TyroCity

Discussion on: Accounting and Ethical Issues involved in the following case

Collapse
 
shantamilan profile image
ShantaMilan

There are occasion when higher authority asks you to do something that may contradict your principals on ethical grounds. This happens in real life and many accountants have faced this. Let us discuss on the accounting and ethical issues involved and what can be done.

Accounting issues involved

The rent for four months to be booked in the next fiscal year would be a wrong and the audit is sure to raise questions about it. Expenses shown in this year’s final report will be less and will not show the actual condition of the company. Similarly booking a revenue from sales that has not happened will also show an inflated income which will be interpreted as maximized shareholders wealth. Based on the final accounts the mangers take decision of distribution of dividend and reserve is decided. When income is based on accrual basis interpretation could be unclear. Thus the analysis will not show actual performance of the company and wrong interpretation can be dangerous.

Ethical issues involved

Showing less expenditure and high revenue is ethically wrong. Company’s shares are traded in the secondary market. A lot of investment in poured in this market. Investors base their analysis on the final report and make strategic decisions for purchase of the company. Showing wrong reports will be deceiving these investors. Even if a person has the ability to understand what is ethically acceptable or not, they may behave unethically because of not having or identifying what is ethically wrong. (Taylor, 2013)

Remedy for the situation

"Financial managers seeking to maximize shareholder wealth must also confront difficult ethical dilemmas. (Moyer, McGuigan, Rao, & Kretlow, 2012)” Even though the aim of the corporation is to maximize its profit, decision on ethical dilemmas should be based on what is right and not always on the goal of the organization. Accounts can perform these tasks by showing payable for the rent and receivable for the sale. But if these account have not been mentioned in this related headings and instead not included in the expenses or included directly in the income from sale, then the final account will show a wrong position of the company.

If the entry are not carried out in this way then these entries should be rejected.

Reference

Moyer, C. R., McGuigan, J. R., Rao, R., & Kretlow, W. J. (2012). Contemporary Financial Management. Natorp Boulevard: South-Western, Cengage Learning.

Taylor, A. (2013). Ethics training for accountants: does it add up? Meditari Accountancy Research , 161-177. Retrieved from proxy.lirn.net/MuseProxyID=mp01/Mu...