Description
Assignment: Ethics in Accounting
Due Week 9 and worth 120 points
Effective financial reporting depends on sound ethical behavior. Financial scandals in accounting and the businesses world have resulted in legislation to ensure adequate disclosures and honesty and integrity in financial reporting. A sound economy is contingent on truthful and reliable financial reporting.
Instructions:
- Read the following scenario.
- Answer the questions that follow. Your answers should result in a 2-3 page submission.
- Reference back to your text book for guidance on how to think through the scenario.
Scenario:
Imagine you are the assistant controller in charge of general ledger accounting at Linbarger Company. Your company has a large loan from an insurance company. The loan agreement requires that the company’s cash account balance be maintained at $200,000 or more, as reported monthly. At June 30, the cash balance is $80,000. You give this update to Lisa Infante, the financial vice president. Lisa is nervous and instructs you to keep the cash receipts book open for one additional day for purposes of the June 30 report to the insurance company. Lisa says, “If we don’t get that cash balance over $200,000, we’ll default on our loan agreement. They could close us down, put us all out of our jobs!” Lisa continues, “I talked to Oconto Distributors (one of Linbarger’s largest customers) this morning. They said they sent us a check for $150,000 yesterday. We should receive it tomorrow. If we include just that one check in our cash balance, we’ll be in the clear. It’s in the mail!”
Questions
- What is the accounting problem that the Linbarger Company faces?
- What are the ethical considerations in this case? Provide rationale for why these are ethical considerations.
- What are the negative impacts that can happen if you do not follow Lisa Infante’s instructions to wait one more day to post the balance?
- Who will be negatively impacted if you do comply? Provide a rationale for why these individuals will be impacted.
- What is one alternative that you could pursue in this scenario? Support your recommendations with information you learned in this class.
Explanation & Answer
Attached.
1. The main accounting problem that the Linbarger Company is going to face if they do
not maintain a cash balance above $200,000 by June 30 is that their loan from the
insurance company will be in danger of being jeopardized. As stated in the scenario,
the Lindbarger Company will have to default on their loan agreement if by the end
of this month they do not have at least a $200,000 cash balance.
2. In accounting, there are three main reasons why individuals and corporations
commit fraud. These three reasons —Pressure, Opportunity, and Rationalization —
are accurate displayed by something known as the Fraud Triangle. This triangle
correctly depicts and accurately divulges into these reasons, further explaining each
one in depth. Going off of that, one ethical consideration brought up in the case
includes the decision about whether or not to commit fraud, in an effort to decision
the insurance company. While it is never okay to commit fraud and even more so, go
against the standards set by GAAP, this scenario ends it’s story implying that fraud is
li...
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