Question

Reporting of Subsequent Events.

Overview:

Corporate executives make thousands of operational decisions every day on behalf of their companies. Those decisions are often made to present the best possible financial picture, but is that ethical? Instructions: Lionel Industries, Inc. Board of Directors authorized the sale of $15,000,000 of corporate bonds in May, 2017. The treasurer, William Browning, is concerned about the date when the bonds will be issued. The company really needs the cash, but he is worried that if the bonds are issued before the December 31, 2017, year-end that the additional liability will have an adverse effect on a number of important financial ratios. In June, 2017, he explains to the company CEO Julie Friesling that if they delay issuing the bonds until immediately after December 31, 2017 the bonds will not affect the financial statements until 2018. The 2017 financial statements would then only need a footnote disclosure and Browning feels that "no one pays attention to those numerous pages of notes anyway."

Answer the following questions:

1)What ethical issues are involved in Browning's suggestion and do you think that Friesling should agree to the delay?

Answer 1

HELLO STUDENT

I impliedly feel that Mr William Browing,(treasurer of Lionel Industries, Inc.) tactfully handling the company financial statements. IF he has analysied the adverse effects on the important financial ratios of the company then Friesling must agree on the delay of the sale of bonds, because the financial ratios discloses the important information of company position & if it is get affected then the company may lose its tendency of attraction towards the interest parties and hence lose position in the market. Therefore company should delay on its decision regarding with the issue of bonds. Mr William browing suggestion is not ethically wrong however, because he has suggested to present bond issue information in the footnotes of the company, one can read information from there, His suggestion is diplomatic but not unethical. (It is like ethical window dressing) he is not suggesting to hide information, but still intentionally hinding it through footnotes, because nobody want to read those long footnotes, which he really dont want them to read. Thus he is not wrong but he is diplomatic.

If there is an urgency of cash in the company, one can raise funds from the internal sources instead external sources like from retained earning, general reserve, capital reserve, sale of any capital assets (which are not required) till the situation gets normal, because liquidity is also important, it brings pace to the business.

Delay, something late or postponed, can be looked upon as either ethically good or ethically bad. The difference depends on the basis for the delay, whether it was intentional and, if so, what purpose and what was the outcome. Unintentional delays, may be either a good or a bad depending on its origin and the outcome. Intentional delays may be the result of following the Precautionary Principle. The Principle emphasizes the need to be aware of the consequences of an action or inaction. If the action is necessary to prevent known harm then the action should be carried out. On the other hand, if there is no definitive evidence that the action will prevent harm but is likely to produce it or increase its risk, then following the Precautionary Principle, one should avoid or delay the act.