Reference no: EM132554152

Imagine that you are the Chief Financial Officer of a Tatasmania Company Ltd. It is April and the Chief Executive Officer has just returned from a meeting with the company's bankers. She calls you to her office to discuss the results of the negotiations. As things stand, the company requires a fairly significant injection of capital which will be used to modernize plant and equipment. The company has been promised new orders if it can produce goods to an international standard. Existing machinery is incapable of manufacturing the required level of quality. Whilst the bank is sympathetic, current lending policies require borrowers to demonstrate an adequate current and projected cash flow as well as a level of profitability sufficient to indicate capacity to make repayments from early date

• The problem is that, largely because of some industrial problems the business has not been performing at a level which realizes even its 'unimproved' potential. Strictly speaking, the figures would not satisfy the bank's criteria.

• The CEO reminds you of all these and then mentions that she has told the bank the company is in an excellent shape, that she believes that its financial results will meet the criteria and that she will ask the Chief Financial Officer to deliver a financial report to the bank at the beginning of the next week. She tells you that it is up to you to decide upon the contents of that report.

• Two final pieces of information; you have recently purchased a home-leveraged with a significant mortgage. Failure to invest and gain the promised new orders is almost certain to lead to major retrenchments of personnel.

Required:

Question i. The international Federation of Accountants (IFAC) which is the world umbrella body for professional accountancy bodies has a code to guide accountants on professional behavior. Help the CFO of Tatasmania Company Ltd to act ethical and behave as a professional accountant as required by IFAC to comply with the fundamental principles of the accountancy body.

Question ii. The CEO has asked the CFO to deliver a financial report to the bank that she believes will meet the criteria of the bank. Discuss the steps that the bank should take to ensure that it does not grant assistance to undeserved Tatasmania Company Ltd