Ethics in Accounting
Ekaterina KouprianovaI am the assistant controller in charge of general ledger accounting at Linbarger Company. Linbarger is currently facing an accounting issue where we are supposed to maintain a cash account balance of $200,000 or more or the company defaults on a large loan from an Insurance company.
What is the accounting problem the Linbarger Company faces?
The Linbarger company faces the accounting problem of Cash Management, we are not maintaining a cash account balance of $200,000 or more. This means the company is doing most of their business on an account basis rather than a cash basis.
What are the ethical considerations in this case? Provide rationale for why these are ethical considerations.
The ethical considerations in this case are 1, holding the cash books open past the date it is intended to be closed out to overstate the cash balance. 2, willful errors that are calculated to disguise the real balance is fraud (Holtzman, 2014). These are ethical considerations because they are fraudulent and the financial Vice President, Lisa Infante knows it is wrong and still orders me to keep the cash books open.
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?
There are several negative impacts that could happen if I don’t follow Lisa Infante’s instructions to wait one more day to post the balance. 1, If I do not do what I am told to do I could be fired and 2, If I do not do what I am asked to do, the business could default on the loan and I could still be out of a job.
Who will be negatively impacted if you do comply? Provide a rationale for why these individuals will be impacted.
The people that will be negatively impacted if I do not comply are myself, Lisa Infante, and the Linbarger Company. These individuals will be impacted because the business will default on the loan and the business could be shut down causing myself and Lisa to be out of a job.
What is one alternative that you could pursue in this scenario? Support your recommendations with information you learned in this class.
One alternative I could pursue in this scenario would be to contact the insurance company and discuss the problem at hand and be honest. I would inform them of the check in transit but let them know I need to close the cash books today even though I have not received the check in transit. Being honest with the loan company can go a long way. It will let them know you are trustworthy and worthy of their business. The company should also consider an agreement revision if it feels it can not maintain the $200,000 terms.
I feel there are many ways of ensuring the Linbarger Company meets its requirements for the loan if it plans ahead each month. If the company offers a discount for customers who pay within a certain amount of days, or a discount for customers that pay cash, they will be more eager to pay their balances off quicker in order to save themselves some money.
The Vice President was ethically wrong for asking me to hold the books open knowing it is fraudulent and I basically have no choice in the matter because if I don’t do what she says I can get fired, If I do what she asks, and there is an audit, I can still potentially lose my job. Honesty is always the best policy and its easier to work a situation out with a company you are being honest with instead of one you are being dishonest with.