Vu Hung is the assistant chief accountant at Lim Company, a manufacturer of computer chips and...

Vu Hung is the assistant chief accountant at Lim Company, a manufacturer of computer chips and cellular phones. The company currently has total sales of $20 million. It is the end of the first quarter. Vu is hurriedly trying to prepare a general ledger trial balance so that quarterly financial statements
can be prepared and released to management and regulatory agencies. The credits on the trial balance add up to $1,000 more than the debits.
In order to meet the 4:00 p.m. deadline, Vu decides to force the debits and credits into balance by adding the amount of the difference to the Equipment account. She chose Equipment because it is one of the larger account balances. Proportionally, it will be the least misstated. She believes that the difference will not affect anyone's decisions. She wishes that she had more time to find the error, but realizes that the financial statements
are already late.
Instructions
(a) Who are the stakeholders
in this situation?
(b) What are the ethical issues involved?
(c) What are Vu's alternatives?

Solutions

Expert Solution

a. The stakeholders in this situation would be the shareholders, suppliers, creditors, government, owners, employees, etc.

b. Vu is taking undue advantage of her designation. To meet the deadline she is involved in making an accounting misrepresentation by submitting the wrong accounts. Such misrepresentation is called as window dressing the accounts so that they look good. The actual amount of equipment is $1,000 less than what is shown in the accounts currently. There can also be an error posting the ledger balances of other accounts.

c. Vu's alternatives are as below:

Firstly she should talk to her seniors about the issue and the deadline. The work ideally should be finished by deadline but if in case of some issues, some relaxation in deadline can be pleaded
In order to incorporate the differences, suspense account could be created. For the trial balance to tally difference of $1,000 should be added on the debit side. Presence of suspense account alerts the stakeholders of the mismatch and they would in turn know to not rely upon the financials. Thereby Vu can be fair about the mismatch.

ekkarill92 answered 1 year ago

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