Question

The FASB issues new standards on accounting. The implementation date is usually a year from the date of issuance with early implementation encouraged. Jane Durham, chief accountant is discussing implementing this new standard as soon as possible. The CFO however realizes that an early implementation will have a negative effect on the firm's net income for the year. The CFO discourages the chief Accountant from implementing the standard until the required date. Is the CFO's action proper? Why or why not? Is there an ethical issue involved? If so how?

Answer 1

At the outset, there is nothing unethical , as FASB itself ,allows a year's time to implement the new accounting standards , even though it welcomes early shifting.

The CFO is not at all wrong in taking the stand from the financial statements' perspective , as all the stakeholders like existing & potential investors, customers , vendors as well as lending banks , will be expectant about the results projected ,through these statements.So he is right in advocating to take maximum advantage of the time gap available & postpone the implementation , by a year.

Agreed, FASB's intention is to ensure just & fair presentation of the financial statements of comparable companies, to facilitate formation of correct opinion & understanding of all users of the same.

To this end,the chief accountant's intention & enthusiasm augurs well , and is really appreciable .

But, the fact is that not all companies are going to follow suit and act with the same interest & enthusiasm ---when also , comparability will suffer.

Also the CFO's intention is not to delay any further.

So, that said,implementing the standard ,latest, by the required date is perfectly legal and hence falls within the framework of good ethics.