The history of the paper I teach has a very clear precedence. The ACCA AFM examiners like to include ethical situations within their questions.
This is clearly important to them (and me) and it is imperative that as an ACCA AFM candidate, you can handle these situations and prepare an answer that maximises your marks.
So to demonstrate how to do this, let me take an extract from an ACCA AFM Q1 that I authored recently. (BTW – I have written over 50 x ACCA’s AFM questions which is something I love to do).
“KJ Co is a company that owns restaurants and cafes on a worldwide basis.
It has been very successful at recognising the best time and place to open (or close) restaurants and cafes.
It has been growing steadily for several years and has maintained a stable dividend growth policy for a number of years now.
The board of directors (BoD) is considering buying a restaurant chain based in India called Shimla Fine Dine (SFD) for $40 million.
However, the Indian government have raised a concern regarding this takeover and are considering referring the matter to the Competition Commission of India (CCI).
Press Report – Shimla Fine Dine (SFD)
In addition to the Indian government’s concerns about the takeover of SFD by KJ Co, a NED of KJ Co has brought the following press report to the attention of the Board of Directors (BoD):
‘How has SFD made so much money? Well one way is the manner in which they pay or should I say not pay their employees. SFD insist that any tips paid by their diners are aggregated for all the staff to share who work in that outlet.
However, the SFD policy is to only distribute 50% of these funds to the employees. Is this the right way to treat their staff?’
Prepare a report to the BoD of KJ Co covering the following:
b) v) The ethical issues relating to the press report and assuming that KJ Co successfully purchases SFD, how practically should these be resolved.
(4 marks) “
As I said, this is only a small extract. The rest of the question has all the other usual aspects you would expect (calculations & written) in the ACCA AFM Exam.
Although the mark allocation is stated as only 4 marks, in reality it more than that. The professional skills marks will be key here, especially acumen.
Each ethical dilemma stands on the own two feet. Each has to answered on their merits.
But, the approach I take is:
1. Understand the issue
2. What is the impact/consequences on the business and its reputation
3. Practical solution
Finally, present the answer in a manner acceptable to the ACCA AFM markers
KJ Co is already being watched by the government authorities and would not want to be associated with any ethical impropriety. It is important they tread carefully here.
A news article claimed that SFD collects tips from its staff and only shares 50% with them.
KJ Co must conduct a due diligence to determine the veracity of this claim. It should visit the staff and confirm if this situation is true post acquisition.
If the situation is true and upon acquisition of SFD, it is highly likely that KJ Co will have a policy relating to this area. They are likely to be distributing the full funds from tips to the relevant staff on an equitable basis.
KJ Co should announce its own employee treatment policies. This should clearly state that tips received by employees are theirs to keep.
This would further endear KJ Co to the relevant authorities.”