You are a recently designated accountant. As a result of having your designation, you have been...

You are a recently designated accountant. As a result of having your designation, you have been hired as the controller at a national manufacturing company. Due to a recent economic slowdown, the company has been struggling to meet earnings targets. These targets are the basis for senior management bonuses. You report directly to the CFO.

This is your second month with the company; however, it is your first year end (December 31). The auditor will be coming to audit the books in three weeks. You have fi nalized the fi nancial statements, and
you have reviewed them with the CFO and the CEO.

The week before the auditor is expected to arrive, the CFO comes to your office and explains that the financial results are very disappointing. He explains that: on December 31, a sales contract was signed for $500,000 of goods with delivery to take place January 3. He asks you to record the revenue for this contract on December 31, the date the contract is signed and before the work is performed. This will result in early revenue recognition, and doing so will eliminate the overall net loss for the year.

You are married with a stay-at-home spouse and two small children. To celebrate your success, you recently purchased a new home. It cost a little more than you planned to spend and the mortgage payments are pretty expensive.

What would you do? What are the ethical issues you would need to consider?

Expert Solution

It is a very tight situation the accountant is placed in. What he has been asked to do by the CFO will put his integrity, ethics and moral values in the line.

There are two kinds of ethical threats that arise here.

One would be an intimidation threat wherein if he does not do as he is told to, it may lead to the accountant losing his job. Because end of the day, what matters most to the owners of the company is that the company doesnt show a loss on reporting.

Another ethical threat would be a self interest threat. Once again the reason would be the same. The accountant just recently purchased a new home and if he suddenly loses his job right now due to this issue, that would lead to problems for him in paying the possible EMI's on the new house he purchased.

Taking everything into consideration, the Accountant has to make a decision on whether to hold on to his Code of Ethics taught by his professional body and uphold his integrity or whether to listen to the CFO and do as he is told to safeguard his job.

Hope this answers the question. If you liked the answer please give an up-vote. It will be highly encouraging for me. Thank You.

ekkarill92 answered 2 years ago

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