In: Accounting
When the IASB issues new standards, the implementation
date is usually twelve months from the date of issuance, with early
implementation encouraged. Becky Hoger, controller, discusses with
her financial vice president the need for early implementation of a
standard that would result in fair presentation of the company’s
financial condition and earnings. When the financial vice president
determines that early implementation of the standard will adversely
affect the reported net income for the year, he discourages Hoger
from implementing the standard until it is required.
a. What, if any, is the ethical issue involved in this case?
b. Is the financial vice president acting improperly or
immorally?
c. What does Hoger have to gain by advocacy of early implementation?
d. Who might be affected by the decision against early implementation?
a. What, if any, is the ethical issue involved in this case?
In the current scenario the vice president does not want early implementation of the standard, although this is completely legal and as per accordance with GAAP.
The ethical issue is that early implementation would result in a fairer presentation of the company’s financial condition and earnings. It's the responsibility of the financial vice president that he should report the books of accounts of the organisation as per accounting standards implementation date as well as they must present in true and fair manner.
The pronouncement of information that materially affects net income affects particular stakeholders. Accountant must recognize implementation in time, because the immediate consequences might affect some interest relevant. As of now, the early implementation is advisable; hence the financial vice president took inappropriate decision.
b. Is the financial vice president acting improperly or immorally?
In my opinion financial vice president is acting immorally. Perhaps immorally, if the VP's bonus is tied to the company's earnings. (Sometimes early implementation gives rise to the problem of comparatives. You may not have captured enough data/info in the past).
The reason is that if vice president is not adopting the new standards that would be a fairer representation and earnings of the company's financial condition, the information need to be implemented just in time, regardless of its impact on net income. Hiding the truth is never considered moral trait.
c. What does Hoger have to gain by advocacy of early implementation?
Hoger is not going to gain anything. Rather he is benefitting the organisation in presentation of books of accounts in fair manner. He is protecting the corporation Goodwill. The controller must provide the company's financial information that presents the accurate financial condition, thus Hoger would want the new standards to be implemented.
d. Who might be affected by the decision against early implementation?
All the stake holders like investors, financial institutions, banks, creditors, research scholars, credit rating agencies, employees, government; Financial Institutions like banks would be affected, because they observe the financial statements which are based on the “fair” representation of financial conditions of the company.
In addition, the stockholders might effect by those information and lost benefits.