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You are employed as an advertising manager in a privately owned marketing communications company. Amongst other duties, one of your responsibilities is to randomly review travelling reimbursement claims submitted by staff in the department. At random, you pulled out a claim submitted by an executive who is also your friend Mustapha.

Your findings show some false information and you decide to confront your friend with your findings. When confronted, Mustapha responded “Sure the claim is not all correct. All the other staff falsify their claims and it is almost expected.”

Stunned by his confession, you tell him that he has to resubmit an accurate reimbursement claim. Mustapha responds, ‘You know Ibrahim, I worked very hard but the boss has not rewarded me. You know how they have been working all of us to meet impossible deadlines. They should be either hiring more staff or giving us a salary increment. I am entitled to this, and I refuse to resubmit the claim.”

Required:

  1. What do you think of Mustapha’s argument? Support your answer with reference to the code of ethical practice.
  2. How should you approach Mustapha on this situation?
  3. What should you do if Mustapha refuses to take your advice and why?

Assessing Financial Performance of Jayadiri Sdn BHD

The present report is based on understanding the application of ethics in the modern business world. Even though there is a persistence of strong foundations for ethics, the present business world is complicated by the regulations to navigate and taking into the consideration the new regulations mandated by the business (Krier et al., 2014). The report is based on outlining the expectations concerning the regular business and professional conduct. The report provides the overall presentation of ethical conducted mandated by the code of ethics. The modern business world not only requires every person to act in ethical manner but also mandates to comply with the ethical requirements and remain watchful where the situations of questions arises.

The later part of the report is based on assessing the financial performance for Jayadiri Sdn. Bhd for the financial year ended 2016 and 2017. The report would compute the necessary ratios in the areas of liquidity, solvency, profitability and efficiency to comment upon the financial position of the company.

The present situation of Mustapha highlights that he falsely claims the travelling reimbursement and upon being approached he reveals that other staff also indulges themselves in falsifying the claims of travelling reimbursement. With reference to the code of ethical code of practice section 110 of the code implies that an individual is required to maintain professional integrity (Date & Date, 2014). The principle of professional integrity requires an individual to impose the obligations on all the members to remain straight forward and honest in discharge of their duties. The principle of Integrity mandates an individual to act honestly in their profession and business relationships. Furthermore, the principle of integrity in the code of professional ethics often demands an individual to deal fairly and with truthfulness.

As understood from the situation of Mustapha, he is found to have breached the principles of Integrity under section 110 of the code of ethical conduct. The ethics demands the members working in an organization to not perceptively remain related with the reports, returns or supplementary information where the person considers that the info provides has a substantially false and ambiguous report (Donaldson, 2016). The principle often demand an individual to not associate in any information that omits or obscure the information that is needed to be incorporated and where such exclusion or vagueness of information might result in misleading situation.

The argument put forward by Mustapha provides that he has breached the principle of integrity and has not been forthright and truthful in discharge of his professional and business relations. The argument further specifies that Mustapha has indeed breached section 110 principles of integrity and has not been fair in dealing with truthfulness (Hill & Rapp, 2014). The instance of falsifying the claim reimbursement by obscuring the inclusion of required information give rise to materially false and misleading statement.

The Situation with Falsified Travel Reimbursement

In lieu with the situation of Mustapha, further reference to section 130 of professional competence and Due Care can be made. The code requires a person to uphold the professional understanding and skill at the mandatory level to make sure that proficient professional service is provided to the employer. While rendering professional service the professional competence and due care requires a person to act diligently in compliance with the application of professional standards (Shaffer et al., 2016). Similarly, the argument put forward by Mustapha sheds light on the fact that he breached the professional competence and due care code by not acting diligently in the accordance with the professional standards at the time of rendering professional service. Mustapha was required to provide true accounts of reimbursement claims however under section 130 of code of ethical practice he failed to maintain the professional obligations of providing a competent service towards his employers. Mustapha did not took the responsibility of acting in accordance with the requirement of his employment.

In accordance with the section 150 of the code of professional behaviour and under code of ethical practice the act of falsifying the reimbursement claims by Mustapha results in discredit to his employment (Hardy, 2016). The professional behaviour principle levies an obligations on every members to act in compliance with the necessary rules and code of practice and must not indulge in any act or omission that is known to the members or acts that discredits their profession. This also comprises of the actions of omitting the reasonable information or falsifying the statements. Weighing the situation of Mustapha it is understood that he has breached the code of professional behaviour, Integrity and Due Diligence in discharge of his duties by falsifying the claims of travelling reimbursement (Reamer, 2017). These acts concludes that it not discredits is employment engagement but also contributes adversely to his reputation of the profession.

The code of ethical practices provides ethical conflict resolution as the tool for resolving the conflicts in agreement with the fundamental principles. As evident with the situation of Mustapha the code of ethical conflict resolution can be undertaken to resolve the conflicting issues (Herlihy & Corey, 2014). A formal or informal method of initiating the conflict resolution process can be undertaken to resolve the issue of Mustapha by following together with the factors that are relevant in the process of conflict resolution.

To resolve the issue due weightage to the relevant facts should be paid and considerations to the ethical issues involved in falsifying the claims of travelling reimbursement can be made in the situation of Mustapha (Bond, 2015). Fundamental principles of integrity can be addressed related to the material in question with well-known internal process or alternative course of action can be initiated to address the issues of Mustapha in falsifying the travelling reimbursement claims.

Code of Ethics and Mustapha's Breach

After taking into the consideration the relevant facts originating from the situation of Mustapha, it is necessary to determine the appropriate course of actions by placing a due weightage on the consequences of possible course of action (Valentine et al., 2015). The possible course of action for Mustapha can be initiated by educating him with the principles of integrity to remain honest and straight forward in discharge of his business and professional relationships. This would help Mustapha in dealing with the truthfulness and would help in improving the communications of not knowingly indulging in the preparation of materially misleading or false statement that may obscure the needed information.

On gaining the awareness of the Mustapha’s situation it is necessary that appropriate steps should be taken to disassociate from such information. The matter of Mustapha involves conflict with the organization and it is necessary that a member of the organization that is charged with the governance to consult with Mustapha regarding the prohibition of practices of falsifying the documents of travelling reimbursement (Hancock, 2015). Another approach that can be taken to approach the situation of Mustapha is that the member of the governance committee should document the substance of Mustapha’s issue along with the details of discussion where all the other staff engage in the practice of falsifying the travelling reimbursement claims (Ruha, 2015). This would help in addressing the matter of concern and may possibly in future avoid in indulging the acts of falsifying the material content of the information.

On noticing that the significant conflicting issue is not resolved, then it is necessary to consider gaining the professional guidance from the pertinent professional body or from the lawful advisors (Ponterotto, 2017). This would help the advising member to generally obtain the guidance relating to the matter of ethical subjects without breaking the essential values of privacy given the matter is conversed with an appropriate qualified body. This would help the legal advisor to address the situation of Mustapha under the security of permissible privilege.

While deciding the alternative course of action for Mustapha it is necessary to exercise the professional judgement and taking into the consideration the reasonable circumstances surrounding the facts (Board, 2014). This would help in addressing the situation of Mustapha non-professional conduct and in future would help in not indulging such activity of falsifying the claim of travelling reimbursement.

The present report is based on assessing the financial performance for Jayadiri Sdn BHD for the year ended 2016 and 2017. The report would take into the consideration the calculations of ratios and would further provide whether the company is improving or detreating. To understand the company’s performance aspects of efficiency, liquidity, profitability and solvency would be considered.

Conflict Resolution and Alternative Course of Action

The current ratio can be defined as the ratio that measures the skill of the firm to pay off the short term liabilities with the current assets (Beatty & Liao, 2014). The current ratio is regarded as the vital ratio of measuring the liquidity position because it helps in determining whether the short term liabilities are inside the subsequent year. This represents that a corporation has limited sum of time so that it can raise the funds for paying of its liabilities. To determine the current ratio of a company the cash, “cash equivalents” and “marketable securities” can be easily transformed in the cash during the short term.

Particulars

2016

2017

Total Current Assets

386000

369000

Total Current Liabilities

243000

229000

Current Ratio

1.59

1.61

To determine the liquidity position of Jayadiri Sdn BHD current ratio has been computed for the financial year ended 2016 and 2017. The current ratio for the year 2016 stood 1.59 while in the financial year of 2017 the current ratio stood 1.61. The ratio represents the sign of improvement in the subsequent year as it gained by 0.02 point. Arguably, the current ratio signifies that the company has higher ratio and they have the ability of paying off their short term obligations. The current ratio for Jayadiri Sdn BHD signifies that company carries larger amount of current assets and it is in better position of paying off its current liabilities as and when it turn out to be due without selling off their long term income producing assets.

Gross profit margin represents the profitability ratio that provides a comparative results of the gross margin of a company to the net sales (Henderson et al., 2015). The ratio is helpful in measuring the profitability of the company. The gross profit ratio presents the mark up of the produce from its price. The gross profit ratio is regarded as the vital ratio since it helps the organization and stockholders in understanding how lucrative the commercial activities are without considering the indirect costs (Khan, 2015). The gross profit margin helps in measuring the efficiency of the company in producing and selling its products.

Particulars

2016

2017

Gross Profit

211000

219000

Sales

427000

459000

Gross Profit Margin

49.41%

47.71%

As evident from the calculation the gross profit margin for the year ended 2016 stood 49.71% while in the subsequent financial year of 2017 the gross profit margin declined to stand 47.71%. The primary reason for declined in the gross profit margin is that there is a sharp rise in the cost of sales figures reported in 2016 to the figures reported in 2017. The cost of goods sold in 2017 increased and has impacted the profit of Jayadiri Sdn BHD by close to 2%. The gross profit can be termed as the important element and a lower gross profit represents that the company has not been effectively managing its direct expenses.

Conclusion

The inventory turnover is regarded as the efficiency ratio that represents how efficiently a business achieves its inventory in comparison to the cost of goods sold with respect to the average inventory for a period (Hoskin et al., 2014). The inventory turnover ratio helps in measuring how many times the average inventory is sold for the period.

Particulars

2016

2017

Cost of Goods Sold

216000

240000

Average Inventory

186000

157000

Inventory Turnover Ratio

1.16

1.53

The above stated inventory turnover ratio represents that in 2016 the company reported the ratio of 1.16 while in the subsequent financial year of 2017 the ratio stood 1.53. The inventory turnover ratio for the company is on the higher side which implies that the company has posted a stronger sale with large sales discount.

The improving inventory turnover provides that the company has reported an improved performance with strong sales and implies that the company is converting cash from its inventory in quicker time with lower lock warehousing time.

The equity ratio is referred as the ratio of solvency which measures the sum of assets that is funded by the owner’s investment by equating the overall equity in the business to the total assets (Penman, 2016). The equity ratio is helpful in highlighting the two vital financial concepts namely the solvent and the sustainability of business. Commonly the higher equity ratio is generally considered favourable for the companies (Elliott, 2017). Greater level of investment by the stockholders shows the potential shareholders that the company is value spending and the depositors are enthusiastic to finance the business.

Particulars

2016

2017

Total Equity

225000

236000

Total Assets

5,66,000

5,82,000

Equity Ratio

0.40

0.41

As understood from the above stated ratio the equity ratio for the financial year ended 2016 stood 0.40 while in the subsequent year of 2017 the equity stood somewhat stable as in 2017 as well. The higher the ratio the higher potential creditors and signifies that the company is placed in the better sustainable situation.

The higher ratio represents that the business is less hazardous to advance the future loans. The evidences gained from the equity ratio represents that general equity financing for the company is much cheaper than financing debt due to the interest expenditure that is related to the debt financing (Barth, 2015). The findings from the ratio contributes that the company is solvent and sustainable business. Furthermore, the assets of the company is outright owned by the owners and shareholders. Alternatively, when all the liabilities of the company are compensated off the investors would end up with the residual assets.

The accounts receivable turnover represents the efficiency ratio or the activity that measures the number of times the business converts its accounts receivable in cash during an accounting period (Warren & Jones, 2018). Conversely, the accounts receivable turnover ratio helps in measuring the number of times the business can collect the usual amount of accounts receivable in the year. The word “Term” can be defined as each time the business collects the average receivables.  

Particulars

2016

2017

Sales

427000

459000

Average Accounts Receivables

109000

112500

Accounts Receivable Turnover

3.92

4.08

 As understood from the above stated ratio the accounts turnover ratio for the financial year ended 2016 stood 3.92 while the accounts receivable ratios for the subsequent financial year stood 4.08. The accounts receivable turnover ratio assesses the ability of the business to proficiently collect the receivables and makes sense that higher ratio the more favourable would be the situation.

The ratio for Jayadiri Sdn BHD in the financial year 2017 is viewed as the improvement over the previous year and represents more favourable situation. The instances from the calculations provides that higher ratio represent that company is collecting its receivables more frequently all through the year. The ratio is four times of Jayadiri Sdn BHD average collections which implies that the business is collecting its receivables from its clients in every three months.

The higher ratio for Jayadiri Sdn BHD represents the favourable situation from the perspective of cash flow. An assumption can be bought forward in this regard is that it is using its cash to pay off its bills and other commitments quicker. Jayadiri Sdn BHD with better ratio represents that the credit sales are very much probable to be collected for the company than with firms that have lower ratio.

Debt ratio refers to the solvency ratio which assess the company’s total liabilities as the proportion of total assets (Deegan, 2013). As a general rule, the debt ratio represents the ability of the company in paying off its debts with its assets. Alternatively, this represents that number of assets the company should sell to meet its liabilities. The debt ratio is useful in assessing the financial leverage of the business. The debt ratio is helpful in measuring the financial leverage of the company (Hoyle et al., 2015). Firms that have higher level of liabilities in comparison to the assets is considered highly leverage and highly risky with the lender.  

Particulars

2016

2017

Total Liabilities

3,41,000

3,46,000

Total Assets

5,66,000

5,82,000

Debt Ratio

60.25%

59.45%

As evident from the above stated ratio the debt ratio for the company stood 60.25% while the debt ratio declined marginally to 59.45% in the financial year of 2017. This would help the investor in measuring the financial leverage of the company. Furthermore, it would help the investors and the creditors in assessing the overall burden of debt on the company along with the ability of Jayadiri Sdn BHD in paying off its debt in future during the uncertain economic times. The debt ratio represents the company is less risky and the shareholders would own the remaining of the assets.

Conclusion: 

A conclusive evidences can be drawn from the report that the application of professions, values and standards has evolved over the years. The code of ethical practices give rise to the distinguishing mark of ethical acceptance of the accountability to diligently act in the responsibility of the organization. The report conclusively educates the individuals regarding the contents of ethical practices to reduce the threats to the acceptable degree. A conclusive evidence can be drawn from the report by stating that the members of the organization should comply with the principles of integrity by remaining straightforward and honest in discharge of their business and professional relations. Furthermore, the code of ethical practices explains that complying with the relevant laws and regulations helps in avoiding the actions that ultimately discredits the employment profession.

Conclusively, gauging into the ratios of the company it can be stated that the company has posted a stronger financial performance for the financial year ended 2017. The improving inventory turnover evidently lay down that the company has reported a better performance with strong sales and implies that the company is generating cash from its inventory in quicker time.

References: 

Barth, M. E. (2015). Financial accounting research, practice, and financial accountability. Abacus, 51(4), 499-510.

Beatty, A., & Liao, S. (2014). Financial accounting in the banking industry: A review of the empirical literature. Journal of Accounting and Economics, 58(2-3), 339-383.

Board, B. A. C. (2014). Professional and ethical compliance code for behavior analysts.

Bond, T. (2015). Standards and ethics for counselling in action. Sage.

Date, W., & Date, S. P. P. (2014). Code of ethics.

Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.

Donaldson, T. (2016). Values in tension. Business in Ethical Focus: An Anthology, 198.

Elliott, B. (2017). Financial Accounting and Reporting 18th Edition. Pearson Higher Ed.

Hancock, P. (2015). Health and safety-an essential element of ethical practice. AusIMM Bulletin, (Apr 2015), 38.

Hardy, M. C. (2016). Drafting an effective ethical code of conduct for professional societies: A practical guide. Administrative Sciences, 6(4), 16.

Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting. Pearson Higher Education AU.

Herlihy, B., & Corey, G. (2014). ACA ethical standards casebook. John Wiley & Sons.

Hill, R. P., & Rapp, J. M. (2014). Codes of ethical conduct: A bottom-up approach. Journal of Business Ethics, 123(4), 621-630.

Hoskin, R. E., Fizzell, M. R., & Cherry, D. C. (2014). Financial Accounting: a user perspective. Wiley Global Education.

Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015). Advanced accounting. McGraw Hill.

Khan, M. (2015). Accounting: Financial. In Encyclopedia of Public Administration and Public Policy, Third Edition-5 Volume Set (pp. 1-6). Routledge.

Krier, P., Parman, A., Piercy, D., Erlandson, J., Keele, R., Hill, S. L., & Erlandson, J. (2014). CODE OF ETHICS.

Penman, S. H. (2016). The design of financial statements.

Ponterotto, J. G. (2017). Ethical and legal considerations in psychobiography. American Psychologist, 72(5), 446.

Reamer, F. G. (2017). Evolving ethical standards in the digital Age. Australian Social Work, 70(2), 148-159.

Ruha, A. M. (2015). Ethical Standards Help to Define the Medical Toxicologist.

Shaffer, F. A., Bakhshi, M., Dutka, J. T., & Phillips, J. (2016). Code for ethical international recruitment practices: the CGFNS alliance case study. Human resources for health, 14(1), 31.

Valentine, S., Fleischman, G., & Bateman, C. R. (2015). An Exploratory Study of Professional Ethical Standards, Positive Budgeting Orientation, and The Mediating Role of Corporate Ethical Values. Accounting & Taxation, 7(1), 1.

Warren, C., & Jones, J. (2018). Corporate financial accounting. Cengage Learning.

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