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IAI Actuarial Core Principles · Business Finance · Ethical responsibilities of owners and managers

A listed Indian manufacturer's finance head knows that a supplier's invoice is overstated, yet approves it because the supplier is a long-standing friend and the amount is small. Which ethical failing is most directly illustrated?

The failing is a breach of integrity and objectivity: the manager lets personal friendship override his duty to the company by approving an invoice known to be overstated. This is a conflict of interest, regardless of how small the amount is.

  1. ABreach of the integrity and objectivity expected of those managing company resources, through a conflict between personal loyalty and dutyCorrect
  2. BExcessive pursuit of shareholder value at the cost of employees
  3. CA failure of the company to adopt a stakeholder approach to its pricing
  4. DPoor application of the going concern concept in accounts
  5. Lack of competence in applying cost of capital techniques

Explanation

Approving a known overstated invoice for a friend places personal loyalty above duty to the company. This compromises integrity and objectivity, as a conflict of interest. The other options concern unrelated issues such as pricing, accounting concepts or technical skill.

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