Question

As a newly hired accountant at a Fortune 500 company, you were responsible for making many of the routine adjusting entries related to the preparation of the year-end financial statements. The controller was pleased with your diligence and assured you that he would increase your responsibilities in the financial reporting department. However, 3 months later, as you prepare the adjusting entries for the next fiscal quarter, you realize that you overlooked several adjustments that you should have recorded at year-end. While the overlooked adjustments would most likely not be considered material to last year's financial statements, you are certain that your boss would lose confidence in your abilities. Realizing that you can easily fix the mistake by incorporating the overlooked adjustments into the first quarter adjusting entries for this year, what course of action should you take?

1. Clearly state the ethical dilemma in the case.

2. Who are the stakeholders affected in the case? And how are they affected/impacted?

3. What are the accounting alternatives? Describe the impact of each alternative and your response MUST include vocabulary, concepts, terms, examples from Accounting.

4. If you were in this situation, what would you do and why?

Answer 1

Ethical Dilemma

The ethical dilemma is that, as per the accounting's fundamental principle of Full Disclosure, every transaction and events should be reported which are relevant for the users of accounting informantion as it will help them in making a judicious decision and on the other hand if the accountant affords to report the last year overlooked adjustment entries then his boss will lose confidence on his abilities and might further result into he being not given more responsibilities.

Stakeholders affected in the case

There are 2 types of users of accounting information, who are also the stakeholders of the company, these are:

1. Internal users: It basically includes Owners, Management and the employees

2. External users: It includes those who have limited authority to access the information of the company, it includes Investors, Lenders, Suppliers, Debtors, Trade Union and Government authorities.

How the stakeholders are affected or impacted

1. Whenever a company opens up, society look for it as its resources will be used by the company and the society do want to know that whether their resources are employed in the best possible manner or not, if they comes to know that the company is concealing information from them, then it may result into defame of the company and ultimately can result in loss of Goodwill.

2. The Owner put their funds into the company to make a reasonble returns and it would affect them if they comes to know that any information has been concealed by them from the management.

3. The managers do want customized and detailed information about each and every transaction and events of the company as they will be taking the decision which can affect the future of the company, so they should be informed about each and every happening.

4. The Lenders too want information about the company, as they have lend their hard-earned money to the company and do want to see that whether the company is credible or not.

5. The Government too want to know about the happenings of the company as the operations of the company can affect the public interest, we can take the example of PMC Bank Fraud. Therefore they should be also get informed.

Accounting alternatives:

1. The accountant can pass adjustment entries which are overlooked and incorporate them into this years financial statements.

2. The accountant can also report the overlooked statenents through footnotes or as a Notes to accounts, if reporting in this way doesn't affect the decision of the users of accounting information.

If I was in this situation:

1. At first I would have reported to my reporting officer.

2. I would follow the reporting officer action, because as an accountant it is of utmost importance to stick to the ground rules, as then only the respect for the profession will not get tampered.