ACME Company sells computer components and plans on borrowing some money to expa

Question

ACME Company sells computer components and plans on borrowing some money to expand. After reading a lot about earnings management, Bill, the owner of ACME, has decided he should try to accelerate some sales to improve his financial statement ratios. He has called his best customers and asked them to make their usual January purchases by December 31. Bill told the customers he would allow them, until the end of February, to pay for the purchases, just as if they had made their purchases in January. What do you think are the ethical implications of Bill

Explanation / Answer

I assume this question relates to borrowing the money to expand. It is not the most ethical approach, however, sometimes you have to do what you have to do. Problem is that if it's for a substantial amount of money the loan committee is going to compare Atlantis company's financial statements to prior periods

. If they notice a large discrepancy in sales between the current year and past years they are going to ask the company to justify the change. If they decide that Atlantis is cooking the books to get the loan you will not get the money. It depends on how much you are borrowing and how sharp the lenders are at financial analysis. It is probably not worth the risk, because if Atlantis does get the money Atlantis is probably borrowing over it head and over the long run won't be able to cover the debt service.

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