Q 1. The fundamental principles provided by CIMA are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour. As a professional accountant you must comply with each of these fundamental principles. The principles of ethics are to establish a standard of behaviour expected of an accountant. The principle of integrity is being breached as Howard is asking me to overlook obsolete inventory in order to report more favourable financial reports and in turn, receive a portion of his bonus to keep quiet. This breaches the principle as I am knowingly associated with reports that contain misleading information and actively obscures financial reporting that promotes a more favourable picture of the James and Co financial results. If I accept Howard's offer and receive a portion of their commission, I am also breaching the principle of confidentiality. I am using confidential information in the course of my profession for personal advantage. It also breaches the principle of integrity as I am compromising my professional and business judgement because of bias, conflict of interest and due to the influence of Howard. As a professional accountant integrity should be placed before personal interest. I need to take steps to disassociate myself from that false and misleading information as per subsection 111-Integrity R111.3*(1). In order to address this ethical issue, I could go to James and advise him of what Howard has asked me to do. If James approves of Howard's dishonesty, I will need to weigh up whether my career as a junior accountant at James and Co is worth breaching the ethical standards of my profession. However, looking at from a black and white perspective, it does breach multiple ethical principles. I should quit and find a workplace that doesn't breach the principles of CIMA. Q 2. Part I.
3. c) The absorption costing method includes all direct costs associated with manufacturing a product. It also includes any variable costs that are directly related to production such as labour rate, salaries, depreciation, insurance, or the loan repayment on the plant. The inclusion of these costs will result in an increase in cost of goods sold therefore a higher breakeven point and lower gross profit. For external financial reporting for auditors and stakeholders, it is usually required and a generally accepted accounting principle unlike variable costing. Variable costing can be used side by side with absorption costing. Like absorption costing, all variable costs are included in cost of goods sold. However, any fixed direct costs are operating expenses therefore not included in the cost of goods sold. This means the breakeven point lower and can make it difficult to determine the ideal price of a product. I do agree with the senior management accountant somewhat. There is an issue with timing, the time when fixed manufacturing overhead costs are charged to revenue- either the time the units are sold (absorption method) or when the units are produced (variable method). If output is greater than sales, absorption costing revenue will be higher than variable costing revenue. This is due to fixed manufacturing overhead costs incurred in the current accounting period are held in an inventory
account. Whereas in variable costing, the total amount of the current period's fixed manufacturing overhead is expensed.
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