this is what I have to this question so far. Can you please see if there is anything I can add to this. What are the ethical issues involved?
The Ethical issues are not following the accounting standards and ethics of accounting.
Anne Distagne was the CEO of Linkage Construction
Inc., which served as the general contractor for the
construction of the air ducts for large shopping malls
and other buildings. She prided herself on being able
to manage her company effectively and in an orderly
manner. For years there had been a steady 22–25 percent
growth in sales, profits, and earnings per share,
which she wanted to continue because it facilitated
dealing with banks to raise expansion capital.
Unfortunately for Sue Fault, the chief financial officer,
the situation has changed.
“Sue, we’ve got a problem. You know my policy of
steady growth—well, we’ve done too well this year.
Our profit is too high: it’s up to a 35 percent gain over
last year. What we’ve got to do is bring it down this
year and save a little for next year. Otherwise, it will
look like we’re off our well-managed path. I will look
like I didn’t have a handle on our activity. Who
knows, we may attract a takeover artist. Or we may
come up short on profit next year.”
“What can we do to get back on track? I’ve heard we
could declare that some of our construction jobs are not
as far along as we originally thought, so we would only
have to include a lower percentage of expected profits
on each job in our profit this year. Also, let’s take the
$124,000 in R&D costs we incurred to fabricate a more
flexible ducting system for jobs A305 and B244 out of the
job costs in inventory and expense them right away.”
“Now listen, Sue, don’t give me any static about
being a qualified accountant and subject to the rules
of your profession. You are employed by Linkage
Construction and I am your boss, so get on with it. Let
me know what the revised figures are as soon as possible.”
In analyzing the given scenario, there are indeed several ethical issues involved. Here are the key ethical issues:
1. Violation of accounting standards: Anne is requesting Sue, the chief financial officer, to manipulate the financial statements by misrepresenting the progress of construction projects and incorrectly expensing research and development costs. This violates the fundamental ethical principle of honesty and integrity in accounting.
2. Falsification of financial statements: By intentionally misrepresenting the progress and profitability of construction projects, Anne aims to artificially lower the profit for the current year to maintain the appearance of steady growth. This constitutes financial statement fraud and is a violation of ethical standards.
3. Conflict of interest: Anne is pressuring Sue to engage in unethical practices, disregarding Sue's professional obligations as a qualified accountant and subject to accounting rules and regulations. This conflict of interest creates a dilemma for Sue, as she must now balance her professional responsibilities with the demands of her boss.
4. Potential harm to stakeholders: By manipulating financial data, the company may mislead various stakeholders, including banks, investors, and shareholders. If discovered, this could result in significant reputational damage to the company and financial losses for stakeholders who relied on accurate financial information.
To further enhance your analysis, you could consider discussing the potential consequences of these ethical issues, such as legal implications, damage to the company's reputation and trust, and the impact on stakeholders. Additionally, you could explore possible alternatives and actions that Sue could take to address the ethical concerns, such as reporting her concerns to a higher authority or seeking guidance from a professional accounting body.