Question

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Ethics in Accounting

Effective financial reporting depends on sound ethical behavior. Financial scandals in accounting and the businesses world have resulted in legislation to ensure adequate disclosures and honesty and integrity in financial reporting. A sound economy is contingent on truthful and reliable financial reporting.

Instructions:

• Read the following scenario.
• Answer the questions that follow. (1-2 paragraphs per question)
• Reference back to your text book for guidance on how to think through the scenario.

Scenario:

Imagine you are the assistant controller in charge of general ledger accounting at Linbarger Company. Your company has a large loan from an insurance company. The loan agreement requires that the company’s cash account balance be maintained at $200,000 or more, as reported monthly. At June 30, the cash balance is $80,000. You give this update to Lisa Infante, the financial vice president. Lisa is nervous and instructs you to keep the cash receipts book open for one additional day for purposes of the June 30 report to the insurance company. Lisa says, “If we don’t get that cash balance over $200,000, we’ll default on our loan agreement. They could close us down, put us all out of our jobs!” Lisa continues, “I talked to Oconto Distributors (one of Linbarger’s largest customers) this morning. They said they sent us a check for $150,000 yesterday. We should receive it tomorrow. If we include just that one check in our cash balance, we’ll be in the clear. It’s in the mail!”

Questions:

1. What is the accounting problem that the Linbarger Company faces?
2. What are the ethical considerations in this case? Provide rationale for why these are ethical considerations.
3. What are the negative impacts that can happen if you do not follow Lisa Infante’s instructions to wait one more day to post the balance?
4. Who will be negatively impacted if you do comply? Provide a rationale for why these individuals will be impacted.
5. What is one alternative that you could pursue in this scenario? Support your recommendations with information you learned in this class.

Answer 1

Accounting problem :As per Accounting rules cash book should be open and closed everyday as end of the day cash book should be closed and as per Accounting rules balance sheet should be match at the end of the day so closing balance of the cash should be mentioned in balance sheet if not the closing balance sheet will not be tallied. This will affect the closing balance of the company in cash account or cash book which will to inproper way of maintenance of books of accounts .

consideration in relation to above case : Every business should be conducted according to ethical business processes in the given case if accountant has been recorded cash on the next day which is receivable next day which he hasn't been received that is equal to today will lead to unethical behaviour in the organisation, which means simply recording of wrong transactions in wrong dates. This may effect the company credibility trust within the organisation and Organisation in relation to external factors.

Negative impacts that can happen if accountant has not followed Lisa infant a instruction :

This may affect by way of insufficient funds in the organisations which is dollars 80000 which effect company credibility within time limit allowed by the creators if payment has not been paid within time alternative way of presentation regarding insufficient funds to the Bank lenders company measure the balance of cash 80 thousand dollars and remaining can show as a security which is receivable from its customer with a value of remaining amount for its loan liability.