For this assignment, you will READ Case 9.2. ONLY. Then respond to the TWO classmate responses below. Case 9.2, Departures from GAAP—Are They Ethical? Martin Myers owns Myers Construction Co. The company maintains accounting records for the purposes of exercising control over its construction activities and meeting its reporting obligations regarding payrolls and income tax returns. As it has no other financial reporting obligations, Myers does not prepare formal financial statements. The company owns land and several other assets with current market values well in excess of their historical costs. Martin Myers directs the company's accountant, Maureen O'Shaughnessey, to prepare a balance sheet in which assets are shown at estimated market values. Myers says this type of balance sheet will give him a better understanding of where the business stands. He also thinks it will be useful in obtaining bank loans, as loan applications always ask for the estimated market values of real estate owned. 1. Would the financial statements requested by Martin Myers be in conformity with generally accepted accounting principles? 2. Is Myers Construction under any legal or ethical obligation to prepare financial statements that do conform to generally accepted accounting principles? 3. Discuss any ethical issues that O'Shaughnessey should consider with respect to Myers's request. TWO CLASSMATES HAVE ANSWERED THE THREE QUESTIONS, WHICH ARE LOCATED BELOW. NOW RESPOND TO THE TWO CLASSMATES POST 1. KEYSIA POST Considering the factors posed in the case study for Myers Construction company it can be clearly determined that the financial statements that Martin Myers of the requested would not typically conform to the Generally Accepted Accounting Principles (GAAP). The “fair market value” would be considered as the price someone would be willing to pay but these values cannot be used or listed on the balance sheet (Merritt/Zacks.com). The value of the land would need to be listed on the balance sheet for cost not the market value. Any other assets would need to also be listed for cost and depreciation costs as well in the financial statements. Secondly, Myers Construction is legally and ethically obligated to prepare financial statements that conform to GAAP (Williams, et. al. p 17). The business needs to follow the standard accounting practice in financial reporting because in doing business, applying for loans and servicing customers. There is an integrity issue with operating or following practices outside of the accepted accounting standards when it relates to financial reporting information. Finally, O’Shaughnessy would have an ethical dilemma that she would need to make a decision on following the request of Myers and preparing the financial statements as requested by not following the standard accounting practice of using the cost of assets. This would be a personal integrity matter that O’Shaughnessey would need to decide on completing or not. 2. Claribel Post After carefully analyzing this case, I offer the following responses: The financial statements requested by Martin Myers would not be in conformity with generally accepted accounting principles (GAAP). According to Williams, et al. 2012, p. 387, it is stated that lands have to include the purchase price plus all the expenditures acquired at the time of the purchase should be included in the cost of the land. In any circumstances should a company report in a balance sheet or any other financial statement the market value of its assets. Indicating a market value of assets in financial statements would cause a company to provide false information. However, Martin Myers can obtain a document showing the current market value of its assets if he plans on obtaining a loan in the future, but always declare purchase price and total expenditure of assets at the time of preparing financial statements. “Federal securities laws require publicly owned companies to prepare financial statements in conformity with GAAP” (Williams, et al, 2012, p. 7). According to this, Myers Construction is not under any legal or ethical obligation to prepare financial statements under generally accepted accounting principles. Only publicly owned companies have to prepare financial statements under GAAP. However, it is recommended for companies to prepare financial statements for decision making and for other practical necessities, such as visualizing the position of the company and to make sure the company is running as expected. When preparing financial statements under GAAP , companies have a better look of the company and determine how profitable the company is. This can be done as often as it is necessary. O’Shaughnessey should consider any chances of committing fraud by providing misleading information on the balance sheet, only if the document would be use to be presented to an outsider, for example to obtain a loan. Even though he is only following Myers request, he can face some legal issues for preparing financial statements under this way. However, if the financial statement is being prepare only to be use in the company, such as for Myers to have a better look at the company, there would not be any ethical issues in preparing the financial statement. Also, if the statement is being prepared with market values and presented to an outsider, then the outsider has to know that GAAP was not followed. Therefore, Myers Construction can prepare its financial statements following its own rules if these are going to be used by internal users only.
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