It is worth noting that any company should deliver reliable information and provide quality services to its clients and partners. Fundamental ethical principles in accounting are confidentiality, provision of services following technical standards, honesty, and transparency. Careless attitude to the performance of duties and errors or misrepresentation of data in accounting lead to financial problems for the company and loss of the professional reputation of the organization and its employees. The purpose of this paper is to discuss the case of the Linbarger Company and the ethical dilemma it has faced.
Accounting Problem
The company discussed in the prompt has faced several accounting problems, which are linked to cash managing and not closing a temporary account at the end of the period (Weygandt, Kimmel, & Kieso, 1, p. 23). In particular, according to the description, the company is supposed to keep the balance of the client at the level of $200,000. However, the assistant controller finds that the cash balance is $80,000, which implies that the company is the default on the loan.
Apart from that, the financial vice president requires the controller to maintain the receipts account open for one more day so that the organization receives the incoming $150,000. The problem lies in the fact that Lisa Infante understands that, in this case, the temporary account will be still open at the end of the accounting period. The enterprise should ensure proper planning and receipts-payments coordination to prevent such situations. Importantly, they could have considered some short-terms cash funding strategies to be included in the agreement.
Ethical Considerations
The ethical considerations raised in this case are linked to the conduct of the financial vice president. She asked the assistant controller to hold the cash receipts book open to ensure that the client did not know that the company was unable to meet its obligations. The attempt to mislead the customer due to the company’s inability to generate the necessary amount of cash is unethical and deceitful (Weygandt et al., 1, p. 13).
Moreover, the vice president must not encourage other employees to support her unethical behavior. Importantly, periodicity in accounting implies that books need to be closed uniformly. That is, the receipts of July 1-2 may not be included in the previous period because they are not revenue that occurred in June. The vice president asks the controller to commit a cumulative error to cover for the mistakes made previously, which is unethical and fraudulent.
Negative Impacts
If the controller does not follow Lisa Infante’s instructions, the negative consequences are quite likely to occur. In one scenario, the organization will be unable to meet its obligations and will default on the loan agreement concluded with the insurance company. In this case, the enterprise may be closed down, and employees will lose their jobs. In another scenario, the controller’s disobedience may be regarded as insubordination and may lead to termination. Therefore, Lisa Infante shifts this responsibility so that it is for the controller to decide how to act further. However, it should be noted that the greatest negative consequence is defaulting on the loan.
Accounting is an area that requires the greatest degree of responsibility (Weygandt et al., 1, p. 13). Linbarger Company cannot commit fraud to satisfy the needs of one customer or partner as it is the obligation of the entire team and accountancy, in particular, to act in the public interest. Therefore, it can be stated that by accepting the request of Lisa Infante, the main ethical domain of the accountancy profession will be undermined.
Affected Parties
If the controller does comply with Lisa Infante’s request, then all the stakeholders of the enterprise will be affected. Importantly, the insurance company will be impacted as well because of the unethical conduct. The main reason why the stakeholders will experience a negative output is quite understandable since fraud may never be considered an option (Weygandt et al., 1, p. 23). Apart from that, if the authorities or shareholders learn about the falsification of books, the company may go bankrupt, and the stakeholders will lose all the money they have invested.
Alternatives
The alternative solution to resolve the situation is, to be honest and arrange an urgent meeting with the insurance company. The management of the organization should inform the client about the problem that has occurred and discuss the possible course of action (Weygandt et al., 1, p. 17). In one scenario, the company may need to pay a penalty that is likely to accrue due to the violation of the agreement. In another scenario, the two sides may agree on a one-time by-pass. It will allow the two companies to renegotiate the loan terms to make them more realistic. This way, the management will prove that Linbarger Company is an ethical organization that values and encourages transparency, honesty, and integrity, which will allow building trust and confidence.
Concluding Points
Thus, it can be concluded that Linbarger Company has faced an ethical dilemma that may be aggravated by the actions of the financial vice president. If the enterprise decides to commit fraud, it will not only affect its reputation but may result in the loss of job for many people and even bankruptcy. The best solution is to remain honest and discuss the issue with the client so that the company can either pay the penalty or reconsider the terms of the loan while also saving its image.
Source
- Jerry J. Weygandt, Paul D. Kimmel, & Donald E. Kieso, D. 2018. Accounting Principles, Vol. 1, 13th Ed. This is ACC 100 textbook.