CRG650/520 – DEC 2018

CRG 650/520 – DECEMBER 2018

SUGGESTED SOLUTION
PART A
Question 1
a. State one (1) stake each for the following stakeholders mentioned above; (i)
Kiddies Gym and (ii) the kids visited Kiddies Gym.

Stakeholder Stake
Kiddies Gym To be one of the successful business providing the best for kids in
enjoying their leisure time in a safe and joyful kid’s gym, at the same
time to maximize business profits
Kids To spend their time freely in a safe kid’s gym, also exposing
themselves to new friendships. Kids also can develop creative
thinking and new learning skills.
(Any correct STAKE for the mentioned stakeholders x 2 marks each = 4 marks)
b. The act of Kiddies Gym to consistently perform all necessary safety procedures
on its premise and equipment has reflected the ethical way of a business in
making profit as described by Milton Friedman. Explain with one (1) point on how
you would support the statement.

Friedman describes it is the responsibility of a business is to make as much money as

possible while conforming to the basic rule of the society, both in law and ethical custom.

By having a consistent check/monitoring/maintenance aspect on its premise and

equipment in the gym, it shows that Kiddies Gym is emphasizing on the customers
safety as its main agenda and not only focusing on making profit.

Kiddies Gym realizes that the bonding between a business and its customers must be
developed for a long-term perspective. Thus, customer’s safety is always the main
priority of Kiddies Gym. By focusing on this aspect, it indirectly would enhance the
business profits.
(Correct and good answer relating to Friedman’s theory of profit = 4 marks)
c. It can be said that Kiddies Gym is instilling a high moral sensitivity by
consistently performing all necessary safety procedures on its premise and
equipment. Discuss two (2) positive impacts Kiddies Gym would gain from such
practice.

Kiddies Gym is morally aware that safety of customers is the top priority in conducting its
business. By having a consistent safety procedures on premise and equipment, it will
help the business to build customer’s confidence in using the facilities provided in a
continuous basis. Thus Kiddies Gym would gain customers’ loyalty in its business in a
long term perspective.

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By conducting such practice, Kiddies Gym is also respecting the rights of its customers
as the same time it pays it respect to obeying to the policies it needs to comply with in
conducting its business. By doing so, it helps the business to prevent unnecessary
incidents/accident from happening, keeping its track record clear, hence reflecting its
image as a responsible corporate citizen.

(2 correct answers (positive impacts) with good discussion x 3 marks each = 6 marks)

d. Explain how the practice of Kiddies Gym to consistently ensure necessary safety
procedures are done on its premise and equipment relates to the axioms of
Islamic ethical philosophies; Equilibrium and Benevolence.

Equilibrium Benevolence
This is a concept of ‘adl or fairness. It is This axiom is about doing good deeds
fair for a business like Kiddies Gym to without hoping for something in return. In
consistently ensure necessary short, we should do things honestly.
monitoring is undertaken on the premise By consistently ensuring all necessary
and equipment in the gym. safety procedures are done on the
By charging fee in providing a place for premise and equipment it has in the gym,
kids to play and learn, it is fair for the it shows that Kiddie Gym is a totally
business to allocate some revenue it responsible business that simply does not
generates to ensure the premise and expect to gain easy popularity in a short
equipment are free from any run.
malfunctions which may cause negative It consistently does what it requires to do
impact to its users. without coercion from anybody but due to
It is also a fair treatment to the the sense of accountability, awareness
customers as they would appreciate and high moral sensitivity.
business that put high concern and By doing so, definitely Kiddies Gym would
priority on customers’ safety. be getting continuous support from its
customers which would benefit the
business in the future.

(2 answers x 3 marks each = 6 marks)

Question 2
a. Deor has made a well-offness decision by using a lower quality flour in her cake-
baking process. Describe your agreement to this statement.

Well-offness is evidenced by evaluating if a decision would give more benefits than the
burdens. A decision is said to be ethical if the benefits gained exceed the burdens
incurred.

Yes, decision that Deor has made in using a lower quality of flour is a well-offness
decision. It is not only Deor who gains benefits, but the majority of stakeholders would

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also enjoy more benefits than the burdens when she decided to use flour containing high
level of potassium bromate in her cake-baking process.

Besides nobody knows what she is doing, she also would save a lot of operating costs
by using cheaper source of flour.

The business would generate good profit as what she aims for her business.

The customers would still enjoy her premium cake as they trust the ingredients they
consume are safe and healthy, fair to the price that they pay (even they do not realize
that they are being cheated).

The staffs of the cafe gain benefits and happy as they are still employed and get paid for
the job they performed.

The supplier of such flour would also benefit as it has business to make.

As majority is gaining more benefits than the burden, the action of Deor is a well-off
decision.

(Students should provide agreement to the statement, correct answers = 4 marks)

b. With reference to the above case, explain briefly how the nature of Sage and Pig
has influenced Deor to use a lower quality flour in her cake-baking process.

Sage represents the knowledge/aql of a human. Knowledge gained should be utilized in

the best way to benefit the decision-maker as well as others, and not to be manipulated
in fulfilling self-interest. (1 mark)

Pig symbolizes the greed in a human. Greed of wanting more and more of everything. (1
mark)

Relate the two elements:

In the case, it is understood that Deor has good baking skills and knowledge (Sage).
This has credit her to bake good quality of premium cakes. Customers are also happy
with her business and she enjoys good business profits through utilizing her knowledge
in the right way.

However, due to greedy feeling to maximize profit, the pig element has influence the
sage to switch to using the bleached flour which would save the operating costs. This
also made Deor to ignore the negative impact the customers may face in the future
through continuous consumption of her cakes as she uses flour containing high level of
potassium bromate.

When the element of pig has greater influence over the Sage, the power of Sage would
slowly diminish and smother, leaving the Pig to win the battle. (2 marks)

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(Explanation on Sage and Pig, 1 mark each, + 2 marks on how the elements relate = 4 marks)
c. Explain to Deor how her action to use a lower quality flour in cake-baking process
relates to Stage 2 of Lawrence Kohlberg’s Cognitive Moral Reasoning.

Stage 2 of Lawrence Kohlberg Cognitive Moral reasoning discusses about Self-interest

(Instrumental and Social Exchange / Instrumental Relativist Orientation). This
stage is also known as a stage of “if you scratch my back, I will later scratch yours!”

In this stage, Deor is said to judge the morality of her action based on how it satisfies the
individual needs of herself (self-interest). Thus the act of using the bleached flour is an
act that Deor does as to her it is a morally right act in order to sustain profits due to
increasing price of ingredients used in cake-baking. She gets the profits and customers
are still enjoying eating their favorite cakes! Since secrets are kept well, there would be
nothing to worry about and yet no negative cases occur and reported, thus business
goes on!
(Correct stage=1 mark + Explanation on Stage 2= 1 mark + how it relates to Deor’s action 4
marks = 6 marks)
d. In the perspective of deontologists, evaluate with two (2) points on whether Deor’s
action in using flour containing bleaching agent is an ethical decision?

Deontology – the ethicality of an act is evaluated based on the rightness of the act itself
without evaluating on the consequences of the act. If the act is right, thus it is an ethical
act.

Relate to case: (students may discuss answers relating to rightness/wrongness

of acts, rights, fairness as well as universalizability)
Based on the above case, Deor’s action/duty in using flour containing bleaching agent is
clearly an act that would only fulfill her self-interest and not for the well-being of overall
stakeholders. Thus it is wrong and unethical.

She switched to using a lower quality of flour in order to reduce the operating cost of her
business, thus she can generate good profits, as to her profit is everything. She did it
even though she realized the impact of using the bleached flour would give bad
consequences to the customers in the long run. This shows that she is an egoist owner.

She has offended the rights of her customers to get healthy ingredients from the cake
that they consumed. This is also an unfair act as customers were willing to pay for
premium and they trust Deor’s recipe to be safe and healthy, however what they are
getting is too far from what they expect.

Definitely Deor would not be doing the same (serving cakes baked using risky
ingredients that may affect health) if it involves her own family members, and by this it
can be said that her act has no universalizability.

Thus, the act of Deor is not right and unethical in the view point of deontologists.

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(2 correct and good answers x 3 marks each = 6 marks)

Question 3
a) Explain two (2) ways on how employer can practice fair treatments to its
employees at workplace.
i. Treating employees fairly without any discrimination. Discrimination is one of the best
examples for having unfair treatment among employees. It is considered unethical and
illegal if its involves age, race, gender, and sexual preference. Therefore, workers are
entitled for fair policies that protect their rights on fairness.

ii. Other fair treatments to be practiced at workplace includes fair promotion, fair wages,
and fair hours of working.

(2 answers x 2.5 marks each = 5 marks)

b) Discuss three (3) advantages a corporation would gain by disclosing CSR
information in the corporate annual report.
 To accommodate the general rise in the interest and concern about the environment,
welfare, health and safety among the users of financial statements
 To enable investors make better decisions and benefit economically by having additional
information and if more information is made available to the users, the more efficient the
market tend to be
 To help public make decisions which are more environmental sensitive, while maximizing
their returns on investment
 To meet the needs of a wider group of stockholders who comprise a growing group of
“green” and ethical investors and “green” customers

(3 answers x 2 marks each = 6 marks)

c) Explain one (1) example of any CSR activity companies usually disclosed in their
corporate annual report.
Employees’ Welfare: Social information disclosed on employees’ welfare focused mainly
on staff training programs and staff positioning • Employees’ financial and nonfinancial
benefits, staff cooperatives and recruitment policies.

Other area of disclosures: Environmental Protection, Product Development and

Enhancement, Other Voluntary Disclosure

(One correct example of CSR activity with good explanation = 3 marks)

d) “Corporate code of conduct does not have any standardized definition, and refers
to a company's public policy which defines its standards for ethical conduct. It is
completely voluntary, meaning that a company may choose to have or not to have

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one, and may address any issue from common workplace issues to worker's
rights”.

Explain three (3) ways on how companies can increase profit by having a proper
code of conduct.

 Most corporate codes of conduct have evolved as a result of consumer pressure, which
has given rise to a whole sector of corporations focused as much on ethical behaviour.
Therefore by having code of conduct, it will give positive perceptions from consumer
thus influence them to buy product from the company

 Attract investors to invest in ethical company because the probability of having fraud is
low

 Financial institution will consider providing financing policies because of the company’s
ethical environment. Perception that they will commit to pay.

(3 answers with good explanation x 2 marks each = 6 marks)

Question 4
a) Explain briefly any three (3) criteria of independent directors.

 Independent directors has not been within the last 2 years and is not an officer (except
as a non-executive director) of the company.

 is not a major shareholder the company

 is not a family member of any executive director, officer or major shareholder of the
company

 is not acting as a nominee or representative of any executive director or major

shareholder of the company

 has not been engaged as an adviser by the company

 has not engaged in any transaction with the company

(3 correct answers x 2 marks each = 6 marks)

b) Explain two (2) rationales for a company to have an appropriate number of

independent directors.

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1. To have an effective board, there must be a right balance in the board composition –
independent non-executive directors & non-executive directors

2. Director who is independent of management and free from any business or other
relationship which could interfere with the exercise of independent judgement or the
ability to act in the best interests of an applicant or a listed issuer.

(2 answers x 3 marks each = 6 marks)

c) Agency theory discusses about the relationship between principals and agents in
business. In this theory, the principals engage the agents to perform some
services on their behalf. Principals will normally delegate some decision-making
authority to the agents. Discuss two (2) problems associated with the Agency
theory.
 Conflict of objectives between the principals and agents

 Adverse selection is the situation when principal cannot determine if the agent
performing the work for which he/she is paid

 Moral hazard is when the principal is unsure as to whether the agent has performed their
work to their ability or due to self-seeking motives.

(2 answers with correct and good discussion x 4 marks each = 8 marks)

PART B
Question 1
a. Explain briefly two (2) public expectations of the accountant’s profession.

 To have technical expertise associated with accounting & higher understanding of

related fields (Management Accounting, Taxation & Information System)

 Adhere to the general professional duties & values and with specific standards laid out
by professional body.

 These expectations should be aligned with the Features, Duties, Rights & Values in the
Accounting Profession

(2 correct answers with good explanation x 2 marks each = 4 marks)

b. With regards to his findings, discuss what Harith should do in order to comply
with the International Federation of Accountants (IFAC) Code of Ethics; (i)
Integrity, (ii) Professional Competency and (iii) Confidentiality.

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Integrity: Professional accountant should be straightforward and honest in performing

services.

Therefore Harith should not make false entries and should not provide misleading
statement. He should provide correct net profit figures

Professional Competency: Professional accountant should maintain professional

knowledge and skills and act diligently in accordance with the applicable technical and
professional standard when providing professional services

Therefore Harith should record all transactions according to generally accepted accounting
principles

Confidentiality: Accountants should respect the confidentiality and not disclose information
to third parties without proper authority

Therefore, Harith should inform the management about the misstatement and provide
suggestion on how to solve the issues.

(3 answers x 3 marks each + 1 mark for good answer = 10 marks)

c. By providing 3 (three) answers, advise the external auditors on the ethicality of

their action in giving unqualified opinion on the company’s financial statements
based on Consequentialism theory.
Consequences of one's conduct are the ultimate basis for any judgment about the rightness
of that conduct that will produce a good outcome, or consequence.
Negative consequences by giving unqualified opinion:
 Produce unreliable audit report
 Mislead decision-making process of users who rely on the financial reports
 Do not comply with professional standards
 Jeopardize the good name of profession as professionals
 May face strict penalty if the truth is revealed

Positive consequences by giving unqualified opinion:

 Continue appointment as auditor
 The auditor is seen as a competent individual that keeps good track record
 The directors are seen as capable management board
 Shareholders would also be happy with the business performance

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Based on the consequences, auditor should not give unqualified opinion of the company’s
financial statements. Even though there are also positive consequences from the action,
however the benefits gained is only enjoyed in a short term period.
(3 answers on either positive or negative or BOTH consequences relating to Consequentialism
x 2 marks each = 6 marks)

Question 2
a. Identify four (4) ways on how employer can inculcate employee’s loyalty towards
employment.

 Treating employees fairly without any discrimination

 Providing a conducive working place to all employees
 Having safe and healthy working environment
 Employees are free to exercise their rights
 Offering attractive financial and non-financial benefits
 Giving opportunity to employee to join appropriate training program to enhance
skills and competencies
 Providing/guiding employees with clear paths for career development
(Any 4 correct answers x 1 mark each = 4 marks)
b. Outline two (2) appropriate types of justice to be given to Amyni for selling a fake
handbag to Datin Vogi.

Retributive justice – appropriate punishment which is fair and just for the wrongdoing
Amyni has conducted. She must serve punishment and must be a more responsible
individual and should never repeat the same mistake in the future.

Compensatory justice – fair compensation need to be made by the doer (Amyni) to Datin
Vogi. Amyni may repay the cash to the buyer or to replace the fake with the genuine
handbag.
(2 correct types of justice to Amyni x 2 marks each = 4 marks)
c. Discuss briefly two (2) possible actions Ohriginals can take as an employer in
order to fairly serve the wrongdoing done by Amyni.

 Investigate the fact thoroughly by taking into consideration information from both
parties; Amyni and Datin Vogi

Collect enough evidence from both parties in a professional manner before punishment
is decided to Amyni. As employee, she also has the right to say the truth (in case she
may also be sabotaged by other personal shoppers). If only she is found guilty, then
appropriate punishment should be given to her.

 Strict warning/reminder to Amyni.

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Ohriginals may conduct a face to face discussion with Amyni about the wrongdoing she
has involved in. Proper warning and reminders need to be highlighted in a serious
manner.
(Any 2 possible actions taken by employer x 3 marks each = 6 marks)

d. Brooks and Dunn (2015) mentioned expectations for ethical behavior in

workplaces have changed on several dimensions. The balance of consideration
has definitely moved from an employer-interest-only model to an employee-and-
employer-interest model. Discuss two (2) importance of including both employers
and employees in achieving a balanced consideration.

 In achieving a balanced consideration, it is important to include both parties as it

is a better way to come out with the best decision that would not discriminate the
rights of either employee or employer.

 A fairer decision can be made by including both parties in coming out with final
decision. Employees are no longer just to follow instruction given by employer,
but they have the rights to say the truth and give opinion. By having a two way
communication, it would create a better workplace environment thus preventing
blind loyalty.

 By having both parties, it helps to improvise a better relationship between two

parties. If proper treatments are given to the employees by the employer,
definitely loyalty to workplace would be created, less problems faced and
preventing unnecessary costs to arise.

(2 correct answers x 3 marks each = 6 marks)

End of Suggested Solution

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