Reference no: EM132818061

Question - Ethics and governance - Lucia works as an accountant for a motor vehicle engine parts called Varoom Ltd, owned by the international car firm. Her manger Freda Chuse, is paid a bonus depending upon the profitability of the company. if Varoom Ltd, make $1 million profit, Freda receives bonus of $20,000 that increase progressively to $30,000 for $3 million profit. If the profit of Varoom Ltd, exceeds $3 million, Freda receives the maximum bonus of $30,000. Varoom Ltd, receive a grant from the Government of $100,000 per year to employ and train apprentice mechanics.

At the end of the May, it appears that Varoom Ltd, is making a profit of $3.5 million for the year ending at 30 June 2019, Freda approached Lucia and said that if company makes too much profit than Government may stop paying Varoom Ltd the grant for training of apprentice mechanics and it would loose $100000 tax-free cash flow. Freda asked Lucia to find ways of deferring recognition of as much revenue as possible until the following financial year, for which the forecasts for the industry were quite poor, and to accrue as many expenses as possible at the end of current accounting period when it came to the making the end of period adjustment. Although Lucia was not happy with this instructions, she did not want to risk her own opportunities for promotion by upsetting her manager.

Required -

Q1. Who are stakeholders in this situation?

Q2. Why do you believe Freda asked Lucia to add expenses?

Q3. What are the ethical issues involved?

Q4. Can Lucia defer revenue and accrue as many expenses as possible and still be ethical?