Assignment 2 Discussion: Ethical Issues Review

Assignment 2 Discussionethical Issuesreview The Ethical Issue Dobbs

Review The Ethical Issue: Dobbs Wholesale Antiques in chapter 5 (Page 317). By Saturday, March 7, 2015 , address the following in your initial post: Under Dobbs FOB policy, when should the company record a sale? Do you approve or disapprove of Dobbs's manner of deciding when to ship goods to customers and record the sales revenue? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods. Is there an accounting rule against Dobbs's practice? By the end of the week, provide substantive responses to at least two other students' initial posts.

Paper For Above instruction

The ethical issue presented by Dobbs Wholesale Antiques revolves around the timing of revenue recognition under FOB (Free On Board) shipping terms and the ethical considerations tied to proper accounting practices. In examining Dobbs's approach, it is imperative to analyze the appropriateness of their method within generally accepted accounting principles (GAAP) and evaluate whether their practice aligns with ethical standards for financial reporting.

Under FOB shipping point terms, the buyer assumes responsibility once the seller ships the goods, meaning revenue should be recognized at the point of shipment. However, Dobbs Wholesale Antiques apparently delays recording sales until the goods are received by the customer, which may deviate from standard accounting practices. If Dobbs recognizes revenue only after delivery, it might be trying to defer income to a later period, possibly to manipulate financial results or inflate current period earnings.

From an ethical standpoint, recognizing revenue according to the delivery date in FOB shipping point terms is generally considered appropriate, provided it aligns with the actual transfer of risks and rewards. Recording sales prematurely—before the shipment or transfer of ownership—is considered unethical because it can misrepresent the company’s financial condition and violate the fundamental accounting principle of revenue recognition, which stipulates that revenue should be recognized when earned and realizable.

In this case, Dobbs's manner of deciding when to record sales—potentially delaying recognition until after the goods are received—may be ethically questionable if it creates a distorted financial picture or misleads stakeholders. A better practice would be to record sales at the point of shipment if FOB shipping point terms are in effect, which aligns with GAAP and maintains truthful financial reporting. This approach reflects the economic reality of the transaction and ensures transparency and accountability.

Regarding accounting rules, the primary guideline against such delayed recognition is found in GAAP, specifically under the revenue recognition principle articulated in the Financial Accounting Standards Board (FASB) ASC 606. This standard emphasizes recognizing revenue when performance obligations are satisfied, generally coinciding with the transfer of control to the customer. Recognizing revenue prematurely before shipment or delivery breaches this rule and is considered a violation of ethical accounting practices.

In conclusion, Dobbs Wholesale Antiques should adhere to the standard practice of recognizing revenue at the point of shipment under FOB shipping point terms, consistent with GAAP and ethical accounting principles. Doing so assures stakeholders of accurate and truthful financial reports and maintains the integrity of the company's financial statements. Ethical accounting not only involves compliance with rules but also reflects a commitment to honesty, transparency, and social responsibility in financial reporting.

References

  • Financial Accounting Standards Board (FASB). (2014). ASC 606, Revenue from Contracts with Customers. Retrieved from https://asc.fasb.org
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  • American Institute of CPAs (AICPA). (2020). Code of Professional Conduct. Retrieved from https://www.aicpa.org
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