Ethic Case
The Controller for Anderson Electric, Ron Foss, is reviewing the year-end adjusting entries prepared by the accounting staff for approval before they are posted to the general ledger. Angela Bennett, the company president, has suggested the December accrual for wage expense be delayed until January, because the company needs to report a higher net income for the year. The December 31 financial statements will be reviewed for a loan by the bank. The company has a better chance of getting the loan if its net income is higher, and the loan will have a lower interest rate if the company appears to be healthy.
Ron is unsure whether he should comply with the president's request. It doesn't seem to Ron that it is terribly important whether the expenses is recorded in December or January. Ron knows that the company needs the loan to continue paying the salaries next year, so he does not want to do anything to jeopardize his own salary.
This case presents an ethical dilemma involving the Controller of Anderson Electric, Ron Foss. The company president, Angela Bennett, has suggested that the December accrual for wage expense be delayed until January to report a higher net income for the year. The reason behind this suggestion is to improve the company's chances of obtaining a loan from the bank, as a higher net income would make the company appear healthier and potentially result in a lower interest rate.
However, Ron is unsure whether he should comply with Angela's request. He recognizes that the loan is crucial for the company to continue operating and paying salaries next year, which includes his own salary. On the other hand, he is concerned about the ethical implications of misrepresenting the financial statements and potentially misleading the bank.
To navigate this ethical dilemma, Ron should consider a few steps:
1. Review the company's ethical guidelines and policies: Ron should familiarize himself with the company's established code of conduct and ethics policies. This can help provide guidance on how to handle situations like these.
2. Consult with other professionals: Ron should seek input from other professionals, such as colleagues, mentors, or even external consultants, who may have more experience or expertise in ethical decision-making. Their perspectives can help him gain a more balanced understanding of the situation.
3. Consider the potential consequences: Ron should carefully evaluate the potential consequences of both complying with the request and refusing to do so. If he complies, he may improve the company's chances of obtaining the loan and safeguarding his own salary. However, misrepresenting financial information is unethical and could damage the company's reputation if discovered. Refusing the request may lead to strained relationships with top management or potential job insecurity if the loan is not approved.
4. Prioritize stakeholders and long-term sustainability: Ron should consider the interests of all relevant stakeholders, such as employees, shareholders, customers, and the general public. He should strive to make decisions that promote the long-term sustainability and reputation of the company, rather than short-term gains.
5. Seek legal and regulatory guidance: Ron should consult legal and regulatory requirements regarding financial reporting, as misrepresentation can have legal implications. Complying with these rules should factor into his decision-making process.
Ultimately, Ron should weigh the ethical considerations, the potential consequences, and the long-term impact on both the company and its stakeholders to make an informed decision. Additionally, documenting the discussions and decisions made in this process can help Ron justify his actions and protect himself in case any ethical or legal issues arise in the future.