Reference no: EM132727173

Ethics is often an integral part of internal controls. Read the case below and then answer the questions using the ethical analysis framework used throughout the trimester.

• Australian Securities and Investments Commission (ASIC) announced that Conster Inc and its founding chairman and CEO, Conman Cheat, would pay a fine of AUS$10M to settle charges of false reporting.

• ASIC found that senior accountants engaged in improper accounting by maintaining a series of secret reserves that Conster Inc then misreported to ensure that the company met income and operating expense forecasts. The reserves were secretly funded by payments from its IT supplier, ABC Tech, to Conster Inc, on the condition that it will not buy products made by competitor DEF Tech. Payments grew from 10% of Conster Inc's operating income in financial year 2017 to 38% in 2019, and peaked at 76% in the first quarter of its financial year 2020.

• The fraudulent accounting made it appear that it was consistently meeting its forecasted earnings targets and reducing its operating expenses through the company's management and operations. In reality, Conster Inc's success had little to do with the company's strategy, products, or operating efficiencies. Rather, it was the result of its yearly requests for more exclusivity protection money from ABC Tech.

• ABC Tech ceased its payments when Conster Inc agreed to buy products from DEF Tech. Hence, Conster Inc's operating income in the second quarter of 2020 dropped 75%. However, rather than disclose the true reason for the fall in profits, Conster Inc claimed that it had priced products too aggressively in the face of slowing demand, and that component costs were more expensive than expected. As part of the action taken against Conster Inc, ASIC forced the company to restate quarterly earnings. ASIC also barred two of the senior accountants involved from practising for three years, and another for two years.

Required:

Problem (a) What is the underlying ethical issue?

Problem (b) Which parties (stakeholders) may be harmed? Name three.

Problem (c) Which specific interests are in conflict? Name three.

Problem (d) Describe two courses of action that Conster Inc could have taken immediately after the judgment and the consequences of each option.