Ethical issue

Hi, Sir from Mar/Jun 2019 Q2 c) ethical issue

Question

Hudson still requires a number of staff to operate division Wye until its final expected closure in early 20X3. As a consequence, Hudson offered its staff two settlement packages in relation to the curtailment of the defined benefitscheme. A basic settlement was offered for all staff who leave before the final closure of division Wye. An additional pension contribution was offered for staff who remained in employment until the final closure of division Wye.

The directors of Hudson have only included an adjustment in the financial statements for those staff who left priorto 31 December 20X2. The directors have included this adjustment within the remeasurement component of thedefined benefit scheme. They do not wish to provide for any other settlement contributions until employment is finally terminated, arguing that an obligation would only arise once the staff were made redundant. On final termination,the directors intend to include the remaining basic settlement and the additional pension contribution within there measurements component. The directors and accountant are aware that the proposed treatment does not conform to IFRS Standards. The directors believe that the proposed treatment is justified as it will help Hudson maintain its debt covenant obligations and will therefore be in the best interests of their shareholders who are the primary stakeholder.The directors have indicated that, should the accountant not agree with their accounting treatment, then he will be replaced.

Answer for second paragraph: The directors are wishing to recognise this within other comprehensive income rather than profit or loss despite knowing that it is contrary to international accounting standards. This would improve profitability although it would not impact upon net assets due to a corresponding decrease in equity.

Why is the equity decreasing?