Question

You were just hired as an accountant for ABC Company. One of your first assignments is to verify the fixed asset listing to ensure the assets listed are owned by the company, are physically located in the building, and are being depreciated appropriately. In the process of verifying the location of all the fixed assets on the listing, you could not help but notice there were significant fixed assets present in the company that were not on your list. You approach your supervisor to discuss these findings and she gets very defensive and says, “I just asked you to verify that the ones on the list were present; not to make sure everything you see is on the list. Just do what I asked you to do.”

1. First of all, what are the accounting problems with assets being in the building that are not properly recorded on the fixed asset listing (and therefore not on the balance sheet as fixed assets)?

2. If they are not recorded as fixed assets, what are the other possibilities?

3. What are the ethical considerations in this situation?

4. What would you do in this situation?

Answer 1

1) Fixed assets are those that are long term assets which could not be sold in the current year.

They needed to br reported on the balance sheet as they depreciate with passage of time.

If any fixed asset is not bring recorded in the balance sheet, then the company would not be able to have exact figures of its profit or loss. We know that when a fixed asset is recorded it is recorded at its original value, but it's depreciation amount is also recorded whether by making a separate account or making a depreciation account. This helps an organization detect its loss incurred because of depreciation and hence can help bring the exact figures of position of the business. But I'd they are not being recorded, company could not guess the amount lost on the item being depreciated. Hence the loss could not be calculated.

This incorrect information because of missing fixed assets recording can mislead the lenders and investors.

2) This action will report high earning by the company, which is actully not happening, and hence will also lead to pay more tax by the company. This is the other one possibility if fixed assets are not recorded. It is not good for the organization. Also it will hamper the company as investors and money lenders will find less assets to the company and would not feel free in giving their money to the company.

If assets would have been recored, then company would have got tax shield on the amount of depreciation that the assets would cause to the company and also as we discussed above the company would liable to pay less tax if assets are being recorded properly.

If we see ethically, it's not fair to not record assets. So every asset must be recorded in balance sheet.

3) The ethical considerations in this situation are:

• Assets should be properly calculated and monitored so as to be recorded properly. No any assets should be left uncovered knowingly as it would be Unethical. Also there should a recheck to ensure if all assets are included.
• Also the depreciation taking place every year have to be recorded properly for the purpose of accounting being done fairly and ethically. This would help recognise the proper accounting figures.
• It should be ensured that assets are recorded at their originasfl price. There should be no manipulations regarding anything in the balance sheet.

4) In this situation, I would make the supervisor realise that not recording assets is not at all an ethical behavior nor it is profitable.

If the sepervusor understands well, it's the time to revaflculatw and prepare the balance sheet fresh and fair and then present in front of all.

If the supervisor does not listen, the higher authorities needed to be tolfmd regarding this issue, and then they will take action against this issue.

If I would keep quiet on this issue, my behavior would also not be counted ethical. Hence I am working for the organisation it is my sole responsibility to think of right and wrong and deal accordingly.