Reference no: EM13499911

Outline Connie Johl's professional obligations and recommend how she should proceed in dealing with this ethical dilemma. Identify and comment on the CEPROC statutes that Connie should consider when analyzing this case.

Hints:

When dealing with this ethical dilemma, assume you are in Connie Johl's position.
Review the nine-step approach outlined in the following readings before preparing the solution to this question.

Case:
Glen Stanger, CGA, is the owner and chief executive officer (CEO) of GFF Educational Services Inc. (GFF). GFF is a private Canadian company that manufactures high-tech electronic gadgetry. GFF Educational Services Inc. recently acquired 100% ownership of Anne Ltd., which operates in Surrey, England, in order to secure a source of supply for an important component part.

Anne Ltd. is basically a branch plant of GFF. GFF provides all non-supplier financing and directs the day-to-day operations of the firm. GFF also buys about 80% of Anne Ltd.'s output.

GFF recently hired Connie Johl, MBA, CGA, as its chief financial officer (CFO). One of the reasons for hiring Connie was her impressive knowledge of IFRS: GFF wants to prepare its financial statements in accordance with Part I of the CPA Canada Handbook - Accounting. The CEO's stated reason for electing to adopt Part I is that he wants to take the company public in one or two years' time.

As CFO, Connie is responsible for co-signing the management letter of representation provided to the firm's auditors; she is currently overseeing the preparation of the firm's consolidated financial statements. In doing so, she notes that Ed Lo, the financial controller, has indicated that the functional currency of Anne Ltd. is the pound sterling and that he has therefore accounted for the subsidiary as a self-sustaining foreign operation. Connie is of the opinion that the functional currency is the Canadian dollar and that the subsidiary should be accounted for using the foreign currency transactions approach.

When Connie asks Ed about his choice of the pound sterling as the functional currency, he replies, "Glen told me to use the pound and so I did." Troubled, Connie thanks Ed for his time and then goes to speak to Glen about the matter. Glen invites Connie into his office and then closes the door behind her. When asked about his instructions to Ed, Glen replies:

"Connie, we all know that IFRS provide some guidelines as to the choice of the functional currency but that ultimately it is a matter of professional judgment. Frankly, I think that the pound is a better choice, as our current financial results look better. Moreover, should the exchange rate move against us in the future, I would much rather see the loss recorded in other comprehensive income rather than in net income. It goes without saying that this will look better to potential investors and help us achieve a good price on the shares offered for sale in the initial public offering. I expect you to support me in this matter."

Connie returns to her office and contemplates the recent chain of events.