TACC601 Principles of AccountingTrimester 1 2020Assessment 3: Case Study (Individual Assignment)Due date: week 10’s Saturday 6 June at 23:59Separate submissions: Through the Turnitin system (one...

Ethics and Governance
I. The impact of a Bonus Incentive Scheme on the Financial Statements.
a) Who are the stake holders in this situation?
There are two kinds of stake holders in this situation, Internal Stake holders and External Stake holders. In other words, anyone who is impacted by the decisions of the company is the stake holders.
In this we need to recognize the stake holders on ethical grounds and more particularly on ethical behavior of the company in concepts like revenue recognition, best practices of the company, social responsibility towards receiving grants from the Government.
Internal stake holders are employees of the company and external stake holders are the Government, creditors, Bank and suppliers who are closely interested in the growth of the company, particularly increase in the revenue earning capacity of the company.    
b) Why do you believe Freda asked Lucia to do this?
There are two reasons for which Freda asked Lucia to defer revenue recognition in the current period and accrue as much expenses as possible in the current financial year.
When the revenue is recognized as deferred revenue, the same is typically termed as a current liability of the company in the balance sheet, for which services have not been provided or revenue is termed as advance payment. These payments although are revenue in nature, does not form part of the current year revenue, rather revenue for the next financial year. By, this current year profits will become less to the extent of deferred revenue and will be treated as current deferred revenue.
Accrued expenses pertain to the expenses which are incurred but not yet paid to the vendors. These expenses are incurred in the current financial year but payment is on hold and will be made in the future period.
Both Deferred Revenue and Accrued Expenses are adjustment entries at the end of the financial year, which will not be there in the General Ledger.
c) What are the ethical issues involved?
1. Government Grants: Grants are given to the companies at the initial stage of setting up, to boost the policies of the Government and to uplift the economic condition of the people at that locality. Once the company starts making the profit above the threshold, these grants are withdrawn. Company should not only work towards its profits, but has the social responsibility and report the financial at its current situation. Companies should not resort to window dressing practices.
Manager in this situation take decision on normative ethics and should help the society by taking corrective decisions and focus on the end result of the decision. In this case, even though company is not eligible for the grants after a revenue threshold, by suppressing the revenue, it’s still taking the grants to...