Ethics: Accounting for Revenues and Expenses. Equipment Group produces excavating equipment for contractors. Equipment Group is...

Ethics: Accounting for Revenues and Expenses. Equipment Group produces excavating equipment for contractors. Equipment Group is working on the annual financial statements for its shareholders, who are expecting profits of $121,000,000 for the year ending December 31. The controller (Jeff) and CFO (Kathy) will receive bonuses totaling 50 percent of their salaries if company profits exceed $120,000,000. Sarah is a staff accountant who works for the controller. One week before the end of the fiscal year, a customer decides to delay a significant purchase of equipment until March of the next year. As a result, Equipment Group’s profits will decrease by $3,000,000 to $118,000,000 for the year.

Jeff, the controller, approaches Sarah and asks her to think of a way to increase profits by $2,500,000. He suggests looking at sales occurring in early January and perhaps moving them up to December. He also hints that some December expenses could be pushed back and recorded in January.

Required:
1. Is there a problem with the controller’s request? Explain your answer.
2. How should Sarah handle this situation? There are many possible steps, as described in the IMA’s Statement of Ethical Professional Practice shown in Figure 1.2.
3. What are the potential consequences for Sarah if she agrees to do what Jeff suggests?

Solutions

Expert Solution

IMA`s Statement of Ehical Proessional Practice have listed below ethical principles which needs to be followed by IMA members,
- Competence
- Confidentiality
- Integrity
- Credibility
In the given case, Contorller requesting to maniupulate financial statements to increase profits by $2,500,000 for his personal benefits by changing moving sales or expense from December to January or vice versa. So, Controller`s request is unethical to follow by Sarah.
IMA`s Statement of Ehical Proessional Practice also suggesting ways to resolve such type of ethical issues,
- Sarah should actively seek resolution of the unethical request of controller and she should also consider risk involved to resolve such.
- Sarah should look for established policies of her oraganisation and follow to resolve this unethical request of controller.
- If there are no such policies in her organisation, she should follow below three options to resolve such unethical request of conroller,
  - Sarah should discuss this situation with her immidiate supervisor and if sarah thinks supervisor is also involved then she should present this with management.
  - Sarah can also call helpline offered by IMA.
  - Sarah should discuss and consult her attorney to know any legal obligations, rights, and risks
If sarah agrees to controller`s request, she will face disciplinary action by IMA.

ekkarill92 answered 1 year ago

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