Your boss comes to you and asks you to defer recognizing certain expenses in thi

Question

Your boss comes to you and asks you to defer recognizing certain expenses in this period by capitalizing the expenditures as a depreciable asset. It has been rumored that your branch of the company has been doing poorly and is on an internal list for possible closings. A closing of your branch would mean your boss, yourself and 20 others would lose their jobs. However, a good quarter could mean that another branch will be closed instead. You know the expenditure is not an asset. Required: Assume the accountants and managers at the other branches on the list are faced with the same dilemma.

What actions do you believe they will take regarding this problem? What type of assumption(s) are you making about them in predicting their behavior?

Explanation / Answer

It appears that all the branches are under tremendoud pressure to maximize profits of their branch to avoid closure due to poor performance. Financial statements are good reflection of the financial performance of any unit. The branch head should focus more on increasing the upper line that is revenues in order to boost the performance. He may also look at any opportunity for cost reduction as well.

Resorting to unethical practices by doing an incorrect accounting is not a acceptable practice.

Ethics in accounting refers to how to make good and moral choices in preperation, presentation and disclosure of financial information. some of the primary examples where ethic issues are observed as as below:

Fraudulent Financial Reporting: it refers to misstatement of financial statements with the intent to mislead investers and maintaining the company's share price. This may boost up the stock price in short term but always have ill efects inlong run.

Misappropriation of Assets: it refers to use of company assets for a purpose other than in thr interest of the company. It includes stealing or embazzelement of company property/cash..eg booking personal expense in company financials or taking home office supplies for personal use etc.

Inappropriate disclosure in financials: example recording a transaction which is not in accordance with GAAP or faliure to disclose information to the investors which could change their decision of investing in the Company.

The Accountant should always follow the code of conduct guidance issued by the professional institutions and should not compromise the same under anypressure from the management.

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