Assignment On Ethics In Accounting For Effective Financial R

Assignment Ethics In Accountingeffective Financial Reporting Depends

Assignment: 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!”

Paper For Above instruction

In this scenario, the accounting problem that Linbarger Company faces revolves around the accuracy and integrity of financial reporting. The company is at risk of misrepresenting its cash position to meet loan covenants, which directly affects its transparency and honesty with stakeholders. The ethical considerations include the potential manipulation of financial data and the ethical obligation to provide truthful, fair, and accurate financial information. Ethically, misleading or falsifying financial information violates the principles of integrity and objectivity that underpin accounting standards. It compromises the trust of investors, creditors, regulators, and other stakeholders, and potentially exposes the company to legal penalties and reputational damage.

Failing to adhere to ethical accounting principles when considering Lisa’s instructions could result in serious negative impacts. Specifically, if the company inflates its cash balance to appear compliant with loan covenants, it may face legal repercussions and loss of credibility if the deception is uncovered. Additionally, auditors and regulatory agencies could impose sanctions, and shareholders or creditors could lose trust in the company’s management, leading to financial and reputational harm. Furthermore, such unethical behavior might encourage a culture of dishonesty within the organization, undermining overall corporate governance and ethical standards.

If the decision is made to follow Lisa Infante’s instructions and delay posting the cash receipt, the primary negative impact will be on the company’s and management’s integrity. Stakeholders, including investors, creditors, and regulators, will be negatively affected due to the lack of transparency and potential breach of trust. Employees and directors rely on accurate financial reporting to make informed decisions; when financial statements are misleading, it erodes stakeholder confidence and can lead to legal mistakes, fines, and long-term reputational damage.

One viable alternative in this scenario involves transparent communication and ethical decision-making. The company can disclose the current cash position and its plans to meet the covenant through legitimate means, such as requesting a temporary waiver from the insurance company or documenting the expected receipt of funds transparently. This approach upholds the principles of honesty and integrity, sustains stakeholder trust, and aligns with professional ethical standards. Additionally, the company should reinforce ethical practices within its accounting procedures, promoting a culture where accurate reporting and compliance are prioritized over short-term gains or fear of consequences.

References

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