Question

Lauren Stevens is the accountant at ABC Company. Lauren trys to prepare a trial balance in a fast manner so that the quarterly financial statements can be prepared and submitted to management and the regulatory agencies. The total credit in the trial balance exceeds the debits by $2,000. In order to meet the 7 p.m. deadline, Lauren decides to force the debits and credits to be equal by adding the difference of $2,000 to the Equipment account. She selected Equipment because it is one of the largest account balances and percentage wise it will be the least misstated. Lauren “plugs” the difference, she had believed that the difference will not affect any individuals decisions. She wished that she had more time to find the error but notices that the financial statements are already late.

A- identify the stakeholders in this situation?

B-What are the ethical issues concerned in the case?

C-What are Lauren's alternatives?

Answer 1

A). Answer :- Stakeholders generally include the directors (management), employees, creditors, borrowers, regulatory bodies, Shareholders, Government agencies etc., In the given question, There are four stakeholders namely :-

i). Management of ABC Company.

ii). Shareholders of ABC Company.

iii). Lauren Stevens, (Employee of company)

vi). Regulatory bodies (Government agencies).

B). Answer :- Here are the two main ethical issues in given question:-

i). Books of account does not given true and fair view by adjusting the difference of $ 2000 in account books un-necessarily. Accordingly, The main stakeholders will not be able to view accuracy and reliability of financial information of company.

ii). Adjusting the $ 2000 difference in books of account will give falsified picture (not good image) of company before the regulatory agencies, sharehodlers, creditors and borrowers (if any).

C). Answer :- Here are the two alternatives available with Lauren Stevens in the given question :-

i). Before submitting the financial statements before management and regulatory authorities, He should talk to some senior official in management, tell him (about the difference of $ 2000 in books of accounts)and seek his permisssion to give little more time for finding the cause of difference in books of accounts and thus, rectify the books.

ii). Lauren Stevens must consult with other accounts persons (junior / senior accounting and finance team), take their valuable suggestions and see, if he can correct the difference (of $ 2000 in books of account) before the submission of financial statements to management.