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 scenario presents an ethical dilemma for Ron, the Controller for Anderson Electric. He is tasked with reviewing the year-end adjusting entries, and the company president, Angela Bennett, has suggested delaying the accrual for wage expense from December to January to inflate the net income for the year. The motive behind this suggestion is to present a healthier financial picture to the bank when seeking a loan, with the hope of getting a lower interest rate.
Ron is unsure whether he should comply with Angela's request. On one hand, he understands the importance of obtaining the loan to sustain the company's operations and maintain employee salaries. On the other hand, he recognizes that manipulating financial statements in order to misrepresent the company's true financial position is unethical.
To navigate this ethical dilemma, Ron can take the following steps:
1. Understand the ethical obligations: Ron should familiarize himself with the relevant ethical guidelines and professional codes of conduct that govern his role as a controller or accountant. These guidelines often emphasize the importance of accuracy, transparency, and integrity in financial reporting.
2. Evaluate the consequences: Ron should consider the potential consequences of complying with Angela's request. If the company's true financial position is misrepresented, it may lead to adverse outcomes in the long run, such as breaching loan agreements or damaging the company's reputation.
3. Seek guidance and advice: Ron should consult with his superiors, such as the CFO or other members of the executive team, to discuss the ethical concerns raised by Angela's request. They may provide guidance on how to handle the situation and address any potential conflicts of interest.
4. Communicate concerns: Ron should express his ethical concerns to Angela, explaining the potential consequences and risks associated with manipulating financial statements. Open communication is crucial in resolving ethical issues and fostering a culture of integrity within the organization.
5. Explore alternative solutions: Ron can propose alternatives to Angela that align with ethical principles and still meet the company's objectives. For example, he could suggest exploring other avenues to improve the company's financial position, such as cost-cutting measures or revenue-boosting initiatives.
6. Document the decision-making process: Regardless of the outcome, it is essential for Ron to document the discussions, decisions, and rationale behind his actions. This will serve as evidence of his ethical considerations, should there be any future inquiries or audits.
Ultimately, Ron should prioritize his ethical obligations as an accountant and act in the best interest of the company and its stakeholders. By engaging in open dialogue, seeking guidance, and proposing viable alternatives, he can navigate this ethical dilemma while upholding his professional responsibilities.