At a glance
As told to Susan Muldowney
Question: “I am a finance manager working for a medium-sized manufacturing company. A material cost occurred near the end of the last financial year. I believe it should be booked in the current fiscal period, but the CEO wants to defer the cost to a later period.
The cost doesn’t meet the recognition for deferment, as it has already been invoiced. How do I manage this?”
Answer: As a finance manager, you have a duty to ensure that your company's financial statements are accurate and comply with accounting standards. It's not just about numbers – it's about maintaining trust and integrity in your role.
While it can be challenging to stand firm against pressure, it's essential to uphold these principles for your sake and the company’s long-term health.
Before you do anything, ensure that you have all the relevant documentation confirming that the cost was incurred in the last financial year. This includes invoices, contracts, delivery and any communication supporting the timing of the expense. This will ensure you are acting with care and diligence, in accordance with the principles outlined in APES 110 Code of Ethics for Professional Accountants.
Prepare a detailed explanation of why the expense should be recognised in the current period. Include references to the relevant accounting standards and the matching principle, which requires expenses to be recorded in the same period as the revenues they help to generate.
This will strengthen your position and provide a clear basis for your argument. The CEO might not be fully aware of the implications or of the requirements of accounting standards.
Take an educational approach to explain why the expense needs to be recognised now and the consequences of deferring it, to ensure they understand the full picture. Mention how deferring the expense might affect bonuses, tax calculations and stakeholder perceptions.
Use your professional judgement and the reasonable and informed third-party test, as outlined in APES 110 Code of Ethics. If you are confident that recognising the expense in the current period is the correct action based on the facts, you must advocate for it.
Misstating expenses can lead to significant issues, including audit findings, financial restatements and loss of stakeholder trust. It’s crucial to consider the long-term implications over short-term convenience.
If you choose to follow the CEO’s directive against your professional judgement, you risk your professional integrity. Misrepresentation of financial statements can lead to disciplinary actions from regulators and subsequently perhaps your professional body.
If you encounter significant resistance, possible courses of action are set out in section 260 – non-compliance or suspected non-compliance with laws and regulations (NOCLAR) – of the APES 110 Code of Ethics.
Be sure to document the matter and discussions regarding the matter, as well as the course of action decided and judgements made. You could also consider consulting an ethics hotline or a trusted peer for advice and support.
