Reference no: EM133508289

Case Study: Julia is a graduate of accountant who works with a regional board, her uncle who owns a restaurant asked if she was interested in doing some accounting for his restaurant but she initially thought about it as moonlighting which her employer might not approve of because moonlighting is a paid work in which an employee engages in outside the working hours of her paid job. Employees engage in this to earn extra money while some do it to gain experience or improve their skills. However, it may result in employees being stressed thereby reducing productivity while it might also result in conflicts of interest is the work being performed is the same and in the same industry. Julia's uncle assured her that her services will only be needed for three weeks while she will be paid hourly, she accepted the offer after checking her employer's handbook and did not find any mention of moon lighting and did not feel it necessary to inform her employer.

Julia's uncle wanted her to look after the various tax filings for the provincial government and the Canadian revenue agency (CRA) as the filings would be considered more reliable if prepared by someone with professional accounting designation.

Julia experienced several complications in part time employment with her uncle during the first months. Her first concern was prompted when her uncle paid her in cash for the first 2 weeks of work but Julia did not think much of this at first but upon further reflection, she acknowledged that cash payments to employees or suppliers in the restaurant industry were a possible approach to avoiding taxes.

Things got more complicated in the following weeks as she noticed the restaurant used a point of sale(POS) computerized system to record sales according to whether they were credit card or cash and summarized sales by menu items and waiter. She reviewed the reports from this system in preparing taxation returns and noticed that daily sales versus credit sales fluctuated greatly more than would be expected. She also found two POS reports for the same day with different totals.

Julia has read in a newspaper article about tax avoidance by the restaurant industry and CRA has conducted an extensive investigation into tax fraud in the industry. One practice involved the use of "Zapper" computer software to delete specific data such as cash sales and employee hours. The practice was difficult to detect because a stand-alone software application was used.

The situation placed Julia in a difficult position because her family was involved and reporting the practice to taxation agencies would harm family relationships or if she even mentioned it to her uncle. Besides the personal dilemma, there was also a professional one. As a member of the Chartered Professional Accountants, she had to follow its ethical principles and rules of conduct. She was not allowed to provide services that could be unlawful, to present financial information that was misleading or to be associated with any reports or statements she knows as false.

These principles and rules seemed very clear to Julia. Her conscience would not allow her to sign a taxation return when she suspect fraud. Julia felt very alone as she was not sure with whom she could discuss the matter or more importantly that she should do.

Question 1: What ethical issues are involved?

Question 2: What fundamentals of capitalism are involved?

Question 3: Why should individuals and businesses pay tax?

Question 4: What should Julia do?