At a glance
As told to Susan Muldowney
Question: “I’m a CFO working at a small professional services firm, and I’m currently finalising this year’s revenue figures. I have doubts about how my predecessor recognised recovered bad debts. The CEO believes the previous treatment should be fine to continue. How do I handle this?”
Answer: As a CFO, you are bound by the APES 110 Code of Ethics for Professional Accountants, which emphasises objectivity, professional competence, due care and integrity. These principles require you to ensure that the financial statements present a true and fair view of the company’s financial position.
If you find discrepancies or deviations from the accounting standards, it is your duty to address them.
Start by investigating how your predecessor recognised the recovered bad debts. Understanding the exact treatment applied will give you a clear picture of whether it aligns with accounting standards.
Ensure you have all relevant documentation and records that support the past treatment of these debts.
Present your findings to the CEO. Explain the accounting standards related to recovered bad debts and why adhering to these standards is crucial.
It is also important to highlight the potential implications of not complying, such as inaccuracies in financial reporting, which could affect the company’s credibility and financial health.
It can be hard to speak up, especially if you are getting some pressure to leave things as they are.
Before approaching the CEO, it might be helpful to script your discussion points. This preparation can help you present your case clearly and confidently. Emphasise the importance of compliance with accounting standards and the potential long-term benefits of maintaining accurate and transparent financial records.
Next, discuss the potential consequences of continuing the previous treatment versus correcting it.
"It can be hard to speak up, especially if you are getting some pressure to leave things as they are. Before approaching the CEO, it might be helpful to script your discussion points. This preparation can help you present your case clearly and confidently."
This includes the impact on revenue, taxes and overall financial reporting. The CEO should understand that adhering to the correct accounting treatment is not just about following rules but ensuring the company's long-term integrity and transparency.
If your investigation reveals that the previous treatment was incorrect, plan the necessary adjustments.
This may involve making journal entries to correct the financial statements. Be prepared to explain these adjustments to stakeholders and provide evidence supporting the changes.
If the issue stems from a lack of competence or an honest mistake by your predecessor, consider having a constructive conversation with them if they still work at the company. This can help ensure they understand the correct treatment and prevent similar issues in the future.
If the issue is more severe, you might need to report it to the appropriate professional body, especially if it involves potential misconduct.
If you face significant resistance or uncertainty, consider consulting an ethics hotline or a trusted peer for advice.
This can provide you with additional perspectives and help you prepare for difficult conversations with the CEO or other stakeholders.
Appropriate reporting
There is also a need to share the concern or correction workings with the financial statement auditors, says Melissa Read FCPA, CPA Australia’s head of professional standards.
“Financial statement auditors are often who you would discuss the item with before making the change, so that you can get their agreement on the change in accounting and the correction,” Read says.
Belinda Zohrab-McConnell, CPA Australia’s regulation and standards lead, adds that in the instance that the current CFO and their predecessor are registered tax practitioners, the new Tax Practitioners Board breach reporting guidelines may also apply.
