Financial Accounting Individual Research Assignment Question
Ethics and governance - Changing depreciation methods
Cocoa 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, Max Cocoa , approached the accountant, Andrea Andy, and asked her if she could find 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 Max.
Although Andrea did not feel that Max'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, Andrea decided to change the depreciation method from the straight-line method to the sum-of-years'-digits method. Andrea did not disclose this change in the notes to the financial statements as she felt that the reason given by Max would not give a good impression.
Required
Discuss, analyse and research ethics and governance of the above case. Your paper should address the stakeholders, ethics, governance, changing depreciation methods and suggestions for Andrea to ensure complinace with the AASB116.
2000 words
8 references.