you are a owner of a small internet company, you are planning a public offering in...

you are a owner of a small internet company, you are planning a public offering in 12 months. You ask your accountant to prepare an optimistic business model that shows a greater profitability optential than a conservitive estimate would produce. When the accountant questions your profitability assumptions, you remind him that he has been given 10000 shares of the company stock at a low price. A public offering would dramatically increase the value of those shares. discuss the ethnical issues faced by the owner and the accountant. How should they be resolved.

Expert Solution

Ethnical issues faced by the owner and the accountant are-

1. Preparing optimistic business model that shows a greater profitability potential than a conservative estimate would produce, should not be based on misleading and falsified data.

2. When a public offering is made, all the financial data is disclosed to public and hence, more prone to scrutiny and assessment. Showing business model that shows a greater profitability potential should be handled with extreme care.

3. When the accountant raises profitability questions, he is induced by the owner regarding 10000 shares held by accountant and that the value of these shares would increase. The accountant should always remember that the shares are subject to market risks. Though there is no harm to provide incentives to the employees of the company, but these incentives should not be used as a weapon to mainpulate the financial information.

4. To resolve the above issues, the terms of discussion and negotiation should be very amicable. The accountant must inform the owner regarding legal complexities of showing highly profitable financial data to public.

5. The accountant should not be induced by getting high value on 10000 shares held.

6. If the owner does not agree on the advice of the accountant, the accountant should definitely refuse to prepare any manipulative financial or business model.

ekkarill92 answered 1 year ago

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