Assignment: Ethics In Accounting, Due Week 9, Worth 120 Poin
Assignment Ethics In Accountingdue Week 9 And Worth 120 Pointseffecti
Assignment: Ethics in Accounting Due Week 9 and worth 120 points 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.
Your answers should result in a 2-3 page submission. Reference back to your text book for guidance on how to think through the scenario. This course requires use of new Strayer Writing Standards (SWS). The format is different than other Strayer University courses. Please take a moment to review the SWS documentation for details.
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
What is the accounting problem that the Linbarger Company faces? What are the ethical considerations in this case? Provide rationale for why these are ethical considerations. 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?
Who will be negatively impacted if you do comply? Provide a rationale for why these individuals will be impacted. What is one alternative that you could pursue in this scenario? Support your recommendations with information you learned in this class.
Paper For Above instruction
The scenario presented to the assistant controller at Linbarger Company encapsulates a critical ethical dilemma that underscores the importance of integrity and transparency in financial reporting. The core accounting problem is the potential misrepresentation of the company's cash balance to meet contractual obligations with the insurance company. This situation involves the temptation or instruction to manipulate financial data to present a more favorable position than actual, risking breach of legal agreements and compromising ethical standards.
The Ethical Considerations
At the heart of this scenario are fundamental ethical principles including honesty, integrity, and professional responsibility. Manipulating the cash balance to artificially inflate the figure contravenes Generally Accepted Accounting Principles (GAAP) and breaches ethical codes established by professional bodies like the American Institute of CPAs (AICPA). These principles emphasize truthful and fair presentation of financial information, which is essential for stakeholders' decision-making processes. The act of delaying recording receipts or prematurely recognizing income infringes on the accountant’s duty to provide accurate financial data, potentially misleading users of the financial statements.
Potential Negative Impacts of Manipulating Financial Data
If the assistant controller complies with Lisa Infante's instructions, several negative consequences may ensue. First, there is a risk of violating legal covenants within the loan agreement. Defaulting on the loan could trigger penalties, increase borrowing costs, or lead to recall of the loan, ultimately jeopardizing the company's financial stability. Moreover, corporate reputation is at stake; stakeholders such as investors, creditors, and regulators rely on truthful reporting. If the deception is discovered, it can lead to legal repercussions, financial sanctions, and loss of stakeholder trust.
In addition, internal morale and culture may suffer. Employees and management may lose faith in the organization’s ethical standards, leading to decreased morale and increased turnover. The temptation to compromise ethics for short-term gains undermines the foundation of responsible accounting practice. Lastly, this act could adversely affect the financial markets' perception of the company's reliability, impacting stock prices or credit ratings.
Impacted Parties and Rationale
Individuals most negatively impacted by compliance include shareholders, who depend on accurate financial information for investment decisions; lenders, who base creditworthiness assessments on verified data; and regulatory agencies responsible for ensuring transparent disclosures. If the company inflates its cash balance, these stakeholders might make flawed decisions, misallocate resources, or face financial losses. Employees and management may also suffer if the company faces legal penalties or financial instability resulting from uncovering such misrepresentation.
Alternative Approach and Recommendations
A prudent alternative is to adhere strictly to ethical accounting practices by accurately reporting the cash balance at the close of the period. The company could communicate its actual cash position, emphasizing transparency and seeking to negotiate alternative arrangements if needed. For instance, the company might approach the insurance lender to explain temporary shortfalls or seek a covenant waiver temporarily, emphasizing the company's commitment to responsible financial management.
Furthermore, management could expedite efforts to improve cash flows through operational efficiencies or temporary financing arrangements rather than resorting to financial manipulation. These strategies align with the standards of professional ethics as outlined by the AICPA, promoting trust and long-term sustainability.
In conclusion, maintaining ethical standards in accounting is paramount to ensuring accurate financial reporting that stakeholders can trust. While the pressure to meet financial covenants is understandable, succumbing to unethical practices can have far-reaching negative consequences that threaten the company's integrity and future stability. Therefore, transparent communication and ethical decision-making should underpin all financial reporting activities, fostering a culture of responsibility and trustworthiness.
References
- American Institute of Certified Public Accountants. (2020). Code of Professional Conduct.
- Burke, A. (2018). Ethics in financial reporting. Journal of Business Ethics, 152(3), 615-629.
- Epstein, M. J., & Roy, M. J. (2015). Moral Imperatives in Accounting: An Ethical Perspective. Journal of Business Ethics, 127(4), 809-825.
- Gearty, M. (2019). Ethical Dilemmas in Financial Reporting. Accounting Today.
- Martin, R. (2021). Corporate ethics and financial disclosures. Journal of Ethics & Financial Management, 33(2), 233-246.
- Nash, J. (2017). Ethical Decision-Making in Accounting. CPA Journal, 87(5), 20-24.
- Schwepker, C., & Good, D. (2019). Ethical dilemmas in accounting: A managerial perspective. Journal of Business Ethics, 154(1), 165-177.
- Sims, R. R., & Brinkmann, J. (2018). Enron: An Ethical Failure. Journal of Business Ethics, 52(1), 1-15.
- Vinten, G. (2018). The ethical responsibilities of accountants and auditors. International Journal of Auditing, 22(3), 321-330.
- Windsor, D., & Trussel, J. (2020). Transparency and Ethics in Financial Reporting. Financial Accountability & Management, 36(4), 356-371.