, Edward A. Accounting: An Introduction to Principles and Practice. 6 edn. Sydney: Course Technology, 2008. Print.
Cunningham, Billie et al. Accounting: Information for Business Decisions. South Melbourne: Cengage Learning Australia, 2012. Print.
Moroney, Robyn, Campbell, Fiona and Jane Hamilton. Auditing: A Practical Approach. Milton, Australia: John Wiley & Sons Australia, 2011. Print.