Introduction
Accounting managers and their juniors make resolutions, which influence the daily operations and long-term productivity of their firms (Kimmel & Weygandt, 2011). As such, accounting personnel ought to be vigilant, unbiased, and abide by the ethical procedures when appraising financial records. The profession depends on approximations and judgment calls. In this regard, difficult scenarios can arise when two ethical persons differ on the approach to be utilized to address an ethical dilemma (Kimmel & Weygandt, 2011). Regularly, accountants experience ethical dilemmas that require them to be cautious to decrease the likelihood of external forces influencing financial registers (Arnold, 2013). The article below focuses on a managerial accounting ethics case study. The report will recognize pertinent shareholders and offer recommendations and justification for the commendations.
Case study
An accounting manager has been recently hired as Controller for Stanton Temperton Corporation (Thibodeau & Freier, 2011). The company leases building spaces in major cities. In the enterprise, clienteles are supposed to pay their rental fee six months in advance. Towards the end of the year 2015, Jim Temperton, the firm’s president has noted that their net profit has reduced compared with the year 2014’s returns. Last year, the company submitted a prior-tax profit of $330,000.0 (Thibodeau & Freier, 2011). However, this year’s the company will receive a prior-tax profit of $280,000.0. The performance worries the executive because it represents a reduction in returns. The president believes that a drop in the firm’s profits will weaken investors’ confidence in the company. They will notice a flaw in the corporation and begin to sell off their shares (Thibodeau & Freier, 2011).
After a thorough analysis, the president has noted that there were balances of unearned revenue amounting to $120, 000 (Thibodeau & Freier, 2011). The balance represents expenses in advance for long-term clients. The president wants the funds to be recognized as revenues earned in the year 2015 (Thibodeau & Freier, 2011). However, the accounting manager objects to the decision because he believes that the balances should not be submitted as revenues earned this year. The accounting manager believes that the balances should be entered as liabilities. According to him, by accepting to be paid six months in advance the company has signed a legal contract with its customers to deliver on the conditions of the transactions (Thibodeau & Freier, 2011). Therefore, these funds should be recognized as liabilities up to the time they will be earned. As a professional, the public relies on the accounting manager’s analysis to come up with decisions affecting their retirement, education, and major purchases (Thibodeau & Freier, 2011). If the president and the accountant manager come up with an appropriate decision, they will jeopardize their careers, investors’ savings, and the public trust.
Stakeholders
The issue distresses many parties. The problem affects the company’s stakeholders, customers, employees, the president, and the accountant manager (Thibodeau & Freier, 2011). As indicated above, if the firm records a drop in revenues this year the stakeholders will withhold their funding. In such situations, the company will suffer huge losses. In addition, the president’s assets and business-operated retirement plan will be at risk of heavy losses. The issue will also result in huge damages for the company. Both the president and the accountant manager will also be affected because by agreeing to enter an appropriate transaction, they will jeopardize their careers. The accountant’s professional regulatory body may withdraw his accreditation if found guilty of committing the offense by making the wrong decision.
Ethical dilemma
Regarding the above illustrations, it is clear that both the accounting manager and the president are facing many ethical dilemmas. They have to decide between entering the unearned revenue amounting to $120, 000 as liabilities or profits. The president wants the balances to be recognized as returns. On the other hand, the accounting manager wants the revenue to be acknowledged as liabilities. Given that the accountant manager is responsible for all accounting practices, he has to decide between obeying the president’s instructions and abiding by what he believes are the required standards needed for his profession. If he fails to abide by the executive’s direction, he may lose his job. On the contrary, failure to acknowledge the returns as liabilities will result in a reduction in profits and key shareholders. Therefore, if he abides by the president’s advice, the company will record an increase in profits. Through this, the president will receive a boost in his stock and hefty retirement plans. However, the decision may affect the company’s financial situation in the future. Similarly, accounting principles require the accounting manager to acknowledge the returns as liabilities because they represent the money yet to be earned.
Recommendations and justifications
The accounting manager should consider several factors before coming up with a decision. During the decision-making process, he will be required to deliberate on many aspects. He should evaluate if the directive breaches ethical behaviors. Equally, the accountant should assess the repercussions of agreeing to the president’s command. As such, he should deliberate on the effect of the directive on the company’s long-term revenues. Equally, he should consider the impact of the action on the customers and the shareholders. He should also consider seeking advice from other accountant professionals and regulatory bodies. Before doing so, he should deliberate on the costs of reporting the issues.
Because the directive contradicts the required accounting principles, he should not abide by the president’s directive. As such, he should enter the balances of unearned revenue amounting to $120, 000 as liabilities. According to accounting principles, by agreeing to receive early payments the corporation has signed an authorized contract with its clients to deliver on the conditions of the dealings (Mintz & Morris, 2008). Therefore, the corporation is required to acknowledge these sums of money as liabilities until six months elapse from the time they were earned. The accounting manager should not follow the president’s directive. Through this, the company will report a drop in revenues. Therefore, the company should acknowledge that this year’s profits have fallen than fake the financial records to impress the shareholders at the expense of the firm’s future financial viability. If the manager reports the accounting evaluations as it is, the company will be in a position to adopt approaches to ensure that the business regains its financial ability witnessed in the last few years.
Conclusion
In conclusion, it should be noted that accounting personnel ought to be alert, unbiased, and loyal to ethical procedures when appraising a businesses’ financial records. In the above case, the accounting manager should not follow the directive of the president. As such, he should enter the balances of unearned revenue as liabilities.
References
Arnold, D. (2013). Ethical theory and business (9th ed.). Boston: Pearson Education.
Kimmel, P., & Weygandt, J. (2011). Accounting: Tools for business decision making. Hoboken, N.J.: Wiley.
Mintz, S., & Morris, R. (2008). Ethical obligations and decision making in accounting: Text and cases. Boston: McGraw-Hill/Irwin.
Thibodeau, J., & Freier, D. (2011). Auditing and accounting cases: Investigating issues of fraud and professional ethics (3rd ed.). New York: McGraw-Hill Irwin.