In your response highlight ethics & governance, accountant’s role in changing depreciation methods, stakeholders and the impact of AASB116?
Sunshine Ltd is a large department store that has used the straight-line depreciation method since the company was first formed. For the year ended
30 June 2015, the company made a record profit and management expected these high profits to continue at least into 2016 and 2017, although economists were generally predicting an economic slowdown and a subsequent fall in profits in 2018 and 2019.
The general manager, Kam Sunshine, approached the accountant, Maria Mars, and asked her if she couldfind a way to reduce the profit in the next couple of years and transfer it to 2018 and 2019 when things may not be going so well. ‘This would give us consistent profits over the next few years and keep our shareholders happy,’ said Kam. Although Maria did not feel that Kam’s reason for the change was justified, she was concerned that her contract with the company would not be renewed if she upset the general manager. After some consideration, Maria decided to change the depreciation method from the straight-line method to the sum-of-years’-digits method. Maria did not disclose this change in the notes to the financial statements as she felt that the reason given by Kam would not give a good impression