Question | ONE

Accountants owe the duty to act in a professional and ethical manner concerning clients, as well an obligation to respect the laws that are involved with the profession. This is where a crossroads of ethics and legalities are formed and potentially the defining point of crucial decision-making. Stephen Richards and his actions under employment with Computer Associates (CA) are then examined in light of this concept.
Accusations against Stephen Richards permitting the backdating of contracts unlawfully were confirmed, giving sanction to the unethical nature of his behaviour. Henderson describes that illegal behaviour will not be deemed unethical when the legal system, accounting profession and society all agree upon the …show more content…

Emphasis being placed on commission-based incentives also gives validation to the behaviour of Richards and thus someone in his place. Richards specifically mentions the ‘high performance employees’ are behaviourally driven by monetary incentives and is a critical element of their mannerisms (Soltes, 2011)
Although backdating of contracts allowed CA to manipulate earnings and revenues, other options are available under earnings management to gain similar results. Such as altering the estimates for “provision for doubtful debts, the useful life and salvage value for depreciation and size of inventory write-downs” (Soltes, 2011), are just a couple of ways to change reported earnings. These “aggressive accounting” methods are achievable within legal constraints and serve as an ethical substitute in accounting practices without delving into the perplexities of the “gray area”.

Question | THREE

CA’s incentives revolve around internal sales targets and commissions in order to reach larger-scale goals, essentially driven by external investors. Motivation for employees comes with the generous commissions, a strategic choice by management, while providing a further incentive of job security based on performance. However, it is with CA’s motivational drivers that have encouraged employees to take an illicit approach to ensure deadlines and targets are met. Adopting earnings management strategies in order to manipulate the financial position