John was the CFO of TS-Com PLC, the Thailand subsidiary of SG-Com Pte. Ltd., a largetelecommunications company based in Singapore. SG-Com owned 70% of TS-Com. The other30% was listed on the Bangkok stock exchange and publicly traded. SG-Com was also a publiccompany listed on the Singapore stock exchange. John was also involved in investor relationsand spoke to equity analysts from investment firms regularly about TS-Com’s financialperformance.John loved his job and was grateful that Ken, TS-Com’s CEO, recommended him for the role.They had joined SG-Com on the same day in 2013 and developed a good working relationshipover the years. When Ken, a high-flyer in the Sales department, was promoted to head theThailand subsidiary in 2020, he recommended John for the CFO role. John was thrilled to getan overseas posting that came with a generous compensation package and perks.Early in 2023, Ken and John were working on the acquisition of a channel partner that boughtcell phone minutes from TS-Com and resold them to the public. TS-Com planned to integratevertically so that the company could bring the retail margins from cell phone minute sales intoits income statement. This acquisition would increase TC-Com’s revenues by approximately10%. Ken asked John to have SG-Com’s capital expenditure committee review the acquisitionproposal and seek approval to account for this transaction as an ordinary capital expenditure.However, John argued that the proposed transaction was a business acquisition which shouldbe submitted to the mergers and acquisitions committee. He explained that if approved, thetransaction should be accounted for as a business combination, according to IFRS statement#3. TS-Com had planned to purchase assets constituting an entire operating business, and theacquisition contract specified that the transaction was to be a “business” (rather than an asset)acquisition. If the transaction were to be treated as an asset purchase, under Thai law TS-Comwould not take over the acquired company’s customer contracts. Continuing the target’scustomer relationships after the acquisition was critical to the success of the transaction.Furthermore, the transaction involved an earn-out condition, which he felt was impossible toreconcile with an asset purchase.Ken was not convinced. He escalated the matter to Larry, SG-Com’s CFO, who was John’smanager. Larry explained to John that it would be better for the company to record the purchaseas an ordinary capital expenditure. The telecommunications industry’s growth rate had stalled,so industry analysts were scrutinizing earnings growth and trends closely. Earnings derivedfrom a business combination would not be valued favourably as “organic” growth. Seniormanagement at SG-Com naturally wanted earnings to be valued as favourably as possible.ACC493 Tutor-Marked AssignmentSINGAPORE UNIVERSITY OF SOCIAL SCIENCES (SUSS) Page 6 of 6Therefore, Larry wanted the transaction to be treated as an asset purchase. He was sure thatwith a little creativity, Ken and John could work out a way to account for the transaction as acapital expenditure.John was at a crossroads. He believed the accounting treatment was wrong, but he wondered ifhe would get in trouble if the accounting was done as Larry wanted. He was also worried thatLarry would fire him if he refused to comply.The above case is adapted from a case study entitled, “Wired, PLC”, by Michelle Spauldingand Professor Kenneth A. Merchant, in “Management Control Systems – PerformanceMeasurement, Evaluation and Incentives”, Fourth Edition, Pearson, 2017.Required:(a) Assuming you are John, analyse the ethical issues that you encounter in the situationdescribed above, based on the Josephson’s Six Pillars of Character and the Institute ofSingapore Chartered Accountants’ (ISCA) Code of Professional Conduct and Ethics.(34 marks)(b) Assuming you are John, examine the possible courses of action to deal with the ethicalissues discussed in Question 2(a) and justify the appropriate action or actions to take.(14 marks