Question 1
You are a recently qualified accountant and have accepted a job as financial controller for a
wellestablished family business which supplies equipment to photographers, both by mail order
and from its warehouse outlet. Its customers range from enthusiastic amateurs through to parttime professionals and owners of busy studios.
The customers’ payment methods reflect their diversity. There are credit card
transactions and customers with 30-day credit business accounts. There is also a surprisingly
large number of customers who collect their goods from the warehouse and pay in cash. You are
told that cash payment probably reflects the nature of the customers’ own receipts, as some
photographers will often be paid in cash for weekend wedding assignments.
In your first week at the company, the sales director (the principal shareholder’s son)
brings to you a cheque in settlement of the account of a major customer. He explains that the
cheque (whichappears to clear the amount due) is in fact an overpayment, as the balance showing
on the salesledger is before allowing bulk discount (which is calculated retrospectively). The
sales director shows you his calculations and the agreement as authorised by the board.
The sales director states that the customer’s managing director has come to collect the
discount in cash. He says that this is not an unusual occurrence for some of the
company’s better customers. It helps to maintain a good relationship with those customers,
which leads to purchasing loyalty. Another benefit of this arrangement is that it gives the sales
director regular face-to-face meetings with the senior staff of those customers. It also reduces the
high charges that the bank makes for handling cash.
Required
a) Identify the key fundamental ethic principles
b) Suggest the possible causes of actions